The Securities and Exchange Board of India (SEBI) has paused plans by the National Commodity and Derivatives Exchange (NCDEX) and the Metropolitan Stock Exchange (MSE) to offer equity derivatives. The move is part of the regulator’s effort to ensure that new exchanges first develop strong and liquid cash equity markets before venturing into derivatives trading.
Both NCDEX and MSE had applied to enter the equity market last year, seeking approval to list shares and launch options and futures contracts. SEBI, however, has told them to focus on building a robust cash market first. Officials indicated that the regulator wants these exchanges to demonstrate sufficient liquidity, price discovery, and trading activity in cash equities before allowing more complex derivatives products.
Both exchanges have been preparing for this expansion. NCDEX raised around ₹770 crore from domestic and foreign investors, aiming to diversify beyond agricultural commodity contracts. MSE secured roughly ₹1,200 crore from private equity and brokerage backers to strengthen its technology platform and infrastructure. Despite these efforts, SEBI wants them to prove their readiness in cash equities first.
The regulator has also emphasized technology upgrades as a prerequisite for derivatives trading, underscoring the importance of market stability and investor protection. This move comes amid increasing caution around derivatives, following recent government steps such as raising Securities Transaction Tax (STT) on futures and options to curb excessive speculation.
Sources say SEBI prefers a gap of at least six months between starting cash trading and offering derivatives. The decision reflects broader concerns in the Indian market, where derivatives trading is already nearly double the size of the underlying cash equity market, a figure much higher than international standards.
SEBI’s directive signals that while new players are welcome, they must first ensure a solid foundation in the cash segment before entering the fast-moving derivatives market. For now, established exchanges like the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE) remain the primary platforms for equity and derivatives trading.
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