India’s derivatives market experienced a significant downturn in August, with average daily contracts plummeting by 23 per cent to a 13-month low, as new regulatory measures like higher STT and increased collateral requirements took full effect.
Photograph: Francis Mascarenhas/Reuters
Key Points
- Average daily contracts traded in derivatives fell by 23 per cent in August to 224 million, marking a 13-month low.
- The decline is primarily due to regulatory changes, including increased Securities Transaction Tax (STT) and enhanced collateral requirements.
- A new closing auction session introduced in early August also contributed to the market’s adjustment period and affected options trading.
- Despite the overall market cooling, individual investors increased their market share in equity derivatives notional turnover to 32.9 per cent.
- Mobile-based trading platforms gained traction, accounting for 19.8 per cent of total index futures turnover, while colocation facilities saw a decline.
The market-wide average daily contracts traded in derivatives fell 23 per cent in August to about 224 million, the lowest in 13 months.
Overall trading activity across the equity derivatives segment contracted for the third consecutive month as regulatory changes, including a higher securities transaction tax (STT) and enhanced collateral requirements, took full effect.
The regulator also rolled out a closing auction session in the first week of August, and the market is yet to adjust to the change.
This has had a big effect on options trading.
Impact on Investor Participation
Yet individual investors continued to gain market share in the equity derivatives segment despite an overall cooling in derivatives turnover, driven by regulatory interventions and recalibrated contract sizes, according to the latest data from the National Stock Exchange (NSE).
In its September Market Pulse report, the exchange revealed that individual investors’ share of overall equity derivatives notional turnover rose to 32.9 per cent in August 2026, up from 29.9 per cent during the corresponding period a year ago.
Data shows that traders who participated in both the cash and derivatives segments are not taking much interest in derivatives and are moving out of the segment.
On the other hand, the number of pure derivatives traders is on the rise.
Over the past year, this number has increased from 2 million to 2.1 million.
Since 2016, there has not been a single year in which this number has fallen.
Over the same period, cash-market participation rose to 35.85 million.
The number of traders participating in both segments fell to 6.32 million from 8.88 million in 2024.
Declining Turnover and Shifting Trends
Trading activity on the NSE declined for the third month in a row in August across both equity cash and equity derivatives, with the decline much sharper in the latter.
Average daily turnover (ADT) in the equity cash segment fell 0.6 per cent month-on-month (M-o-M) to Rs 1.2 trillion in August. Equity futures ADT slipped 9.9 per cent M-o-M and 17.3 per cent year-on-year (Y-o-Y) to Rs 1.22 trillion in August, marking a 33-month low.
Simultaneously, equity options premium turnover moderated considerably, falling 15.7 per cent sequentially and 10.6 per cent Y-o-Y to Rs 42,332 crore.
The shift towards mobile-based trading technology gained further thrust.
Mobile-based trading platforms accounted for 19.8 per cent of total index futures turnover in August, rising from 16.4 per cent a year earlier.
In contrast, colocation facilities’ contribution to index futures turnover declined to 40.2 per cent from 44.3 per cent a year ago.
Index-Linked Contracts and Trade Size
The pullback was particularly pronounced in index-linked contracts.
Despite the decline in volumes, the average trade size for index futures jumped 72 per cent to Rs 24.4 lakh compared with October 2024 levels, even as overall index futures trading value slumped 60 per cent to its lowest level in more than a decade.
Average daily premium trading values for index options also fell 43 per cent to a four-year low, pointing to a broad-based cooling in index derivatives activity.