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Proprietary traders’ share of equity derivatives turnover has fallen to the lowest level in almost four years at the National Stock Exchange of India Ltd., as problems with the closing auction mechanism add to an increasingly restrictive trading environment.Their share fell to 54.7% of the 193 trillion rupees in notional daily futures and options turnover in August, the lowest level since December 2022, according to bourse data. The proportion was about 62% in November 2024, just as the market regulator introduced sweeping curbs to check speculative trading.The closing auction system has struggled to attract enough players since its launch on Aug. 3. The resulting thin liquidity has amplified price swings in both cash equities and derivative contracts, weighing on activity of professional trading desks. The 20-minute window and the single-price mechanism have also limited opportunities for market-making and arbitrage. The disruption comes on top of new curbs on bank funding for proprietary trading that took effect in July.“The days of prop desks dominating NSE options turnover are behind us,” said Hariselvan Radhakrishnan, chief executive officer of research firm HST Wealth. Regulatory limits on weekly contracts, tighter central bank rules on leverage and greater regulatory scrutiny, have made high-turnover strategies more expensive to run in India, he said.The retreat is also showing up in cash equities, where proprietary traders have lost ground to individual investors. Their share of turnover fell 172 basis points month-on-month in August, while retail investors’ share rose 53 basis points to 33.5%, according to exchange data. For high-frequency firms that rely on turnover, tight spreads and rapid position adjustments, changes to auction mechanics, order-cancellation rules and settlement can affect the profitability of individual strategies.The closing auction rules may change again. The Securities and Exchange Board of India on Sept. 12 proposed changes to the framework, including a possible return to the previous method for settling derivatives on expiry days, after concerns emerged over sharp price swings. The regulator has sought public comments by Oct. 3.©2026 Bloomberg L.P.This article was generated from an automated news agency feed without modifications to text.
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