Proprietary traders’ share of equity options trading on the National Stock Exchange (NSE) dropped to its lowest level in 22 months in August, with average daily premium turnover falling 15.7% month-on-month to ₹42,332 crore, according to livemint.com. The decline reflects tightening funding norms imposed by the Reserve Bank of India (RBI) and changes in the client adjustment system (CAS).
The fall in proprietary volumes followed RBI’s introduction of stricter funding curbs that limit leverage available to proprietary traders. The CAS review mechanism, which adjusts client positions to reduce risk, also impacted trading activity. The BSE, which does not provide proprietary trading data, experienced an even sharper decline in overall volumes during the same period, indicating a broader market impact, livemint.com reported.
This decline in proprietary trading volumes is significant as these traders historically contributed a substantial share of liquidity in equity options markets. The drop to a 22-month low highlights the effects of regulatory tightening on market participation. Compared to previous periods, the current environment has reduced speculative activity, which could influence price discovery and market efficiency in derivatives trading.
The NSE’s August data underscores the ongoing adjustments in India’s equity derivatives market amid evolving regulatory frameworks. The next official monthly market activity report, expected in mid-October, will provide further clarity on the trend in proprietary trading volumes and overall market liquidity, according to livemint.com.