In late 2024, a senior official from Securities and Exchange Board of India signaled a surprising shift in tone, telling investors in Mumbai that India had no desire to remain the world’s largest derivatives market. “This is a crown we don’t wish to wear,” said Ashwani Bhatia, then a board member of the regulator.

The warning has since been followed by action. Ten days ago, the Reserve Bank of India restricted lending to stockbrokers and proprietary traders, targeting the leverage that had powered rapid expansion in derivatives trading. By the end of 2025, average daily notional turnover in the segment had climbed to $5.2 trillion. A series of tightening measures — along with scrutiny of Jane Street Group’s trading activity — now threatens to slow volumes and temper the ambitions of high-frequency trading firms.

Concern in New Delhi has intensified after the RBI warned that excessive leverage could trigger market turmoil and strain household finances. A SEBI study showed retail investors lost $33 billion in derivatives over the four years through March 2025. Finance ministry officials have reportedly received complaints from families facing heavy losses and worry that some tax relief and welfare support may have been diverted into speculative trades. Major global trading firms — including Jane Street Group, Citadel Securities, Jump Trading and Optiver — have expanded their Indian presence in recent years, drawn by the country’s booming options market.

The impact of the crackdown is already visible. Trading volumes declined last year for the first time since 2016, after peaking above 150 billion contracts. Some high-frequency firms are now reconsidering further investment in India, a market that gained global attention after Jane Street disclosed $1 billion in profits two years ago.

Industry participants say the recent restrictions — including tighter broker lending rules and a February 1 tax increase on equity derivatives — add to sweeping curbs introduced in late 2024 to cool speculative excess. While regulators appear willing to accept slower growth, executives at trading firms privately warn that India may become less central to global strategies.

The RBI has framed its lending restrictions as a safeguard for banks amid global volatility. Policymakers fear that in a sharp downturn, trading losses amplified by credit lines and unsecured loans could spill into household budgets. As of March 31, 2025, household debt stood at roughly 41% of GDP, with nearly a quarter of household financial assets invested in equities and mutual funds.

Ananth Narayan, a former SEBI director who led the investigation into Jane Street’s India trades, noted that retail losses had approached the scale of total net inflows into equity mutual funds. In his view, savings that might have supported long-term investment were instead absorbed by short-term speculation. Jane Street has denied any wrongdoing.

Since the pandemic, more than 100 million new investors have entered India’s $5.2 trillion equity market, many lured by stories of rapid gains from options trading. Opening brokerage accounts has become easier, credit is widely accessible, and digital payment systems have facilitated small loans. However, much of the activity has centered on short-term options — highly volatile instruments that frequently leave retail participants with losses. Analysts say regulators are trying to rein in risk by making leverage more expensive and raising taxes before vulnerabilities escalate. Early evidence suggests the measures introduced since November 2024 are having an effect, with volumes in some segments falling by 50% to 60%.

Despite the slowdown, India remains the world’s largest venue for listed derivatives trading. Combined volumes on National Stock Exchange of India Ltd. and BSE Ltd. reached 59 billion contracts last year, according to data from Futures Industry Association Inc.. Global high-frequency firms still reported strong profit growth for the year ended March 2025, with Indian units of Jane Street and Hudson River Trading among the leaders.

However, pressure is building at the NSE, the exchange that fueled the boom, as both volumes and profits decline ahead of its planned public listing. Kanika Pasricha, chief economic adviser at Union Bank of India, described the regulatory steps as sensible efforts to rein in excessive risk-taking. Sometimes, she said, ambition must be tempered to ensure more durable and sustainable growth.