Prop traders lose ground on NSE as auction changes bite

What changed on the NSE

If you trade India's options powerhouse, you felt this. Proprietary traders' share of daily futures and options notional value slid to 54.7% in August, the lowest since December 2022, on a total of 193 trillion rupees in turnover. Exchange figures run through August 2026. In November 2024, the proportion was roughly 62%, coinciding with the watchdog's push to clamp down on speculative trading.

Why pro desks are pulling back

The rulebook has tightened on several fronts. July brought fresh restrictions on banks' financing of prop trading. Then the exchange rolled out a new closing auction on Aug. 3 that has not drawn enough participants. With a 20 minute window and a single clearing price, opportunities for market making and arbitrage have been squeezed, thinning liquidity and magnifying price swings in both cash stocks and derivatives.

At HST Wealth, a research firm where he is the chief executive officer, Hariselvan Radhakrishnan said, "The days of prop desks dominating NSE options turnover are behind us." He cited caps on weekly contracts, stricter leverage rules from the central bank, and heightened oversight as factors that have increased the expense of high-turnover strategies in India.

Regulatory shifts remind investors that vigilance helps protect and grow long term savings. Join Briefs Finance CEO Jaspreet Singh on September 29th for a FREE live investor workshop, How to Profit From A Dollar That's Losing its Value, where he shows how we're spotting investment opportunities as the dollar falls. Save your spot.

Where it's showing up

The pullback is not just in derivatives. In cash stocks, prop traders' turnover share fell 172 basis points from July to August, and the retail slice climbed by 53 basis points to 33.5%, the exchange said. For high frequency players that depend on tight spreads, brisk turnover and rapid position resets, tweaks to auction mechanics, order cancellation rules and settlement can swing strategy profitability fast.

What regulators are weighing and why it matters

SEBI is already considering adjustments. On Sept. 12, the watchdog floated revisions to the closing auction design - among them a potential reversion to the prior approach to settling derivatives on expiry days - following concerns over abrupt price swings. It asked for public comments by Oct. 3.

For everyday investors, the takeaway is simple: when market plumbing changes, who supplies liquidity and how prices behave near the close can shift too. That can affect the fills you get, especially around the close and on expiry days.

When market structures change, steady planning keeps your financial goals on course. Our CEO Jaspreet Singh is hosting a FREE live investor workshop, How to Profit From A Dollar That's Losing its Value, on September 29th. Sign up free to join him live.