India's burgeoning derivatives market is attracting significant interest from global trading firms, extending beyond the well-known presence of Jane Street. This surge in interest is fueled by the market's impressive growth and potential for high returns, despite increasing regulatory scrutiny.

The Allure of India's Derivatives Market

India has rapidly become the world's largest equity derivatives market, transitioning from a minor player in just five years. This growth is largely attributed to the introduction of weekly expiring contracts in 2019, which replaced traditional monthly expirations. In the second quarter of 2024, over 36.8 billion equity index options were traded on India's National Stock Exchange (NSE) and BSE India, more than double the volume traded in the same period in 2023. This figure accounted for over two-thirds of all futures and options traded globally across all exchanges. The notional turnover in futures and options trading reached $6 trillion in February 2024, a six-fold increase since early 2022. Much of this turnover is generated from trading on the NSE, which has experienced rapid expansion in equity index options trading.

Several factors contribute to this explosive growth. A significant portion of the demand comes from retail investors, whose participation in derivatives trading has surged from 2% in 2018 to 41%. The COVID-19 pandemic played a role, as millions worked from home and sought new investment opportunities. A strong Indian stock market, the rise of mobile trading apps, and readily available online trading content have further fueled this surge.

Global Firms Expand Their Footprint

The success of Jane Street, which generated over $2.3 billion in net revenue from equity derivatives in India in 2024, has caught the attention of other major global trading firms. Citadel Securities, IMC Trading, Optiver, and Millennium are aggressively expanding their presence in the Indian derivatives market. These firms are drawn to India's deep retail investor base and strong domestic demand, which make it a lucrative and relatively insulated market amid geopolitical uncertainty.

IMC Trading plans to increase its India headcount by over 50% by 2026, targeting a team size of more than 150. Optiver, which entered India in 2024, is on track to grow its team to 100 by the end of 2025. Citadel Securities has quietly built a team of around 10 professionals, including a recently appointed COO and trading head. Millennium is expanding its India exposure through hubs in Dubai and Singapore, while firms like Da Vinci and Qube Research are actively hiring for quantitative roles.

This influx of global firms has led to a hiring spree, with over 300 professionals recruited across trading, compliance, risk, technology, and legal functions in the past two years. Salaries have surged, with junior traders now earning more than twice what they did three years ago. While firms initially focused on hiring from top Indian Institutes of Technology (IITs), they are now broadening their recruitment to include other universities.

Tech Upgrades and Regulatory Scrutiny

To support the growing demand from high-frequency and quant trading firms, India's exchanges are enhancing their technological capabilities. The NSE plans to add 2,000 co-location server racks over the next two years. The BSE aims to install 500 racks by fiscal 2026, investing between ₹4.5 billion and ₹5 billion over the past two years to support this infrastructure expansion. These server racks reduce trade execution times to microseconds, crucial for high-frequency trading.

However, the rapid growth of the derivatives market has also raised concerns among regulators about potential risks to financial stability and the safety of retail investors. The Securities and Exchange Board of India (SEBI) has implemented measures to protect retail investors, such as raising minimum investment limits and lot sizes in equity options. SEBI's concerns stem from the high percentage of retail traders who lose money in the derivatives market.

Recently, SEBI barred Jane Street Group from accessing the Indian securities market and ordered the seizure of ₹4,843 crore (over $560 million) in alleged unlawful gains. SEBI accused Jane Street of manipulating stock indices through derivative positions, misleading retail options traders. This action sends a strong message to other foreign entities involved in aggressive trading strategies and may lead to a drop in derivative market volumes as other traders become more cautious.

Despite increased regulatory scrutiny, global trading firms are expected to continue vying for a piece of India's lucrative derivatives market. The market's growth potential, driven by a large retail investor base and increasing technological sophistication, remains a strong draw for these firms.