Mumbai, INDIA — The story, in one sentence, is that India built the largest options market on the planet on the strength of its most enthusiastic customers, and then ran the numbers and discovered the customers were losing. It is the story, in three sentences, that India built it, the customers were losing, and the regulator’s response was to triple the size of the minimum bet — a move that, in the language of the people losing, can be described, generously, as “not the fix.”

In just five years, India went from a small player in equity derivatives to the world’s largest, processing more options contracts in a day than all American exchanges combined. A long-form on the boom and the bust lays out the engine: budget smartphones, dirt-cheap data, and discount brokers that cut the price of a bet from “a thing you plan” to “a thing you do on the train.” The market, at its peak, was clearing around $5.5 trillion a day in instruments that are, by the regulator’s own later reckoning, a way to lose money quickly.

The regulator, SEBI, has long known the second sentence. Its own research — reiterated as recently as this year — found that nine out of ten individual futures-and-options traders were losing money, at an average of about 128,000 rupees a year. The market was not a casino with a house edge. The market was a house edge, and the house had installed free wifi.

"The minimum bet used to be small enough that the mistake fit inside a month. Now the mistake fits inside a marriage."

So SEBI made the truck, as one analyst described it, three times bigger. If a bet once cost 500 rupees, the same bet now costs roughly 1,500, and the small-ticket traders who had been doing the losing have been, in effect, asked to leave. A new SEBI study found the number of active retail traders fell by a fifth. The market, which had been the world’s biggest, is now the world’s biggest and a little more expensive, and the people in it are a little more expensive to lose.

THE OPTIONS MARKET, IN NUMBERS THE REGULATOR PREFERRED NOT TO PUBLISH AT THE SAME TIME

  • Share of global equity options volume now handled in India: 84%
  • Individual F&O traders losing money: 9 in 10
  • Average annual loss per losing individual trader: ~128,000 rupees
  • Minimum bet size, before the fix: 500 rupees
  • Minimum bet size, after the fix: 1,500 rupees
  • Active retail traders, year over year: down a fifth

The irony is not that India was wrong to build a market. The irony is that it built the biggest one in the world, let it run for five years, and treated the discovery that the customers were losing as a policy problem rather than a product problem. The fix was not to tell people the odds. The fix was to make the odds more expensive to find out.

At press time, the market was still the world’s largest, the customers were still, in the aggregate, losing, and a regulator press release, issued to explain the new minimum bet size, used the phrase “financial literacy” seven times. The customers, who are still in the market, have been given a new reason to stay: the entry fee is now high enough that leaving feels like a loss.