New Delhi, Feb. 17 -- India's market regulator, the government and now the central bank have all tightened the screws on what they see as excessive speculation in the country's booming derivatives market.

The latest amendment by the Reserve Bank of India to bank lending norms hits a critical cog: cheap leverage.

The RBI has barred banks from deploying depositor money to fund proprietary trading and has mandated stricter collateral rules for capital market intermediaries (CMIs), including brokers and exchanges. This comes on top of the government's upcoming hike in securities transaction tax (STT) - 2.5x on futures and 1.5x on options - which is anyway likely to raise trading costs.

Whether these measures will materially curb retail spe...