The Securities and Exchange Board of India will issue a consultation paper shortly seeking public views on extending the contract tenures, building on efforts to curb speculative trading in light of huge losses faced by individuals on weekly Nifty and Sensex options, said an official aware of the development.
The proposal, however, will not figure in Sebi’s Friday board meeting. The capital market regulator will decide on switching to fortnightly or monthly index options contracts only after receiving feedback from stock exchanges, broker associations, market participants, and the public, the official said.
It will also decide on whether the contracts should expire on the same day or different days, as is the case currently, he said.
“F&O (futures and options) -related matters do not go to the (Sebi) board, and the extension issue will not be discussed (on Friday) at the Sebi board meeting,” the official said.
Queries to Sebi remained unanswered.
A broker said the consultation paper is likely to be issued before Sebi whole-time member Ananth Narayan G. retires on 9 October.
This person added that a reversion to monthly index options expiry would be of relative benefit to the National Stock Exchange than BSE, which could be adversely impacted by the end of weekly options expiries.
“Both the exchanges have benefited enormously from weekly options but NSE, which has a greater swathe of institutional and retail participation in the cash market, can be the least affected,” said the broker, requesting anonymity.
NSE had a 93.4% share in cash market volumes as of 31 July and 78.2% in premium turnover of options, per exchange data. BSE options volumes have grown from near zero over two years ago to almost 22%, underscoring the importance of the products to the bourses.
Currently, Nifty weekly options expire on Tuesdays and Sensex options on Thursdays.
Key Takeaways
- Sebi weighs end of weekly options: The regulator will soon release a consultation paper on extending index option tenures, potentially replacing weekly expiries with fortnightly or monthly contracts.
- Focus on curbing retail losses: The move follows Sebi’s findings that 91% of individual traders in equity derivatives lost money, prompting tighter rules to reduce speculative trading.
- Impact on NSE and BSE: A shift away from weekly contracts could benefit NSE’s stronger cash market base but hurt BSE, which has relied heavily on weekly options to grow its market share.
Humongous losses
Sebi’s concerns were reinforced by its findings in July that a staggering 91% of individuals trading in equity derivatives incurred net losses in the six months ended May.
In October 2024 and in May this year, Sebi introduced curbs on position limits and exposure rules related to index options contracts, but weekly volumes, which are dominated by retail traders, have continued to surge.
Sebi has been reviewing the weekly expiry schedule, with one plan involving a shift to fortnightly expiries.
At an industry conference on 21 August, Sebi chairperson Tuhin Kanta Pandey said industry consultation would precede any decision on longer tenure derivatives. “All this will be done in consultation—in what form, how, when. There will be a consultation paper. I can’t tell you when, but that is the thinking process we have,” Pandey said.
Ananth Narayan G added at the conference that Sebi was “considering ways to improve the tenor and maturity profile of derivative products so that they better support sustained capital formation and foster all-round trust in the ecosystem”. He added that this would be achieved in a calibrated manner, giving the system adequate time to adjust.
Sebi’s Friday agenda
On Friday, Sebi’s board is likely to consider easing stake dilution requirements for large initial public offerings and expanding the pool of anchor investors in IPOs to include insurance and pension funds.
The regulator is also expected to discuss granting equity status to real estate and infrastructure investment trusts (Reits and InvITs) to increase access to retail investors, and creating a lighter regulatory framework for alternative investment funds (AIFs) catering to accredited investors.
Sebi’s board will also review regulations for market intermediaries such as stock brokers, investment advisors, and credit rating agencies to streamline compliance and strengthen market governance.
Shares of BSE Ltd ended down 4.58% at ₹2,162.8 apiece on Thursday, while those of AngelOne, India’s third-largest broker settled 5.16% lower at ₹2,216 apiece.
