SEBI should have been clearer on expiry days for equity derivatives

The BSE has moved the expiry day for its contracts from Thursdays to Tuesdays

The recent Securities and Exchange Board of India (SEBI) circular on final settlement day for equity derivative contracts is rather ambivalent and is likely to prolong the prevailing confusion over the expiry days of the stock exchanges. The regulator had issued a circular in October 2024 to check frenzied trading in weekly index options. One of the measures spelt out in the circular was to streamline settlement days for equity derivative contracts. Following this, the BSE chose Tuesdays as the expiry day for its contracts while the NSE chose Thursdays.

The BSE implemented the change in January 2025, moving its expiry day from Thursdays to Tuesdays. The NSE retained its final settlement day on Thursdays, but announced in March that it will be shifting its expiry day to Mondays. This resulted in a consultation paper from SEBI towards the end of March which suggested that stock exchanges should choose either Tuesday or Thursday as final settlement day. The latest circular, based on the consultation paper, spells this out. But SEBI leaves some unanswered questions. Though the circular states that “spacing out of expiry days through the week reduces concentration risk and provides an opportunity to stock exchanges to offer product differentiation to market participants,” it does not stipulate that the settlement days of the BSE and the NSE should not be on the same day of the week. If NSE chooses Tuesdays as its contract settlement day, that will once again lead to concentration and lack of product differentiation. In that situation, will SEBI allow both exchanges to close their contracts on the same day? If no, then what will be the course of action which SEBI will adopt?

An easy way of closing this issue would have been through SEBI allotting either Tuesday or Thursday to the two exchanges and directing them to abide by its orders. The actions of the NSE, the exchange with the dominant market share, appear irresponsible in this matter. Announcements of frequent changes to the contract settlement day to prevent market share erosion, not only inconveniences investors, but also erodes the credibility of the Indian stock market in the eyes of the foreign investors. Such behaviour ought to be discouraged by the regulator.

The unhealthy battle for market share has already resulted in the total contracts traded on the exchanges growing at an exponential rate since the pandemic — with over 80 per cent annual increase in total contracts traded since FY21. Of concern is the concentration of derivatives trading in a few index option contracts, which account for over 90 per cent of the equity derivatives volume. Weekly index options have been among the main drivers of growth, with speculative activity converging on derivative contracts expiring on a particular day. The stock exchanges need to address this skew in derivatives trading pattern. They should also work towards developing the market for safer products such as mutual funds, government and corporate bonds rather than focus on derivatives alone.

Published on May 28, 2025