The Securities and Exchange Board of India (Sebi) has put forth a new proposal that could significantly impact the operations of the National Stock Exchange of India (NSE) regarding the scheduling of derivative contract expiries. Sebi’s latest initiative aims to restrict the expiration of derivative contracts to only Tuesdays or Thursdays, a move that directly challenges NSE’s recent decision to transition its weekly index option expiry to Mondays.

This proposal, outlined in a consultation paper released by Sebi, is designed to address concerns related to concentration risk and facilitate product diversification within the market. By formalizing specific days for derivative contract settlements across various exchanges, Sebi intends to prevent unnecessary disruptions and ensure a more structured approach to the expiry process.

According to the consultation paper, each exchange will be permitted to host a weekly benchmark index options contract on their chosen day, either Tuesday or Thursday. This initiative comes in the wake of an earlier circular issued on October 1, which designated Tuesdays and Thursdays for the expiry of single stock and index options contracts on BSE Ltd and NSE, respectively.

However, with NSE’s recent shift of its weekly expiry to Mondays starting from April 4, Sebi has raised concerns about the potential resurgence of excessive market activity on contract maturity days. In response, Sebi now requires exchanges to seek approval before introducing or altering any contract expiry or settlement dates to maintain market stability and prevent undue volatility.

In addition to the proposed changes in expiry scheduling, Sebi has recommended that other equity derivatives contracts, including benchmark index futures, non-benchmark index futures/options, and single stock futures/options, should have a minimum tenure of one month. These contracts are proposed to expire during the last week of the month on the designated Tuesday or Thursday of the respective exchange.

Sebi’s recent proposals have stirred discussions within the financial market, with stakeholders closely monitoring the potential implications of these regulatory developments. Market participants anticipate a review of certain rules, such as the proposal to impose a gross limit for all clients trading in index options, following feedback received by Sebi.

As Sebi continues to introduce reforms aimed at enhancing market efficiency and risk management, the NSE and other market entities are poised to adapt to these evolving regulatory frameworks to ensure continued compliance and operational resilience in the dynamic landscape of the National Stock Exchange of India.