India’s largest options contract Nifty Bank, which was being treated by many retail F&O traders as a lottery ticket, will have its last weekly expiry today as Sebi’s new regulations come into force from next week.
The markets regulator had asked both stock exchanges – NSE and BSE – to have weekly expiry for only one derivative product. After BSE chose Sensex, NSE announced that it will stick to Nifty despite Nifty Bank being more popular.
Nifty Midcap Select will see its last weekly expiry on November 18 while the last date for Nifty Financial Services is November 19.
Nifty Bank and the other two indices will, however, continue to be available for monthly expiry trading.
“We are in talks with Sebi if all the monthly expiries should be held on the same day or on different days of the week. Guidelines will come,” Sriram Krishnan, Chief Business Development Officer, NSE, said.
Also read | F&O Addiction: 1.1 crore traders lost Rs 1.8 lakh crore in 3 years, reveals Sebi study
In the first half of FY25, Nifty Bank had the highest share of 38% in terms of premium turnover in the derivatives market. Nifty was second on the spot with 28% share, followed by BSE Sensex at 7% and BSE Bankex at 3%, according to IIFL Research.
Nifty Bank traders will now have to look for other options with market experts saying that volumes will get shifted to monthly expiries as well as other products.
“Nifty Bank and Nifty weeklies cater to different types of traders. While Nifty is a broad market benchmark, Nifty Bank is a sectoral index and has the least number of constituents and a lower lot size making it the most volatile of the two. So those who have gotten used to the wild swings and multiple trading opportunities that such volatility presents, will certainly miss it, but isn’t that what SEBI intended in the first case,” Anand James, Chief Market Strategist, Geojit Financial Services, said.
As the new rules kick off in a staggered manner beginning from November 20, analysts say that the six steps proposed by Sebi will have a positive impact on the market ecosystem by discouraging casual traders looking to make a quick buck.
“We see phased implementation over the next 3-6 months as a big positive for market health as it prevents any systemic shocks and leads to a calibrated tightening of the market,” Jefferies said.
Fewer expiry opportunities will encourage traders to focus on long-term strategies rather than frequent, short-term speculative bets. “speculative trading activity is likely to decrease, particularly among those who are undercapitalized. This shift could redirect household savings from the derivatives market to more stable and productive investments, which aligns with Sebi’s goal of fostering a healthier financial ecosystem,” said Rahul Ghose, CEO of Hedged.in.
Among the six steps proposed by Sebi, the highest impact can come from reduction in the number of weekly option contracts to one benchmark index per exchange i.e. total of 6 weekly contracts in a month vs 18 currently.
“Spillover of trading activity (if any) from discontinued products into the continuing products can reduce the overall systemic impact on premiums. Outcome of these measures will also drive the regulatory direction on further measures, if required,” said Jefferies’ Jayant Kharote.
Among other measures, Sebi has announced increasing lot size, hiking tail risk coverage on the day of options expiry, intraday monitoring of position limits, removal of calendar spread treatment on expiry day and upfront collection of Option premium from options buyers.
A recent Sebi study had found that 1.13 crore retail F&O traders incurred a combined net loss of Rs 1.81 lakh crore in the last three financial years of FY22-FY24 with traders making an average loss of Rs 1.6 lakh.
The Sebi study found that only 7.2% of individual F&O traders made a profit over the last 3 years.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)
