The Securities and Exchange Board of India (SEBI) has proposed a structured approach to the expiry days of equity derivatives contracts, aiming to bring predictability and stability to the market. Under the proposed guidelines, stock exchanges must restrict the final settlement day of these contracts to either Tuesday or Thursday. SEBI has emphasized that exchanges must obtain its approval before launching or modifying any contract expiry or settlement day.
SEBI outlined its proposal in a consultation paper, stating that all equity derivatives contracts on a given exchange must have expiries limited to either Tuesday or Thursday. Exchanges can continue offering one weekly benchmark index options contract on their chosen day. Apart from benchmark index options, other equity derivatives, including benchmark index futures, non-benchmark index futures, non-benchmark index options, and single stock futures or options, must have a minimum tenor of one month. These contracts will expire in the last week of each month on the designated day, either the last Tuesday or last Thursday.
This move is expected to streamline market operations by reducing the unpredictability of settlement days. Investors and traders often struggle with shifting expiry dates, which can cause sudden fluctuations in liquidity and volatility. By standardizing expiry days, SEBI aims to ensure that traders can plan their strategies more effectively. Exchanges will also benefit from reduced operational complexities, as uniformity in expiry dates will simplify contract structuring and settlement processes.
Market participants have welcomed SEBI’s proposal, recognizing the advantages of a more structured derivatives market. A predictable expiry cycle allows traders to adjust their portfolios with greater accuracy, reducing the risk of last-minute price swings. Institutional investors, in particular, stand to gain from this move as it enhances stability in index-based trading. The revised system will help align India’s derivatives market with global best practices, where fixed expiry days are a common standard.
Retail investors will also benefit from a more stable trading environment. Many retail traders rely on derivatives contracts for hedging and speculative purposes. The certainty of expiry days will allow them to plan their trades better, leading to improved risk management. Additionally, brokers and market intermediaries will find it easier to manage client positions, as settlement cycles will become more predictable.
While SEBI’s proposal introduces standardization, some traders are concerned about its impact on liquidity. Currently, different exchanges offer derivative contracts with varied expiry days, ensuring that liquidity remains spread across multiple days of the week. Limiting expiries to two specific days may concentrate trading activity around these days, leading to higher volatility. However, SEBI believes that the benefits of predictability will outweigh these concerns, as traders will adjust their strategies accordingly.
Another critical aspect of SEBI’s proposal is its requirement that exchanges seek prior approval before making any changes to contract expiries. This measure aims to prevent abrupt shifts in trading patterns that could disrupt the market. Exchanges will need to align their products with SEBI’s guidelines while ensuring smooth transitions for traders.
The regulator’s initiative aligns with its broader objective of fostering a well-regulated and efficient derivatives market. By eliminating uncertainty around expiry days, SEBI aims to create a trading environment that supports both institutional and retail participation. The move is also expected to improve risk management for brokerage firms, clearing houses, and market participants dealing with large volumes of derivatives contracts.
If SEBI’s proposal is implemented, Indian markets could witness a shift in trading patterns, particularly around Tuesdays and Thursdays. Investors may concentrate their activities on these days, leading to increased liquidity and price action. Analysts believe that exchanges will need to optimize their risk management frameworks to accommodate the potential changes in trading behavior.
SEBI’s focus on standardizing expiry days reflects its commitment to enhancing market efficiency while minimizing disruptions. The proposed changes are expected to provide greater clarity to investors, ensuring that India’s derivatives market continues to evolve in line with global standards. The final decision on implementing these guidelines will depend on feedback from stakeholders, but the proposal marks a significant step toward a more structured and predictable trading ecosystem.
If SEBI’s proposal takes effect, traders and investors may need to adjust their strategies to accommodate the new expiry day structure. Currently, traders often take advantage of mid-week expiries that vary across exchanges, allowing them to hedge positions dynamically. The shift to a fixed Tuesday or Thursday expiry may concentrate trading volumes on these days, leading to sharper price movements in the derivatives market.
For stock exchanges, implementing this change will require coordination with clearing corporations and market intermediaries to ensure a seamless transition. Exchanges will need to update their trading systems, communicate changes to market participants, and manage liquidity effectively. Clearing houses will also play a crucial role in maintaining stability as they process a higher volume of settlements on fixed expiry days.
Experts believe that aligning expiry days with international norms could attract more foreign institutional investors (FIIs) to India’s derivatives market. Many global markets, including the US and Europe, follow a standardized expiry schedule, making it easier for FIIs to integrate Indian derivatives into their global trading strategies. By enhancing predictability, SEBI’s proposal may improve India’s appeal as a stable and well-regulated market for derivatives trading.
However, traders who rely on weekly options trading as a key strategy might need to reassess their risk management approaches. With limited expiry options, short-term traders may experience higher competition on designated days, potentially leading to increased price swings. Despite this, market analysts believe that SEBI’s initiative will encourage better planning and reduce last-minute speculative trading that often causes unnecessary volatility.
SEBI’s move is part of its broader efforts to strengthen India’s financial markets by introducing regulatory measures that enhance transparency and efficiency. By limiting the expiry days of equity derivatives contracts, the regulator aims to create a structured environment that benefits both institutional and retail investors. While some market participants may face short-term adjustments, the long-term impact is expected to be positive, ensuring that the Indian derivatives market remains robust, well-regulated, and globally competitive.