Every week after Mint reported that the Securities and Alternate Board of India (Sebi) might overhaul the weekly contract expiry schedule if its current curbs failed to chill the choices fever, a brokers’ affiliation met Sebi chairman Tuhin Kanta Pandey as a part of a routine assembly.
A dealer who attended the Affiliation of Nationwide Exchanges Members of India’s (ANMI) 15 July assembly mentioned business representatives implored the regulator to not discontinue weekly expiries. Sebi might transfer from the present weekly expiry regime to a single expiry each fortnight, severely curbing buying and selling alternatives, Mint had reported on 9 July.
‘Irreparable harm’
“Elimination of weekly expiry will trigger irreparable harm to market liquidity and threat administration,” the dealer mentioned. ANMI additionally known as for eradicating the two% excessive loss margin on expiry day and reinstating calendar unfold advantages, arguing these steps would cut back buying and selling prices and align Indian markets with world requirements.
Brokers as an alternative advised Sebi may take into account limiting entry to weekly choices buying and selling to traders who go a certification—akin to the US Collection 7 licence—demonstrating information and threat consciousness. Moreover, Sebi may additionally impose minimal web price or buying and selling capital necessities and allow solely these contracts with ample open curiosity and notional-to-premium ratios.
The regulator has been specializing in the frenzy in derivatives for some time.
‘Antagonistic penalties’
On Thursday, Sebi whole-time member Ananth Narayan G. mentioned at an occasion, “On expiry days, comparable turnover in index choices is usually 350 instances or extra the turnover within the underlying money market—an imbalance that’s clearly unhealthy, with a number of potential adversarial penalties.” He cited Sebi’s newest analysis, which discovered 91% of particular person merchants ended FY25 with web losses in futures and choices, with combination losses exceeding ₹1 trillion.
Narayan emphasised, “There is no such thing as a query that derivatives and certainly, hypothesis are very important for worth discovery, hedging, and guaranteeing market depth. However sure tendencies in our fairness derivatives ecosystem have warranted a better search for some time now.” He additionally acknowledged the potential issues of market infrastructure establishments, brokers, and different intermediaries, whose revenues might rely closely on these short-term by-product volumes. “However we should ask ourselves collectively – is all this in any respect sustainable?”, he questioned.
Sebi’s case rests on rising proof that short-term contracts, significantly weekly choices, have brought about “an unhealthy imbalance in market buildings.”
Will it backfire?
Nonetheless, brokers warn that shutting the door on weekly expiries may backfire. Kamlesh Shah, managing director at Share India Securities and former ANMI president, argued, “To ban a product isn’t the answer. The product is according to worldwide practices the place short-term contracts are favoured probably the most. Banning weekly merchandise might create unwarranted volatility… We’ve know-how out there to guard the market from undesirable practices. Along with that, to guard curiosity of retail traders, we might introduce product suitability… We due to this fact really feel that the present guideline for weekly contract might proceed.”
Shah of ANMI additionally made the case for reinstating Financial institution Nifty as a weekly/fortnightly contract: “Financial institution Nifty has been by far the most effective product India market had ever held. By permitting one benchmark contract for weekly choices, Financial institution Nifty contracts have been faraway from weekly cycle… We imagine that this contract is important for shorter period, protecting in view volatility of the market and worldwide occasions.”
The current regulatory thrust additionally follows Sebi’s interim order in opposition to US-based Jane Road, a serious liquidity supplier, for alleged manipulation on expiry days. The regulator ordered the seizure of ₹4,800 crore in alleged illegal positive aspects. Whereas praised for appearing in opposition to manipulation, the transfer triggered issues about new compliance burdens and market uncertainty.
“Given the context of the massive buying and selling in index choices, the regulator desires to see if its current measures end in a significant dip in volumes over the following few weeks. If there is not a lot of an influence, recent proposals might be thought-about after a due consultative course of,” the dealer cited earlier mentioned.
‘Weekly choices mandatory’
Okay. Suresh, present ANMI president, added, “Weekly choice is required for the aim of hedging—the one factor is that it ought to be least disruptive to the market… Within the absence of speculators, there will likely be lull out there. Sebi ought to usher in some surveillance—to keep away from mischiefs like Jane Road… exchanges have good surveillance, they’ll cease these trades which can forestall losses to traders.”
Sebi’s coverage revamp started in October 2024, with limits on weekly expiries, elevated contract lot sizes, increased margins, the withdrawal of calendar unfold advantages, and rigorous intraday checks. Additional steps in Could 2025 focused place limits, disclosures, and threat metrics.
A Sebi research on buying and selling exercise within the fairness derivatives section (EDS) launched on July 7 discovered that whereas the premium turnover of index choices was down 9% throughout December 2024 to Could 2025, it was nonetheless up 14% from the identical interval two years in the past. Furthermore, whereas the turnover of people in premium phrases was down 11% 12 months on 12 months, it was up by 36% from the identical interval two years in the past. Additionally, whereas the variety of distinctive people buying and selling in EDS was down 20% from a 12 months in the past throughout December-Could, it was up 24% from two years in the past.
Heavy buying and selling
“India continues to see a comparatively very excessive degree of buying and selling in EDS, in comparison with different markets, significantly in index choices,” the research discovered, including that 91% of particular person merchants incurred a web loss in FY25, a pattern just like that within the previous fiscal 12 months.
Brokers have complained of a liquidity crunch, as F&O turnover plunged and bid-ask spreads widened. “Buying and selling prices are up, and it’s the retail section that’s getting squeezed,” a dealer mentioned on situation of anonymity. Whereas Sebi’s intent is retail safety, some fear that merchants are being pushed into riskier month-to-month contracts and even to unofficial markets and crypto substitutes, the place regulatory oversight is absent.
Sebi officers have maintained that moderating speculative extra is a piece in progress, not a one-off. Narayan mentioned on the occasion, “We should look to enhance the standard of our derivatives market by extending the tenure and maturity of the merchandise and options on provide. This specialised space requires ongoing constructive debate and work.”
