Markets
BSE, NSE contest to hot up under Sebi's eagle eye
Summary
- In a bid to enhance trading volumes, BSE is moving its weekly Sensex contract expiry to Tuesday, aligning with Sebi's new regulations aimed at reducing speculative trading. This shift may help BSE improve its market share, which currently stands at 13% compared to NSE's 87%.
Competition between Asia's oldest exchange and its younger, bigger rival is set to hot up with BSE shifting its weekly Sensex contract expiry from next month even as Sebi's curbs to temper retail frenzy in derivatives have gotten under way.
Market experts said that a regulatory nudge could have compelled both the exchanges to ensure that their monthly and quarterly derivatives contracts expire on the same day as their respective weekly contract. Same day expiry will ensure that Sebi curbs on single weekly expiry per exchange aren't diluted by multiple expiries on the last week of a month .
The BSE said in a circular last Thursday that it will shift its weekly Sensex contract expiry to the last Tuesday of the expiry month (from Friday) after 3 January 2025. Additionally, its monthly Sensex, Bankex and Sensex 50 derivatives contracts will also expire on Tuesday from different days currently.
Meanwhile, NSE has left its weekly, monthly, quarterly and semi-annual Nifty contracts’ expiry day unchanged on Thursday, and it has shifted the expiry of other contracts also to Thursday effective 1 January. These include Bank Nifty monthly and quarterly contracts (last Wednesday of expiry month), Finnifty monthly contracts (last Tuesday), Midcap Nifty monthly contracts (last Monday) and Nifty Next 50 monthly contracts (last Friday of expiry month).
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Currently, with Nifty weekly contracts expiring on Thursday, brokers said most traders focus on Nifty options contracts between Monday and Thursday. After this, they turn their attention to Sensex options expiring on Friday. Effectively, Sensex options trading has been concentrated on the last day.
That might change after the expiry day shift by BSE comes into effect. Market experts said the shift would enable BSE to increase volumes of its weekly Sensex contract as traders will get to focus on it for three days instead of one.
“What BSE achieves by shifting its weekly expiry to Tuesday from Friday is giving traders three (working) days to trade in place of one, so volumes can pick up more than what they notch now," a broker said on condition of anonymity.
Queries to Sebi, NSE and BSE officials went unanswered.
Based on premium turnover of index options for November, NSE had a market share of 87% (average daily turnover of ₹54,289.6 crore), against BSE’s 13% ( ₹8,219.4 crore). Although the scales are heavily tilted in favour of NSE, BSE’s market share has grown from literally zero 18 months ago when it launched weekly Sensex contracts. In comparison, NSE had launched Nifty weekly options in February 2019.
“It (the shift of expiry) may move the needle slightly in terms of getting more volumes for BSE," said U.R. Bhat, co-founder of Alphaniti Fintech. “For NSE, the more liquid contracts will continue to attract participation."
Sebi is believed to have done this to ensure that on the last week of the expiry month, multiple contracts expiring on different days on both BSE and NSE are not available for punting each day.
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Its rules to curb retail frenzy in F&O on 1 October made it rationalize multiple expiries on both exchanges to just one weekly contract expiry per exchange, among other things.
“The monthly expiries would have enabled a daily expiry on the last week of month, which is what drove Sebi to probably direct exchanges to let all monthly, quarterly and semi-annual contracts to expire on the same day," said another broker, also on condition of anonymity.
“Sebi's recent decisions have been in line with its objectives of curbing speculative trading," said a securities lawyer who requested to not be named. “The weekly expiry system has gained significant traction in recent years due to its impact on trading volumes, market liquidity, and speculative strategies. So, Sebi is deliberating on how to control that liquidity in alignment with the exchanges."
And read | Sebi margin rule on option sellers more bite than bark
Sebi was compelled to launch six measures in staggered form from 20 November to protect individuals from huge losses on futures and options trading. A Sebi study of September 2024 found that individual traders’ aggregate losses in F&O exceeded ₹1.8 trillion between FY22 and FY24.
Rationalizing weekly expiries, increasing extreme loss margin on the day of options expiry, and tripling Sensex and Nifty contract sizes were among the measures that kicked off from 20 November.
BSE share rose almost 15% to an all-time high of ₹5,250 on Thursday.
