Summary
The Securities and Exchange Board of India (SEBI) approved a significant regulatory overhaul affecting the expiry days of derivatives contracts traded on the National Stock Exchange (NSE) and Bombay Stock Exchange (BSE). Effective from April 4, 2025, the expiry of all weekly, monthly, and quarterly index derivatives on NSE will shift from Thursday to Monday, aligning Indian markets with global practices and aiming to reduce volatility and improve market stability. In contrast, BSE will retain Thursday as the expiry day for monthly contracts while discontinuing fresh weekly index futures from July 1, 2025, reflecting divergent strategies between the two major exchanges.
The changes are designed to enhance investor protection by limiting speculative trading and reducing market disruptions caused by mid-week holidays and overlapping domestic and international events. By consolidating expiries to Mondays, traders and institutional investors gain additional time over weekends to assess market conditions, potentially improving liquidity and risk management. The reforms also include increasing minimum lot sizes for key indices and enhanced monitoring of intraday positions to strengthen market surveillance.
Market reactions have been mixed, with proponents highlighting the benefits of greater stability and alignment with international norms, while critics—particularly among retail and intraday traders—express concerns about reduced trading flexibility, potential loss of income, and challenges adapting to the new expiry framework. Some argue that these measures may disproportionately impact smaller traders and call for complementary reforms to address market access and taxation issues.
Overall, SEBI’s expiry day revision marks a pivotal shift in India’s derivatives market, aiming to balance speculative activity with market integrity and investor protection. As the transition unfolds, continued monitoring will be critical to evaluate its impact on trading volumes, volatility, and market participation across NSE and BSE.
Background
The Securities and Exchange Board of India (SEBI) announced regulatory changes on 10 October 2024 aimed at enhancing investor protection and stabilizing the derivatives market. Among the key measures introduced was the limitation of weekly derivatives contracts to a single index per exchange to reduce market volatility during contract expiry days, particularly benefiting retail investors by lowering speculative trading activities.
In line with these changes, from April 4, 2025, the expiry days for all derivatives contracts on the National Stock Exchange (NSE) and Bombay Stock Exchange (BSE) will shift from Thursday to Monday. Specifically, weekly NIFTY contracts will expire on Mondays instead of Thursdays, while monthly and quarterly contracts for NIFTY, BANKNIFTY, and stocks will also expire on the last Monday of each month rather than the last Thursday. Additionally, certain weekly derivative contracts will be discontinued, and minimum lot sizes for index derivatives will be increased as part of the broader reform measures.
This shift to Monday expiries aligns Indian derivatives trading with global market practices and aims to reduce disruptions caused by weekly holidays and overlapping major domestic and international events, which typically occur later in the week. The change also allows traders and institutional investors extra time over the weekend to analyze market movements and adjust their strategies, improving overall risk management and market liquidity. By starting the trading week with contract expiries, the market is expected to witness more stable and predictable trading patterns, further supporting retail investor participation.
SEBI’s Approval of Expiry Day Change
The Securities and Exchange Board of India (SEBI) has approved significant changes to the expiry days of derivatives contracts traded on the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE). This regulatory decision aims to harmonize market operations, reduce volatility, and align Indian derivatives markets with global trading practices.
Under the new framework, NSE will shift the expiry day for all equity derivatives contracts from Thursday to Monday starting April 4, 2025. Specifically, weekly NIFTY contracts will expire every Monday instead of Thursday, while monthly and quarterly contracts—including NIFTY, BANKNIFTY, FINNIFTY, MIDCPNIFTY, NIFTYNXT50, and stock monthly contracts—will expire on the last Monday of each month rather than the last Thursday. Exchanges are required to file proposals for their choice of expiry days for monthly contracts by June 15, 2025, and obtain SEBI’s prior regulatory approval before implementing or modifying expiry day changes in the future.
In contrast, BSE has been permitted to maintain Thursday as its official expiry day for monthly contracts and will cease introducing fresh weekly contracts on index futures from July 1, 2025. This divergence between exchanges marks a key development in India’s derivatives market structure.
SEBI’s rationale for these adjustments includes reducing market volatility by limiting weekly expiries to one benchmark index per exchange on either Tuesday or Thursday, thereby curbing speculative trading and lowering risk for retail investors. Additionally, the shift to Monday expiries facilitates improved liquidity and risk management by allowing traders and institutional investors to reassess positions over the weekend and avoid overlap with major domestic and global events typically scheduled later in the week.
Furthermore, SEBI has introduced enhanced monitoring measures for intraday positions, requiring exchanges to track such positions at least four times daily from November 20, with penalties for violations aligned with those for end-of-day breaches. These measures aim to strengthen market surveillance and ensure compliance with the new expiry framework.
Implementation by Exchanges
Following SEBI’s directive to modify the expiry days of derivatives contracts, both the National Stock Exchange of India (NSE) and the Bombay Stock Exchange (BSE) initiated steps to implement the changes in their trading frameworks. SEBI mandated that exchanges seek prior approval before altering the settlement day for their derivatives contracts, with compliance proposals due by June 15, 2025.
NSE announced a revision of the expiry day for index and stock derivatives contracts, initially planning to shift the expiry from Thursday to Monday effective April 4, 2025. This change was intended to streamline trading operations and improve market efficiency, requiring traders to update their systems and strategies accordingly. However, as of late March 2025, NSE withheld this change pending further consultation based on SEBI’s new policy paper on expiry days.
BSE, on the other hand, had gained momentum by offering an alternative expiry day and consequently impacted NSE’s market share in equity derivatives. SEBI accepted BSE’s recommendation to maintain Thursday as the preferred expiry day. BSE announced halting new weekly index futures contracts from July 1, 2025, with a cutoff for existing expiry schedules set for August 31, 2025.
In addition to the expiry day adjustments, SEBI introduced enhanced monitoring measures for intraday positions, requiring exchanges to track intraday positions multiple times per day starting November 20, 2024. Penalties for violations mirror those applicable for end-of-day position breaches, underscoring a broader regulatory focus on market transparency and risk management.
To accommodate these changes, NSE Clearing continues to operate on a T+1/T+0 rolling settlement cycle, providing clearing members with provisional obligations by 9:00 PM on trade day (T) and final obligations by 9:00 AM on the following day (T+1). This ensures timely settlement and aligns with the revised expiry framework.
Market Impact and Reactions
The shift of derivatives expiry days to Mondays has brought several notable impacts to the derivatives market, as well as mixed reactions from various market participants. This change aligns Indian exchanges such as NSE and BSE with global trading practices, improving market efficiency by reducing disruptions caused by weekly holidays and minimizing the risk of expiries coinciding with major domestic and international events typically scheduled later in the week. The adjustment also provides traders and institutional investors additional time over the weekend to analyze market trends and refine their trading strategies, enhancing overall risk management.
From an operational standpoint, the Monday expiry schedule facilitates easier management of open positions at the beginning of the week and improves liquidity. However, it necessitates significant recalibration of trading strategies, particularly for active traders in the Futures & Options (F&O) segment who must adapt their risk management and hedging approaches to the new expiry timetable. Additionally, traders and brokers need to update their systems and processes to accommodate the revised expiry cycles, which now include discontinuation of certain weekly derivative contracts and adjustments to lot sizes for key index derivatives.
The regulatory changes have sparked a range of reactions among market participants. While some acknowledge the benefits of enhanced stability and alignment with international standards, others express concern over the potential impact on trading opportunities and income, particularly for intraday and derivatives traders who have relied heavily on volatility around expiry days. Critics argue that these modifications may reduce trading activity and job prospects within the derivatives market, urging regulators to consider additional measures such as GST reduction or restrictions on intraday equity trading instead.
Furthermore, while the Bombay Stock Exchange (BSE) has not explicitly clarified the rationale for targeting specific indices under these changes, it is inferred that factors such as liquidity, market size, and volatility influenced the decision. Overall, the market continues to adjust, with participants closely monitoring the effects of these reforms on trading volumes, price volatility, and risk dynamics in the Indian derivatives ecosystem.
Broader Implications and Outlook
The shift to Monday expiries for index derivatives as approved by SEBI marks a significant evolution in the trading landscape of NSE and BSE. This change is expected to align Indian derivatives markets more closely with global practices, potentially enhancing overall market efficiency and reducing disruptions caused by holidays occurring later in the week. By consolidating expiries to the start of the week, traders and institutional investors gain additional time over the weekend to analyze market trends and adjust their strategies, leading to improved risk management and liquidity.
Moreover, the discontinuation of multiple weekly expiries aims to curb excessive speculative trading that was previously fueled by daily weekly expiries. This speculative behavior often resulted in heightened volatility as traders engaged in complex strategies involving out-of-the-money options to capitalize on premium decay. The new expiry framework reduces such volatility spikes by streamlining contract expiries, which could foster a more stable trading environment.
The increase in minimum lot sizes for key indices such as Nifty 50 and Bank Nifty further complements these reforms by potentially limiting excessive speculation and encouraging more meaningful participation from institutional investors. However, these changes have required market participants, including small traders and brokers, to swiftly adapt their trading systems, strategies, and risk management approaches to the revised regulations.
Looking ahead, these regulatory adjustments may encourage healthier market dynamics by balancing speculative activity with improved market integrity. While the transition poses short-term challenges, including system upgrades and strategy realignments, the long-term outlook is optimistic for enhanced market stability and alignment with international standards. Continuous monitoring of market behavior post-implementation will be essential to assess the full impact of these changes on liquidity, volatility, and trader behavior.
Comparative Analysis
The recent changes introduced by SEBI regarding the expiry day of index derivatives on NSE and BSE have sparked considerable debate among market participants. A key modification is the shift of all derivatives’ expiry days from Thursday to Monday, effective April 4, 2025. This change affects weekly, monthly, and quarterly contracts for indices such as NIFTY and BANKNIFTY, with weekly contracts now expiring every Monday and monthly/quarterly contracts expiring on the last Monday of the month instead of the last Thursday.
From the perspective of market structure and efficiency, this alignment with global trading practices is seen as beneficial. The move to Monday expiries reduces disruptions caused by mid-week holidays and decreases the risk of contract expiry overlapping with significant domestic and international events typically occurring later in the week. Additionally, starting the week with expiries provides traders and institutional investors extra time over the weekend to analyze market conditions and adjust their strategies, thereby potentially improving liquidity and risk management.
However, the changes have not been universally welcomed. Some traders, especially small retail participants, have expressed strong dissatisfaction. Criticism centers on the increased lot sizes and the elimination of weekly contracts for certain key indices, which many perceive as detrimental to their trading flexibility and profitability. These traders argue that such regulatory decisions may disproportionately benefit government revenue through higher Securities Transaction Tax (STT) collection rather than safeguarding retail investor interests. The sentiment among this group suggests that the rules could discourage smaller traders and foreign investors, potentially impacting market growth negatively.
Regarding the BSE, while the exchange has not publicly detailed its rationale for selecting specific indices for these changes, it is believed that considerations like index size, liquidity, and volatility influenced their approach. This contrasts with NSE’s more comprehensive circulars that provide explicit guidelines and timelines.
The content is provided by Blake Sterling, Fact-Nest
