Sebi limits F&O expiry to Tuesdays or Thursdays to curb market volatility

The Securities and Exchange Board of India (Sebi) has mandated a uniform expiry schedule for equity derivatives contracts, narrowing the final settlement day to either Tuesday or Thursday for each exchange, in a move set to recalibrate the rhythm of India’s bustling derivatives market.

The regulatory shift, announced through a circular dated May 26, is aimed at curbing the growing risks associated with expiry day hyperactivity while preserving a competitive edge for exchanges in the multi-platform environment. The circular follows a public consultation process launched in March and deliberations within Sebi’s Secondary Market Advisory Committee.

Under the revised framework, every exchange can retain one weekly benchmark index options contract on its chosen expiry day—Tuesday or Thursday. Beyond that, all other equity derivative instruments—including benchmark index futures, non-benchmark index options and futures, and single stock futures and options—will have a minimum one-month tenor and will expire in the last week of the month, specifically on the last Tuesday or Thursday, depending on the exchange’s selection.

Exchanges will now be required to seek Sebi’s prior approval for any change in their existing settlement day. The move is designed to prevent excessive crowding of expiry events, which can lead to abnormal spikes in trading volume and volatility.

By June 15, stock exchanges must submit proposals to SEBI indicating their preferred settlement day in line with the new rules. Exchanges and clearing corporations have also been directed to implement the required systems and modify their bylaws and operational rules accordingly.

The measure underscores Sebi’s balancing act between market innovation and systemic safeguards, as the equity derivatives market in India continues to witness explosive growth and intense competition among exchanges to launch differentiated products.

The development comes close on the heels of a derivative debacle at IndusInd Bank, where a mismatch in accounting of internal derivative trades led to a ₹1,600-crore loss, equivalent to over 2% of its net worth, and the resignation of its CEO, Sumant Kathpalia, and its deputy CEO, Arun Khurana.

In May last year, the capital markets regulator shelved National Stock Exchange’s (NSE) proposal to extend the derivative segment timings due to a lack of consensus among the broker community.

The country's largest exchange floated the proposal to extend the equity derivatives trading time in September 2023. The plan, approved by the brokers' association—the Association of National Exchanges Members of India (ANMI)—was proposed so that domestic traders could get insights into global events and set their trades accordingly.

As per the proposal, equity derivative trading time was proposed to extend the usual timing of 9.15 am-3.30 pm to allow an evening session from 6 pm to 9 pm in the initial phase and till 11.30 pm in the advanced phase.