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Sebi seeks more details from bourses before options date shift
As the battle for market share between India's top two stock exchanges hots up, the capital markets regulator has directed both to furnish modalities on a proposed shift in their weekly index options settlement dates by 15 June before it approves any changes, two people aware of the matter said.
"The Securities and Exchange Board of India (Sebi) has instructed the bourses to apprise it about when they would issue a circular to their broking members on potential expiry day shift to ensure markets have enough time to adapt to the change," the first person said.
He explained that besides weekly index derivatives contracts, exchanges like BSE and NSE run three monthly contracts concurrently—for eg. June, July and August (known as the front, mid and far months respectively)—on a rolling basis; i.e., after the June expiry, July becomes the front month, August the mid month and September the far month and so on.
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Sebi wants to ensure that the investing community has enough time to adapt to the new expiry day before approving any shift, the person cited above said on the condition of anonymity.
Sharing of such information would enable Sebi to work out "a solution that would be acceptable to both the exchanges," the second person said.
Queries emailed to NSE, BSE and Sebi went unanswered.
The matter has its origins in a Sebi circular on 1 October last year which raised the cost to trade index derivatives to ₹15-20 lakh from ₹5-10 lakh a contract, and limited weekly expiries in options to one a day per exchange from multiple weekly expiries earlier, among others, to rein in the retail frenzy in options. The circular left the choice of weekly expiry day to the exchanges.
For instance, NSE ran weekly options on the Midcap Select index expiring on Monday, Finnifty on Tuesday, Bank Nifty on Wednesday and Nifty on Thursday. BSE ran a Sensex options expiry on Friday and a Bankex options expiry on Monday.
NSE was restricted to offering only Nifty options, which it retained on Thursday, and BSE to the Sensex options contract on Friday after the 1 October circular. However, effective January this year, BSE opted to shift its weekly expiry to Tuesday from Thursday to space its expiry further away from NSE and enjoy a day more of volumes—a Tuesday expiry means the exchange sees volume distribution across Friday, Monday and Tuesday. A Thursday expiry would see volumes concentrated across two days—Wednesday and Thursday.
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In March this year, NSE informed Sebi that effective April, it would shift its Nifty expiry to Monday, just a day ahead of BSE's expiry. The regulator instructed NSE to maintain status quo as it was to issue a consultation paper on the final expiry day. The paper, issued on 27 March, sought public comments on giving exchanges the choice of either a Tuesday or Thursday expiry.
The Sebi circular that followed the receipt of public comments on 26 May finalized either a Tuesday or Thursday expiry for recognized stock exchanges such as NSE, BSE, MSEI and NCDEX. NSE then applied to Sebi for a Tuesday expiry. The NSE shift is subject to Sebi approval, but market stakeholders anticipate a shift to Tuesday by NSE would result in BSE shifting its expiry to Thursday, enabling NSE to regain lost market share from the latter.
For instance, thanks to the change in expiry day, BSE market share in index options based on premium turnover rose to 15.3% in the March quarter from 13.9% in the preceding quarter, with NSE market share falling proportionately to 84.7% over the same period, as per exchange data.
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"The extra day in case NSE wins Tuesday will mean some recovery as the exchange will get an extra day of volumes, " said Rajesh Palviya, senior vice-president (derivatives and technicals) Axis Securities.
The importance of index options trading as a major revenue source for exchanges is underscored by the contribution of this product to total transaction charges earned by exchanges.
Transaction charges contributed 50% of NSE's standalone total income of ₹5,860 crore, or ₹2,930 crore in the quarter ended March. Of this, equity options (index plus stocks) accounted for around 76%, or ₹2227 crore, with cash market and equity futures segment contributing 12% each.
NSE has been offering Nifty weekly options on Thursday since February 2019 while BSE relaunched Sensex weekly options since May 2023.
Gopika Gopakumar in Mumbai contributed to the story.
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