Securities and Exchange Board of India (SEBI) issued a significant circular to streamline the settlement (expiry) process for equity derivatives across recognized stock exchanges. This regulatory move is aimed at bolstering investor protection and enhancing the stability of India’s financial markets.
Why the Change?
Under the SEBI Act of 1992, SEBI is empowered to protect investor interests and regulate market practices. In recent years, a growing number of stock exchanges began offering equity derivatives with expiry days spread across the week. While this provided product differentiation and reduced expiry congestion at individual exchanges, it also gave rise to unintended consequences. Chief among them was heightened expiry-day hyperactivity, which risked increasing market volatility and undermining investor protection.
To address this, SEBI released a consultation paper on March 27, 2025, inviting stakeholder feedback. Following detailed discussions and recommendations from the Secondary Market Advisory Committee (SMAC), SEBI has now formalized its stance through this new directive.
Key Highlights of the Circular
The circular outlines several crucial changes:
Standardization of Expiry Days:
All equity derivatives on a given exchange must now expire only on Tuesday or Thursday. This step aims to balance market activity while minimizing excessive volatility.
Benchmark Index Options:
Each stock exchange can continue to offer one weekly benchmark index options contract, but only on their chosen weekday—either Tuesday or Thursday.
Monthly Expiry for Other Derivatives:
All other contracts—including benchmark index futures, non-benchmark index options/futures, and single stock derivatives—must now have a minimum tenor of one month. These will expire in the last week of each month, again limited to either the last Tuesday or last Thursday of that month, depending on the exchange’s chosen day.
SEBI Approval Required for Changes:
Exchanges wishing to change their designated expiry day must now seek prior approval from SEBI, thereby tightening oversight on future modifications.Implementation Timeline and Compliance
To ensure a smooth transition, all stock exchanges are required to submit their compliance proposals to SEBI by June 15, 2025. Furthermore, both exchanges and clearing corporations must update their systems, including any necessary amendments to bye-laws, rules, and regulations.
Impact on Market Participants
This regulatory overhaul will likely have a mixed impact. For investors and traders, the reduced number of expiry days could lead to a more stable and predictable trading environment. For exchanges, the emphasis will now shift from expiry-day differentiation to improving other product features, technology infrastructure, and service delivery.
Conclusion
SEBI’s latest circular reflects a proactive approach to managing systemic risks in India’s growing derivatives market. By standardizing expiry days and mandating minimum tenors for contracts, SEBI aims to reinforce market integrity while ensuring a level playing field for all participants. As always, adaptability will be key—for exchanges, brokers, and investors alike—as the market adjusts to these new norms.
