In a potentially significant development for India’s equity derivatives market, the Securities and Exchange Board of India (SEBI) is reportedly considering shifting the weekly expiry of index options to a fortnightly schedule to reduce speculative activity, volatility, and systemic risk. This regulatory move, if implemented, could have wide-ranging implications for traders, brokers, and market liquidity.
Context: Current Index Options Scenario
At present, weekly expiries on indices like Nifty and Bank Nifty have become the most traded instruments on NSE, generating substantial volumes and transaction revenues for the exchange and brokers. However, they have also attracted criticism for:
- Encouraging excessive intraday and near-expiry speculation
- Creating significant volatility in underlying cash markets
- Exposing retail traders to sudden capital erosion due to short-term bets
Why Is SEBI Considering The Change?
According to regulatory and exchange sources, SEBI’s concerns include:
- High Retail Participation Without Adequate Hedging A large proportion of index option traders, particularly in weekly contracts, are retail participants taking directional bets without proper hedging. Recent data shows that over 90% of retail option buyers incur net losses, raising investor protection red flags.
- Systemic Stability The sharp expansion of option volumes without corresponding growth in market depth or institutional participation increases tail risks during sudden market movements, potentially threatening systemic stability in extreme scenarios.
- Market Integrity SEBI wants to ensure that derivatives serve their intended purpose of hedging and risk management rather than becoming instruments of mass speculative gambling.
What Could Change?
Proposed Measure
| Existing Regime | Proposed Change |
|---|---|
| Weekly expiry (every Thursday) for Nifty and Bank Nifty index options | Fortnightly expiry (once every two weeks) |
Such a move would:
- Reduce the frequency of expiry-driven volatility
- Increase the average holding period and margin requirement for options traders
- Potentially discourage pure speculative positions and promote hedged strategies
Industry Impact: What Stakeholders Say
Brokers
Many brokerages believe the shift could:
- Reduce daily trading volumes and consequently brokerage revenues
- Impact active traders’ strategies requiring quick rollovers
- Encourage long-term options and futures strategies, deepening institutional participation
Retail Traders
Reactions are mixed. While some active traders argue that:
“Weekly options provide flexibility and hedging cost efficiency,”
others acknowledge the risks, citing:
“Frequent expiries tempt inexperienced traders into daily gambling.”
Market Analysts
Experts suggest that the change could align Indian derivatives markets with global norms where weekly expiries are supplementary, not dominant. For instance, in the US, monthly options remain the backbone despite weekly contracts existing for tactical trading.
Regulatory Perspective
SEBI Chairperson Madhabi Puri Buch has frequently emphasised protecting retail investors from speculative losses, recently implementing tighter disclosure norms and margin requirements for options trading. Moving to fortnightly expiry fits within this broader policy of:
- Market risk management
- Discouraging purely speculative flows
- Enhancing financial stability while retaining market efficiency
Recent Developments In India’s Derivatives Market
| Date | Event | Impact |
|---|---|---|
| Feb 2024 | NSE introduced Nifty Midcap Select weekly options | Expanded retail trading choices |
| Apr 2025 | SEBI cautioned against unhedged short options selling | Brokers revised margin norms for option sellers |
| July 2025 | Reports of proposed expiry regime change surface | Traders re-evaluate expiry-centric strategies |
Comparison With Global Markets
| Country | Primary Expiry Frequency | Weekly Expiry Role |
|---|---|---|
| US (CBOE) | Monthly options dominant | Weekly options supplement for tactical trades |
| Europe (EUREX) | Monthly expiry standard | Weekly options limited to select indices |
| India (NSE) | Weekly options dominant | Proposed shift to fortnightly for index options |
Possible Alternative Measures
Market sources indicate SEBI is also evaluating other complementary or substitute options:
- Increased lot size for index options to reduce speculative entry
- Higher upfront margins for naked option buyers
- Transaction tax recalibration to favour longer-duration contracts
What Traders Should Watch Out For
- SEBI Consultation Paper A formal consultation paper is expected soon seeking market feedback before any regulatory amendments are notified.
- Exchange Implementation Timeline NSE and BSE will require operational time to recalibrate expiry schedules, margin systems, and trading platform configurations.
- Adjustment Of Trading Strategies Traders focusing on expiry scalping and option decay arbitrage may need to redesign strategies with longer holding periods and adjusted Greeks.
Broader Market Impact
Experts say while derivatives volumes may dip temporarily post-implementation, market stability and investor protection will benefit, leading to:
- More mature and institutionalised options market
- Reduced volatility spikes on expiry days
- Enhanced systemic resilience during sudden index swings
Conclusion
The potential shift from weekly to fortnightly index options expiry marks another decisive intervention by SEBI to balance innovation with investor protection and systemic stability. As Indian markets continue to deepen and integrate with global financial systems, calibrated regulation will be crucial to sustain growth without sacrificing prudence.
Disclaimer
This news content is based on inputs from regulatory officials, brokerage analyses, and derivatives market experts. Readers are advised to track formal SEBI notifications and circulars for final decisions and implementation timelines.
