SEBI Proposes to Limit Expiry Days of Derivatives Contracts to Tuesdays or Thursdays

The Securities and Exchange Board of India (SEBI) has proposed to restrict the final settlement day or expiry day of equity derivatives products to Tuesday or Thursday. The move is aimed at improving the stability to the market sentiments.

What has SEBI proposed?

As per a consultation paper, SEBI proposed that expiries of all equity derivatives contracts of an exchange will be uniformly limited to one of either Tuesdays or Thursdays.

SEBI said, “Every exchange will continue to be allowed one weekly benchmark index options contract, on their chosen day (Tuesday or Thursday).”

Apart from index options, all other equity derivatives contracts, like all benchmark index futures, non-benchmark index futures / options, and all single stock futures / options will be offered with a minimum tenor of one month, and the expiry will be in the last week of every month on their chosen day, that is, last Tuesday or last Thursday of the month, the regulator suggested.

How will it benefit investors?

SEBI said that the formalisation of the final settlement days for equity derivatives contracts across exchanges will give predictability to market participants.

Ideal spacing of expiry days while optimizing the number of such days will reduce concentration risk and provide room for product innovation and risk management.

“While we appreciate SEBI’s efforts to enhance market predictability and stability the proposed move towards a uniform expiry day and primarily monthly expiries warrants careful consideration for Alternative Investment Funds (AIFs) like ours that actively utilize derivatives for alpha generation and hedging,” said Puneet Sharma, CEO and Fund Manager at Whitespace Alpha, a multi-asset class asset management firm.