What’s the rationale behind Bank Nifty expiry rollback?

Hyderabad The NSE’s decision to do away with Bank Nifty expiry session on Friday might have surprised investors, but experts see it as a change in strategy that keeps both the bourses-BSE and NSE- on a harmonious platform. Further, there wouldn’t be any effect on traders as existing Thursday expiry will continue for Nifty and Bank Nifty as usual. Coming to Bankex, there’s activity in Sensex, while liquidity and activity are expected to pick up in F&O volumes for Bankex, observe derivatives analysts. Brokerage firms are also of positive view on Bankex as Friday is dedicated to BSE for weekly expiry.

“The concern is that if all expiries occur on Friday, retail traders tend to create more positions on that day due to the significantly lower premiums. This behaviour leads to more risks,” observes Dhirender Singh Bisht, associate vice-president (technical research-equity) at SMC Global Securities Ltd.

NSE’s decision came after BSE requested it to keep expiry session any day other than Friday. Both the exchanges in mutual understanding agreed to an amicable solution. Now, the question is what made them to smoke the peace pipe?

“Presently, the BSE Sensex and Bankex options have a weekly expiry date on every Friday. This convergence of expiry dates poses a challenge. Consequently, the exchanges stated that changing the expiry date would be beneficial for the growth of the derivatives market and would contribute to de-risking the overall market,” Bisht told Bizz Buzz.

Analysts see two major reasons for this. Avoiding concentration, risk and enable more balanced trading in derivatives.

“The rationale behind having different weekly expiries is rooted in liquidity considerations. Each instrument possesses its unique expiry date, enabling traders to select options based on factors such as time value, premium, and underlying assets,” said Bisht.

NSE on Tuesday (June 27) withdrew its circular, shifting Bank Nifty expiry to Friday effective from July 7 with first expiry falling on July 14, released on June 6. NSE’s decision came as jolt to BSE, which recently rolled out weekly options in the Sensex and Bankex with Friday expiry.

So the NSE’s decision irked BSE, which has been lagging in derivatives volumes when compared with its rival exchange. With an objective to improve derivatives trading turnover, BSE kept expiry day for Sensex and Bankex on Friday as against Thursday for NSE Nifty and Bank Nifty. Subsequently, BSE managed to improve trading volumes in derivatives segment.

“Conversely, when expiries happen on different days of the week, it aids in de-risking the market as a whole. It encourages retail traders to create more balanced position throughout the week, potentially leading to a more balanced and stable market,” added Bisht.

As per the data from the exchanges, NSE’s average cash market turnover in the year ended March 31, 2023, was Rs133 trillion and average daily turnover (ADT) was Rs53,434 crore, against Rs10.28 trillion for BSE with ADT of Rs4,132 crore. Index options account for over 98 per cent of derivatives volumes on both exchanges.

With the introduction of weekly options in Sensex and Bankex, BSE’s derivatives volume picked up a lot as ADT rose to Rs24,093 crore in June from just Rs1,167.91 crore in May. When everything was going smooth, all of sudden, NSE took a major decision to shift Bank Nifty expiry to Friday coinciding with BSE.

“Bankex F&O already witnessing increasing activity volumes in last couple of weeks. Investors would be active in Sensex on Fridays,” remarked analysts.

When NSE took decision to shift expiry session for Bank Nifty to Friday, investors started thinking of that there will be change in the big testing data set up and all because once you take the position on Friday or after the expiry the new position will happen on Monday. So that kind of complexity was there, but that will be out now, they said.

“Majority traders worried over complexity on how both the exchanges handle it and how both the prices will correlate. Hence, traders and brokers have clarity now after the latest circular,” they said.

Market analysts suggest BSE to revise its expiry to Monday from Friday as the first day of the week doesn’t see any expiry as Tuesday is for FinNifty expiry, Wednesday Nifty MidCap expiry, Thursday Nifty and Bank Nifty options expiry, and Friday Sensex and Bankex expiry.

Instrument Expiry

BSE Sensex/ Bankex Friday

NSE Nifty/ Bank Nifty Thursday

Trading in FY23 Exchange

Rs133 lakh cr NSE

Rs10.28 lakh cr BSE

ADT on BSE (`/ Cr)

24,093 June

1,167.91 May

Coming Together

l NSE on June 6 announced Bank Nifty expiry to Friday from Thu

l BSE requested NSE to change the decision

l Concerns over complexity on how both the exchanges handle it and how both the prices will correlate

l Experts suggested boards of bourses on alignment