NSE Moves Derivative Expiry To Mondays, Sparking Concerns

India’s National Stock Exchange (NSE), the country’s largest bourse, has announced an unexpected change in the expiration day for its equity derivatives, moving it from Thursdays to Mondays. This decision, effective from April 4, will apply to all monthly, quarterly, and semi-annual futures and options on indexes and stocks, which will now expire after market close on the last Monday of the expiry month. Additionally, weekly contracts for the NSE’s benchmark Nifty 50 Index—currently the only weeklies allowed after regulatory restrictions—will also expire on the Monday of the expiry week.

The change has raised concerns among traders. Deven Choksey, managing director of DRChoksey FinServ Pvt., warned that the shift to Monday expirations could introduce significant risks. “The Monday expiry opens up substantial weekend carryover risk,” Choksey explained. He noted that, since stock derivatives are physically settled, any sharp movements in the market due to weekend news could make it difficult for traders to deliver shares against their outstanding positions.

This is a significant reversal from a decision just a few months ago, when the NSE announced it would move several index derivatives’ expiry days to Thursdays, aligning with the day for the most-traded contracts on Nifty indexes. This move followed the Bombay Stock Exchange’s (BSE) decision to streamline all its derivatives expiries to Tuesday, including the weekly S&P BSE Sensex Index options that were previously expiring on Fridays.

Analysts suggest that the NSE’s shift may be aimed at gaining a competitive edge over BSE. Abhilash Pagaria, head of alternative and quantitative research at Nuvama Institutional Equities, speculated, “The NSE’s intention with this change may be to get ahead of the BSE expiry.”

The announcement has already impacted BSE’s performance, with shares plummeting by as much as 9.4% to their lowest level in more than four months. This sparked fears that volumes at Asia’s oldest bourse could dwindle further, especially as the NSE’s shift could erode BSE’s market share.

The timing of the move is also noteworthy, coming just days after Tuhin Kanta Pandey took over as the new chief of the Securities and Exchange Board of India (SEBI). His predecessor, Madhabi Puri Buch, had implemented strict measures to curb excessive derivatives trading, including reducing the number of weekly options available and raising minimum contract sizes. This has led to a shift in trading patterns, with BSE’s notional turnover rising to approximately 55% of the NSE’s total in February, up from 30% before the curbs took effect in October.

As the landscape of India’s derivatives market continues to evolve, both traders and exchanges will have to adapt to these new changes, with potential implications for market liquidity and volatility.