It is just as well that the market regulator, Securities and Exchange Board of India (SEBI), has intervened to end the tussle over the expiry days of equity derivative contracts. The intense competition between the two largest exchanges for market share in the fast-growing equity derivative market had led to the exchanges shuffling their expiry days, in a game of one-upmanship.

Regulatory intervention is certainly needed when competition between stock exchanges threatens to disrupt market operations and inconveniences investors. That said, some flexibility should be given to market infrastructure institutions in designing derivative contracts to provide room for product innovation. The equity derivatives segment has been registering an exponential growth in turnover since the pandemic. While individual investors have been making large losses, stock exchanges, brokers and other intermediaries have been profiting through fee, commission and brokerage income. A working group led by G Padmanabhan, former executive director, RBI, had found that speculative activity was concentrated in the weekly index option contracts, particularly on the expiry day. To quell this speculation, SEBI had imposed a series of restrictions last October, including asking each exchange to have only one weekly index option, increasing lot sizes of contracts and asking brokers to collect upfront margins from option buyers.

The BSE and the NSE, had chosen Tuesdays and Thursdays respectively for contract expiry, following these guidelines. While BSE shifted the expiry day to Tuesday since January 2025, NSE had announced in March that it will be shifting its expiry day to Mondays from April. This ad-hoc shifting of expiry day by NSE would have increased the risk for investors and reduced the gap between the expiry days on the two exchanges. The SEBI consultation paper is now proposing that the exchanges should choose either Tuesday or Thursday as the settlement day for all equity derivative contracts. This will end uncertainty for traders and investors. The NSE has said that it is moving the settlement day for equity derivative contracts back to Thursday, following the SEBI consultation paper. Spacing of the expiry days over the week is a good idea as it will allow traders to roll over their positions to the other exchange and reduce concentration risk.

While almost 90 per cent of equity derivative trading takes place on the NSE currently, such spaced-out expiry may help in future, once activity picks up on the BSE. The regulator is also pre-empting further confusion by stating that future changes in expiry or settlement days should be made only with the regulator’s approval. While SEBI’s proposals address the ongoing conflict among the exchanges, care should be taken to ensure that regulations are not so stringent that they hamper market development. Stock exchanges should have the flexibility to innovate in product design, based on the demands of the market. SEBI can review these guidelines after a period of one year to gauge their effectiveness and modify them, if necessary.