Securities and Exchange Board of India recently introduced new regulations effective from November 2024 aimed at protecting investors and promoting market stability in the future and options segment. One of the key changes is the limitation of weekly derivatives contracts to only one index per exchange. This move is designed to reduce market volatility particularly when contracts expire.

To comply with these f&o new rules, National Stock Exchange and Bombay Stock Exchange will stop offering weekly options for several indices.

NSE will discontinue weekly options for Bank Nifty, Nifty Midcap Select and Nifty Financial Services indices on the following dates:

After these changes, NSE will only offer weekly contracts for Nifty 50 index. On 3 October BSE announced that it will stop offering weekly index derivatives contracts for Sensex 50 and Bankex starting from 14 November and 18 November respectively. After this Sensex will be the only index available for weekly trading.

Why SEBI Made These Changes

SEBI introduced these rules on 1 October 2024 as part of a broader effort to reform the index derivatives market. The goal is to protect investors especially retail traders who have been increasingly engaging in speculative trading which can lead to significant losses. A recent SEBI study showed that 90% of individual traders lost money in futures and options trading over the last three years with total losses amounting to ₹1.81 trillion (around $21.57 billion).

To further strengthen market stability exchanges must now monitor intraday positions more frequently at least four times per day and penalize breaches of limits similar to the penalties applied at the end of the trading day.

These measures are part of SEBI’s ongoing efforts to make the derivatives market safer and reduce the risks faced by individual traders.

Impact on Traders and Investors

The discontinuation of weekly options for popular indices like Bank Nifty will likely have a big impact on market activity. Since Bank Nifty is known for its high volatility we can expect less dramatic price swings leading to more stability in banking stocks. Traders who relied on quick, short term market moves will need to rethink their strategies.

With weekly options disappearing for some indices, traders will probably focus more on monthly options contracts and Nifty 50 weekly options. This could make trading more efficient with smaller differences between buy and sell prices and lower transaction costs. However, during times of high volatility there might be more demand for Nifty 50 options, driving up higher premiums.

Overall, fewer weekly options could lead to less speculative trading and encourage investors to take a longer term view. While this may bring more stability to the market, it could also turn off some traders who prefer short term options contracts potentially reducing overall market participation.

The shift to monthly contracts might promote more thoughtful and strategic trading. How this affects market liquidity and volatility in the long run will depend on how traders adjust to the new rules.

Industry Response

The end of weekly expiry contracts will affect traders and investors who rely on them for their strategies. This change could alter how prices move and impact market volatility. Investors should keep an eye on market trends and explore other investment options.

Some experts think this change won’t have a big effect on overall market liquidity or volatility but others worry it could disrupt certain trading strategies.

Conclusion

The discontinuation of weekly expiry contracts for key index derivatives such as Bank Nifty and others marks a significant shift for the Indian stock market. While traders and investors who relied on these contracts for short term strategies will need to adjust the new SEBI regulations aim to reduce market volatility especially on contract expiry days.

The shift to a single weekly expiry per exchange and a greater focus on monthly contracts is expected to stabilize pricing and encourage a more long term investment approach.

Although there may be concerns about potential disruptions to certain trading strategies. Ultimately the long term effects will depend on how traders adapt to the new environment but overall, the move is expected to bring greater stability and protection to investors.

(Disclaimer: This is a syndicated feed. The article is not edited by the FPJ editorial team.)