SEBI Deliberates Phasing Out Weekly Options To Curb Speculative Trading | Profit Exclusive

The Securities and Exchange Board of India is deliberating a plan to phase out weekly options, as the capital market regulator grows increasingly concerned that these contracts are no longer serving their intended purpose of hedging and have instead become tools for short-term speculative trading.

Sources tell NDTV Profit that the regulator is actively working on a proposal to gradually discontinue weekly options in a “calibrated” manner. A sunset clause is likely to be introduced to allow for the smooth settlement of existing weekly contracts once the regulator decides to implement the change.

A consultation paper on the proposal is expected to be released in the next two to three months, with officials indicating that implementation may take longer and is unlikely to happen this year.

Notably, weekly options were introduced to enhance liquidity and help traders hedge short-term market risks. However, SEBI now believes these contracts are being dominated by retail and intraday traders using them for quick speculative gains, especially around expiry days.

This, the regulator feels, has increased market volatility and added little to market depth or stability. In contrast, monthly options are seen as more stable and better aligned with institutional hedging strategies.

As part of the broader derivatives market overhaul, SEBI is also considering tweaks to the expiry cycle of monthly options and may look to streamline longer-duration contracts to make them more liquid and efficient, as underlined by a regulatory source.

While market participants may resist the move, SEBI’s view is that the shift is necessary to balance liquidity with market discipline and rein in excessive speculative behaviour.

A source familiar with the discussions told NDTV Profit that the regulator is aware of the potential revenue impact, as weekly options contribute significantly to Securities Transaction Tax (STT) collections. However, this consideration has been factored in, the person said, pointing to similar curbs introduced recently in currency derivatives trading, where the regulator acted to discourage speculative activity.

A clearer picture is expected once SEBI releases its consultation paper, likely before the end of the year, which means the implementation timeline could spill over into next year.