The consultations around doing away with weekly contract expiries and adopting longer duration contracts are slated to reach the frontline regulators, which are our exchanges, as per people in the know. The market watchdog, the Securities and Exchange Board of India, is likely to initiate discussions with the exchanges in a week, they said.
The regulator is also likely to discuss merging expiries across all exchanges in an attempt to curb speculation and volatility in the derivatives segment, the people said. Other proposals on the table include steps to deepen the cash markets and introduce entry barriers for retail investors who wish to trade in this segment.
The proposals to introduce entry barriers in terms of an aptitude test, through net worth or stricter checks, have been tabled in the past as well. However, they were not taken ahead in the past.
NDTV Profit had previously reported that while retail participation in index options on expiry days has slightly declined in recent times, an overwhelming majority—nearly 90%—of these retail traders still end up losing money.
Concerns remain about the high concentration of trading activity in short-term expiries and a growing trend of speculative short-term trades, the sources added.
The regulator recently also moved towards a delta-based open interest metric instead of the traditional notional method. This approach accounts for the actual economic exposure of options trades rather than their notional size, which can be misleading.
Apart from this, the regulator has also allowed a net end-of-day limit of Rs 1,500 crore and a gross limit of Rs 10,000 crore (each side) for index options, they hinted. As per the previous proposal of the regulator, the net end-of-day limit was Rs 500 crore, only with a gross limit of Rs 1,500 crore.
The first set of regulations to curb volumes in the derivative segment came about in October 2024, and the curbs were simple — upfront collection of premiums, reducing the number of expiries, increasing minimum contract sizes, more margins near expiry, intraday monitoring, reducing the number of option strikes, and finally, the removal of calendar spread benefits. While the exchanges saw reduced volumes, brokerages started reporting an impact on their earnings.
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