October 11, 2024
New Delhi, India
The National Stock Exchange (NSE) announced that it will discontinue weekly index derivatives contracts for Bank Nifty, Nifty Midcap Select, and Nifty Financial Services in November. This move follows a circular issued on October 10, outlining that the last trading dates for these contracts will be November 13 for Bank Nifty, November 18 for Nifty Midcap Select, and November 19 for Nifty Financial Services.
Transition to Nifty 50 for Weekly Derivatives
Effective November 20, the NSE will offer weekly derivatives only for the Nifty 50 index. This adjustment complies with the Securities and Exchange Board of India (SEBI) directive, which limits exchanges to offering weekly options expiries on just one index per exchange. SEBI’s aim is to reduce market volatility and speculative trading that often surrounds contract expiry days.
SEBI’s New Framework for Index Derivatives
SEBI implemented new guidelines on October 1 to strengthen the framework for index derivatives trading. These regulations are designed to protect investors and enhance overall market stability. Key changes include:
- Limiting weekly index derivatives to one benchmark index per exchange.
- Introducing stricter monitoring of intraday positions, requiring exchanges to check positions at least four times daily.
- Imposing penalties for breaches of intraday limits, similar to those applied at the end of the trading day.
These regulatory changes were prompted by concerns about excessive speculation in index derivatives, especially around contract expiry periods.
Impact on Investors and Other Exchanges
The phasing out of these weekly contracts is expected to impact a significant portion of investors who trade on the Bank Nifty, Nifty Midcap, and Nifty Financial Services indices. However, the shift aims to bring more focus to Nifty 50, which is NSE’s flagship index.
In line with SEBI’s new measures, the Bombay Stock Exchange (BSE) also announced the discontinuation of weekly index derivatives for the Sensex 50, effective November 14, and for Bankex, effective November 18.
SEBI’s Report on Investor Losses
A recent SEBI report revealed that individual traders experienced substantial net losses amounting to ₹1.81 trillion (approx. $21.57 billion) in futures and options between March 2021 and March 2024, with only 7.2% of traders turning a profit. These findings have driven SEBI’s push for stricter regulations to protect retail investors from high-risk derivatives trading.
As both NSE and BSE implement these changes, market experts believe it will lead to a more stable and less speculative trading environment, ultimately benefiting long-term investors.
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