Exchanges get free hand to fix derivatives expiry

The Securities and Exchange Board of India (Sebi) today gave stock exchanges the freedom to set the expiry day for their equity derivatives contracts. Earlier, the regulator had set the last trading Thursday of every month as the expiry day for derivative contracts.

The regulator has, however, asked the exchanges to ensure there was no change in contract specifications or the risk management framework and that the integrity of the market was not affected in any way.

The Bombay Stock Exchange (BSE) had sought permission from the regulator to start a new expiry cycle for its stock futures and options contracts. Currently, over 95 per cent of equity derivatives trades are conducted on the National Stock Exchange (NSE). Further, futures and options contracts traded on BSE follow similar contracts traded on NSE for expiry.

However, BSE has proposed to change it by fixing a Thursday in the middle of every month as the expiry day. This could create arbitrage opportunities between the two exchanges and, in the process, revive derivatives trading on BSE. Currently, BSE’s share in the cash market is around 24 per cent, but negligent in the derivatives market.

Both the BSE and the NSE are gearing up for competition from Financial Technologies-promoted MCX SX, which is making efforts to launch equity trading on its platform.