SEBI Considers Ban on Weekly F&O Expiries | BSE Stock Falls 8%, Brokerages Hit

The Securities and Exchange Board of India (SEBI) is reportedly planning a major overhaul of the derivatives market by considering an end to weekly futures and options (F&O) expiries. The news, aimed at curbing excessive speculation and protecting retail investors, has sent shockwaves through the market, causing a sharp fall in the share prices of stock exchanges and brokerage firms whose revenues are heavily dependent on the high trading volumes generated by these short-term contracts.

A formal consultation paper on the proposal is expected to be released within a month.

Table of Contents

1. What is SEBI Proposing and Why?
2. Immediate Market Impact: BSE and Brokerage Stocks Tumble
3. The Big Debate: Broader Implications for Traders and the Market
4. Frequently Asked Questions (FAQs)

What is SEBI Proposing and Why?

According to reports, the market regulator is looking to transition the derivatives market from the current system of weekly expiries to a monthly expiry cycle. This move is driven by several key objectives:

1. Curbing Excessive Speculation: SEBI has repeatedly expressed concerns about the ballooning participation of retail investors in the high-risk F&O segment. A significant majority of these traders, particularly those dealing in short-dated weekly options, end up losing money.

2. Reducing Market Volatility: Weekly expiries often lead to a build-up of speculative frenzy towards the end of the week. By moving to a monthly cycle, the regulator aims to reduce this volatility and foster a more stable market environment.

3. Streamlining the Market: The proposal may also include having a single, unified expiry day for all exchanges. This would eliminate confusion and arbitrage opportunities that currently arise from staggered expiries across the NSE and BSE.

This potential overhaul is part of a broader effort by SEBI to rein in the explosive growth of the derivatives market. The regulator has already taken steps in this direction, recently realigning the expiry days for major indices. Effective September 2025, NSE's Nifty 50 contracts expire on Tuesdays, while BSE's Sensex contracts expire on Thursdays.

Immediate Market Impact: BSE and Brokerage Stocks Tumble

The news had an immediate and negative impact on stocks whose business models are closely tied to trading volumes.

• BSE Ltd.: Shares of the Bombay Stock Exchange (BSE) slumped by as much as 8% over two days. The exchange had recently seen a significant pickup in its derivatives volumes, and the removal of weekly contracts is seen as a major threat to its growth prospects.

• Brokerage Firms: Stocks of brokerage houses like Angel One also dropped by up to 5%. A large portion of their revenue comes from brokerage fees on F&O trades, and a reduction in trading frequency would directly impact their earnings.

The Big Debate: Broader Implications for Traders and the Market

The proposal has sparked a heated debate among market participants. While SEBI's primary intention is to protect retail investors from making significant losses, many traders and brokers argue that the move could have serious unintended consequences.

• Impact on Liquidity: Weekly options are a massive source of liquidity in the Indian market. Critics argue that eliminating them could reduce overall market depth, making it harder for all participants to hedge their positions effectively.

• Disruption of Trading Strategies: Many traders employ strategies specifically designed around weekly options, such as those that profit from rapid time decay (theta). A shift to a monthly cycle would make these strategies obsolete overnight.

• Livelihoods at Stake: There are concerns that the move could impact the livelihoods of full-time traders and sub-brokers who rely on the income generated from facilitating weekly options trading.

While the final decision is still pending the consultation process, SEBI's intent is clear: to address the speculative fever that has gripped the derivatives market. The outcome of this process will undoubtedly have a profound and lasting impact on the structure and dynamics of the Indian stock market.

Frequently Asked Questions (FAQs)

Q1: What is SEBI proposing regarding F&O expiries?
A1: SEBI is reportedly considering a proposal to end weekly futures and options (F&O) expiries and move to a monthly expiry cycle. A formal consultation paper on the matter is expected to be released soon.

Q2: Why does SEBI want to end weekly expiries?
A2: The primary goal is to curb excessive speculation and protect retail investors, a large number of whom lose money trading in short-term derivatives. The regulator also aims to reduce market volatility associated with weekly expiries.

Q3: How has the market reacted to this news?
A3: The news has caused a sharp fall in the share prices of companies whose revenues are linked to trading volumes. BSE Ltd. shares fell by up to 8% over two days, while brokerage stocks like Angel One also saw a significant drop.

Q4: What are the potential negative impacts of banning weekly expiries?
A4: Critics argue that it could reduce overall market liquidity, disrupt popular trading strategies that rely on weekly contracts, and negatively impact the livelihoods of full-time traders and sub-brokers.

Q5: When will a final decision be made?
A5: There is no fixed timeline yet. SEBI will first float a consultation paper to gather feedback from market participants. The final decision will be made after this process is complete.