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The National Stock Exchange (NSE) has announced the discontinuation of weekly index derivatives contracts for Bank Nifty, Nifty Midcap Select, and Nifty Financial Services, effective from November 13, 18, and 19, respectively. This decision stems from the implementation of new rules by the Securities and Exchange Board of India (SEBI) earlier this month, aiming to regulate trading in futures and options (F&O). Under the new F&O regulations, each exchange is permitted to offer only one weekly index derivatives contract. Consequently, NSE will now only have the Nifty 50 index available for weekly trading.
This move by NSE aligns with the broader regulatory landscape for F&O trading in India. Earlier in October, the Bombay Stock Exchange (BSE) also announced the discontinuation of weekly derivatives contracts for Sensex 50 and Bankex, effective from November 14 and 18, respectively. The BSE will now only offer weekly derivatives contracts for the Sensex index. The new SEBI rules necessitate a more stringent monitoring of intraday positions, requiring exchanges to conduct checks at least four times daily and impose penalties for any breaches of intraday limits. Furthermore, the size of derivatives contracts in benchmark indices like Nifty and Sensex has been increased from Rs 5 lakh - Rs 10 lakh to Rs 15 lakh - Rs 20 lakh.
SEBI's decision to tighten F&O regulations is primarily driven by concerns regarding the substantial losses incurred by retail investors in the derivatives segment. A recent study conducted by SEBI revealed that over the past three years, 1.10 crore traders in the F&O segment have collectively suffered a loss of Rs 1.81 lakh crore. The study also indicated that only 7% of F&O traders have managed to make a profit during this period. The data highlights the significant risk associated with derivatives trading, particularly for inexperienced investors. Despite these risks, the turnover in the index options market has surged dramatically, rising from Rs 11 lakh crore in FY 20 to Rs 138 lakh crore in FY 24, a twelve-fold increase. This growth underscores the continued appeal of derivatives trading, despite the potential for losses.
While the new SEBI regulations are intended to safeguard retail investors, the discontinuation of certain weekly options contracts may have implications for market liquidity and trading activity. The reduction in the number of available contracts could potentially lead to higher trading costs and reduced market depth. However, the overall impact on the market is likely to be limited, as the Nifty 50 remains the most actively traded index in India. The long-term implications of these regulatory changes remain to be seen, but the focus on risk mitigation and investor protection is expected to continue shaping the future of F&O trading in India.
Source: NSE To Discontinue Three Weekly Options Contracts Including Bank Nifty