The Securities and Exchange Board of India (SEBI), the regulatory body for the securities market in India, has issued a directive to all recognized stock exchanges operating within the country. This instruction pertains specifically to the expiry days of Futures and Options (F&O) contracts, also known as derivative contracts.

The core of the directive instructs stock exchanges to make a crucial decision: they must choose either Tuesday or Thursday as the single, uniform day of expiry for all their equity derivative contracts. This encompasses a wide range of derivative instruments, including:

• Stock Futures: Contracts obligating the buyer to purchase or the seller to sell a specific quantity of an underlying stock at a predetermined price on a future date (the expiry date).

• Stock Options: Contracts granting the buyer the right, but not the obligation, to buy (call option) or sell (put option) a specific quantity of an underlying stock at a predetermined price on or before a future date (the expiry date).

• Benchmark Index Futures: Similar to stock futures, but based on a benchmark stock market index like the Nifty 50 or the Sensex.

• Benchmark Index Options: Similar to stock options, but based on a benchmark stock market index.

• Non-Benchmark Index Futures and Options: Derivative contracts based on other sectoral or less widely followed stock market indices.

Key Implications and Details of SEBI's Directive:

1. Mandatory Selection: Each stock exchange is now obligated to select only one day – either Tuesday or Thursday – as the designated expiry day for all the aforementioned equity derivative contracts traded on their platform. They are no longer permitted to have expiries spread across multiple days of the week.

2. Single Weekly Benchmark Index Option Exception: While the general rule is a single expiry day, SEBI is allowing each stock exchange to continue offering one weekly option contract based on a benchmark index that will expire on their chosen day (either Tuesday or Thursday). This provides a short-term trading instrument for benchmark indices aligned with the overall expiry day.

3. Minimum Contract Tenor for Other Derivatives: For all other derivative contracts beyond the single weekly benchmark index option (including benchmark index futures, non-benchmark index options, and single stock futures and options), SEBI is stipulating a minimum contract tenor of one month. This means that the shortest duration for these contracts will be approximately one month.

4. Monthly Expiry Alignment: These derivative contracts with a tenor of one month or longer must have their expiry date aligned with the chosen weekly expiry day of the exchange. Specifically, the monthly expiry for these contracts will fall on the last Tuesday or the last Thursday of the month, depending on whether the exchange has selected Tuesday or Thursday as their standard weekly expiry day.

5. Prior SEBI Approval for Changes: Once a stock exchange has selected its expiry day (Tuesday or Thursday) and implemented the new rules, any future changes to this designated expiry day will require prior approval from SEBI. This ensures stability and prevents exchanges from frequently altering expiry schedules, which could disrupt trading strategies and market participants' planning.

6. Submission Deadline for Expiry Day: SEBI has set a deadline for stock exchanges to formally communicate their chosen expiry day. Exchanges are required to submit their decision (either Tuesday or Thursday) to SEBI by June 15, 2025. This indicates a timeline for the implementation of this new directive.

Rationale Behind SEBI's Directive:

This move by SEBI is likely aimed at achieving several objectives:

• Standardization and Simplification: Consolidating expiry days to either Tuesday or Thursday will create a more standardized and simpler market structure for derivative trading. This can make it easier for investors, particularly retail participants, to understand and participate in the F&O segment.

• Reduced Expiry Day Volatility: Currently, with different derivative contracts expiring on various days, the market can experience heightened volatility on multiple occasions during the week. By concentrating expiries on a single day, SEBI aims to potentially reduce this dispersed volatility and focus it on one specific day.

• Enhanced Trading Efficiency: A unified expiry day could lead to increased liquidity and trading volumes on that particular day, as market participants focus their expiry-related activities.

• Harmonization Across Exchanges: This directive ensures that all stock exchanges follow a consistent framework for derivative expiries, promoting uniformity across the Indian equity derivatives market.

• Following Consultation: This decision likely stems from a consultation process with market participants and the recommendations of relevant advisory committees, such as the Secondary Market Advisory Committee (SMAC) of SEBI, as hinted in the previous detailed response.

In conclusion, SEBI's directive is a significant step towards streamlining the expiry process for equity derivative contracts in India. By mandating stock exchanges to choose between Tuesday and Thursday as their single expiry day, SEBI intends to foster a more organized, efficient, and potentially less volatile trading environment for these instruments.