India’s equity derivatives market has experienced rapid growth, accompanied by a surge in short-term trading and speculative strategies. In response, the Securities and Exchange Board of India (SEBI) has implemented crucial reforms aimed at increasing market transparency and safeguarding retail investors.

At the forefront of these changes is the standardization of expiry days for equity derivative contracts across exchanges, a significant step toward stabilizing the derivatives ecosystem and curbing unnecessary risks triggered by inconsistent trading schedules.

SEBI’s Standardization of Expiry Days in Equity Derivatives

SEBI has mandated that all equity derivative contracts listed on Indian stock exchanges must now expire solely on either a Tuesday or a Thursday. This directive eliminates the volatility created by exchanges frequently altering expiry schedules in an attempt to gain a competitive edge.

For instance, the National Stock Exchange (NSE) had initially announced a shift of expiry to Mondays, a move that conflicted with the Bombay Stock Exchange’s (BSE) Tuesday expiry timeline. Such divergence increased the risk of calendar arbitrage and complicated rollover strategies for investors using both exchanges.

With standardized expiry days, traders can now operate within a structured framework that promotes greater predictability and strategic clarity. This move also minimizes operational inefficiencies for institutions managing large portfolios and eases coordination for brokers and clearing members.

Furthermore, staggered expiry across two specific weekdays enables market participants to manage positions more effectively. It supports smoother position rollovers by allowing risk mitigation across platforms and ensuring that liquidity is not concentrated on a single day.

By resolving the “expiry day tug-of-war” between exchanges, SEBI is reinforcing stability in the derivatives segment and fostering sustainable investor participation. This uniformity is a long-awaited regulatory intervention aimed at strengthening market integrity while reducing systemic confusion.

Enhancing Liquidity Rollover and Market Stability

Beyond aligning expiry schedules, SEBI has also introduced a rule allowing exchanges to open trading in next-month contracts during the final five days leading up to expiry. This change targets the enhancement of liquidity rollover processes, especially during phases of heightened volatility such as expiry week.

This provision ensures that institutional investors and asset managers can shift their positions into subsequent contracts without disrupting price behavior or encountering sudden liquidity gaps. As a result, portfolio managers gain more efficient tools to rebalance exposure and limit transaction slippage.

For example, instead of executing large trades on a single day, participants now have a five-day buffer for transitioning out of expiring contracts, allowing more strategic and less abrupt positioning. This smooth rollover mechanism is crucial for sustaining liquidity in both spot and futures markets.

Additionally, this structure aligns with SEBI’s broader objective of curbing excessive speculation — a concern that became evident in retail trading patterns post-pandemic. Better rollover visibility helps moderate sharp price movements, supporting overall market stability and fair price discovery.

Importantly, the rollout of these rules reflects SEBI’s proactive stance against practices that prioritize short-term volume over long-term investor value. By focusing on liquidity integrity and encouraging orderly transitions, the regulator is creating a framework where derivative products can serve as effective hedging and investment tools rather than purely speculative instruments.

Adjustments to Market-Wide Position Limits and Investor Safeguards

As part of its broader initiative to refine India’s equity derivatives landscape, SEBI is set to implement substantial changes to Market-Wide Position Limits (MWPL), effective October 2025. The updated framework will cap MWPL at the lower of 15% of a stock’s free float or 65 times its Average Daily Delivery Value (ADDV), while maintaining a minimum threshold of 10% of the free float.

This recalibration is designed to ensure that open interest in derivative contracts reflects the actual liquidity of the underlying cash market. By doing so, SEBI aims to curb excessive leverage and prevent concentration risks that have the potential to disrupt market functioning during periods of stress.

For example, stocks with lower delivery volumes—often the target of speculative trading—will now face stricter limits that tie derivative exposure to their real-world tradability. This measured tightening helps safeguard retail investors from the ripple effects of sudden price gyrations caused by overleveraged positions.

SEBI’s move also addresses alarming trends in speculative retail behavior. A recent report by a working group led by former RBI executive G. Padmanabhan revealed that significant retail losses stemmed from short-term bets on index options, particularly during weekly expiries. These findings served as a catalyst for SEBI’s resolve to control speculative excess without stifling genuine hedging activity.

To further bolster investor protection, the new regulations enforce upfront margin requirements from option buyers and restrict excessive position buildups on expiry days. These measures enhance market discipline and create a more balanced risk-reward ecosystem, especially for less experienced retail participants.

This strategic blend of liquidity-aligned exposure caps and structural safeguards is part of SEBI’s evolving blueprint to create a fairer and more transparent derivatives market. The goal isn’t to limit participation—but to ensure that participation is responsible, informed, and oriented toward long-term capital efficiency.

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