Will Sebi's New Framework On F&O Expiry Days Reduce Volatility And Trading Volumes? Here's What Experts Say

The Securities and Exchange Board of India (Sebi) recently introduced a new framework to standardise the expiry schedule of equity derivatives (futures and options or F&O) contracts.

The regulatory change is aimed at providing predictability and stability to market participants around expiry days of equity derivatives contracts across exchanges and to reduce concentration risk.

In a circular issued on May 26, 2025, Sebi mandated exchanges to offer only one weekly benchmark index contract, which should expire either on a Tuesday or a Thursday. As of now, the National Stock Exchange (NSE) holds expiries on Thursdays, while the Bombay Stock Exchange (BSE) conducts them on Tuesdays.

Besides benchmark index options, the regulator has also mandated expiry rules for all other derivatives contracts, including benchmark index futures, non-benchmark index futures and options, and single stock derivatives.

These contracts are directed to be offered with a minimum tenure of one month, and the expiry is to be held either on the last Tuesday or the last Thursday of the month, based on the exchange’s choice

The watchdog has further directed the exchanges to seek its prior approval before launching or modifying expiry or settlement day for any contract.

This move had come after NSE had earlier, in March this year, proposed to shift the expiry day for Nifty index weekly derivative contracts from Thursdays to Mondays. This was scheduled to also apply to Nifty's monthly, quarterly, and half-yearly contracts. However, the exchange later deferred this shift following Sebi’s consultation paper dated March 27, 2025 in which the regulator had proposed to formalise the expiry days.

In the consultation paper, Sebi said: “Spacing out of expiry days through the week reduces concentration risk, and provides an opportunity to exchanges to offer product differentiation to market participants. At the same time, too many expiry days have the potential to revive expiry day hyperactivity, which could jeopardise investor protection and market stability.”

As such, the regulator thought that it is in the best interest of market participants to formalise the final settlement days for equity F&O contracts.

Impact On Market Liquidity And Trading Volumes

Naman Shah, senior vice president, head sales, Ohm Dovetail, a leading clearing member in India, said, “Having expiries on multiple days (e.g. Bank Nifty on Tuesday, Nifty on Thursday) spreads out trading volume over the week. This avoids a single-day concentration and can smooth out liquidity. Further, more frequent expiry opportunities may attract traders who seek shorter-term trades which could potentially boost overall trading volumes, especially in weekly options.

Ravi Singh, senior vice-president, retail research, Religare Broking, said the new expiry day framework will concentrate trading activity on either Tuesday or Thursday, which may attract most expiry-focused traders to those days. He said this regulatory move by Sebi is likely to help manage overall trading volumes and market liquidity, while also reducing volatility spikes that typically occur when multiple expiry days are scattered throughout the week.

Impact On Market Volatility

According to Shah, the new move is unlikely to change much as structural volatility driven by macroeconomic news or earnings cycles will remain unaffected. However, he added, smoother expiry days could contribute to a marginally more stable trading environment.

Singh said, “We could see a noticeable decrease in market volatility as a result of the new expiry day rules. By limiting aggressive intra-day positioning, especially on expiry days, these measures can dampen the sharp price fluctuations often triggered by large institutional or algorithmic trades. With lower leverage and stricter risk controls, traders are less likely to take oversized bets, leading to more orderly market behaviour.”

Singh further said that while short-term volatility may decrease, the long-term effect could be a more stable market environment. However, he added, it was also possible that liquidity might dip slightly, especially in the near term, as some high-frequency traders may adjust their trading strategies or exit the market.

Will This Reduce Hyperactivity Typically Seen On Expiry Days

Singh said the newly proposed expiry day structure aims to reduce hyperactivity on multiple expiry days by curbing excessive speculation and intraday volatility throughout the month. By introducing tighter position limits or lowering leverage, these regulations are designed to discourage large, destabilising trades that often result in sharp price swings, he added.

“It is also notable that key indices will have a single-day expiry, which could act as a volume magnet and attract expiry traders, potentially increasing hyperactivity on that specific expiry day,” he said.

Shah said, “The new rules are likely to reduce expiry day hyperactivity, especially with less crowding, retail traders may face lower bid-ask spreads and less order execution slippage.”