BSE Share Price Zooms 17 Per Cent After Sebi Proposes Changes To Expiry Day Guidelines

BSE Share Price: Shares of BSE Ltd. (formerly Bombay Stock Exchange) rallied as much as 17 per cent on Friday, March 28 after the Securities and Exchange Board of India (Sebi), in its consultation paper on Thursday, proposed new guidelines for the final settlement day (or expiry day) of equity derivatives contracts.

Apart from this, BSE's board is also scheduled to meet on Sunday, March 30 to discuss a proposal for issuing bonus shares.

BSE shares zoomed 17.81 per cent to the day’s high at Rs 5,519 per share, extending gains for the second consecutive day. From its March lows, hit on the 11th, the stock has rallied nearly 50 per cent.

How Sebi’s New Expiry Day Guidelines Benefit BSE

Sebi’s proposals came after the National Stock Exchange (NSE), decided to shift its expiry days. Earlier this month, NSE deferred weekly expiry to Monday from the current Thursday. Therefore, as a response to Sebi’s proposals, the NSE, in a circular dated March 27, announced that it has deferred its plans to change the day of its contract expiry.

This deferment could be seen as a positive development for the BSE, which has been gradually growing its market share in equity derivatives trading. With the NSE's plan postponed, BSE might benefit from having a level playing field for now, as market participants wait for Sebi’s final decision.

Sebi Proposal For Expiry Day

Under the proposed guidelines, all equity derivatives contracts will have their expiry days limited to either Tuesdays or Thursdays. This aims to ensure uniform spacing between expiry dates across exchanges while avoiding the extremes of the start or end of the week.

Currently, BSE and NSE keep their expiry days for derivatives contracts on single stocks and indices on Tuesdays and Thursdays, respectively.

In addition, exchanges will continue to be allowed one weekly benchmark index options contract on their chosen day, either Tuesday or Thursday.

For other equity derivatives segment, including benchmark index futures, non-benchmark index futures/options, and single stock futures/options, Sebi has proposed a minimum tenure of one month. The expiry for these contracts will occur on the last Tuesday or Thursday of each month, further standardising expiry dates.

Further, Sebi has also proposed to make it mandatory for exchanges to seek prior approval from the regulator before launching or modifying any contract expiry or settlement day.

Why The Need To Standerdise Expiry Dates

Sebi stated that the derivatives market in India has seen massive growth over the past five years, led by advancements in technology, increased digital access, and a wider range of product offerings by the exchanges. Specifically, volumes in index options trading on expiry days have seen a meteoric rise, raising concerns about investor protection and market stability. To address these concerns, SEBI has introduced these new measures.

Avoiding either the first day of the week or the last day as the expiry day, Sebi aims to reduce volatility in the market and ensure better predictability for traders. “This would provide optimal spacing between expiries across exchanges, said Sebi.

The regulator added, “Spacing out of expiry days through the week reduces concentration risk, and provides an opportunity for 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 jeopardize investor protection and market stability. It is therefore, felt desirable to formalise the final settlement days for equity derivatives contracts across exchanges so that it gives predictability to market participants while avoiding any unwarranted shuffling of such days by the exchanges that may impact market integrity or orderly trading.”