Explained: SEBI limits equity F&O contracts to either Tuesdays or Thursdays, effective June 15

The Securities and Exchange Board of India (SEBI) has decided that equity derivative expiries will be restricted to either Tuesdays or Thursdays. This change will take effect from June 15, according to the market regulator, which announced the decision on Monday. The move is aimed at improving investor protection and promoting market stability.

In a statement on Monday, the market watchdog made it clear that spacing out expiry days through the week mitigates risk while enabling stock exchanges to offer product differentiation.

SEBI Circular Decoded | Here's a list of key takeaways from SEBI's latest communication on the matter:

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• Expiries of all equity derivatives contracts of an exchange will be uniformly limited to either Tuesday or Thursday
• Every exchange will continue to be allowed one weekly benchmark index options contract on their chosen day (Tuesday or Thursday)

• Besides benchmark index options contracts, all other equity derivatives contracts will be offered for a minimum of one month
• This includes all benchmark index futures contracts, non-benchmark index futures or options contracts, and all single stock futures or options contracts
• The expiry will be in the last week of every month on their chosen day (last Tuesday or last Thursday of the month)

Exchanges will now have to seek SEBI’s prior approval for modifying the settlement day of derivatives contracts, it noted.

In October, SEBI announced its decision to limit the number of weekly options contracts to one benchmark index per bourse.

How do the stock exchanges operate currently?

Currently, stock exchanges can decide their derivative expiry days. However, in the multi-exchange framework, spacing out expiry days through the week reduces concentration risk and provides stock exchanges the opportunity to offer product differentiation to market participants, according to SEBI.

NSE offers expiries on Thursdays while BSE offers them on Tuesdays.

What SEBI said about "too many expiry days"

In March, SEBI issued a consultation paper in this regard, with its secondary market advisory committee discussing the matter in detail after studying the feedback received. Since then, bourses have aligned their weekly expiries to the guidelines but have also been trying to offer contracts expiring on different days of the week.

The system of “too many expiry days” has the “potential to revive expiry day hyperactivity”, which can potentially hinder investor protection and market stability, SEBI said in its May 26 circular.

Exchanges’ attempts at offering derivative contracts expiring on separate days goes against SEBI’s goal of reducing opportunities for retail investors to speculate on such contracts.

In order to implement the circular, it also asked stock exchanges to submit their proposals by June 15.

It directed stock exchanges and clearing corporations to “take necessary steps to put in place systems for implementation of this Circular, including necessary amendments to the relevant bye-laws, rules and regulations, if any”.