NSE to Discontinue Weekly Derivative Contracts for Bank Nifty, Nifty Midcap Select, and Nifty Financial Services From November

The Securities and Exchange Board of India (SEBI), in a regulatory update on 10 October 2024, announced several measures to enhance investor protection and market stability in the derivatives segment. One notable change is the limitation of weekly derivatives contracts to a single index per exchange, with the aim of reducing volatility in the market during contract expiry days. In response to this new regulation introduced by SEBI, the National Stock Exchange of India (NSE) has announced plans to discontinue weekly index derivatives for the Bank Nifty, Nifty Midcap Select, and Nifty Financial Services indices. Effective from November, the NSE will no longer offer weekly options contracts for these indices. 

Per these regulations, the BSE has also announced that it will discontinue weekly index derivative contracts for the SENSEX 50 and BANKEX effective November 14 and November 18, respectively.

 Given below are the last trading dates for these contracts as per the circulars (NSE, BSE) issued on October 10, 2024:

Along with this, SEBI has also introduced new monitoring measures for intraday positions. Starting November 20, exchanges will be required to track intraday positions at least four times daily. Penalties for any violations will be similar to those currently in place for end-of-day position breaches.

The NSE has cited several factors as influencing this decision, including:

• Market Dynamics: The exchange has observed a decline in trading activity for weekly derivatives in these indices, suggesting a shift in investor preferences.
• Regulatory Considerations: The discontinuation aligns with certain regulatory guidelines aimed at promoting market stability and reducing systemic risks.
• Operational Efficiency: The move is expected to simplify the exchange's operational processes and enhance its overall efficiency.

While the BSE has not provided specific reasons for targeting these particular indices, it is likely that factors such as their relative size, liquidity, and volatility played a role in the decision.

Impact on Investors and Traders

The discontinuation of weekly expiry contracts will have an impact on traders and investors who use these contracts for their trading strategies. The discontinuation could lead to changes in volatility patterns and pricing dynamics. It is advisable for investors to closely monitor market movements and consider alternative investment options.

Some analysts anticipate that the discontinuation could have a limited impact on overall market liquidity and volatility. However, others may express concerns about the potential for disruptions in certain trading strategies.