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

FInoux 5 Mins 22 Oct 2024

As per the circular released by the National Stock Exchange (NSE) on October 10, it will discontinue weekly index derivatives contracts for Bank Nifty, Nifty Midcap Select, and Nifty Financial Services, effective from November 13, 18, and 19, respectively. Let us look at the details and how it impacts investors.

SEBI's New Circular on Discontinuation of Weekly Derivative Contracts

The Securities and Exchange Board of India (SEBI) issued a circular regarding the discontinuation of weekly derivative contracts. This move is aimed at reducing market volatility and promoting investor protection. Key Points of the Circular:

  • Phase-out of Weekly Contracts: SEBI has announced a gradual phase-out of weekly derivative contracts. It means that new weekly contracts will no longer be introduced, and existing contracts will be allowed to expire.
  • Focus on Monthly Contracts: The regulator is encouraging market participants to shift their focus towards monthly derivative contracts, which are considered to be more stable and less prone to excessive volatility.
  • Market Stability: SEBI believes that reducing the frequency of contract expirations will contribute to greater market stability and reduce the risk of sudden price movements.

Also, SEBI introduced new monitoring measures for intraday positions. Starting November 20, exchanges (NSE and BSE) 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.

Last Trading Dates for Trading Contracts

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

Index

Expiry Date/Last Trading Day

Nifty Bank

November 13, 2024

SENSEX 50

November 14, 2024

BANKEX

November 18, 2024

Nifty Midcap Select

November 18, 2024

Nifty Financial Services

November 19, 2024

 

Factors that led to the discontinuation of weekly contracts

The NSE has cited several factors contributing to its decision to discontinue weekly derivative contracts for certain indices. These factors include:

  • Market Dynamics: The NSE has observed a decreasing trend in trading activity for weekly derivatives in these indices, suggesting a shift in investor preferences towards monthly or longer-term contracts.
  • Regulatory Considerations: The decision aligns with regulatory guidelines aimed at promoting market stability and reducing systemic risks associated with short-term, highly volatile derivatives.
  • Operational Efficiency: By discontinuing weekly contracts, the NSE aims to streamline its operational processes, reduce complexity, and enhance overall market efficiency.

Impact on Investors and Traders

The decision by the NSE to discontinue weekly derivative contracts will have implications for investors and traders:

  1. Increased Focus on Monthly Contracts: Investors and traders will need to shift their focus towards monthly derivative contracts, which will become the primary option for trading derivatives in the affected indices.
  2. Reduced Speculative Activity: The discontinuation of weekly contracts is expected to reduce speculative activity and promote a more long-term focus among market participants.
  3. Potential Impact on Trading Strategies: Some trading strategies that rely heavily on weekly contracts may need to be adjusted or modified.
  4. Potential for Reduced Transaction Costs: In the long run, the move towards monthly contracts could lead to reduced transaction costs as market participants may benefit from economies of scale and increased liquidity.
  5. Impact on Market Liquidity: The discontinuation of weekly contracts could affect market liquidity, particularly for smaller indices or less liquid underlying assets.

Conclusion

The discontinuation of weekly expiry contracts for select key index derivatives marks a substantial shift in the Indian stock market. This change is anticipated to significantly affect traders and investors who rely on these contracts for their trading strategies. Nevertheless, the new regulations are intended to mitigate market volatility during contract expiry days.

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