NSE thwarts BSE’s volumes bid with expiry day change

Effective 7 July, the new expiry date will be shifted from Thursday to Friday. However, the NSE will continue to maintain the Thursday expiry date for its weekly and monthly Nifty derivatives.

The move by NSE comes after BSE recently altered the expiry day of its weekly Sensex and Bankex derivatives contracts from Thursday to Friday, in an effort to attract more trading volumes. BSE’s strategic move is presumed to be the idea of its new managing director and chief executive officer Sundararaman Ramamurthy, who had taken charge in January.

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To enhance its presence in futures and options (F&O), the BSE announced on 15 May the reintroduction of weekly and monthly Sensex and Bankex contracts, with the expiry date shifted to Friday instead of Thursday, as followed by the NSE.

“Our Sensex contracts have a smaller lot size of ₹6 lakh against ₹9 lakh on Nifty, which makes it cheaper for traders and investors,” Ramamurthy told Mint then. “Also, the contract expiry is Friday, so investors who focus on Nifty and Bank Nifty derivatives on a Thursday can give their attention to these contracts.”

Market analysts termed the move a “masterstroke” by NSE managing director and chief executive Ashishkumar Chauhan, who had led the BSE earlier.

Apart from eliminating any trace of competition, the move could reduce volatility and increase volumes on the NSE, they added.

“The move is a masterstroke which, besides making short work of competition and continuing NSE’s dominance, will enable more effective use of margins and reduce volatility on the Nifty, which expires a day ahead,” said Rajesh Palviya, head, derivatives and technical research, Axis Securities.

Palviya expects expiry day volatility on the Nifty to reduce by 20-22% as the components of Bank Nifty will be more active on Friday rather than when the Nifty expires on Thursday.

The BSE, a minnow in the derivatives segment against NSE’s dominance, has so far made several attempts to capture market share from its dominant peer, but failed to make any impact on traders. It had floated a liquidity enhancement scheme, where members offering two-way quotes (buy and sell) were incentivized, but it didn’t work, resulting in the exchange having to withdraw them and focus on alternative arrangements to change the tide.

Financials have 37.92% weighting on the Nifty 50 index, led by HDFC Bank, ICICI Bank, Kotak Mahindra Bank, Axis Bank and State Bank of India. As these stocks also form part of the 12-member Bank Nifty index, analysts anticipate heightened activity surrounding them specifically on Fridays.

Consequently, Friday trading is expected to mitigate volatility in Nifty futures and options, which expire on Thursdays.

Mint’s queries to the NSE and BSE remained unanswered till press time.

Chandan Taparia, head, derivative research, Motilal Oswal Financial Services, said the move will free up client margins and potentially increase volumes on both Nifty and Bank Nifty derivative on both days.

Interestingly, both Ramamurthy and Chauhan had served in NSE around the time of its inception in 1992. Chauhan left NSE to join RIL in 2000, before moving to BSE in 2009 as the deputy CEO. He was elevated as the CEO in 2012 and quit in July 2022 to head the NSE.

The average daily turnover of derivatives on NSE was ₹153.5 trillion against just ₹1.38 trillion on the BSE in FY23. Following the change in expiry to Friday, BSE’s average daily turnover rose to ₹24,093 crore in June from ₹1,167.91 crore in May.

Updated: 07 Jun 2023, 12:29 AM IST