BSE now shifts its Bankex weekly contract expiry to Monday Effective 16-Oct-2023

The expiry day for the BSE F&O contracts has been a rather debatable issue in recent times. It is now official that the expiry of the BSE Bankex derivatives contracts will be revised to Monday effective from October 16, 2023. This was announced in a special circular issued to that effect by the Bombay Stock Exchange (BSE). Currently, the BSE Bankex contract expire on every Friday and that has now been shifted to Monday effective from October 16, 2023. However, this will not apply to any of the existing contracts. The new contracts of S&P Bankex with Monday expiry will be generated on October 13, 2023, after the close of trading. This will be available for trading from October 16, 2023. However, it must be remembered that the expiry of the Sensex Derivative contracts does not change and they continue to expire on Friday as before. The change only impacts the BSE Bankex derivative contracts, effective from October 16, 2023.

From Thursday to Friday, and then to Monday

There is an interesting story to Thursday being the expiry for the F&O contracts. When derivatives were first introduced in India, both the BSE and the NSE were on 5-day expiry model. Of course, the derivatives contracts were introduced in 2000 and due to the 5 day expiry model (T+5), 4 days were the settlement and the after settlement day on BSE and NSE. Effectively, the only day left in the week was Thursday and that is how Thursday became the F&O expiry date. Subsequently, the markets shifted to rolling T+3 system, which later moved to T+2 and now to standardized T+1. Under these circumstances, it does not make too much sense continuing with Thursday and the only reason it had continued for all these years was that traders and the market intermediaries were used to it. Hence changing was not too tough and that is what BSE had first attempted in May 2023. Circa May 2023.

Back in May 2023, the BSE had relaunched Sensex and Bankex derivative contracts with the sole intent of boosting participation and volumes in these contracts. Towards this effect, the BSE had reduced the lot size of futures and options and also offered a new expiry cycle expiring on Friday instead of Thursday so that the traders and hedgers could have a wider choice available. In India, derivatives are used for trading and also for hedging risk. Many of the major foreign portfolio investors and domestic mutual funds take substantial exposure to the future and options contracts, largely through arbitrage positions in cash and futures. However, for all these contracts, the NSE had become the first port of call. By offering a different trading cycle, the idea was for BSE to capture a greater market share.

Will this shift from Friday to Monday impact traders?

It is too early to say, but it will make the settlement task more spread out rather than concentrating all the pressure on a single day. Also, traders get more choice and more coverage for market volatility as they have more options available. Of course, build-up of volumes is still an issue and the more volumes the BSE builds up, the greater would be the choice available for the traders and market participants. Effective from October 16, 2023 onwards; the traders will have a staggered F&O expiry schedule to follow as under.

• The Nifty Midcap Select will expiry every Monday
• The BSE Bankex will also now expire on Monday, instead of Friday
• The Nifty Financial Services Index futures will expire on Tuesday
• Bank Nifty NSE will expire on Wednesday
• The Nifty 50 will expire on Thursday
• Finally, the BSE Sensex futures will expire on Friday

In a nutshell, there will be some expiry of weekly contract indices on each of the days. However, stock expiries will continue to happen on the regular Thursday cycle only. To what extent this move impacts volumes or enhances the trading options for the traders remains to be seen.