“If we really believe that there is a lot of speculation on expiry days, then the solution lies in controlling the expiry day activity. There should be just one expiry day for the entire market, for all the exchanges put together. I think that will be a fair approach, and possibly, it is time for industry to think about it.”
He added that the change was driven by efficiency and market seamlessness rather than immediate market share gains. NSE will continue to monitor feedback and review the decision if needed.This change will take effect from April 4. Currently, BSE has its contract expiry on Tuesdays.
This is the edited excerpt of the interview.
Q: What is the reason behind the move – to shift the expiry of Nifty weekly contracts from Thursday to Monday?
A: Over the last few weeks and months, we have seen many actions taken by stock exchanges in the country with respect to the expiry date. You have seen expiry day shifts being undertaken by other exchanges and there are also some new exchanges who are planning a foray into equity derivatives to launch weekly expiry. I think it all follows from the Securities and Exchange Board of India (SEBI) rules, which require only one expiry for exchange. But if the intention of the regulators is to have one expiry, it makes sense to choose the optimal day of the week. It’s a routine exercise that we undertook, and we feel that Monday would be the best day for our expiry.
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Q: The rough analysis that we have done in the last 12 hours or so is that BSE had a higher market share on Friday as well as on Monday, and NSE now believes that changing the expiry could pull it back. Did you all do some rough calculations? On Thursday, the rough market share, I believe, is in low single digits, while in the other days, that’s on Friday, as well as on Monday, it’s in the vicinity of around 15 to around 20% can you give us some numbers if you have done some back-of-the-envelope calculations?
A: The rationale for this change is not really about the numbers and in terms of what we will gain or how it will look like if we make this change. The rationale for this decision is more to take into account the fact that there are lots of geopolitical events, developments over the weekend and Monday is a great day to therefore have the expiry. That was how we wanted to think about it.
We have been receiving feedback in the last 11 hours. We will, obviously, keep all the feedback in mind, but we have announced this change keeping the efficiency and the seamlessness in mind. These things can be reviewed from time to time by exchanges, and we will therefore review if need be.
Q: Two parts to that question. One, you are saying that there are a lot of geopolitical changes when the counter argument could be that now, if you have a position open on Friday and you have to come back on Monday, and Monday is expiry, so have to square it off, there could be a lot of volatility in between. Weekends there is a lot of news flow, that is one and second, there must have been some thought in terms of volumes. Do you feel that Monday will give you more volumes than Thursday? Is it that you have been analysing this at Monday? For other exchanges that shows Monday till now, were they doing a lot of business, which is what you want to capture as well.
A: The way to look at it would be, over a period of time, we have been waiting and watching to see what could be best based on feedback from various constituents in the market. The way we want to look at it, and the way we want to see this is that we have announced a change for the first time after a really long time, and the others have done it. BSE did it from Friday to Tuesday, a few weeks back. They would have had similar reasons and similar analysis to back their judgement and decision so this is a change, which we have similarly undertaken after our internal reviews.Q: Do exchanges need SEBI approval for these changes?
A: No, the SEBI rules permit a change in the expiry date, and prior approval is not required. But we have intimated SEBI about the change as required by the rules.
Q: Have you heard from SEBI at all, with regards to all of this when you announced this. If these days keep changing, then what happens and will at some point SEBI step in and say – you got to run these by us, otherwise, this is just too much change – any thoughts at all?
A: This can possibly be resolved if we all start appreciating the spirit behind SEBI’s rule changes. It is fair to say that SEBI thought about the expiry day activity, the huge amount of speculation going on, and they deemed that reducing the number of expiry days would be the best way to confront this malice. If that’s really the case, then a single day for all expiries in the entire market is the real solution. So proliferation of weekly expiries on every day of the week through multiple exchanges, like MSCI, for example, has a plan, NCDEX seems to have a plan, MCX seems to have a plan. Then there could be OTCEI who might come up with a plan. So, proliferation of weekly expiry is through multiple exchanges is no different from one exchange potentially offering expiries on every day of the week. So perhaps, the solution lies in one single expiry for the entire market that could be the effective solution to this, to this malice.
Q: I was saying exactly this in the morning, that everybody has got a plan, so Monday, Tuesday, Wednesday, Thursday, Friday, all five days, you will have expiries eventually. So then, one exchange, one expiry per week, that idea is lost in that sense. Will you propose this to the regulator? Maybe that is the way to go. As you said, that is a solution, a way out of this?
A: In discussions, on this topic, these sorts of ideas have already come up. We have gone through many iterations of what are potential solutions to some of these challenges and we need to do the right thing in order to protect investors, particularly retail investors. If we really believe that there is a lot of speculation on expiry days, then the solution lies in controlling the expiry day activity. There should be just one expiry day for the entire market, for all the exchanges put together. I think that will be a fair approach, and possibly, it is time for industry to think about it.
Q: To sort of round off that point, and your point is well taken. The whole idea was to limit retail speculation, then are you really limiting it? Because it’s not one exchange offering five products on five days of the week. It’s five different exchanges offering different products, so one per week so I can still go on speculating. But what could be a suggestion or a work around this? Because the counterpoint immediately will be that it has to be a free market. All exchanges should be allowed to offer their products, and all exchanges should be allowed to flourish and innovate. So then what would be a reasonable solution that perhaps the NSE could think of and could tell the regulator about?
A: The way we would like to look at it is that investor awareness and education is something that we have to work on. At this point in time, we are probably faced with a population of investors who need to be well aware of the downside risks of trading options, for example. The SEBI has done some analysis in the past, which reflects that retail investors seem to be losing money trading options, but of course, they may be making money in other asset classes that aside, it is our responsibility to collectively upgrade and build capacity in the market.
If that is the case, then we should be limiting expiry. That’s the limited point I am making. Alternatively, if we say there is going to be one weekly expiry permitted per exchange, then there will be some changes that you will see with respect to the selected expiry day for a given exchange at a point in time. Everybody will reserve the right to do what is best for them under these circumstances based on feedback from market participants from time to time.
Q: If BSE goes ahead and alters their expiry day, do you think you all as well will look at the same or it stays at Monday?
A: I will not be able to comment on it. But obviously there could be feedback from people who trade NSE contracts as well. We are here to deliver what the market wants. We are not here to deliver what our own plans are. Therefore, we will keep listening to the market participants and based on feedback which is coming in, by the way, through emails and phone calls and everything, which is all being recorded and monitored, and we will therefore take steps as required based on how this situation evolves.
Q: Just to finally clarify what you are saying could be a plausible solution is get all exchanges to offer their weekly products to expire on the same day. That is something that the NSE would be agreeable to?
A: I think everybody would be agreeable to that, why wouldn’t they be.
