Why SEBI Wants to Change Derivative Expiry Days to Tuesday or Thursday Only?

Introduction

SEBI has dropped a proposal that they want to limit the expiry days of derivatives contracts to just Tuesdays and Thursdays. Now, this latest news update makes me wonder why SEBI wants this change? What’s cooking in SEBI’s mind? I thought to investigate a bit and present to you the reasons why SEBI is acting in this line.

By the way, I’ve been investing in the stock market (cash market) since 2008-09. I’ve never invested in the derivative market ever. But I know that the trading volume in the derivative market is almost double than our conventional cash market. As so much trading happens in the derivative market, it can really effect the stock prices by building a positive and negative sentiment for stocks (and for the whole market in general). If you want to know the difference between cash market and derivative market, please read this blog post.

This is the reason I though to dig deeper into this new SEBI’s proposal as it might effect the stock prices of our investment portfolio as well.

What’s The Backstory

For those who don’t know, derivatives are those financial contracts, like futures and options, that let traders bet on the future price of stocks or indices like Nifty or Sensex (read here for more info).

These contracts expire on specific days, meaning they close out, and traders “settle their positions.” On the expiry day of a derivatives contract, traders either complete their trade by buying or selling the underlying asset OR they can also cash out the profit or loss based on the contract’s final value.

For example, if I bought a Nifty options contract betting the index would rise to 25,000 by Thursday. On expiry day I’d either sell it to lock in my gains if Nifty hits 25,100, or let it expire worthless and lose my investment if it drops to 24,900. Either way, my position is “settled” as the contract ends. There is also a possibility to keep the Nifty Futures rolling over (read about the rolling nifty futures here).

Right now, in India, expiry days are a bit of a free-for-all. The NSE has its weekly Nifty options expiring on Thursdays, while BSE picks Tuesdays for its Sensex contracts.

NSE recently announced it is shifting its expiry to Mondays starting April 4, 2025.

It sparked a discussion, and SEBI stepped in with a consultation paper on March 27, 2025. Their idea is to make every exchange pick either Tuesday or Thursday as their only expiry day for all equity derivatives, weekly options, monthly futures, everything.

No more Monday, Wednesday, or Friday expiries. Just two days, take it or leave it.

So, why this sudden urge to tidy things up? Let’s dig into the reasons.

Reason #1: Too Much Expiry Day Madness

Suppose, you’re a trader, and every week, there’s an expiry day for some index or stock derivative.

Monday for Bank Nifty, Tuesday for Sensex, Wednesday for something else, Thursday for Nifty, it’s like a non-stop trading rollercoaster. So What?

On expiry days, the market gets super volatile. Prices swing like crazy, traders scramble to close positions, and there’s this burst of “hyperactivity,” as SEBI calls it.

It’s exciting if you’re a pro, but for the average small traders, like you or me, it can feel like walking into a casino blindfolded.

SEBI’s worried that having too many expiry days spreads this chaos across the week.

It’s not just about the thrill; it increases what they call “concentration risk.” Basically, when everyone is rushing to buy or sell on the same day, it can overload the system, spike volatility, and even destabilize the market. By cutting it down to two days, Tuesday and Thursday, SEBI wants to space things out better.

Example: To Understand “The Expiry Day Madness” Problem More Deeply

Imagine you’re running a small vegetable stall in a busy market, selling tomatoes, onions, and potatoes.

Now, suppose every day of the week, a different big buyer shows up to grab your stock.

• Monday it’s the tomato guy,
• Tuesday the onion guy,
• Wednesday the potato guy, and so on.
• Each day, they come in a rush, shouting orders, haggling prices, and clearing out whatever you’ve got.

Sounds hectic, right? By the time Friday rolls around, you’re exhausted, your stall’s a mess, and you’re praying for Sunday just to catch a breath.

That’s pretty much what’s happening in the derivatives market right now with all these expiry days.

Let me explain it in a simple step by step manner.

Step #1: The Current Chaos

In the stock market, derivatives, like futures and options, are contracts that “expire” on specific days.

Right now, these deadlines are all over the place.

• NSE has weekly Nifty options expiring on Thursdays.
• BSE has Sensex options on Tuesdays, and
• There are other contracts popping off on Mondays, Wednesdays, etc.

Each expiry day is like one of those big buyers storming my veggie stall. Traders rush in to ‘settle their positions.’ Meaning they either cash out their profits, cut their losses, or roll over to a new derivative contract. This sparks a frenzy in the derivatives market. The prices of these contracts (like Nifty futures or options), start jumping up and down. Even the trading volume of these contracts spikes as everyone buys and sells at once. Overall, the whole derivatives scene turns into a madhouse.

Surely, this chaos can nudge the stock prices too. The sentiment that gets built on these days in the derivative market often spill over and effects the indices and individual stocks of the cash market too. But remember, here we are talking about the derivative market and its contracts.

Step 2: A Real-Life Example

Let’s say last week, Nifty options were expiring on Thursday (like they do on NSE).

1. Imagine I’m a trader who bought a contract betting Nifty would hit 25,000.
2. On Thursday morning, Nifty’s is at 24,950 and I’m worrying to my core, will it climb or crash?
3. Meanwhile, thousands of other traders are in the same boat, buying and selling like crazy to lock in gains or dodge losses.
4. By noon, Nifty shoots to 25,050 due to panic buying.
5. Then, an hour later, it drops to 24,900 due to panic selling.
6. Now, multiply that chaos across four or five expiry days in a week,
   • Monday for Bank Nifty,
   • Tuesday for Sensex,
   • Thursday for Nifty.
7. It creates a week with tremendous volatility in derivatives (and in stocks as a side effect) on almost five days a week.

Step 3: The Problem It Creates

This madness isn’t just tiring, it’s risky as well.

• First, it makes the market super volatile. Prices swinging wildly can wipe out small traders like me or you, people who don’t have crores to cushion the fall.
• Second, it’s a nightmare for exchanges and brokers. Their systems can crash under the load, like a shopkeeper running out of change during a sale rush. SEBI calls this concentration risk. On the expiry days, there is too much action which can destabilize everything.
• Another point, for regular folks like you and me, who are trying to invest sensibly, what happens to them? It’s like walking into that chaotic market with no clue what’s happening, its scary and confusing, right?

Step 4: How “Tuesday OR Thursday” Fixes This

Now, here’s where SEBI’s plan comes in.

By limiting expiry days to just Tuesdays and Thursdays, they’re saying, “Okay, big buyers, you only come twice a week, pick your day and stick to it.”

Back to my vegetable stall example. Imagine I tell the tomato guy and onion guy, “You can only show up on Tuesdays. Suddenly, I’ve got fewer crazy days to handle, just one. I can stock up properly, manage the crowd better, and keep my stall running smoothly.

For the the market, this means fewer volatile spikes, just one big swings a week instead of five.

Traders get breathing room to plan, brokers can prep their systems, and the market stays steadier. Less madness, more order.

Step 5: Why It Helps Us All

For someone like me, who’s not trading derivatives, this still matters.

See, when the derivatives market (where futures and options are traded) gets too wild with all these expiry days, it stirs up sentiments that spill over to the cash market.

What is cash market? That’s where individual stocks, ETFs, and our mutual funds or SIPs sit. And the prices of these can bounce around because of the sentiments that gets built in the derivative market.

By calming down the derivatives side with fewer expiry days, SEBI’s hoping to keep stock prices in the cash market steadier too.

For derivatives traders, it’s less of a daily gamble with those contracts and more of a calculated move. And for big exchanges like NSE and BSE? They can focus on running a smooth derivatives market instead of juggling expiry-day madness.

Sure, Tuesdays or Thursdays might still be hectic in the derivatives world, but it’s better than chaos every day, right?

But there is more to it, keep reading.

Reason #2: Predictability for Us Regular Folks

Let’s be honest, trading derivatives isn’t exactly as simple as buying and selling individual stocks.

It’s complicated, fast-paced, and you need to know what’s coming. Right now, with expiry days jumping around, it’s tough to plan. One day it’s NSE on Thursday, the next it’s BSE on Tuesday, and then NSE flips to Monday.

For brokers, traders, and even exchanges, this unpredictability is a headache. SEBI’s proposal is like setting a fixed timetable: “Pick Tuesday or Thursday, stick to it, and let everyone know what to expect.”

Think of it like train schedules. If trains leave at random times, you’re stressed, running to the station, unsure if you’ll catch one. But if they’re fixed, say, 9 AM and 5 PM, you can plan your day. SEBI wants that kind of clarity for the market.

Predictability means traders can strategize better, brokers can manage operations smoothly, and investors like us don’t feel lost in the shuffle.

Isn’t that something we’d all want?

Reason 3: Keeping Exchanges in Check

NSE and BSE aren’t just sitting quietly, they’re competing like two shopkeepers trying to outdo each other.

NSE’s move to Monday was a bold play, probably to grab more trading volume and shake up BSE’s game. BSE’s been gaining ground in the F&O space, its market share has shot up considerably this year compared to the last year.

But SEBI is not concerned about this tug-of-war. By saying, “Pick Tuesday or Thursday, and you need our approval for any changes,” SEBI’s putting its foot down.

No more random switches to confuse the market or steal a march on the competition. They want “optimal spacing” between expiries across exchanges, which hints they’ll make sure NSE and BSE don’t both pick the same day.

Reason 4: Protecting We Small Investors

The F&O market in India is massive, but it’s also a bit of a wild beast.

A SEBI study last year showed that 93% of retail investors lost money trading derivatives over three years, averaging a loss of Rs.2 lakh each.

Expiry days, with all their volatility, are a big part of that risk. When prices swing wildly, small traders like us can get wiped out, while the big players, proprietary firms and foreign investors, rake in profits.

By limiting expiry days and spacing them out, SEBI’s trying to dial down this frenzy.

Fewer expiry days mean fewer chances for crazy speculation. Plus, they’re proposing that all contracts except weekly benchmark index options (like Nifty or Sensex) have a minimum one-month tenure, expiring on the last Tuesday or Thursday of the month.

That’s a longer horizon, less day-to-day gambling, more thoughtful trading. Anyways, one-month period is not investing either, but it is better than day-to-day gambling.

A Changing Market

This isn’t SEBI’s first rodeo with derivatives.

Last October, they tightened the screws, cut weekly options to one benchmark index per exchange. They also hiked contract sizes to Rs.15-20 lakh, and added extra margins on expiry days.

What was the goal? Curb the “F&O frenzy” that’s been sucking in retail investors.

Volumes have already shrunk since then. It is down to half of their peak in Q2 FY25.

This new proposal is another step in that direction, refining the system to balance innovation (letting exchanges differentiate their products) with stability.

Consider NSE’s Monday move, for example. It might’ve boosted implied volatility and option premiums, great for some traders, but risky for the market’s health. SEBI’s stepping in to say, “We like creativity, but not at the cost of order.” It’s a bit like a parent letting kids play but setting ground rules so small children do not get hurt badly.

Conclusion

Personally, I think this is a good idea.

Fewer expiry days, more predictability, and a focus on stability? That’s a win for the average Indian trader who’s just trying to make sense of the market.

But I wonder, will two days still handle the massive F&O volumes we see? Could Tuesday and Thursday turn into supercharged volatility hubs? Only time will tell.

For now, SEBI’s trying to clean up the mess, and I’m rooting for them to get it right.

I hope this post was able to explain why SEBI wants to change derivative expiry days to Tuesday or Thursday. If you are a long-term investor or trader, tell me your views on it in the comment section below.

Have a happy investing.