BSE Takes New Measures at Reviving F&O Segment with Weekly Options

The Sensex and Bankex futures and options (F&O) contracts have been reinstated by BSE Ltd, the oldest stock exchange in India, with smaller lot sizes and various expiration dates. At a press conference on 15 May in Mumbai, Managing Director and CEO Sundararaman Ramamurthy declared the relaunch of the two products.

According to the stock exchange, the lot size for F&O contracts of the Sensex has decreased from 15 to 10. The lot size for futures and options contracts on the Bankex index has been reduced from 20 to 15. Contracts for both indices will now expire on Fridays rather than Thursdays. The modified terms will apply to all long-term, weekly, and monthly contracts.

Market participants believe that since the BSE’s previous efforts in this direction failed, the odds are also overwhelmingly against the exchange this time. With over 99 per cent market share, NSE currently has a near-monopoly in equity futures and options. However, there is reason for optimism for BSE. Today’s only significant change is the frenzied increase in options trading over the past few years. Because of Covid, the fundamental goal of options to reduce risks has been completely altered. Most novice traders view options as a speculative tool, allowing them to maximise returns with the least amount of capital.

The contracts’ Friday expiration date is the only thing working in BSE’s newly introduced options products’ favour. The top weekly options contracts on the NSE, which leads the market, expire on Thursday for Nifty and Nifty Bank, Tuesday for Nifty Financial, and Wednesday for the recently launched Nifty Midcap Select. The original Tuesday expiration date for Nifty Financial was changed later to Thursday, ostensibly to prevent traders’ interest from being unevenly distributed across three contracts in a single day.

The decision paid off, as trading volumes in Nifty Financial (also known as Fin Nifty in the market) skyrocketed. BSE is making the wager that by maintaining a Friday expiry, it will be able to draw in traders who want to trade options with same-day expirations or who want to take advantage of the Monday-Friday settlement cycle. That might work to a point, but there is always a chance that NSE might at some point move the expiration of either Nifty Bank or Nifty to Friday if it feels threatened by BSE’s weekly options.