India expert panel suggests exchanges reduce options contract expiries: Sources

Mumbai: India's top exchanges should allow just one to two derivative contracts to expire each week, instead of five currently, a panel looking into the surge in the options trading in the country has recommended to the markets regulator, according to two sources.

The recommendations will be taken up for consideration next week, the sources added, declining to be named as they are not authorised to speak to the media. When approved, the proposals will be put up for public consultations before being enforced.

The notional value of traded index options more than doubled in 2023-24 to $907.09 trillion from the previous year and the share of retail investors in derivative trading volumes has risen from 2 per cent in 2018 to 41 per cent so far in the calender year 2024, prompting a regulatory examination of the markets regulator's policies.

India does not have zero-day expiry options contracts, a popular strategy involving buying an option contract the same day it is set to expire. However, the country's two leading exchanges have an options contract expiring daily, resulting in an increase in the volume of such trading.

"The recommendation is to rationalise expiries of options contracts so that there is only one contract expiring per exchange every week," said the first of the two sources cited above.

An email sent to a spokesperson of the Securities and Exchange Board of India (SEBI) was not answered immediately.

The build-up of positions just before the expiry of the contracts leads to speculation, said the second source.

This is among the series of tweaks being considered by SEBI.

The other key recommendation is to increase the lot size of options contracts from the present requirement of Rs 5,00,000.

SEBI last week asked exchanges to levy flat fees on brokers regardless of their turnover, changing a practice of charging lower transaction fees for brokers with high turnover to control risking options volumes.