Final Settlement Day (Expiry Day) for Equity Derivatives Contracts

## Report on SEBI Circular SEBI/HO/MRD/MRD/TPD/P/CIR/2025/76 Regarding Expiry Day for Equity Derivatives Contracts **1. Executive Summary:** This report analyzes SEBI Circular SEBI/HO/MRD/MRD/TPD/P/CIR/2025/76, issued on May 26, 2025, concerning the final settlement/expiry day for equity derivatives contracts. This new policy aims to regulate the expiry days of equity derivatives contracts to reduce concentration risk while preventing excessive expiry day hyperactivity, thereby protecting investors and promoting market stability. The key provision limits expiry days for equity derivatives contracts to either Tuesday or Thursday and sets guidelines for the tenor and expiry of benchmark index options, non-benchmark index futures/options, and single stock futures/options. Stock exchanges are required to submit proposals to SEBI for approval and implement the changes, including amending relevant byelaws. **2. Introduction:** This report provides an informative overview and analysis of SEBI Circular SEBI/HO/MRD/MRD/TPD/P/CIR/2025/76, concerning the final settlement/expiry day for equity derivatives contracts. The analysis is based solely on the content of the provided circular text. **3. Policy Overview:** This is a **New Policy**, establishing regulations on the expiry day for equity derivatives contracts. * **Core Objective(s):** Based on the text, the primary objectives are to: * Protect the interests of investors in securities. * Promote the development of the securities market. * Regulate the securities market. * Reduce concentration risk in derivative expiries. * Prevent expiry day hyperactivity. **4. Background and Rationale:** This new policy appears to address the following issues in the equity derivatives market, as inferred from the text: * **Concentration Risk:** The text mentions that the multi-exchange framework, while allowing for product differentiation, can lead to concentration risk if expiry days are not spaced out effectively. * **Expiry Day Hyperactivity:** The text highlights the potential for "expiry day hyperactivity," which could jeopardize investor protection and market stability. This suggests that previously, market activity around expiry days was considered problematic. The reference to a consultation paper issued on March 27, 2025 indicates the policy is based on stakeholder feedback and deliberation. **5. Key Provisions / Changes:** This section details the main components, rules, and actions mandated by the new policy: * **3.1:** Expiries of all equity derivatives contracts of an exchange will be uniformly limited to either Tuesday or Thursday. This provision limits the choice to only two specific days of the week. * **3.2:** Every exchange will continue to be allowed one weekly benchmark index options contract on their chosen day (Tuesday or Thursday). This appears to maintain a previous allowance, but now restricts it to the chosen day. * **3.3:** Besides benchmark index options contracts, all other equity derivatives contracts (benchmark index futures, non-benchmark index futures/options, and single stock futures/options) will be offered with a minimum tenor of 1 month, expiring in the last week of every month on their chosen day (last Tuesday or last Thursday of the month). This mandates a minimum tenor and specifies the expiry date for these contracts. * **3.4:** Exchanges will now seek prior approval of SEBI for modifying the settlement day of their derivatives contracts from the existing one. This introduces a new requirement for approval from SEBI for any changes to the settlement day. **6. Target Audience and Stakeholders:** Based on the provided text, the directly affected stakeholders are: * Recognized Stock Exchanges. * Clearing Corporations. * Investors participating in equity derivatives contracts. **7. Implementation Aspects (Inferred):** * **Responsible agency/bodies:** Securities and Exchange Board of India (SEBI) is the responsible regulatory body. Stock Exchanges and Clearing Corporations are responsible for implementation. * **Timelines/Procedures:** Stock exchanges must submit their proposals to SEBI, in compliance with Clause 3, by June 15, 2025. Stock Exchanges and Clearing Corporations are directed to put in place systems for implementation, including amendments to relevant byelaws, rules and regulations. **8. Expected Outcomes / Impact of Changes:** The likely intended outcomes of this policy, based on the stated provisions, are: * **Reduced Concentration Risk:** By limiting expiry days to two days a week, the policy aims to spread out trading activity and reduce the potential for market volatility associated with concentrated expirations. * **Controlled Expiry Day Activity:** Limiting the number of expiry days should help prevent excessive "expiry day hyperactivity," leading to a more stable market environment. * **Investor Protection:** By promoting market stability and reducing volatility, the policy aims to better protect the interests of investors in the equity derivatives market. * **Standardized Contract Expiry:** The rule on monthly expirations of many derivative contracts establishes a predictable schedule. **9. Conclusion:** SEBI Circular SEBI/HO/MRD/MRD/TPD/P/CIR/2025/76 represents a significant step towards regulating the expiry day of equity derivatives contracts. By limiting expiry days, setting minimum tenors, and requiring SEBI approval for changes, the policy aims to reduce concentration risk, control expiry day hyperactivity, and ultimately protect investors and promote a more stable securities market. Stock exchanges and clearing corporations must act swiftly to implement the required changes and submit proposals to SEBI by the specified deadline.

Key Entities Referenced