In a development that could significantly alter index derivatives trading in India, the Securities and Exchange Board of India (SEBI) is reportedly contemplating a shift from the current weekly expiry system to a fortnightly schedule. This proposed change is part of the regulator’s wider effort to rein in the rapid growth of index options trading, particularly among retail investors.
The Securities and Exchange Board of India (SEBI) is contemplating a shift from the current weekly expiry system to a fortnightly schedule and weighing two options: either shifting to a full-fledged fortnightly expiry model or allowing just one benchmark index to expire every two weeks. The proposal comes on the heels of several regulatory steps introduced recently to curb high trading volumes and reduce speculative activity.
If the current measures do not yield meaningful results, further action may be taken. At the moment, Sensex options on the BSE expire on Tuesdays, while Nifty options on the NSE expire on Thursdays. The revised structure under consideration may consolidate these into a single expiry event every two weeks, to dampen expiry-related volatility and limit speculative trades.
What’s Worrying the SEBI?
In recent years, the index options segment of India’s stock market has experienced a significant rise in retail investor participation. This trend has largely been stimulated by the low capital required to enter the segment and the allure of quick profits. However, in July 2025, Ananth Narayan, Whole-Time Member of the SEBI, raised concerns about the sharp increase in short-term trading activity—particularly in index options traded on expiry days. He cautioned that this growing pattern may not be sustainable and could ultimately hinder the nation’s long-term capital formation efforts.
While Futures and Options (F&O) markets serve a crucial purpose by aiding in price discovery, risk hedging, and maintaining liquidity—especially for institutional players and professional hedgers—there has been a noticeable shift toward speculative trading in recent times. This raises questions about whether the market is deviating from its foundational objectives. An incident that brought these issues into sharp focus was the recent case involving global quantitative trading firm Jane Street. The firm was found to have engaged in manipulative trading strategies around index option expiries, leveraging advanced algorithms to influence prices.
This manipulation not only disrupted the fair functioning of expiry outcomes but also highlighted the significant disadvantage retail investors face against well-equipped institutional players. It served as a stark reminder of the opaque and risky nature of derivatives trading for less-informed participants.
Furthermore, these speculative trades are diverting vital funds away from more productive, long-term investments. The SEBI’s data for FY25 revealed that nearly 90 per cent of retail traders in the derivatives segment suffered losses, with the total losses amounting to a staggering Rs 1.06 lakh crore. Such statistics have raised alarm over the economic and financial risks of rampant speculation in the F&O space.
Responding to these developments, the SEBI implemented a new regulatory framework in 2024, dubbed the F&O 2.0 norms. This set of reforms introduced nine key measures aimed at increasing transparency and curbing excessive risk-taking. Notable changes included revising position limits on index options, refining how open interest is calculated, and allowing certain positions during trading ban periods only if they contribute to reducing overall risk.
Narayan emphasised that these reforms are part of a broader initiative to improve the structural integrity of the F&O markets. Looking ahead, the SEBI plans to enhance the quality of derivative products by extending their tenure and maturity profiles. The objective is to realign the derivatives market with its core purpose—enabling effective risk management and price discovery—while better protecting retail investors from undue exposure and systemic vulnerabilities.
Is Fortnightly Expiry the Solution?
The weekly expiry system was originally introduced to enhance market liquidity and provide greater flexibility for hedging strategies. However, it has increasingly become a tool for institutional players deploying sophisticated algorithms to make short-term speculative bets. This high-frequency trading environment lures retail participants into chasing quick gains from volatile price movements, often leading to excessive intra-day volatility, misuse of leverage, and a surge in expiry-day betting.
Transitioning to a fortnightly expiry cycle could help rein in this speculative frenzy and reduce the scope for short-term market manipulation. If current margin rules and exposure limits fail to curb the intensity of these activities, the SEBI may view fortnightly expiries as a viable step toward cooling down the market. Importantly, the objective is not to restrict retail participation, but to reduce market churn and limit frequent, high-risk trades that can quickly spiral out of control.
That said, the move is not without potential downsides. The NSE, where options trading contributes over 70 per cent of total revenue, could experience a temporary dip in volumes and transaction-based income. Brokers, particularly discount platforms that rely heavily on high-frequency options trades, may also face revenue pressures. On the other hand, institutional traders could benefit from reduced volatility, and market makers are likely to adapt quickly to the new regime.
In the short term, retail volumes may shrink, potentially causing a double-digit decline in overall turnover. This could impact liquidity, hinder efficient price discovery, and limit the effectiveness of hedging strategies. However, these are calculated trade-offs that the SEBI appears willing to accept in the interest of long-term market stability and investor protection. As short-term speculative players scale back, the market may gradually shift toward healthier and more sustainable trading patterns—ultimately benefiting the broader financial ecosystem despite initial disruptions.
Urgent Need for Tighter Oversight
To prevent manipulative practices akin to the Jane Street episode, the SEBI and stock exchanges must deploy advanced, real-time surveillance systems that integrate both cash and derivatives markets. While current systems exist, a more proactive approach is essential. Enhanced pattern recognition tools, real-time alert mechanisms for coordinated trades, and anomaly detection—particularly around expiry days—can significantly bolster oversight. The speed of response is equally crucial. When sophisticated market participants are aware of robust and responsive oversight, it acts as a strong deterrent.
Leveraging AI-driven analytics can enable rapid identification of suspicious trades, strengthening SEBI’s capacity to act swiftly and prevent manipulation. Additionally, stricter disclosure norms for proprietary trading volumes—specifically categorised into algorithmic desks, market makers, and arbitrage players—can help identify concentration risks early. Exchanges should also consider introducing circuit breakers or volatility interruption mechanisms triggered by sudden spikes in open interest or implied volatility, to counter-engineer index movements.
Unlike stock trading, where full payment is required, derivatives trading allows participants to control larger positions through margin deposits. This leverage creates room for potential abuse. Increasing margin requirements would compel traders to commit more capital upfront, reducing leverage and making large directional trades costlier to execute. Exchanges could go a step further by dynamically tightening margins when signs of order-book thinning appear. This would especially deter manipulators operating with minimal capital, while safeguarding retail and smaller investors.
By raising the financial stakes for potential manipulators and combining this with robust surveillance, the SEBI can significantly reduce short-term distortions and encourage more orderly expiry-day trading behaviour. Enhanced coordination with exchanges and clearing corporations will be pivotal in this effort.
To conclude, the SEBI’s potential move toward a fortnightly expiry cycle reflects a broader strategy to curb excessive activity in index options. The implementation of such structural reforms will largely depend on how the market responds to the recent measures already put in place. In the coming weeks, the regulator will closely track index option volumes to evaluate the effectiveness of these interventions.
Should the current steps yield the desired outcome, a shift to a fortnightly expiry schedule may soon follow. The primary objective is to reduce unnecessary churn and mitigate expiry-day distortions, thereby fostering more informed and longer-term participation in the derivatives segment. If introduced, this change would not only alter trading strategies but also require investors, brokers, and institutions to realign their operational calendars, hedging models, and risk management systems accordingly.
