NSE counters BSE with shift in Bank Nifty F&O expiry to Friday

In a circular on Tuesday, NSE said weekly, monthly and quarterly contracts of Bank Nifty will expire on Friday. Bank Nifty derivatives are the second most popular contracts after the benchmark Nifty with nearly 26% share in total options trading volume.

With this change, NSE will now have four weekly expiries — Fin Nifty on Tuesday, Midcap Nifty on Wednesday, Nifty on Thursday, and Bank Nifty on Friday.

“To counter BSE’s move of tweaking the lot size and expiry day of options contracts which had gained popularity due to low charges, NSE has revised the Bank Nifty weekly expiry to Friday of every week,” said Rajesh Palviya, SVP – technical and derivatives research, Axis Securities.

BSE’s weekly derivative contracts based on the Sensex and Bankex began trading on May 15, in a fresh attempt to capture a portion of India’s derivative market share currently dominated by rival NSE. The oldest exchange in Asia is hoping that a different expiry day could prompt some traders who are Nifty regulars to try out Sensex contracts. During the weekly expiry of Sensex contracts last Friday, BSE’s derivatives segment recorded a turnover of Rs 69,422 crore.

Bank Nifty and Nifty enjoy a high correlation, which could make the Bank Nifty contracts a proxy for Nifty. Brokers said NSE must be hoping that traders could prefer the more liquid Bank Nifty contracts over Sensex contracts.

“NSE’s decision should help bring in better trader focus on each index and result in boosting overall volumes in the two most popular indices in the derivative segment,” said Jay Thakkar, head alternate research, Sharekhan. “Additionally, it would also be in sync with the expiry on Friday done by BSE.”Palviya said the volatility, particularly in Nifty, is expected to come down by roughly 20% -22% as the components of Bank Nifty will be more active on Friday’s expiry than Thursday’s weekly expiry.

The new expiry day for Bank Nifty contracts could free up some margin money for traders, who till now had limited funds because Nifty and Bank Nifty contracts expired on Thursday, said Chandan Taparia, analyst, Motilal Oswal Financial Services.

“Bank Nifty weekly expiry started with the objective that one can hedge the weekly risk or mitigate the volatility due to RBI policy and FED meeting, which usually happens on Wednesday. Now participants need to have a position for two days to hedge with the current weekly expiry of Bank Nifty if the expiry happens on Friday.”