Last week, the National Stock Exchange said it is shifting the F&O settlement of all contracts to Monday starting April 4.
In a circular, the premier F&O bourse said, Nifty weekly contracts, Nifty monthly, quarterly and half-yearly contracts, Bank Nifty monthly and quarterly contracts and Fin Nifty, MidCap Nifty and Nifty Next 50 monthly contracts would expire on Monday. All single-stock futures will also expire on Monday, the circular added. Revised expiry date of all existing derivatives contracts will be available in the contract file generated on April 3 to avoid operational complexities.
Of late, exchanges have been changing the settlement cycle of F&O contracts quite frequently. For instance, the BSE changed expiry days of all contracts from Friday to Monday. Earlier, the BSE had changed the weekly expiry of contracts to Monday from Thursday in its equity derivatives segment, from October 16, 2023.
The Nifty Financial had its expiry on Tuesday and the Nifty Midcap Select on Wednesday. Nifty Financial, that was launched with initial expiry day on Thursday, was later changed to Tuesday. Of course, Nifty50 has been continuing with Thursday’s settlement ever since it was introduced in 2000.
Following the discontinuation of weekly contracts for Nifty Bank, FinNifty, Nifty Midcap Select, and Nifty Next50, the NSE has revised the monthly expiry days of these four F&O contracts to Thursday, effective January 1, 2025.
Market share
By shifting the settlement day, NSE is perhaps trying to retain its dominant market share in a segment where BSE is trying to make some headway. Following the announcement, shares of BSE have been on a downtrend, losing 10 per cent in March so far.
Derivatives market witnessed an exponential growth, as turnover jumped from ₹33 lakh crore in 2016-17 to nearly ₹600 lakh crore in 2024-25 on the NSE.
Why Thursday?
When F&O was launched in 2000, there was no rolling settlement for cash market. The BSE had its settlement cycle from Monday to Friday; all trades that happened between Monday and Thursday had to be settled (delivery of shares to the buyers and payment of cash to the sellers) on the subsequent Friday. Similarly, on the NSE, trades had to be settled every Tuesday.
Because of this fixed-day settlement for the cash segment, Mondays and Fridays (due to BSE) and Wednesdays and Tuesdays (due to NSE) had witnessed excessive volatility.
To avoid systemic and default risks and for successful rollout of F&O, the regulator and exchanges preferred Thursdays, which saw relatively low cash volumes and less volatility in price movement.
With the introduction of rolling settlement cycle, especially in T+0 era, shifting of expiry should not cause any problem for traders.
However, Monday settlement may catch traders off-guard if some market-shaking event happens during Saturday or Sunday, ahead of the expiry, for which they may have to pay heavy premium. It will be interesting to see whether BSE will once again change its expiry day. According to reports, NSE chief wants uniform expiry across bourses, while the CEO of BSE said he will seek feedback from market participants before reacting to a recent change in derivatives expiry day by NSE.
Only time will tell whether this move from NSE is good or bad, but frequent shifting will no doubt affect trader sentiment. However, what is definite is that interesting days are ahead in the F&O space.