Nifty Bank F&O contracts to expire on Fridays: Impact on traders, turnover

National Stock Exchange (NSE) on Tuesday announced that the expiry of Nifty Bank derivative contracts will now take place on Fridays from July 7 onwards, as against the existing trend on Thursdays. All contracts with Thursday expiry will be revised to Friday on July 6. The first Friday expiry will be on July 14, the stock exchange said.

The market analysts, active in the segment, have given the move thumbs up saying that it will increase the trading opportunities and volumes in the index. However, they also believe that it may hurt BSE's weekly option, which recently made a few changes in its contract expiry.

Welcoming the move by NSE, Chandan Taparia,  Head-Technical & Derivatives Research at Motilal Oswal said that this will increase focused trading as traders will now focus on Nifty on Thursdays and Nifty Bank on Fridays. "Same margin can be utilized on Friday now, giving another opportunity to initiate trade and leading to rise in volumes."

Watch: Bank Nifty weekly, monthly F&O contracts expiry day revised to Friday; What it means for traders, NSE

Taparia believes that the move will allow traders to navigate smartly with events such as the RBI MPC or the US Fed's monetary policy meetings. Traders can now hedge against the volatility caused by such events and also reduce the weekend concerns.

Earlier this year, the other major stock exchange BSE has tweaked the lot size and expiry day of monthly, weekly and long-dated futures and options contracts in a move to boost derivative trading in Sensex and Bankex indices. The day of expiry was moved to Friday, from Thursday, while the lot size was also reduced to 10 from 15 earlier. This came into effect from May 15, 2023.

Currently, the F&O contracts of Nifty Financial Services expire on Tuesday, while the contracts for Nifty Midcap Select expire on Wednesday. With the latest move, the Nifty50 contracts will continue to expire on Thursdays and Nifty Bank's expiry will take place on Friday, spreading the expiry across four days. NSE will have an F&O expiry on every day of the week barring Monday.

Although the official reason is market feedback for the shift in expiry day, the exchange would like its four index contracts to expire on different days, said Deepak Jasani, Head of Retail Research, HDFC Securities.

"Currently Nifty and Bank Nifty weekly contracts are expiring on Thursday. Also, BSE has recently upped its game in the F&O segment and its Bankex contract expires on Friday. By changing the expiry day of Bank Nifty to Friday, it may aim to prevent BSE from growing its Bank index volumes," he said.

Volumes in the BSE’s derivatives segment had been picking up over the last three weeks since the launch of the weekly options. The recently relaunched S&P BSE Sensex derivatives contracts' turnover hit a high of Rs 69,422 crore – Rs 69,287 crore in options and Rs 135 crore in futures – on its third weekly expiry last week.

"NSE might have learnt something from BSE, but there could be volatility in the final few minutes of the session as a lot of traders pursue last minute trade," Taparia from Motilal Oswal. "However, the move will encourage trading and increase its charm as a full-time profession."

NSE has been the world's largest derivatives exchange for the last four years by the number of contracts traded based on statistics maintained by the Futures Industry Association (FIA), a derivatives trade body.  NSE ranked third in the world in the equity segment by the number of trades as per statistics maintained by the World Federation of Exchanges (WFE).

Though Bank Nifty is a thematic index while Nifty is a broad-based index, and though both differ in terms of volatility and price ranges, they are often traded in tandem, with each taking cues from the other, especially during expiry day fluctuations, said Anand James, Chief Market Strategist at Geojit Financial Services.

However, once expiry days become different, it is possible that such a link might diminish. This move is more significant than any of the other similar changes wrt expiry days brought in for Finnifty or that of BSE indices etc, as Nifty and Bank Nifty constitute the lion's share of derivative volumes, he said.

"It can also be said that this move might make way for more dedicated attention for each of the indices and its constituent stocks. The correlation between the two indices or the ratio between the two indices which traders often eye, could also see changes initially. Time will tell the rest," James from Geojit added.

The volatility, particularly in Nifty is expected to come down by roughly 20-22 per cent as the components of Bank Nifty will be more active on Friday's expiry than Thursday's weekly expiry. At the same time, the monthly expiry, which includes stocks of the Bank, will be settled last Thursday. Hence, there are chances of more or less muted monthly Bank nifty expiry, said Rajesh Palviya, SVP - Technical and Derivatives Research, Axis Securities.

On the other hand, if we compare only index options OI, 70 per cent of it is of Nifty while 26 per cent is that of Bank, which again hints that volatility in Nifty's weekly and monthly expiry is likely to come down. Moreover, the reduction of lot size from 15 to 10 by the NSE of Bank is also expected to have a significant impact as margins used on Thursday expiry for Nifty options can be used for Bank options expiry on Friday. However, it will be a bit early to comment on the same, he said.

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