A significant turn of events has occurred in the Indian stock market. In a notable shift from tradition, the National Stock Exchange (NSE) recently declared that the expiry of Nifty Bank derivative contracts will no longer be on a Thursday. Instead, traders can mark their calendars for Fridays for these particular contracts.
Slated to come into effect from July 7, 2023, this change is a potential catalyst to boost trading opportunities and volumes. Moreover, it may add a new facet to how market volatility is perceived and managed.
A Strategic Move
The new expiry schedule has been met with enthusiasm from market analysts. Traders can now concentrate on Nifty on Thursdays and Nifty Bank on Fridays. This new arrangement presents the potential for amplified trading volumes and optimised margin utilisation.
Simultaneously, NSE’s change has raised questions about its impact on the Bombay Stock Exchange’s (BSE) weekly option, which recently adjusted its contract expiry. In May 2023, BSE modified the expiry day from Thursday to Friday and decreased the lot size from 15 to 10 to stimulate derivative trading in the Sensex and Bankex indices.
Notably, BSE’s derivatives segment has seen a steady increase in volumes following these changes, reaching a turnover high of ₹69,422 crores during its third weekly expiry.
Implications for Market Volatility and Trading Dynamics
Beyond the competitive implications, the shift in expiry dates may alter the dynamics between the Nifty and Bank Nifty. Anand James, Chief Market Strategist at Geojit Financial Services, suggests that the close link between the two, especially during expiry day fluctuations, could weaken with different expiry days.
Rajesh Palviya, SVP – Technical and Derivatives Research at Axis Securities, suggests that Nifty’s volatility could dip by around 20-22 per cent due to this shift. He reasoned that as Bank Nifty elements would become more dynamic on Friday’s expiry compared to Thursday’s weekly expiry, it may lead to a more muted monthly Bank Nifty expiry.
Additionally, NSE’s reduction of the Bank Nifty lot size from 15 to 10 could substantially impact. Palviya speculated that margins used on Thursday expiry for Nifty options could now be deployed for Bank Nifty options expiry on Friday.
The NSE, recognised as the world’s largest derivatives exchange for the past four years, might have created a ripple effect with this strategic move. While the change’s full impact remains to be seen, market experts are optimistic about the increased opportunities and potential for more targeted trading attention for each index and its constituent stocks.
Experts are anticipating that this change will enhance trading opportunities in the market. With Nifty contracts expiring on Thursday and Bank Nifty contracts expiring on Friday, traders can focus on each index independently, leading to more calculated trading decisions. This segregated attention to each index could potentially increase overall trading volume and provide traders with a more streamlined approach to managing their portfolios.
However, the full implications of this change will become apparent with time. The market reaction and adaptation, the potential changes in volatility and trading volumes, and the impact on other indices and stocks are factors that will unfold in the future.