SEBI’s Derivatives Proposal: A Major Hurdle for MSEI’s Growth Plan

13 May 2025

The Securities and Exchange Board of India (SEBI) has proposed some important changes to the way equity derivatives (F&O) contracts are traded in India. While these changes are aimed at improving market discipline, they may create serious challenges for smaller stock exchanges like the Metropolitan Stock Exchange of India (MSEI).

Let’s take a look at what’s happening and why it matters.

What is SEBI proposing?

SEBI wants to bring more structure to the F&O market. Two main proposals have been made:

1.     All F&O contracts must expire only on either Tuesday or Thursday.

2.     Each stock exchange can allow weekly expiry contracts for only one of its benchmark indices.

This move is meant to reduce excessive trading and speculation, especially among retail investors.

Why is this a problem for MSEI?

MSEI has been trying to revive its business by offering something different. One of its key strategies was to offer F&O contracts with expiry dates that don’t match those of NSE or BSE.

This would have given traders more flexibility, and could have helped MSEI build a small but active segment of market participants looking for alternative expiry days.

However, under the new proposal:

• MSEI would be forced to stick to Tuesday or Thursday, just like NSE and BSE.
• It can offer weekly contracts for only one index – but NSE already has Nifty, and BSE has Sensex. MSEI’s index, SX40, is still not well known.

As a result, MSEI’s plan to grow by doing things differently could be blocked.

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What does SEBI aim to achieve?

SEBI’s goal is to:

•  Reduce risky short-term trading, especially among small investors.
• Avoid confusion in the market by limiting expiry days.
• Bring uniformity across all exchanges.

From a regulator’s point of view, this helps maintain market stability. But it also means less room for smaller exchanges to experiment and grow.

What does this mean for the market?

• For MSEI: A major setback. The exchange now has fewer options to attract traders and build volume.
• For NSE & BSE: Business as usual. They already follow the Tuesday/Thursday expiry system.
• For Traders: Fewer expiry choices could reduce some short-term trading opportunities, but may also help limit risks.
• For the Market: A move towards more structured and possibly safer trading.

Conclusion:

SEBI intends to make the market safer and more efficient. But in doing so, it might unintentionally limit the chances of smaller exchanges like MSEI to grow and compete. If MSEI is unable to offer a unique expiry day, it may face challenges in competing with established exchanges and negatively impact the ability to to attract investors and build its reputation as a viable alternative to larger exchanges

This proposal is currently open for public feedback, so there may still be changes. But for now, it looks like MSEI’s efforts to stand out with a unique offering might be cut short.