Bank Nifty Weekly Expiry Bids Adieu: Market Impact and What’s Next for Traders

Bank Nifty Weekly Expiry Says Goodbye: What This Means for Investors

On October 10, 2024, the Securities and Exchange Board of India (SEBI) announced a pivotal change in the derivatives market: the cessation of weekly index options for several indices, including Bank Nifty, effective November 20, 2024. This decision, aimed at strengthening market stability and investor protection, marks the end of an era for the highly popular Bank Nifty weekly options—a favourite among retail investors since its launch in 2016.

Let’s delve into the impact of this move, what it means for investors, and which index will continue with weekly expiries.

Why Weekly Expiries Ended for Bank Nifty?

SEBI’s circular targets enhanced stability and reduced speculative trading in the Indian derivatives market. With Bank Nifty, Nifty Midcap Select, and Nifty Financial Services indices saying goodbye to their weekly expiries, the change aims to create a more secure trading environment, free from the high volatility associated with frequent short-term speculation.

Timeline for the Last Expiry

Each of these indices has a specific date for their last weekly options expiry:

• Nifty Midcap Select (MIDCPNIFTY): November 18, 2024
• Nifty Financial Services (FINNIFTY): November 19, 2024
• Nifty Bank (BANK NIFTY): Final weekly expiry concluded on November 13, 2024

Following these dates, only Nifty 50 (NIFTY) will have weekly expiry contracts, as each exchange is permitted to offer weekly derivatives on only one benchmark index.

Impact on Market Volatility and Trading Volume

With the end of Bank Nifty’s weekly expiries, volatility is anticipated to decrease. The absence of frequent, short-term options on Bank Nifty may reduce speculative activity, leading to a more stable market environment. This change could also result in:

• Lower Volume in the F&O Segment: Bank Nifty weekly options accounted for a significant portion of the Futures and Options (F&O) turnover. In the first half of FY25, Bank Nifty held a dominant 38% of premium turnover, followed by Nifty at 28%. Without Bank Nifty’s weekly expiry, the overall volume in the F&O segment might slightly dip.
• Stability for Key Stocks: Major stocks like ICICI Bank, HDFC Bank, and SBI—prominent constituents of both Bank Nifty and Nifty—are likely to experience reduced speculative pressure. This shift could mean steadier performance in these heavyweight stocks, benefiting long-term investors.

What’s Next for Investors? Nifty 50 Takes Center Stage

As Bank Nifty bids farewell to its weekly expiry, Nifty 50 will remain the only index with weekly expiry options. This makes Nifty 50 the sole choice for traders seeking weekly derivative opportunities, possibly leading to a concentration of activity in Nifty options trading. Investors can expect:

• Concentrated Liquidity in Nifty 50 Options: With Bank Nifty and other indices out of the weekly expiry roster, Nifty 50 may witness increased interest, potentially boosting liquidity in its options market.
• Reduced Short-Term Speculation: As investors shift focus, the broader market may see a decrease in short-term, high-frequency trades, paving the way for a more balanced market structure.

Long-Term Prospects: Is Stability on the Horizon?

The end of Bank Nifty’s weekly options expiry represents a strategic move towards stabilizing the market. With fewer frequent fluctuations in Bank Nifty, investors may see reduced volatility and potentially steadier returns, especially in banking-heavy portfolios. For long-term investors, this shift could mean a more predictable market with less abrupt price changes in core banking stocks.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making related decisions.