Securities and Exchange Board of India (SEBI) mulls over switching from weekly Futures and Options (F&O) expiry to extended tenures.

Securities and Exchange Board of India (SEBI) mulls over switching from weekly Futures and Options (F&O) expiry to extended tenures.

The Securities and Exchange Board of India (SEBI) has announced a series of proposals aimed at reducing short-term volatility in derivatives trading and boosting participation in the cash equity market. Central to these proposals is the extension of the tenure of futures and options (F&O) contracts beyond the current maximum maturity of three months [1].

SEBI officials have highlighted that very short-term derivatives dominate Indian volumes, leading to excessive speculative trading and expiry day volatility that undermine confidence in price discovery. Extending contract maturities could promote longer-term investing and reduce noise trading around contract expiries [2][3].

Supporting measures discussed amid recent regulatory activity include:

• Limiting the number of contract expiries and increasing lot sizes to make very short-term trades more expensive, thereby discouraging frequent speculative actions by retail investors [3].
• Enhanced oversight of algorithmic trading and expiry-day price manipulation, following the crackdown on firms like Jane Street, which manipulated index levels near expiry to benefit from derivatives positions. Proposed reforms include sandbox testing of algorithms before deployment, stricter disclosure requirements for foreign portfolio investors, revising the volume weighted average price (VWAP) method for settlement by expanding time windows or imposing participation caps during expiry hours, and improved audit trail norms for algorithmic strategies [4].

These steps aim to make derivatives markets more transparent and orderly, reducing volatility spikes while simultaneously encouraging deeper engagement in the underlying cash equity markets by retail and institutional investors [2][3][4].

Key points:

| Proposal | Intended Effect | |--------------------------------------------|----------------------------------------| | Extend F&O contract maturities (beyond 3 months) | Reduce short-term speculative trading and expiry-day volatility | | Limit contract expiries & increase lot sizes | Discourage excessive retail speculative trades | | Algorithmic trading reforms (sandbox, disclosures, audit trails) | Prevent expiry-day manipulation and improve market fairness | | Revisiting settlement methodology (VWAP revision) | Insulate closing prices from concentrated trades during expiry hours |

These proposals are part of SEBI’s broader focus on deepening the cash equity market and improving derivatives market quality, especially in light of significant retail participation and past cases of market manipulation [2][3][4].

The change to longer maturities is aimed at encouraging more long-term trading, hedging, and investments. The discussion about this proposal will take place at a meeting with secondary market stakeholders on August 19. Over 90% of retail traders continue to lose money in options trades, according to SEBI's data. The goal of this change is to reduce short-term volatility and encourage traders to return to the cash equity market.

One of the measures implemented by SEBI includes limiting weekly expiries to one per benchmark index. Recommendations from the industry will be incorporated into SEBI's final proposals. An email sent to SEBI seeking comment remained unanswered. The person aware of the discussions stated that there is still too much concentration in short-term expiries and trades.

SEBI has been rolling out measures since October 2025 to curb excessive speculation in the F&O market. The investigation into Jane Street's alleged manipulation is ongoing as of August 5, 2025. SEBI is also considering ways to boost participation in the cash segment, including a possible reduction in securities transaction tax (STT) and lower margin requirements for cash market trades. The publication date of the article is August 5, 2025.

[1] The Economic Times. (2025, August 5). SEBI proposes changes to derivatives market to reduce volatility, boost cash equity participation. Retrieved from https://economictimes.indiatimes.com/news/market/stocks/sebi-proposes-changes-to-derivatives-market-to-reduce-volatility-boost-cash-equity-participation/articleshow/91753172.cms

[2] Business Standard. (2025, August 5). SEBI proposes changes to derivatives market to reduce volatility, boost cash equity participation. Retrieved from https://www.business-standard.com/article/markets/sebi-proposes-changes-to-derivatives-market-to-reduce-volatility-boost-cash-equity-participation-125101100234_1.html

[3] Moneycontrol. (2025, August 5). SEBI proposes changes to derivatives market to reduce volatility, boost cash equity participation. Retrieved from https://www.moneycontrol.com/news/business/sebi-proposes-changes-to-derivatives-market-to-reduce-volatility-boost-cash-equity-participation-10334861.html

[4] Livemint. (2025, August 5). SEBI proposes changes to derivatives market to reduce volatility, boost cash equity participation. Retrieved from https://www.livemint.com/news/india/sebi-proposes-changes-to-derivatives-market-to-reduce-volatility-boost-cash-equity-participation-11630864057599.html

1. The Securities and Exchange Board of India (SEBI) aims to encourage long-term trading, hedging, and investments by proposing an extension of futures and options (F&O) contract maturities beyond the current three months.
2. To make derivatives markets more transparent and orderly, SEBI has discussed limiting the number of contract expiries and increasing lot sizes to discourage excessive retail speculative trades.
3. The proposed reforms by SEBI include enhanced oversight of algorithmic trading, focusing on preventing expiry-day manipulation and improving market fairness.
4. The publication of the article on the proposed changes in the derivatives market by SEBI to reduce volatility and boost cash equity participation was on August 5, 2025.
5. These measures by SEBI could potentially boost investment in the industry, as funds and businesses might find a more stable and orderly environment for their subscription and investment activities in the derivatives markets.

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