NSE’s power move puts BSE on alert

According to people familiar with the matter, one proposal under consideration is to reschedule the expiration of Sensex contracts to Monday.

View Full Image

Last month, BSE’s chief executive officer Sundararaman Ramamurthy announced shifting the expiration of its weekly index derivatives contracts from Thursday to Friday in its bid to counter NSE, whose index contracts also expire on Thursday. The strategic move, coupled with smaller contract sizes, has yielded remarkable results since it was implemented. Turnover soared nearly 650-fold, rising from about ₹527.61 crore on the first revised weekly expiry date on 19 May to ₹3.42 trillion on the fifth expiration date on 16 June.

Now, the impressive rise in turnover faces a potential threat with the NSE preparing to shift the expiration day of its weekly Bank Nifty derivatives contracts to Friday starting next month. The move will directly pit the Sensex contracts against NSE contracts, posing a challenge for the BSE. The inaugural expiration of the contracts is slated for 14 July.

Market participants hailed the strategic manoeuvre by NSE chief executive Ashishkumar Chauhan as a masterstroke. Interestingly, Chauhan and Ramamurthy were part of the founding team of NSE in 1992, with the latter serving under Chauhan for a brief period, said a person in the know.

“BSE’s fear is not unfounded considering that NSE derivatives’ average daily turnover (ADT) was 111 times BSE’s ₹1.38 trillion for FY23,” said Rajesh Baheti, managing director of Crosseas Capital, one of India’s largest proprietary traders. This would mean NSE derivatives are more liquid than their BSE counterparts.

“BSE options volumes, which have had a very good run, are likely to be hit when Bank Nifty options begin to trade on Friday from July. So, I suggested they shift the expiry to Monday from Friday. However, for now, they have decided to keep the status quo and hope the volumes pick-up sustains,” he added.

A BSE spokesperson declined to comment.

An executive of a prominent brokerage has proposed to BSE officials that they retain the Friday expiry for Sensex options while collaborating with analysts to execute calendar spreads on both Sensex and Nifty to leverage the higher volatility seen in the latter. For instance, the current Sensex to Nifty ratio stands at 3.4 times, with the Sensex concluding Tuesday’s session at 63,328 points and the Nifty at 18,817. Consequently, if the Nifty sees a 50-point movement, the Sensex will be influenced three and a half times more, indicating a greater level of volatility in the Nifty.

“Options traders love volatility as it is a chief component in determining an option’s price. Options tend to become more volatile on expiry day. Clients can initiate a calendar spread on the Sensex and Nifty options, buying call or put options on both the indices on Thursday, closing out the Nifty option on Thursday, and keeping the Sensex option open until Friday, thereby ensuring that Sensex options volumes sustain,” the person said. Index options such as the Nifty and Bank Nifty tend to account for 98% of overall derivatives volumes on the NSE, while Sensex options account for over 99% of the BSE’s derivatives volumes.

Updated: 21 Jun 2023, 01:04 AM IST