India’s options crackdown gives 150-year-old bourse surprise win

A regulatory crackdown on India’s options market is fueling market share gains for BSE Ltd., helping it to challenge the dominance of a larger exchange rival.

In recent months, the 150-year-old bourse operator has steadily grown its share of index contracts on expiration days — when most of the trading happens as investors close bets, roll over positions or put on short-term wagers. For most BSE expiries since mid-July, the options’ premium turnover represented 50% or more of the total contracts exchanged, up from a low of 35% in April.

India’s options market has gone through a sea change in the past year as the Securities and Exchange Board of India sought to halt rampant speculation that cost retail investors billions of dollars. The latest shake-up came earlier this month, when the expiration day for BSE’s derivatives switched from Tuesday to Thursday — the day contracts on larger rival National Stock Exchange of India Ltd. used to expire, a process that now occurs on Tuesdays. While NSE still dominates overall volume by far, the reshuffling gave BSE a rare opportunity.

“Thursday has always been the traders’ festival day,” said Ponmudi R, chief executive officer of stockbroker Enrich Money. “NSE leaving that slot was like vacating a primetime TV show. BSE stepped in, and so far they’re getting the ratings.”



India has become the world’s biggest market for derivatives by contracts traded, driven by a surge in demand from retail investors drawn by low-cost brokerages and gamified apps. To halt the frenzy, SEBI began a severe crackdown last November. The curbs ranged from eliminating traders’ favorite contract — the weekly NSE Nifty Bank Index option — to increasing minimum limits.

For NSE, which still handles almost 80% of the total derivatives contracts exchanged, the changes have had a big impact. The monthly options premium turnover dropped more than 40% through August from October, just before the curbs started, while its market share on BSE expiration days has slipped to around 45% this month from 65% in April.

Analysts at HDFC Securities said in an August note they expect further gains in market share for BSE, citing the switch to Thursday expiries. Traders now see Sensex options as the “event contracts,” especially around macro data or central bank meetings that usually come later in the week, according to Ponmudi.

“BSE is emerging as a serious contender in the expiries segment, chipping away at NSE’s long-standing lead in weekly contracts, at least for now,” said Chandan Taparia, head of derivatives and technicals at Motilal Oswal Financial Services.

The NSE introduced derivatives at the turn of the century with an expiration on Thursdays. As its offerings grew, so did the expiries, which at one point were possible on as many as four days of the week. Pushed by SEBI, NSE streamlined its expirations to Thursdays, before unexpectedly deciding earlier this year to shift to Mondays to counter BSE’s growing traction on Tuesdays — a move that was quickly abandoned as the regulator forced the exchanges to pick either Tuesday or Thursday. NSE opted for Tuesdays, leaving BSE with Thursdays.

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The high-stakes legal battle between SEBI and Jane Street Group LLC over options trading on expiration days has helped put India in the global spotlight. The regulator added further restrictions this month and said in August it will propose extending the tenure of derivative products. BSE’s share price has already fallen 32% from its record high in June on concerns over the impact of the crackdown.

While options liquidity on BSE remains thin beyond near-the-money strikes, every Thursday that BSE beats NSE in turnover chips away at a decades-old narrative of unassailable dominance.

“The real test will be if BSE can hold its momentum for four months, not four weeks,” Ponmudi said.