BSE Seeks SEBI Approval to Introduce Monthly Derivative Contracts on Additional Indices

The Bombay Stock Exchange (BSE) has approached the Securities and Exchange Board of India (SEBI) seeking approval to introduce monthly derivative contracts for additional indices. According to reports, the proposed expansion includes a few thematic indices, marking another strategic move by the exchange to boost its presence in the competitive futures and options (F&O) space.

Regulatory Hurdles May Delay Approval

While BSE’s proposal is a significant step, regulatory clearance may not come swiftly. Market sources indicate that SEBI is currently evaluating several broader changes in the F&O framework. These include modifications in delta calculations and proposals to limit weekly expiries to just 2 days. These evolving regulatory dynamics may delay BSE’s plans.

New Indices Introduced Since September 2024

Since September 2024, BSE has introduced about 20 new indices, focusing on different market capitalisation tiers, sectoral themes, and weightings. These indices are designed to cater to various investor and institutional strategies, providing diverse benchmarking tools and passive investment options.

Applications Across Financial Products

The newly launched indices hold potential utility across a wide spectrum of financial instruments. These include:

• Benchmarking for mutual fund (MF) schemes

• Portfolio Management Services (PMS) strategy evaluation

• Underlying structures for passive products like Exchange Traded Funds (ETFs) and index funds

SEBI’s Criteria for Monthly Derivatives

SEBI mandates strict eligibility norms for indices to be included in the monthly derivatives segment. Key criteria include:

• Stocks representing at least 80% of the index weight must be individually eligible for derivatives trading.

• No single ineligible stock should constitute more than 5% of the index weight.

• Additional regulatory conditions must also be satisfied for approval.

These measures are in place to ensure liquidity, risk containment, and product relevance in the derivatives space.

Current Status of BSE’s Monthly Contracts

As of now, BSE offers monthly derivative contracts on three indices:

• Sensex

• Bankex

• Sensex50

The addition of more indices would potentially diversify BSE’s derivative offerings and provide a broader suite of products for hedging and speculation.

Conclusion

BSE’s proposal to extend monthly contracts to more indices reflects its intent to grow its F&O segment footprint. However, regulatory scrutiny and evolving market frameworks may influence the pace and outcome of this expansion.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. This does not constitute a personal recommendation/investment advice. It does not aim to influence any individual or entity to make investment decisions. Recipients should conduct their own research and assessments to form an independent opinion about investment decisions. 

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