The Securities and Exchange Board of India (SEBI) is considering extending the tenure of derivative contracts, a move that has sparked strong reactions from market participants. SEBI chairman Tuhin Kanta Pandey recently hinted at this change, saying the objective is to reduce excessive speculation and retail losses. However, market experts believe such a step could weaken liquidity in one of the world’s most active derivatives markets.
Why the proposal matters
India has one of the deepest derivatives markets globally, with daily average turnovers running into lakhs of crores at the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE). This depth and vibrancy make it attractive to both domestic and foreign investors. Critics argue that extending derivative contract tenures would reduce trading activity, discourage participation, and weaken price discovery.
Global practices show the opposite trend
Globally, regulators and exchanges are moving in the opposite direction by shortening contract expiries to increase liquidity. The US, for example, has introduced daily expiries for its Russell 2000 index, while Europe’s Eurostoxx offers weekly expiries. Asian markets such as Kospi and Hang Seng also have weekly expiries, and Brazil has adopted similar models. Experts warn that moving towards longer durations could make India an outlier in the global landscape.
Balancing trust with liquidity
Supporters of the move argue that longer tenures can help instil discipline and protect retail investors from speculative trades. Neelesh V Vernekar, chief executive of IL&FS Infra Asset Management, believes such measures will build more trust in the system. Regulators remain concerned about retail traders suffering persistent losses in highly speculative environments.
However, others point out that curbing speculation should not come at the cost of liquidity. A Dubai-based hedge fund manager noted that “India’s derivatives market is looked upon somewhat enviously worldwide, and it would be imprudent to sacrifice that depth.” Some fund managers argue that improving financial literacy and helping investors understand risk appetite would be a better solution than restructuring contract tenures.
Market implications
Data shows that India’s cash and derivatives markets have already seen shifts in liquidity in recent months. In August 2025, the daily average cash market turnover was Rs 1.4 lakh crore on the BSE and Rs 13.5 lakh crore on the NSE, down from July levels. Derivatives turnover stood at Rs 23.5 lakh crore on the NSE and Rs 2.64 lakh crore on the BSE. Weak demand, particularly from institutional investors like insurance companies and pension funds, has already put pressure on long-duration contracts. Extending tenures further could deepen this imbalance.
What lies ahead
SEBI officials have emphasised that feedback from the industry will be considered before final changes are made. For now, the regulator is weighing whether curbing speculation through longer contract durations is worth the potential trade-off in liquidity. Market participants are closely watching the outcome, as any shift could reshape how India’s derivatives market functions and how competitive it remains on the global stage.
Final Word
SEBI faces a tough balancing act: protecting retail investors while preserving liquidity in one of the fastest-growing derivatives markets worldwide. Whether longer contract tenures will achieve this balance remains uncertain, but the debate highlights the need to align investor protection with market efficiency.
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