Good news for expiry day traders - The NSE has decided to shift the expiry day of Nifty Bank from Thursday to Friday. Till now, both the Nifty 50 and Nifty Bank indices had a weekly contract cycle that was expiring on the Thursday of every week and monthly & quarterly contracts expiring on the last Thursday of the month.
But from 7 July 2023 onwards, traders will have a weekly expiry session of Nifty Bank on Fridays, while the expiry day of Nifty 50 will remain the same, on Thursdays. 14 July 2023 will be the first Friday expiry session for traders. What Impact will it make on the market?
First and foremost, it will pump up the volumes on these instruments by ‘a lot’. This is a structural change in the market environment which might change the realm of the game. Currently, traders are forced to trade either Nifty 50 or Nifty Bank or both with divided volumes as these indices have expiries on the same day.
But now, as one index expiry is shifting to the next day, traders can utilize their entire fund on one index on one day and on another index the next day. Hence, we might soon see massive liquidity in both these indices after the implementation of this contract cycle shift of Nifty Bank. Not to forget, Nifty Bank’s lot size is anyway reducing by 40% to 15, from the current 25 (from July 2023 monthly expiry) which will work as a double dose for improved liquidity in the banking index.
Second, as I mentioned that it is a structural change, those doing algo trading or using backtested strategies might need to take a second look now as these systems might stop working or may work even better, who knows. But as they haven’t been backtested with this different contract cycle + reduced lot size of 15, one cannot rely on them anymore.
Third, there’s no doubt that it will probably generate a ‘significant’ business for all market intermediaries such as the exchange, brokers, SEBI, the government etc. In simple words, the more you trade, the more money market intermediaries will make.
Fourth, it might give very tough competition to Sensex and Bankex. These derivative instruments were recently relaunched by BSE and their expiry days were purposefully set on Friday to avoid competition from NSE’s Nifty 50 and Nifty Bank. But as NSE is shifting the Nifty Bank expiry to Friday, all instruments expiring on this day will have to fight for the volume, in which Nifty Bank already has an upper hand.
These strategic expiry days play a crucial role in the success of a derivative instrument. In fact, the popularity of Fin Nifty should also be credited to its Tuesday expiry, where there is no other index expiration. Let me know what's your opinion in the comment section.
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