On August 21, 2025, SEBI Chairperson Tuhin Kanta Pandey, while addressing the FICCI Annual Capital Market Conference, emphasized the need to extend the tenure of equity derivatives contracts in order to reduce speculative trading and strengthen cash market volumes. To move forward, SEBI plans to release a consultation paper and seek feedback from brokers, stock exchanges, and market participants before finalizing any decision.
The announcement immediately triggered a sharp reaction in the stock market, with shares of the Bombay Stock Exchange (BSE) falling by nearly 7% to trade at Rs 2,342 on August 21. Investor concerns stem from the heavy dependence of Indian exchanges and brokers on derivatives trading, which accounts for a substantial portion of their overall revenues.
Impact on Exchanges and Brokers
According to Rajesh Baheti of Crosseas Capital Services, the proposed regulatory move could significantly impact the topline revenues of exchanges. He estimated that BSE could face a 50-60% revenue hit, while the National Stock Exchange (NSE) might experience a 35-40% decline. Full-service brokerages could also see their revenues shrink by 10-15%, largely because of their dependence on derivatives trading, which contributes nearly 85% of the revenue for exchanges and discount brokers.
These projections highlight the magnitude of potential disruption if SEBI moves forward with extending contract tenures, as shorter-dated contracts have historically attracted high volumes from retail traders and speculators.
SEBI’s Clarification
Amid market panic, SEBI clarified that weekly expiries will not be completely eliminated. This clarification provided some relief to market participants, although concerns remain about the possible reduction in trading activity and profitability for both exchanges and brokers.
Pressure on BSE Despite Strong Fundamentals
The market reaction comes at a time when BSE has been showcasing robust financial performance. In its Q1 FY26 results, BSE reported a 56% year-on-year increase in revenue and a 100% jump in net profit. However, concerns over the regulatory environment overshadowed these strong results, pushing the stock lower despite its high valuation of 69 times price-to-earnings (PE). This highlights the divide between the company’s strong operational growth and the risks posed by regulatory reforms.
Broader Market and Regulatory Developments
The potential impact of SEBI’s move extends beyond BSE and NSE. Recently, SEBI approved the National Commodity and Derivatives Exchange (NCDEX) to enter equity and derivatives trading. This development is expected to intensify competition among exchanges, potentially squeezing trading volumes further and adding to the uncertainty for established players like BSE and NSE.
Adding to the regulatory flux, concerns have also been raised about India’s evolving investment advisory framework. Market observers warn that SEBI’s broader reforms—whether related to derivatives or advisory services—may have unintended consequences for both investors and intermediaries, creating an atmosphere of caution in the capital markets.
Conclusion
SEBI’s proposal to extend the tenure of derivatives contracts has opened up a critical debate in India’s financial markets. While the regulator aims to curb speculation and encourage healthier cash market volumes, the possible revenue losses for exchanges, brokers, and intermediaries are generating widespread unease. With BSE shares plunging to Rs 2,342, the market’s nervousness is evident. The upcoming consultation paper and industry feedback will be crucial in shaping the final framework and determining how India’s equity markets balance growth, stability, and investor participation.
