Recent weeks have witnessed heated argument within India’s financial community regarding two significant proposed changes being considered by the regulators: a possible prohibition on weekly expiry of F&O contracts, and a rise in the STCG tax on equities. Both are at the heart of the current transformation of India’s capital markets and have evoked responses from investors, traders, and market intermediaries.
The Drive to Prohibit Weekly Expiry in F&O
There are reports that the Securities and Exchange Board of India (SEBI) is considering, together with the Finance Ministry, the outright stoppage of weekly expiry contracts on all indices, with the Nifty 50 being the sole index on the National Stock Exchange (NSE) still providing such regular expiries. This step would be a follow-up to last year’s regulatory action that already restricted weekly derivatives contracts to a single benchmark index per exchange, with the rest like Bank Nifty, FinNifty, and Midcap Nifty relegated to monthly expiries.
An Attempt to minimise individual losses
The reasoning for these reforms is to rein in the speculator mania and volatility that have dominated short-dated options, particularly on expiry days. SEBI’s research found that expiry day trading results in turnover up to 350 times that of the underlying cash market, a disconnect often cited as unhealthy for price discovery and market stability. The fallout from recent episodes, such as the regulatory clampdown on global algo trader Jane Street for expiry-day manipulation, highlighted the system’s vulnerabilities. Following SEBI’s actions, F&O trading volumes dropped by 20%, reflecting the dominance of short-term, high-frequency speculation in these contracts.
If implemented, the ban would likely see a shift to fortnightly or monthly expiries, aiming to return markets to a more “investor-driven” rather than “speculator-driven” environment. Critics, however, argue that it could dent liquidity especially for brokers and exchanges whose revenues depend on high-volume weekly contracts.
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Short-Term Tax Hike: Implications for Investors
Accumulating on the churn is the Union Budget 2024-25 hike in the short-term capital gains tax from 15% to 20% on listed equity shares and equity mutual funds, applicable on or after July 23, 2024. The new tax regime penalises short-term speculation and encourages longer-term capital formation. STCG on other types of assets, such as real estate and unlisted shares remains taxable at the taxpayer’s income slab.
The investor response has been split. Some welcome the increased tax as encouraging disciplined investing and long-term wealth generation. Others point out that the increase is more of a burden on retail speculators and small investors, most of whom already have losses while trading F&O the latest SEBI report revealed that 91% of people lost money while trading in F&O in FY25.
Conclusion
Both the proposed reforms to F&O expiry and the STCG tax increase represent a larger regulatory effort to ease speculation and promote more balanced, less manic Indian capital markets. The ultimate contours of these steps will hinge on continuing consultations, impact assessment, and input from different market participants. Still, their message is unmistakable: the heyday of ultra-short-term, high-octane trading is coming under increasing pressure in India’s fast-changing financial environment.
