MSEI’s Revival Faces Hurdle as SEBI Plans to Cap Derivative Expiries to Two Days

Background

• Metropolitan Stock Exchange of India (MSEI), formerly MCX-SX, had planned a comeback in the Indian capital markets by launching derivatives on its flagship SX40 index.
• The exchange raised ₹238 crore in December 2024 from key fintech investors like Groww’s parent (Billionbrains), Zerodha’s Rainmatter, Share India Securities, and Securocorp Securities.
• MSEI’s strategy hinged on having a Friday expiry for its SX40 derivatives to differentiate from NSE (Thursday) and BSE (Tuesday).

SEBI’s Proposed Derivatives Cap

• On 27 March 2025, SEBI released a consultation paper proposing:
  • All index derivative expiries must be limited to Tuesdays or Thursdays.
  • Aim: To ensure optimal spacing and reduce concentration risk.
• This move undermines MSEI’s revival strategy, as its Friday expiry may no longer be permitted.
• Without a distinct expiry day, MSEI’s derivative offerings lose competitive value.

Market Impact and Liquidity Challenge

• As of 5 May:
  • MSEI’s daily trading volume was just 30,950, compared to NSE’s ₹293.72 crore and BSE’s ₹58.59 crore in cash market volumes.
  • SX40 futures contracts registered zero trading volume, while Nifty 50 futures on NSE recorded 76,211 contracts.
• Experts warn traders will migrate to exchanges with higher liquidity and better price discovery, further marginalizing MSEI.

Institutional Support & Governance Efforts

• Latika Kundu, MD & CEO of MSEI, emphasized:
  • Reviving MSEI supports capital market competition vital for India’s goal of becoming a developed nation.
  • A duopoly or monopoly could emerge without exclusive expiry days for emerging exchanges.
• MSEI has begun upgrading its technology and infrastructure to support seamless derivative trading.

Operational and Licensing Hurdles

• Limited broker participation is stalling volume growth:
  • Many brokers do not yet offer MSEI’s contracts due to licensing or technical issues.
  • Customer engagement—including placing trades, paying premiums, and settling contracts—remains low.

Mint