With the Securities & Exchange Board of India (Sebi) putting in place new eligibility criteria for derivative contracts on non-benchmark indices, exchanges are reviewing both their current offerings and those applied for with the regulator. Under the new norms, only eight sectoral indices out of 38 of both the exchanges are eligible to launch derivative contracts.
Currently, along with the benchmarks Nifty 50 and Sensex, both the exchanges offer derivatives contracts of their banking sector index, namely Nifty Bank and Bankex. Apart from this, F&O trading also happens on BSE’s SX50 and NSE’s FINNIFTY, NIFTYNXT 50, and MIDCPNIFTY.
The currently traded FINNIFTY is not eligible due to higher weight of HDFC Bank and ICICI Bank. Nifty Bank and BSE Bankex also don’t qualify in all three criteria — minimum 14 constituents, weight of top constituent less than 20%, and weight of top three constituents less than 45%. BSE Bankex has 10 constituents and Nifty Bank has 12 constituents.
The ones that are eligible include BSE’s commodities, consumer discretionary, and healthcare.NSE’s healthcare, financial services excluding banks, mid- and small- financial services, mid- and small- IT and telecom, and chemicals are also eligible. Sebi’s new rules take effect from 3 November 2025. All other constituents’ individual weights must be lower than those of the higher weighted constituents, the Sebi circular added. “While benchmark indices are generally broad-based, sectoral or thematic indices can be more concentrated, with the top few constituents significantly influencing the index,” a consultation paper had said earlier.
Sources had earlier said that BSE has applied with the regulator to launch derivatives contracts on a few indices in the sectoral space. “The exchange is now re-evaluating the application as it holds no good now after the recent circular,” said a person in the know.Moin Ladha, partner at Khaitan & Co. said, “This will require exchanges to re-examine their index offerings for derivative trading, which may reduce the number of eligible indices in the short term.
Jyoti Prakash Gadia, MD at Resurgent India, category 1 merchant bank said, “The new rules create additional responsibilities for the exchanges who will need to monitor and evaluate compliance about the additional criteria at the end of every calendar quarter.”Ladha added that these norms promote diversification and limit concentration risk. Overall, the rules are fair and should help make India’s derivatives market more stable and transparent, especially as trading activity increases.