BSE secures Sebi nod to launch derivatives on BSE Focused Midcap Index

Stock exchange BSE has received regulatory approval from the Securities and Exchange Board of India (Sebi) to introduce derivative contracts on its newly created BSE Focused Midcap Index, marking an expansion of its limited derivatives portfolio beyond the Sensex and Bankex. The approval allows BSE to offer index futures and options on a concentrated midcap benchmark designed to track leading companies in the segment.

The BSE Focused Midcap Index captures the performance of 20 mid-sized companies selected on the basis of free-float market capitalisation. Unlike broader midcap indices that provide diversified exposure across a large universe of stocks, this index is structured to offer a more focused and high-conviction view of the midcap space. By narrowing the constituent base, the benchmark aims to reflect the performance of relatively stronger and more liquid midcap names.

According to BSE, the exchange will roll out cash-settled monthly index futures and monthly index options linked to the Focused Midcap Index. All contracts will follow the standard derivatives framework, with expiry scheduled for the last Thursday of the respective expiry month. This aligns the new product with the existing monthly expiry cycle followed across Indian equity derivatives.

With this addition, BSE’s derivatives basket will expand to three indices — Sensex, Bankex and the Focused Midcap Index. At present, derivatives trading activity on Indian exchanges is largely dominated by the National Stock Exchange (NSE), which offers index derivatives on five benchmarks, including the Nifty 50, Nifty Bank, Nifty Financial Services, Nifty Midcap Select and Nifty Next 50.

The approval also comes against the backdrop of tighter regulatory oversight of the futures and options segment. Sebi has mandated that each exchange can offer weekly expiries on only one benchmark index, a move aimed at curbing excessive speculation and retail trading frenzy in short-tenor derivatives. As a result, exchanges are increasingly focusing on monthly expiry products for new launches.

Market participants say derivatives linked to a focused midcap index could appeal to traders and institutional investors seeking targeted exposure to mid-sized companies without taking on the volatility associated with the broader midcap universe. Midcap stocks have witnessed sharp price swings in recent months, making hedging and tactical positioning more relevant.

By introducing a 20-stock midcap benchmark, BSE is positioning the new derivatives contracts as a tactical instrument for hedging portfolios, expressing directional views, and implementing relative-value or volatility strategies linked specifically to midcap performance. At the same time, the product remains compliant with Sebi’s revised derivatives framework that emphasises disciplined product design and monthly expiries.

The move signals BSE’s intent to gradually deepen its presence in the index derivatives space, while offering market participants a differentiated alternative focused on quality mid-sized companies rather than broad-based indices.