SEBI today in its circular announced the minimum contract size for equity derivatives from Rs.200,000 to Rs 5,00,000 effective from 30th October 2015 (Post October 2015 Expiry).
Minimum lot size for stocks reduced to 50 and in multiple of 25 there after. For high value stocks minimum lot size fixed at 10 and multiple of 5. Index minimum lot size fixed at 10 and multiple of 5 there after.
It is also stated in the circular that “The stock exchanges shall jointly ensure that the lot size is same for an underlying traded across exchanges.”
The move will prevent individuals and small traders from making themselves vulnerable to high-risk speculation. But on the other side it will put a full stop for small traders entering and trading the derivative segment as the trading for them goes very expensive. Even the trade will be going to be expensive for full time traders and HNI clients. Also possibly this could drive large volumes to the illegal ‘dabba’ or off-market trade.
SEBI revises the market lot and minimum lot value criteria. Minimum lot value revised to 5 lac. Minimum lot size for stocks reduced to 50 and in multiple of 25 there after. For high value stocks minimum lot size fixed at 10 and multiple of 5. Index minimum lot size fixed at 10 and multiple of 5 there after.At current nifty value New Nifty index lot will be 60. Bank nifty will be 30
Problem with the Move
- The biggest challenge is liquidity, which is critical, will go down and impact institutions’ ability to hedge their positions as cost of hedging will go up, which in turn would lead to increase in overall cost of trading and thus affecting the cash market.
- The move was “anti-competitive” and would drive large volumes to the illegal ‘dabba’ or off-market trade. Brokers and analysts expect the move to make the equity derivatives market less active.
- It will kill volumes and will become an institutional market,
By increasing it, you will discourage retail participation. The Idea should not be to make it difficult but create awareness.
This is the first time in 15 years that Sebi is proposing a review of the minimum contract size. The value of a contract is calculated by multiplying the futures price with the number of shares that should amount to Rs 2 lakh. The Nifty futures lot size is normally 25. The margin to buy or sell index futures is usually 10-15%.
Last time they did lot value to 5 lakhs was in 2002, The Biggest Bull Run for Indian Market started in 2003