SEBI increases lot sizes to Rs. 5 lakhs

In a major move that could change the game in derivatives market, the Securities and Exchange Board of India (SEBI) has increased the minimum contract size in equity derivatives segment from Rs. 2 lakhs to Rs. 5 lakhs.

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Accordingly, the framework for determination of lot size for derivatives contracts is modified as under:

  • The lot size for derivatives contracts in equity derivatives segment shall be fixed in such a manner that the contract value of the derivative on the day of review is within Rs. 5 lakhs and Rs. 10 lakhs.
  •  For stock derivatives, the lot size (in units of underlying) shall be fixed as a multiple of 25, provided the lot size is not less than 50. However, if the contract value of the stock derivatives at the minimum lot size of 50 is greater than Rs. 10 lakhs, then lot size shall be fixed as a multiple of 5, provided the lot size is not less than 10.
  •  For index derivatives, the lot size (in units of underlying) shall be fixed as a multiple of 5, provided the lot size is not less than 10.

The aforesaid provisions shall be made effective from the next trading day after expiry of October 2015 contracts. The stock exchanges shall review the lot size once in every 6 months based on the average of the closing price of the underlying for last one month,

This move will impact derivatives volumes in the short-run, since retail participation will be reduced substantially.