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Sebi bans mini derivative contracts

NSE will have to discontinue its product after its three month contract of Mini Nifty expire in December

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With a view to keep retail investors away from the derivative segment, the Securities and Exchange Board of India (Sebi) today asked stock exchanges to discontinue mini derivative contracts.

The National Stock Exchange (NSE) had mini contracts for its key benchmark index S&P CNX Nifty. Bombay Stock Exchange (BSE) had applied for re-launching mini contracts for Sensex to Sebi.

The lot size for mini contracts is half that of regular index contracts and retail investors, who wanted to trade derivatives, were able to take advantage at half the cost. had approved them in 2007 but now felt they were attracting lot of small players.

“With a view to ensure that small/retail investors are not attracted towards derivatives segment, it has now been decided to discontinue on Index,” Sebi said.

will have to discontinue its product after its three month contract of Mini Nifty expire in December. However, third exchange MCX SX will not be affected by the move as it has said that their thrust will be mainly on delivery based trading rather than derivatives.

Savio Shetty, Strategist, Prabhudas Lilladher said, “Discontinuation of mini contracts won't have much impact on the derivatives market volumes as the open interest in this product was already very low.”

"Discontinuation of mini contracts is largely a non-event from the market point of view as open interest in these contracts were thin. The product was meant for a very specific category of investors who wanted to take small size bet on Nifty. Retail investors always have an option of trading in Nifty contracts which are highly liquid," said Yogesh Radke, head of quantitative research at financial services company Edelweiss Securities

Experts say while Sebi has taken step to discourage derivative trading for retail investors, government too needs to do its bit by bringing down securities transaction tax (STT) in cash equities. STT on derivative trading at 0.017% lower than that in cash equity segment, which is at 0.025%.

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