Sebi tells exchanges to stop all mini derivative contracts

NSE will have to discontinue its product after its 3-month contract of the Mini Nifty expires in December

To keep retail investors away from the derivative segment, the Securities and Exchange Board of India (Sebi) on Tuesday asked stock exchanges to discontinue mini derivative contracts.

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

The lot size for mini contracts is half of those for regular index contracts and retail investors, who wanted to trade derivatives, were able to take advantage at half the cost. Sebi had approved these in 2007 but now feels they’re attracting too many small players.

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

NSE will have to dis-continue its product after its three-month contract of the Mini Nifty expires in December. However, the third exchange, the new MCX-SX, will not be affected, as it has said it’s 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 derivative 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 was thin. The product was meant for a very specific category of investors, who wanted to take small-size bets on the 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 a step to discourage derivative trading by retail investors, the government needs to bring down the Securities Transaction Tax (STT) in cash equities. STT on derivative trading, at 0.017 per cent, is lower than that in the cash equity segment, at 0.025 per cent.