Sebi raises derivatives contract size to Rs 5 lakhs

Move aimed at discouraging retail investor participation in the equity derivatives segment

Come November and the minimum size of derivatives contracts will be revised upwards to Rs 5 lakh, as per Sebi's new direction. In a circular on its website, the Securities and Exchange Board of India said that the minimum size of equity derivatives contracts was increased to Rs 5 lakh from Rs 2 lakh at present.

"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," said the Sebi circular. The revision will be made effective from the next trading day after expiry of October 2015 contracts.

 

As per experts, the move by Sebi was aimed at discouraging retail investor participation in the equity derivatives segment. Retail participation in the derivatives segment has however been on the wane.

"Retail participation in equity derivatives has been coming down in the past three years because they have suffered losses due to high exposure in this segment. Retail should not leverage at all and this move will force them to participate in delivery-based trades," said Rahul Rege, business head - retail, Emkay Global Financial Services.

Industry officials have hailed this move as being positive for the industry and the retail segment of investors.

The circular further specifies that for stock derivatives with minimum lot sizes of 50, then the subsequent lot sizes will be fixed as a multiple of 25. But if the contract value of the minimum lot size of 50 is more than Rs 10 lakhs, then subsequent lot size will be a multiple of 5, provided the lot size is not below 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," said the Sebi circular.

The stock exchanges have been asked to review the lot size half-yearly. These reviews should be done with an advance notice of at least two weeks, the circular said.

"If the revised lot size is higher than the existing one, it will be effective for only new contracts," the circular added.