SEs to halve size of 24 F&O contracts

In a major move aimed at boosting retail participation in the derivatives segment, the National Stock Exchange (NSE) and the Bombay Stock E...

In a major move aimed at boosting retail participation in the derivatives segment, the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE) have decided to almost halve the contract size for a sizeable number of individual stock futures contracts.

This change, effective from April 1, 2005, will also provide an opportunity to institutional investors to increase their exposure in the derivatives segment.

For derivatives or futures and options (F&O) contracts, which have a contract size/value as on March 16, 2005 of more than Rs 4 lakh, the revised market lot size would

be arrived at by dividing the existing market lot by two and where the contract size/value as on March 16, 2005 is less than Rs 2 lakh, the revised market lot/size will be arrived at by multiplying the existing market lot by two.

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The minimum value of the contract as on a particular day is determined by multiplying the market lot by the closing price of the underlying security on that day.

Sensex has gained 1,002.32 points, or is trading 17.59 per cent higher compared to the 5,698.04 level when Sebi initiated the revision in contract size by way a circular on February 23, 2004. Sensex closed at 6,700.34 on Friday.

Said Kashyap Pujara, Assistant V-P (PMS), Sushil Finance, “This move will invite more retail participation in the segment as the reduced contract size will halve the value of the contract. This will lead to a fall in margins payable by investors, which will be beneficial to retail and institutional investors. Big players can increase their exposure in the market.”

Both the SEs, in notices to its members, have said, “It has been observed that over a period of time, there has been variation in the prices of the underlying stocks/indices. As a result the contract size/value of most derivative contract have far exceeded the prescribed minimum value of Rs 2 lakh and in some cases the contract size/value has fallen below the minimum prescribed value of Rs 2 lakhs.”