The National Stock Exchange(NSE) has made a significant decision to reduce its lot size in derivative contracts across its key indices like Nifty 50, Nifty Financial Services, and Nifty Midcap Select indices.
What has changed now?
| Indices | Old Lot Size | New Lot Size |
| Nifty50 | 50 Contracts | 25 Contracts |
| Nifty Financial Services | 40 Contracts | 25 Contracts |
| Nifty Midcap Select | 75 Contracts | 50 Contracts |
- The changes will be effect from 26th April 2024, i.e. one day after the expiry of April Derivative Contracts.
- These will be valid for July 2024 and further contracts.
- However, Nifty Bank Lot Size remains unchanged at 15 contracts.
For NIFTY50 Contracts
There is no revision in the market lot of monthly expiry April 2024 expiring on April 25, 2024. All the new contracts generated from the end of April 25, 2024, and available for trading from April 26, 2024, will have the revised lot sizes.
For NIFTY Financial Services
The is no revision for the existing monthly expiries on April 30, 2024, May 28, 2024, and June 25, 2024. The first revised lot will be of July 2024 expiry, expiring on July 30, 2024. The weekly contracts expiring up to July 23, 2024, will have no revision. All weekly contracts from Aug 24 onwards will have revised lot sizes.
For NIFTY Midcap Select
No revision in the market lot expiring on April 29, 2024, May 27, 2024, and June 24, 2024. The first monthly revised market lot will be expiring on July 29, 2024. For weekly contracts, there is no revision till the contracts expire on July 22, 2024. From Aug onwards, all weekly contracts will have revised lots.
What is lot size in derivative contracts?
The lot size in derivatives means the number of shares in a single group in which the contracts are to be traded. It is a predetermined quantity. For Eg. If the lot size is 25, then only a multiple of 25 contracts can be traded. You can buy 25,50,75 and so on. NSE determines these lot sizes based on liquidity, stock price, and risk.
Why did NSE reduce the lot sizes?
The revision in lot sizes was primarily done to increase the turnover of the NSE platform and boost retail participation as the margin requirement for buying/selling the lots will also reduce.
For Eg. The current notional of a NIFTY50 contract is around Rs 11.2 lakh. If we rescue the lot size to 25, the contract amount comes down to Rs 5.5-5.6 lakhs. In this case, the margin requirement will also be reduced from ₹1.28 lakh per lot to ₹64,000 per lot.
This move by NSE will reduce the financial barriers for retail participants to trade these derivative contracts and reduce their margin costs. Thereby, benefiting all the parties involved namely NSE, the Broker, the Buyer, and the Seller.
Did BSE’s growth lead NSE to make such a move?
Another hidden reason for this move by NSE was the increasing competition from its rival Bombay Stock Exchange (BSE). BSE has increased its turnover with time and has increased its market share in the derivative trading segment.
In 2023, BSE moved their expiry of F & O contracts from Thursday to Friday. After this move, Their average daily turnover went from Rs 1.38 lakh crore in FY 23 to Rs 34.6 lakh crore in FY 24 as their options contracts gained popularity due to low charges
The NSE also decided to shift their Sensex and Bankex derivative contracts to Friday from Thursday. BSE felt that NSE’s move could impact the growth of Sensex/Bankex derivatives.
BSE requested NSE to shift the Bank NIFTY expiry date to any other day than Friday. For a balanced market development, NSE decided to withdraw their decision with immediate effect.
If we compare the value of options contracts in NSE & BSE, then for a BSE Sensex option contract, the value is around Rs 7.3 Lakhs for a 10-share lot. Now the NSE has come down from around 11.2 Lakh to 5.5-5.6 lakh per contract. So, NSE possibly made this change to keep up with its competitor’s growth.
What does NSE’s future look like?
With this move, NSE is going to increase its trade volume significantly, as the barriers to trade have decreased for retail buyers. We can expect more investors to register with NSE and enter trades which was not possible earlier.
This is also one of the reasons why the NSE Share price is trading actively in the unlisted stock market. It has grown from Rs 3300 in April 23 to Rs 4700 in April 24.
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