The Hindu Business Line : 90% of individual stock futures see jump in contract value

Kolkata/Chennai, Nov. 21 National Stock Exchange, arguably the world’s second largest platform (after the Johannesburg Stock Exchange) for single stock futures, needs to change the rules of the game to keep the field open for the small investors as the cash market price rise overtakes the administered valuations by handsome margins.

Out of bounds

Absence of timely revisions in value of stock-specific futures contracts in synch with changing valuations in the cash market have rendered almost 90 per cent of the available contracts practically out of bounds for small investors, feels derivatives experts.

The market regulator last revised the contract size (keeping the value at Rs 2 lakh) on February 8 this year. But significant appreciation in value of the underlying stocks in the cash segment has long overtaken the prescribed contract values (contract value = contract or lot size x closing price). Now only 15 of the total 207 stocks in the futures segment still fall within the defined value domain.

Rise in contract value means one has to pay higher margin. It makes trading difficult for small investors. This, interestingly, helps brokerages to earn higher charges as they are levied on contract value.

At the time of the last revision, lot size of 52 securities was reduced, while 12 had been revised upwards.

The stocks, for which contract value has gone up to over Rs 10 lakh, include Jindal Steel, Reliance Capital, GMR Infrastructure, Neyveli Lignite and RNRL.

Futile catch-up chase

SEBI guidelines for the minimum contract value remains unchanged at Rs 2 lakh. But now of the 207 listed stocks futures contracts, 10 rule above Rs 10 lakh; 10 between Rs 7 lakh and Rs 9 lakh; 24 between Rs 5 lakh and Rs 7 lakh; 148 contracts are above Rs 2 to Rs 4 lakh range.

According to Mr B. Venkatesh, an investment strategist: “It is futile to revise from time to time the lot sizes because the revisions will always be behind the value curb. It is more meaningful to have a uniform contract size for all securities. This precludes the need to periodically change the contract size in an up-trending market.”

Mr Amit Hiremath, derivatives analyst of IDBI Caps, also felt that from the point of view of affordability and risk management it was, perhaps, time to revisit the aspects such as the contract size or value.

Mr V.K. Sharma, head of research of Anagram Securities, too echoed the same thoughts on the need to change the market lot size. However, he felt, the best idea was to have a very small and uniform lot size, the way it is done worldwide.

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