Markets

NSE cuts Nifty Futures lot size to 25

KS Badri Narayanan Chennai | Updated on November 25, 2017

Nifty Midcap 50 lot size pruned to 75 from 150

The National Stock Exchange has halved the lot size of Nifty Futures to 25 from October 31, the day on which new contracts for January 2015 will be available for trading. The Nifty lot size has been 50 since March 2007. The resizing comes on the back of doubling of the Nifty value over this period.

Lower capital

According to current guidelines issued by SEBI and NSE, the value of the derivative contract shall not be less than ₹2 lakh at the time of its introduction. Traders can have lower capital for trading in these futures. Margin requirements will drop proportionately. So, if for 50 Nifty you need ₹35,000, for 25 you need only ₹18,000. The same will be applicable for options shorting margin requirements as well.

Similarly, the lot size of Nifty Midcap 50 has also been reduced to 75 from the existing 150. The NSE also revised the market lot downwards for 48 stocks, which will reflect the new lot size from Friday. However, for eight stocks, the revision will reflect from January 2015 only, to avoid operational complexities, the NSE said.

Lot size 200 to 25

For Nifty Futures, it has been a long journey since it was launched on the NSE in June 2000. At that time the market lot was 200, which means a swing of one point would result in a gain or loss of ₹200 to traders. But Nifty then was ruling in the range of 1,800-2,000.

Nifty then had some interesting names that included Satyam Computer, Reliance Communications, Suzlon Energy, Ranbaxy Laboratories, Siemens, National Aluminium, VSNL, Dabur, MTNL, IPCL, Jet Airways and Oriental Bank of Commerce.

The steady rise in Nifty resulted in the lot size getting reduced to 100 in June 2005.

The new lot size is almost akin to the Mini Nifty Futures that was launched by NSE in December 2007.

The exchange introduced mini contracts with a lot size of 20, mainly for retail investors, to protect them from the shock of wild swings. However, SEBI abandoned trading in Mini Futures in 2013.

Losing interest

Nifty Futures, which is used for investment, hedging and arbitrage purposes, has been losing its market share on the NSE in the equity derivatives segment. At the end of September, index futures accounted for just 7 per cent of overall trading, and index options for 73 per cent.

Even in index futures, Bank Nifty, which was launched in June 2005, stole the march over Nifty as it has been attracting more investor interest.

It will be interesting to see whether the revised market lot size will revive interest in Nifty Futures, as the market lot for Bank Nifty is also 25, which is ruling at almost twice the value of Nifty at 16,760.

Published on October 30, 2014

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