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Stocks

SEBI Standardizes F&O Contract Lot Sizes

SEBI has now specified new lot size standards for all futures/options contracts:

Price Band (Rs.) Contract Size
Lot Size
(No. of units of underlying) Value (Rs. lakh)
=1601 125 = 2
801 – 1600 250 = 2 = 4
401 – 800 500
201 – 400 1,000
101 – 200 2,000
51 – 100 4,000
25 – 50 8,000
< 25 A multiple of 1000

Example: The lot size for an underlying with a price of Rs. 250, i.e., in the
price band of Rs. 201-400, will be 1000 shares.

This will differ dramatically from the current system – where lot sizes are anything that NSE seems to want. SBI’s current lot size is 132, RELINFRA is 276 and HINDALCO 3518. The new system will keep all lot sizes close to something we can remember.

So how did these odd lot sizes come into play? When a company splits, gives bonuses or has a rights issue or demerger, the lot sizes of its shares’ futures contracts are split accordingly. If a stock with a lot size of 100 and price of Rs. 1000 has a 40% rights issue at a certain price, the stock on the post-issue date will reduce by a certain price (to accommodate the new shares available) – if that reduces the price to, say, Rs. 750, the lot size needs to go up to Rs. 133.33 just to reflect that fact – usually that’s why these odd lot sizes come into play and remain there.

So if lot sizes need to be changed, they will happen only in further contracts. Currently contracts till March are traded, so expect changes in the April contract onwards.

The SEBI circular says the new-contract rule will only apply if the lot size is “higher” than the old one. That is after this change goes through the first time. So if I hold one future lot (1000) of a share that was Rs. 300 but goes up to Rs. 450, the lot size will become 500 shares and I will then have two lots, so my holding remains the same. This will happen in between expiries too, in a middle of a month (currently lot size changes seem to happen on Expiry days)

This should help with some of the stocks that have had runaway movements and whose contract sizes are over Rs. 10 lakhs, way too expensive to use on a reasonable portfolio.

The change will not apply to index contracts like Nifty.

Note that this is considerably different from the U.S. where the lot size is 100 shares regardless of where the underlying share trades. In India the idea is to maintain a future lot between 2 and 4 lakhs; these are low limits that haven’t changed for the last 8-9 years, and have today made F&O trading a lot more affordable.