Capitalmind
Capitalmind
Actionable insights on equities, fixed-income, macros and personal finance Start 14-Days Free Trial
Actionable investing insights Get Free Trial
Futures & Options

SEBI Increases Lot Sizes to Rs. 5 lakh from November, Index and Stock Contracts Will Change

SEBI has changed the game for derivatives traders. A new circular (HT Vashistha) has increased the lot sizes of each contract, so that:

  • The minimum contract size has been upped from Rs. 2 lakh to Rs. 5 lakh.
  • This applies from contracts for the November expiry (that is, for all trading after the October contract expiry)
  • Which means the first “new” lot size will be applicable from the end of July (after the July expiry, the next set of contracts are Aug, Sep, Oct)
  • Lot sizes will be reevaluated every six months.
  • For stocks, futures and options contracts will have sizes of a minimum of 50 with increments or decrements of 25 shares.
  • If even at 50 shares the contract size is greater than 10 lakhs, then the minimum will be 10 shares with increments of 5 shares.
  • For indexes, the minimum is 10, with an increment of 5.

So a Bosch at Rs. 20,000 a share will likely see a lot size of 25. (Currently: 125). But a Nifty’s lot size will change from the current 25 shares to probably 75 shares.

This will impact derivatives volumes, for sure. There are a lot of retail participants attracted to a 25 lot size on the Nifty, and too many of them are undercapitalized for trade. However the higher lot size creates serious impediments to shorting options, which has also become a retail obsession recently. Overall, there is likely to be market impact as it happens, but it will result in lower volumes initially.

If you think about it, the lot size of 2 lakh has been the same for 10 years. It’s high time we increased it if the logic was to keep the smaller traders out of it. While I don’t like that logic, the power of leverage is often abused at the lowest lot level, so it might just benefit the market in the longer term.

Here’s the circular:

  • DJ says:

    So, if my brokerage is “per lot”, then will I now pay 1/3rd of the brokerage, assuming the “per lot” rates remain the same? Sounds good to me.
    I think the Nifty lot size used to 50 (not sure if i remember right), then it was changed to 25, now back to 75…

  • Shan says:

    Good step! We’re learning from our neighbors China! Keeping out small players from derivatives will avoid catastrophic losses when the market tanks