CHIEF GENERAL MANAGER
DERIVATIVE AND NEW PRODUCTS DEPARTMENT
February 23, 2004
The Managing Director / Executive Director of Derivative Segment of NSE & BSE and their Clearing House / Corporation.
Sub: Minimum contract size for Exchange traded derivative contracts.
This circular is being issued in exercise of powers conferred by section 11 (1) of the Securities and Exchange Board of India Act, 1992, read with section 10 of the Securities Contracts(regulation) Act 1956, to protect the interests of investors in securities and to promote the development of, and to regulate the securities market.
This is in reference to SEBI stipulation on minimum contract size of derivative contracts specified in various circulars issued to SEBI approved Derivative Exchange / Segment and their Clearing House / Corporation (hereinafter collectively referred to as Exchange).
It is specified that a derivative contract shall have a value of not less than Rs. 2 Lakhs at the time of its introduction in the market. It is also specified that that for stock based derivative contracts, the lot size shall be in the multiples of 100 and the fractions, if any, shall be rounded off to the next higher multiple of 100.
However, it has been noticed that in the recent past, with the increase in prices of underlying stock, the contract size/value of most derivative contracts have far exceeded the stipulated value of Rs. 2 Lakhs. In case of some derivative contracts, due to a fall in the price of the underlying stock; the contract size/value has fallen below Rs. 2 Lakhs. It has therefore been decided that the lot size/multiplier shall be reduced for contracts with value exceeding Rs. 2 Lakhs. It has also been decided that the lot size/multiplier shall be increased for contracts with value less than Rs. 2 Lakhs.
Accordingly, for derivative contracts which have a contract size/value of Rs.4 Lakh and above, the lot size/multiplier shall be reduced to one-half of the existing lot size/multiplier. For derivative contracts which have a contract size/value of Rs.8 Lakh and above, the lot size/multiplier shall be reduced to one-fourth of the existing lot size/multiplier.
Similarly, where the contract size of the derivative contracts is less than Rs. 2 Lakhs, for the sake of standardisation, the existing lot size / multiplier shall be increased so as to bring the contract size to Rs. 2 Lakhs. The increase shall be carried out by increasing the lot size/multiplier in multiples of 2.
To facilitate the aforesaid measures, the stipulation that the lot size/multiplier should be in the multiple of 100 stands revoked.
Before implementing the aforesaid measures the Exchange shall give a notice of atleast two weeks to the market. Further, for the purpose of revising the contract size, the contract size/value shall be determined on the basis of the closing prices of the underlying on the day prior to the beginning of the notice period. However, both NSE and BSE shall endeavor to specify the same lot size/multiplier on common underlying.