On April, the National Stock Exchange (NSE) announced a reduction in lot sizes for derivatives contracts, halving the lot size for trading the Nifty 50 index to 25, along with adjustments for two other indexes.
The lot sizes for Nifty Financial Services (FINNIFTY) have been reduced from 40 to 25, and for Nifty Midcap Select (MIDCPNIFTY) from 75 to 50. However, the lot size for contracts of Nifty Bank (BANKNIFTY) remains unchanged at 15.
Starting from April 26, 2024, all Nifty contracts, including weekly, monthly, quarterly, and half-yearly expiries, will reflect the revised market lot size.”
Regarding derivatives for the Nifty 50
NSE clarified that the market lot for the April 2024 monthly expiry, ending on April 25, 2024, remains unchanged. However, all contracts created after April 25, 2024, and tradable from April 26, 2024, will adhere to the revised lot size. The first weekly expiry contract with the adjusted lot size is set to expire on May 2, 2024, followed by the first monthly expiry contract on May 30, 2024.
Regarding Nifty Financial Services
Existing monthly expiries, expiring on April 30, 2024, May 28, 2024, and June 25, 2024, retain their market lot sizes. The first monthly expiry contract with a revised market lot will be July 2024 expiry, ending on July 30, 2024. Weekly contracts with expiry dates up to July 23, 2024, also maintain their market lot sizes. However, weekly contracts with maturities from August 2024 onwards (starting from August 6, 2024) will feature revised market lots. The day spread order book will not be available for combination contracts of May 2024 July 2024 and June 2024 July 2024 expiries.
For Nifty Midcap Select
Existing monthly expiries ending on April 29, 2024, May 27, 2024, and June 24, 2024, maintain their market lot sizes. The first monthly expiry with a revised lot size will be in July 2024, ending on July 29, 2024. Weekly contracts expiring up to July 22, 2024, retain their current market lot sizes. However, weekly contracts maturing from August 2024 onwards (starting from August 5, 2024) will adopt revised market lot sizes. The day spread order book is unavailable for combination contracts of May 2024 July 2024 and June 2024 July 2024 expiries.
Last week, NSE adjusted lot sizes for certain large-cap and mid-cap stocks during its regular assessment.
What does lot size mean in derivative contracts?
The lot size in derivatives indicates the fixed number of shares traded in a contract. For instance, with a lot size of 25, only multiples of 25 shares can be traded. Lot sizes are determined considering stock price, liquidity, and risk factors.
What prompted the NSE to adjust the lot size?
According to experts, the NSE’s decision to decrease the lot size aims to enhance turnover and encourage retail involvement by lowering the margin requirements for derivative contracts.
With the lot size reduced to 25, the NIFTY50 contract value decreases to ₹5.6 lakh from ₹11.2 lakh at a lot size of 50, making NIFTY50 contracts more affordable compared to SENSEX options.
The margin requirement will also decrease from ₹1.28 lakh per lot to ₹64,000 per lot, potentially increasing derivative market liquidity by allowing traders with lower capital to participate.
This adjustment in lot size is also influenced by competition from the BSE, which has been progressively increasing its turnover and market share in the derivative segment over the past year.
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