NSE alters derivatives contract size

The National Stock Exchange (NSE) has revised the size of the contract size of derivatives w.e.f March 15.

The exchange, in a circular, said that for derivative contracts which have a contract size or value as on February 24, 2004 of Rs 4 lakh but less than Rs 8 lakh, the revised market lot size shall be arrived at by dividing the existing market lot by two.

For contracts with a contract size or value as on February 24, 2004 of Rs 8 lakh and above, the revised market lot size shall be arrived at by dividing the existing market lot by four.

For derivative contracts which have a contract size as on February 24, 2004 of less than Rs 2 lakh, the revised market lot size will be arrived at by multiplying the existing market lot in multiples of two.

The exchange said, "it has been observed that in case of the upward revision of the market lot, the existing positions are not a multiple of revised market lot and hence the modification of near month and mid month market lots would create non market lot positions which cannot be closed out by the member." Thus the far month contracts ie. for June 2004 would be issued on March 26, 2004 with the revised market lot.

The contracts with the maturity of April 2004 and May 2004 would continue to have the existing market lots. Contracts issued on account of variation in strike prices of near month (April 2004) and mid month (May 2004) contracts would have the existing market lot and the far month contract (June 2004) would have the revised market lot. All fresh month contracts issued subsequently would have revised market lot.

Under the current guidelines the value of the derivative contract is not less than Rs. 2 lakhs at the time of its introduction. The permitted lot size for derivative contracts on individual securities is in multiples of 100.

Rationalising the need for revising the contract size NSE said there has been variation in the prices of the underlying stocks, and in some cases while the contract size has exceeded the prescribed value in other cases it has fallen below it.