Leading bourse BSE has said that lot size for equity derivatives contracts would be fixed in such a manner that the contract value of the derivative on the day of review is within Rs 5 lakh and Rs 10 lakh.
Lot size refers to the number of underlying securities in one contract. The lot size is determined keeping in mind the minimum contract size requirement at the time of introduction of derivative contracts on a particular underlying.
A derivative is a security derived from a debt instrument, share, loan, whether secured or unsecured or any other form of security. It also derives its value from the prices, or index of prices, of underlying securities.
The move comes as market regulator Sebi made a steep hike in the minimum investment size for any equity derivative product to Rs 5 lakh from Rs 2 lakh currently in an effort to safeguard small investors from high-risk products.
Stock exchanges have been asked to implement the changes from the next trading day after expiry of October contracts.
BSE said that standardisation of lot size would be carried out every six months based on the average of closing price of the underlying for last one month.
In a circular on July 20 BSE said, "... Lot size for derivatives contracts in equity derivatives segment shall be fixed in such a manner that the contract value of the derivative on the day of review is within Rs 5 lakh and Rs 10 lakh."
For stock derivatives, the lot size (underlying units) would be fixed as a multiple of 25, provided the lot size is not less than 50, BSE (formerly known as Bombay Stock Exchange) said in a circular.
However, if the contract value of the stock derivatives at the minimum lot size of 50 is greater than Rs 10 lakh, then lot size shall be fixed as a multiple of five, provided the lot size is not less than 10, it added.
With regard to index derivatives, Sebi said that lot size (in units of underlying) would be fixed as a multiple of five, provided the lot size is not less than 10.
The lot size revision would be carried out by giving an advance notice of at least two weeks to the market.
