NATIONAL STOCK EXCHANGE OF INDIA LIMITED

Futures and Options  Operations

CIRCULAR

 

Circular No.: NSE/F&O/010/2004                                           Date: February 25, 2004

Download No. NSE/FAOP/4825

 

 

Dear Members,

 

Subject : Revision of Market Lot of Derivative Contracts

 

In pursuance to SEBI circular no SEBI/DNPD/CIR-20/2004/02/23 dated February 23, 2004 (copy enclosed as Annexure-1) members are informed of the following criteria in respect of revision of market lot of derivative contracts :

 

As per current guidelines issued by SEBI and NSE,  the value of the derivative contract  shall not be less than Rs. 2 lakhs at the time of its introduction. The permitted lot size for  derivative contracts on individual securities  shall be in multiples of 100 and fractions if any, shall be rounded off to the next higher multiple of 100.

 

However it has been observed that over the period of time , there has been variation in the prices of the underlying stocks, the minimum contract size/value of most derivative contract have far exceeded the prescribed value of Rs 2 lakhs. In case of some derivative contracts, due to the fall in the price of the underlying stock the minimum contract size/value has fallen below Rs 2 lakhs. The minimum value of the contract as on particular day is determined by multiplying the market lot by the closing price of the underlying security on that day.

 

In view of the above, the Exchange in pursuance of the SEBI circular no. SEBI/DNPD/CIR-20/2004/02/23 dated February 23,2004 has decided that:

 

  • For derivative contracts which have a contract size/value as on February 24, 2004  of Rs 4 lakhs but less than Rs 8 lakhs, the revised market lot size shall be arrived at by dividing the existing market lot by  2. For derivative contracts which have a contract size/value as on February 24, 2004 of Rs 8 lakhs and above, the revised market lot size shall be arrived at by dividing the existing market lot by  4.

 

  • For derivative contracts which have a contract size/value as on February 24, 2004 of less than Rs 2 lakhs, the revised market lot size shall be arrived at by multiplying the existing market lot in multiples of 2.  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 i.e. 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.

 

To facilitate the above measures the requirement that the market lot should be in the multiple of 100 stands revoked.

 

The list of 27 securities/index (on which derivative contracts are available) in which the  market lot is being revised is  enclosed as Annexure-2

 

The date of implementation for downward revision of market lot will be March 15, 2004 and  the date of implementation of upward revision of market lot would be effective from March 26, 2004, for the far month contracts having maturity of June 2004 and onwards.

 

For any clarifications, trading members are advised to contact the following officers:

Mr Santosh Viswanathan / Mr Shibu Nair / Mr Harshavardan Nayak at 26598151 and 26598152

 

Yours faithfully,

 

For National Stock Exchange of India Ltd.

 

 

Arup Mukherjee

Manager- F&O Trading

 

 

 

 

 

Annexure -1

 

CHIEF GENERAL MANAGER

DERIVATIVE AND NEW PRODUCTS DEPARTMENT

SEBI/DNPD/Cir- 20/2004/02/23

February 23, 2004

To,

The Managing Director / Executive Director

of Derivative Segment of NSE & BSE

and their Clearing House / Corporation.

Dear Sir,

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.

Yours sincerely,

 

N.PARAKH

Annexure -2

 

List of securities in which the market lot is being revised downwards

 

Sr no

Security/Index

Current Lot Size

New Market lot

1

BAJAJAUTO

800

400

2

BEL

1100

550

3

BHEL

1200

600

4

BPCL

1100

550

5

BSES

1100

550

6

CNXIT

20

10

7

DRREDDY

400

200

8

GRASIM

700

350

9

HEROHONDA

800

400

10

HINDPETRO

1300

650

11

I-FLEX

600

300

12

INFOSYSTCH

100

50

13

IPCL

2200

1100

14

L&T

1000

500

15

M&M

2500

625

16

MARUTI

1600

400

17

NATIONALUM

2300

1150

18

ONGC

600

300

19

RANBAXY

800

400

20

SBIN

1000

500

21

SCI

3200

1600

22

TATAMOTORS

3300

825

23

TATAPOWER

1600

800

24

TATATEA

1100

550

25

TISCO

1800

900

 

 

List of securities in which the market lot is being revised upwards

 

 

Sr no

Security

Current Lot Size

New Market lot

1

HINDLEVER

1000

2000

2

MASTEK

400

1600