Change in The Lot Size of Index Derivative for Weekly, Monthly, Quarterly and Half Yearly Expiry

This is w.r.t SEBI circular reference no. SEBI/HO/MRD/TPD-1/P/CIR/2024/132 dated October 01, 2024, on measures to strengthen equity index derivatives framework for increased investor protection and market stability.

As mentioned in the aforesaid circular that an index derivative contract shall have a value not less than Rs. 15 lakhs at the time of its introduction in the market.

Further, the lot size shall be fixed in such a manner that the contract value of the derivative on the day of review is within Rs. 15 lakhs to Rs. 20 lakhs. For computation of revised lot size, the average of the closing price of the underlying index has been taken for one month period of September 16, 2024, to October 15, 2024

The measure shall be effective for all new index derivatives contracts (includes weekly, monthly, quarterly and half-yearly) introduced from November 20, 2024, onwards.

The revised lot size for index derivatives will be as follows:

Important Updates:

• The existing weekly and monthly expiry contracts will continue with the existing lot size till its respective expiry date.
• In case of quarterly and half yearly existing expiry contracts, the same shall be transitioned to the new lot size on December 24, 2024, end of the day for BANKNIFTY, December 26, 2024, end of the day for NIFTY and December 26, 2024, end of the day for SENSEX.
• The day spread order book will not be available for the combination contract of December 2024 – February 2025, January 2025 February 2025 and January 2025 March 2025

Important Actionable for Users:

• If you have Open (Long or Short) derivative positions in Nifty, Banknifty and Sensex for Quarterly and Half yearly contracts, make sure to adjust the quantity in the multiples of respective revised lot size by 24^th December 2024 end of the day for BANKNIFTY, 26^th December 2024 end of the day for NIFTY and 27^th December 2024 end of the day for SENSEX.
• No action will be allowed in the odd lot quantity after above cut-off dates in any of the index contracts. Traders with such positions will have to carry until maturity or expiry of the contracts.

Let understand with an example in Nifty:

1. If users have Nifty Option contract open for quarterly or half yearly expiry with a quantity of 25 (existing lot size), they have to add minimum 50 qty or 2 lots to make it 75 hence matching with revised lot size on or before the cut-off date.
2. If users have Nifty Option contract open for quarterly or half yearly expiry with higher quantity let’s say, 100 then they can either add minimum of 50 more quantity making total of 150 or reduce the quantity to 75 by squaring off 25 from existing to make it a multiple of 75 on or before the cut-off date.
3. If the existing open position does not have multiples of revised lot size adjusted by the cut-off date such positions will have to be carried until maturity or expiry of the contracts and will not be allowed to be squared off before the expiry.

Long dated options usually have less liquidity hence It is advisable to adjust the open positions a day prior than the cut-off date to avoid the liquidity issues.