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The National Stock Exchange (NSE) has announced a reduction in the market lot size for Nifty Bank futures and options from 25 to 15 in a bid to increase retail participation in the derivative segment.
The new rule will come into effect from the beginning of July 2023 contracts. According to a circular released by the NSE, only the far month contract, that is, the July 2023 expiry contracts, will be revised for market lots.
Meanwhile, contracts with maturities of April 2023, May 2023, and June 2023 will continue to have the existing market lots. The NSE clarified that all subsequent contracts from July 2023 monthly expiry and beyond will have revised market lots.
After the expiry of the June 2023 contracts, the lot size of all existing Nifty Bank long-term options contracts (having expiry greater than 3 months) will also be revised from 25 to 15, as per the circular.
However, the lot size of Nifty50, Nifty Financial Services, and Nifty Midcap Select indices will remain unchanged at 50, 40, and 75, respectively.
The NSE had previously reduced the lot size of Nifty Bank from 40 to 25, which resulted in a significant increase in retail participation. This time too, the reduction in the market lot size is expected to encourage more retail participation.
Though volatility is unlikely to get impacted, liquidity in Nifty Bank options is expected to improve.
Meanwhile, the Bombay Stock Exchange (BSE) has reduced the lot size of its banking index from 20 to 15 and shifted the expiry day for monthly, weekly, and long-dated futures and options contracts from Thursday to Friday.
It is trying to push its BSE Bankex index among derivative traders. However, Nifty and Bank Nifty contracts will continue to expire on Thursday.
The government has increased securities transaction tax (STT) by 25% each in both futures and options.
While market experts don’t expect an impact on volumes due to the STT hike, it is expected to become tougher for new traders to keep making profits after paying all the charges and brokerage costs.