NSE, BSE Revise Index Derivatives Framework: Lot Sizes & Weekly Options

The National Stock Exchange of India (NSE) and the Bombay Stock Exchange (BSE) have introduced significant changes to their index derivatives framework. These updates focus on increasing the lot sizes for index futures and options (F&O) contracts, discontinuing weekly derivative contracts for certain indices, and implementing new measures to stabilize the derivatives market. Here’s a detailed overview of changes as outlined in recent circulars by the exchanges.

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NSE and BSE Revise Lot Sizes for Index Derivatives

Starting November 20, 2024, NSE and BSE have increased the minimum lot sizes for several index derivative contracts. Under the new SEBI regulations, NSE has raised the lot sizes for Nifty 50 from 25 to 75 and Bank Nifty from 15 to 30. Also, BSE has increased the lot sizes for Sensex contracts from 10 to 20 and Bankex contracts from 15 to 30. The revised lot sizes are as follows:
 

These changes will apply to all new contracts, including weekly, monthly, quarterly, and half-yearly contracts. However, the existing contracts will retain their current lot sizes until their respective expiries. The transition for long-dated contracts like quarterly and half-yearly contracts will occur on December 24, 2024, for Bank Nifty, and December 26, 2024, for Nifty.

Quarterly and half-yearly contracts expiring in March 2025 and beyond will maintain their current lot sizes until December 27, 2024, after which the lot sizes for all long-dated BSE Sensex contracts will be updated to the new market lot.

This adjustment aims to align the market value of derivatives with SEBI's revised contract value threshold of ₹15 lakh to ₹20 lakh. For traders, the higher lot sizes translate to increased capital requirements, impacting both option buyers and sellers.

NSE to Discontinue Weekly Derivative Contracts for Key Indices

Effective November, NSE will stop offering weekly options contracts for indices such as Bank Nifty, Nifty Midcap Select, and Nifty Financial Services. Similarly, BSE will also discontinue weekly contracts for SENSEX 50 and BANKEX, with the final weekly expiries scheduled for November 14 and November 18, respectively.

These changes comply with SEBI's regulation, limiting weekly index derivatives to one per exchange, aiming to enhance market stability. NSE will retain weekly contracts for Nifty 50, while BSE will focus on Sensex contracts.

New Monitoring and Margin Rules for Intraday Positions

From November 20, 2024, exchanges will implement stricter monitoring of intraday positions. Checks will be conducted at least four times a day and any violations will attract penalties which are similar to those for end-of-day position breaches.

Brokerages have been instructed to collect upfront margins from all option buyers to prevent undue leverage. For option sellers, an Extreme Loss Margin (ELM) of 2% will be applicable on expiry days to manage volatility risks.

In Conclusion

The increase in lot sizes will significantly raise the entry cost for traders and the discontinuation of weekly contracts could alter trading dynamics. While it may reduce volatility, traders who are reliant on weekly expiries for strategies might need to adapt. 

The updates introduced by NSE and BSE mark a significant shift in India’s derivatives trading landscape. By revising lot sizes, limiting weekly expiries, and implementing stricter controls, SEBI aims to enhance market stability and reduce speculative trading. For traders and investors, these changes necessitate a review of strategies and a cautious approach to navigating the evolving derivatives market.