Sebi to look into hike in equity derivative lot size

NEW DELHI: To safeguard small investors from high-risk products, market regulator Sebi is looking into suggestions for a steep hike in the minimum investment size for any equity derivative product from Rs 2 lakh currently.

It has been suggested to Sebi that the minimum lot size of an equity derivative contract could be increased to at least Rs 5 lakh, while there are also suggestions for a much steeper increase to Rs 10 lakh.

Sources said that Sebi is yet to take a final call on the issue and the regulator feels that the matter needs wider consultations as any such move might adversely impact the liquidity and turnover in the derivatives market.

As compared to the cash equity markets, potential risks for the investors in derivatives market are considered to be much higher and therefore it has been suggested that the minimum investment size needs to be increased given the rise in the average income levels and the average trading volumes of small investors.

"The move would hit the individual investors in the short-term but in the longer-term it would help them from falling prey to high-risk associated with derivative trade," a market analyst said.

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 derivative products have been introduced in a phased manner starting with Index Futures Contracts in 2000. Index Options, Stock Options and Stock Futures were introduced in 2001. Sectoral indices were permitted for derivatives trading in 2002. In 2008, Sebi permitted exchange traded currency derivatives.