How will NSE lot size change impact retail participation

Experts have opined that National Stock Exchange’s (NSE) decision to reduce lot sizes for derivatives contract for several of its indices will increase liquidity and volume in the market. According to them, it will make futures and options market more affordable and accessible for retail investors. It will help deepen stock market’s penetration in small pockets of the society. It will deepen market participation. More and more retail investors will get motivated to open demat accounts and trade in the capital market.

What changes NSE made in lot sizes?

The NSE has reduced lot sizes of derivatives contract of Nifty 50  from 50 to 25. The revised lot sizes will apply to all contracts that retail investor may enter from April 26, onwards. Albeit, it will not apply to any contract that they have already entered.

The leading stock exchange has also reduced lot sizes of other two indices — Nifty Financial Services and Nifty Midcap Select Index. For the former, the exchange has reduced lot sizes to 25 from 40, while, for the latter, the world’s largest derivatives exchange has revised the size to 50 from 75. These changes also apply to contracts signed from April 26, onwards. Here, also existing expiries are excluded.

Why did NSE make changes?

This is part of periodic review of the lot size changes of derivatives contract of the NSE indices. The NSE is the largest derivatives exchange in the world and India’s largest stock exchange.

Since, Covid-19 pandemic, India’s stock market has seen continuous influx of retail investors. There has been a tremendous increase in number of demat accounts and mutual fund folios opened by small investors. As of December 31, 2023, total number of demat accounts in the country had galloped to 13.9 crore. While, folio count crossed eight crore mark in February 2024.