NSE halves Nifty lot size to dwarf listed rival BSE

Mumbai: Facing steadily creeping competition from rival BSE, the National Stock Exchange (NSE), India’s market-leading stock exchange, has halved the lot size of its Nifty futures and options contracts to 25 shares with effect from 26 April across weekly, monthly, quarterly and half-yearly expiries.

The move has made its contracts significantly cheaper than the Sensex options contracts, which picked up steam from May last year.

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In a circular on Tuesday, NSE said that for the purpose of the computation of contract value, the average closing price of the underlying index has been taken for a one-month period of March 2024.

The average closing price of Nifty in March was 22,187.31 and that of Sensex was 73,180.67. At a lot size of 50, the Nifty contract value works out to ₹11.09 lakh. At a lot size of 25, it is ₹5.5 lakh. At the Sensex average closing price, the contract value (10 shares) is ₹7.3 lakh.

“The change has been effected as competition from rival BSE is increasing gradually,” said Chandan Taparia, SVP (head – technical & derivatives research) at Motilal Oswal Financial Services. “The decreased lot size of Nifty could attract more retail participation.”

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To be sure, NSE is way ahead in the market share race, but BSE managed to increase its turnover spectacularly after Sundararaman Ramamurthy took over as MD & CEO in January last year. Ramamurthy changed the day of Sensex options’ weekly expiry to Friday from Thursday, effective May 2023. The Nifty weekly options contract expires on Thursday.

This has borne fruit and seen the average daily turnover of BSE equity derivatives contracts rise a whopping 2,400% to ₹34.6 trillion in FY24 from a mere ₹1.38 trillion in the preceding fiscal year. NSE’s turnover jumped 111% to ₹324.9 trillion in FY24 from ₹153.5 trillion in FY23.

“The epitaph of BSE was written last year, but the exchange surprised with exponential growth in the derivatives segment,” said a fund manager, requesting anonymity. “Though NSE is still leagues ahead, the halving of contract lot size could be to steal more dominance over the smaller rival.”

NSE is the largest derivatives exchange globally by number of contracts traded. Apart from Nifty, it has revised the lot size of Nifty Financial Services (Finnifty) derivatives contracts to 25 from 40 across varying maturities and for Nifty Midcap Select to 50 from 75 across varying maturities.

BSE share has risen 513% to ₹2,756 over the past year as its derivatives volumes rose sharply.