F&O minimum lot size should be increased to deter casual retail investors: Experts

On Friday (July 19), SEBI Chairperson said that the rise in F&O trading volumes could pose systemic risks to the capital markets.

Increasing the minimum lot size for futures and options (F&O) contracts would be an ideal way to cool the unbridled speculation by amateur retail traders in the equity derivatives segment, said market experts during a panel discussion on CNBC-TV18.

Earlier this month, Moneycontrol had reported that the Working Committee on Futures and Options has recommended increasing the minimum lot size of derivative contracts to Rs 20 lakh-Rs 30 lakh from Rs 5 lakh presently.

Deepak Shenoy of Capital Minds believes that F&O lot sizes have not increased in sync with GDP and market growth. According to Shenoy, "Having a Rs 20 lakh lot size would be appropriate." Shenoy also suggested reducing the number of expiries to one per week. At present, there is a weekly contract expiry on every day of the week.

Rajesh Baheti from Crosseas Capital proposed a targeted approach to reduce retail participation in F&O trading.

"Steps should be targeted only at the retail segment and not damage the overall market sentiment. Market lot size adjustment would be the best way of addressing retail speculation," said Baheti.

Last week, SEBI Chairperson Madhabi Puri Buch said the regulator was compelled to warn against speculative bets in the futures and options (F&O) segment because it has become a "macro issue".

Speaking at an event organised by SBI Mutual Fund, the regulator said the shift from savings to “speculative” activity was affecting the broader economy now. A good chunk of household financial savings are going into the speculative bets, depriving the real economy of much needed capital. In addition, youngsters were losing tonnes of money on such bets, Buch said.

Speaking in the same discussion, Jimit Modi of Samco Securities quoted NSE data showing 4.0-4.5 million individuals participating in the options segment.

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