Sebi discontinues mini derivatives contracts on bourses

Tags: News
The Securities and Exchange Board of India (Sebi) on Tuesday asked stock exchanges BSE and NSE to discontinue mini-derivative contract on benchmark stock indices Sensex and Nifty to ensure that small investors do not get lured into speculative instruments.

Sebi had in December 2007 permitted stock exchanges to introduce mini derivative contract on Sensex and Nifty with a minimum contract size of Rs 1 lakh. BSE’s instrument was ‘Chhota-Sensex’ versus NSE’s ‘mini-Nifty’. The latest move is a reversal of the earlier decision to allow such products.

“With a view to ensure that small/retail investors are not attracted towards derivative segment, it has now been decided to discontinue mini derivative contracts on index (Sensex and Nifty),” Sebi explained in a circular.

Immediately after Sebi allowed introduction of mini-contracts on the indices in 2007, rivals BSE and NSE were involved in a marketing campaign to attract small investors into the contracts from January 2008. BSE campaign lured investors with a punch line ‘Chhota-Sensex makes big sense’.

Sebi, in its circular, asked exchanges to take “necessary action to give effect” to its decision and ensure “no fresh mini derivative contracts” are issued. However, the existing unexpired contacts may be permitted to trade till expiry and new strikes may also be introduced in the existing contract months.

The order by Sebi is the first instance of the regulator discouraging small investors from betting on derivative instruments, which are considered risky and complex for small-time investors.

Globally, mini contracts are available. For instance, CME, a leading derivative exchange in the world, provides wide range of E-mini futures contracts on broad-based and liquid indices such as the Nasdaq 100, S&P500, S&P Midcap400 and Russell 2000.

Derivatives are contracts between two or more entities and their value depends on underlying assets such as stocks.

Directing stock exchanges to implement the latest circular, Sebi said that no fresh mini derivatives contracts shall be issued.

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