NSE: Beginning on June 10, 2024, the National Stock Exchange (NSE) will enact a significant modification to its trading guidelines. The NSE will implement a one paisa tick size for all equities valued below ₹250 per share, as per a circular announced on May 24, 2024. Given the fierce competition between the NSE and the Bombay Stock Exchange (BSE) for market dominance, this calculated action seeks to enhance price discovery in the market.
Key Details of the New Tick Size Policy
For equities valued under ₹250, the tick size—the lowest allowable price change between successive bids and offers—will now be one paisa. Except for ETFs, all securities listed under the EQ, BE, BZ, BO, RL, and AF series will be subject to this new regulation. Five paise used to be the minimal price difference for these securities. Securities covered by the T+1 settlement are also included in this adjustment, extending to the T+0 settlement (series T0).
Impact on the Futures & Options Segment
Apart from the modifications in the Capital Market (CM) sector, the NSE has updated the tick size for futures on stocks. In the future, the price of the underlying stock in the CM section will determine the tick size for stock futures. The tick size for the following month will be determined by the closing price on the final trading day of each month, and this modification will be evaluated on a monthly basis. All stock futures expiries, including Near-Month, Middle-Month, and Far-Month contracts, will be subject to the increased tick size.
Consistency in Stock Options
Crucially, despite modifications to the tick size for the underlying assets in the CM sector and associated stock futures, the tick size for stock options will remain same. This guarantees stock option price stability and uniformity.
Enhancing Trading Efficiency
The NSE decided to adopt these adjustments to stock futures and match tick sizes with the underlying securities in the CM sector in order to improve price quote accuracy and trading efficiency. The circular states that trading members will have access to the contract/spread master files and the appropriate tick size for trading.
What This Means for You
The National Stock Exchange (NSE) has implemented a one paisa tick size for equities valued below ₹250, which offers many advantages and modifications for traders and investors.
- More Accurate Pricing: With smaller price increments, you can expect more precise price movements, allowing for better decision-making and potentially improved trading strategies.
- Increased Trading Efficiency: The smaller tick size means prices can adjust more finely, enhancing the overall efficiency of trading. This could lead to tighter bid-ask spreads, which is beneficial for both buyers and sellers.
- Competitive Market: This move shows the NSE’s commitment to staying competitive with the Bombay Stock Exchange (BSE), likely resulting in improved services and innovations in the market.
- Consistency in Options Trading: While changes are made in the cash and futures markets, the tick size for stock options remains unchanged, providing stability and predictability in options trading.
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