As per the circular dated 22nd November 2023, the National Stock Exchange of India has announced the introduction of updated Pre-Trade Risk Controls for the Market Price Protection (MPP) mechanism in Index and Stock Futures & Options contracts. These changes, effective from December 04, 2023, are designed to enhance the stability of the F&O market.

Key Aspects of the Updated Mechanism:

Market Order Adjustments:

The Mark-up/down of X% above/below the Last Traded Price (LTP) will now adhere to the prevailing High/Low of the Limit Price Protection (LPP) range for each contract.

Examples from the Annexure:

• The revised mechanism changes how buy and sell market orders are calculated. For instance, if the LTP is ₹100, and the mark-up is 20% (subject to a minimum of ₹10), the buy market order limit is adjusted to the lesser of the existing high LPP limit (₹120 in this case) and the revised limit (which could be ₹112 or ₹120 depending on the specific scenario). Similarly, sell market orders will adhere to the greater of the existing low LPP limit and the revised limit.
• In scenarios where the LTP is significantly lower, say ₹30, the new limits for buy and sell orders are recalculated accordingly, with the buy limit being the lesser of ₹40 and either ₹32 or ₹40, and the sell limit being the greater of ₹20 and either ₹20 or ₹27.

For more clarity, refer to the table below:

Assumption: Mark-up/down of X% above/below LTP for MPP is 20%, subject to a minimum absolute value of ₹10.

These changes are intended to provide a more robust framework to prevent extreme price deviations and ensure a more orderly market.

For more details on these changes and their relation to our previous notice dated October 31, 2022, visit here.