Implementation of Revised Market Price Protection Mechanism for Futures & Options Contracts Effective December 04, 2023
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:
|
Scenarios |
LTP |
MPP Limit for Buy Market Order (Existing) |
MPP Limit for Sell Market Order (Existing) |
Prevailing High LPP Limit |
Prevailing Low LPP Limit |
MPP Limit for Buy Market Order (Revised) |
MPP Limit for Sell Market Order (Revised) |
|---|---|---|---|---|---|---|---|
| - | - |
(a)
|
(b)
|
(c)
|
(d)
|
(e) = Min(a,c)
|
(f) = Max(b,d)
|
| 1 | 100 | 120 | 80 | 112 | 48 | 112 | 80 |
| 2 | 100 | 120 | 80 | 196 | 84 | 120 | 84 |
| 3 | 30 | 40 | 20 | 32 | 0.05 | 32 | 20 |
| 4 | 30 | 40 | 20 | 67 | 27 | 40 | 27 |
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.