Pre-Trade risk controls to be in effect from 31st October 2022

Pre-Trade risk controls to be in effect from 31st October 2022

SEBI Regulations
29 October '2022
6:00 PM

As per the circular dated 28th October 2022, The National Stock Exchange of India has announced that to further strengthen the pre-trade risk control measures for preventing aberrant orders and to ensure orderly trading, the Exchange has introduced the mechanism of Limit Price Protection (LPP). As a result, the following changes are applicable with effect from 31st October 2022:

  1. LPP range will be the range on both sides of the reference price to validate the price of limit orders.

  2. The reference price for each contract shall be computed as follows:

    1. At market open, it shall be computed theoretically using underlying price as discovered in the cash market pre-open session, benchmark interest rate as MIBOR rate (for option contracts, Black Scholes model shall be used along with appropriate volatility). In case underlying price is not available at the time of computation, the reference price shall be the base price of the contract.

    2. During trading hours, it shall be the simple average of trade prices of that contract in the last 30 seconds. For contracts that have traded in last 30 seconds, the reference price shall be revised throughout the day at 30 seconds interval. For contracts that have not traded in the last 30 seconds, the reference price shall not be revised. However, in case contract remains untraded for continuous 15 mins from last reference price update event, the reference price shall be the theoretical price based on the latest available underlying price (or base price of the contract if the underlying price is not available).

  3. The LPP range on both the side of reference price will be computed as follows:

    Instrument LTP Absolute (₹) % of reference price
    OPTIDX <= 50 +/- ₹20 -
    OPTIDX > 50 - +/- 40%
  4. Any incoming Limit order placed beyond the LPP range will be automatically rejected by the Exchange as below:

    • Buy order price > High LPP limit

    • Sell order price < Low LPP limit

  5. The LPP validation is also applicable for order modification requests. Order modification requests having prices beyond LPP limit will be rejected.

  6. LPP will be an additional validation subject to the order price being within the prevailing Operating Price Range (OPR).

  7. The following message shall be displayed on the respective trading terminal on the rejection of the order on account of LPP validation, "Order price is beyond LPP limit"

  8. For the SL-Limit orders, aforesaid validation will be applicable post-trigger of the order while releasing in the Regular Lot (RL) book, considering prevailing LPP limits.

  9. Pending orders, i.e., existing outstanding orders that are within the OPR, will continue to remain in the order book even if the LPP range has moved and will be matched as per price-time priority.

  10. Currently, the LPP mechanism is applicable for Index Options (Weekly & Monthly expires) only.

For more details, refer to this circular.

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