Further to circular no 20140901-25 dated September 01, 2014 on introduction of price reasonability check in Currency Segment, the exchange now proposes to introduce price reasonability check (PRC) functionality in Equity Derivatives segment as a measure to further strengthen the Exchange’s pre-trade risk management framework.
This feature is on the lines of globally prevalent risk management measures and shall primarily reduce potential instances of market abuse and fat-finger errors and facilitate true price discovery and investor protection.
In PRC functionality, each new (incoming) limit order price shall be validated with the Exchange defined Price Reasonability Range (PRR). PRR shall be dynamically computed and applied by the trading system using a real-time reference price. This shall ensure that the price of an incoming limit order is not too far off from the prevailing market prices.
Salient Features of Price Reasonability Check (PRC) functionality
- It is applicable to incoming limit orders.
- Price of incoming limit orders is checked with respect to PRR prevailing at that point of time.
- PRR is dynamically computed using a real-time reference price. The Reference price shall be based on Best Bid/Offer prices on each contract/security.
- Incoming orders outside of the PRR at that particular time shall be rejected.
- If best bid/offer price is not available or if the spread between best bid & best offer price is too wide, then the system shall compute PRR using LTP or previous close price as the reference price, as applicable.
- Trading system automatically switches, in real-time, between using the best bid/offer price and LTP (or previous close price) as the reference price to compute PRR, depending upon the order book situation.
The existing risk management feature of price bands shall continue. PRR shall be within the applicable price bands defined for each contract/security.
The PRC functionality shall be applicable for all futures and option contracts of Equity Derivatives segment. It shall not be applicable for calendar spreads and paired option contracts.
Price Reasonability Range (PRR) applicable shall be in absolute value and based on the order price slabs to which the PRR belongs. Following shall be the PRR slabs :-
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Index and Stock Future
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SLAB (in Rs)
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Order Price Range from
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Order Price Range To
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PRR Range in Rs
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0.05
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20.00
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0.5
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20.05
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50.00
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1.00
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50.05
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100.00
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2.00
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100.05
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500.00
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5.00
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500.05
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1000.00
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10.00
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1000.05
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2000.00
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20.00
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greater than 2000.05
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25.00
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Stock Option
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SLAB (in Rs)
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Order Price Range from
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Order Price Range To
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PRR Range in Rs
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0.05
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10.00
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0.50
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10.05
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50.00
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0.75
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50.05
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100.00
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1.00
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100.05
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200.00
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2.00
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200.05
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500.00
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5.00
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greater than 500.05
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10.00
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Index option
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SLAB (in Rs)
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Order Price Range To
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PRR Range in Rs
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0.05
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10.00
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1.00
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10.05
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100.00
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5.00
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100.05
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200.00
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15.00
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200.05
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500.00
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25.00
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greater than 500.05
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50.00
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The Exchange may relax the applicable Price Reasonability Range and order price slabs depending on prevalent market conditions.
Trading members are requested to refer to the enclosed FAQ document for a detailed understanding and examples on this functionality.
The PRC functionality shall be made live in Equity Derivatives segment with effect from Monday, January 18, 2016.
To familiarize members with working of this functionality, it has been made available for testing in the simulation environment. Trading members are requested to test the functionality in simulation environment so as to understand its working. Further, the functionality shall be made available during the mock trading session in the live environment scheduled on Saturday, January 16, 2016.
In case of any queries or clarifications on the new functionality, trading members may kindly contact their respective Relationship Managers.
For and on behalf of BSE Ltd.,
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Rajesh Saraf
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Vivek Garg
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Sr. General Manager
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General Manager
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Surveillance and Supervision
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Trading Development
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January 13, 2016
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