With a view to strengthening the pre-trade risk control measures in Equity Derivatives segment, Exchange will implement Limit Price Protection (LPP) Mechanism with effect from Tuesday, April 16, 2024. Consequently, the Price Reasonability Check (PRC) will cease to operate from the said date.
Features of LPP Mechanism would be as under:
a. Limit price orders within the Limit Protection Price (LPP) range (higher for buy orders & lower for sell orders) of 60% of the reference price for Option contracts (calculated as per details in point b below and subject to minimum LPP value of Rs 30) and 3% of reference price for Future Contracts (calculated as per details in point b below and subject to minimum LPP value of Rs 1.50) shall be accepted by the trading system and orders beyond this price range would get rejected.
b. The applicable reference price/theoretical price shall be calculated as detailed below:
At start of the market:
- The theoretical price for a contract would be calculated based on the Black Scholes model (for option contracts) using the open price/value of the underlying asset (stock/index) as discovered in pre-open session in the Equity segment.
- In case open price of the underlying asset is not available, then previous close price of the contract shall be considered as the reference/theoretical price.
During trading hours:
- The reference price would be computed on a continuous basis at a time interval of 30 seconds based on the simple average of trade prices in that contract in the last 30 seconds.
- For contracts that have not traded in the last 30 seconds, last updated reference price price shall continue to be applicable.
- If a contract remains untraded for a continuous 15 minutes from the time of last reference price update, then theoretical price based on the latest available underlying price shall be considered as the reference price for that contract.
c. LPP range validation shall be subject to the order price being within the prevailing price bands applicable at the time of order placement for that contract.
d. The LPP mechanism shall also be applicable in following cases:
- Order modification requests: Only modified limit price within the LPP range would be accepted and modifications beyond the LPP range would get rejected.
- Stop Loss - Limit orders: LPP validation shall be applicable only on stop loss limit order getting triggered and consequent limit order entering the trading system.
e. LPP validation shall not be applicable for limit price orders placed in calendar spread futures and option strategy contracts.
f. LPP range for a contract shall be flexed automatically in the corresponding direction only if
- A minimum of 5 orders are rejected on account of LPP validation, within 30 second intervals, AND
- Such rejected orders involve a minimum of 2 trading members and minimum of 3 unique UCCs.
g. Existing passive orders in the order book shall remain available for matching even if the LPP range has moved within the prevailing price band, based on updates in the reference price. These orders shall be taken up for matching based on price-time priority.
Trading members and third-party trading application vendors are requested to note that there are changes in ETI API to facilitate roll-out of above-mentioned enhancements. Additionally, contract-wise LPP range shall be provided through the market data broadcast channels. Kindly refer to the enclosed Annexures for more details on the same as well as some illustrations on the functionality.
To facilitate smooth roll-out, the changes shall be available for testing during the mock trading session on Saturday, April 13, 2024.
Based on the usage of these enhancements and further inputs from market participants, the Exchange may review these measures periodically and implement further improvements/ changes as necessary. In the meantime, trading members are urged to carefully go through the features of LPP functionality and ensure that their systems are tested adequately before implementation. Members are also advised to exercise care and caution while placing orders by reviewing and setting limits as advised in our earlier notices.
In case of any queries, members may kindly get in touch with us as per following contact details –
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Queries
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Email ID
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Telephone No.
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Functional queries
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iml.info@bseindia.com
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022-2272 8705/ 8885
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Technical queries
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bse.tech@bseindia.com
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022-2272 8053
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For & On Behalf of BSE Ltd,
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Arvindkumar Iyengar
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Vivek Garg
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Chief General Manager
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Chief General Manager
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I.T. Development
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Trading Development
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April 05, 2024
Encl.
Annexure 1 - Illustrations on Limit Price Protection
Annexure 2 - API Changes in Interactive & Market Data Broadcast Channels |