BSE Puts Price Protection Mechanism In Equity Derivatives Segment To Control Risk
traBSE Ltd. will implement a Limit Price Protection mechanism in the equity derivatives segment, with effect from April 16, in order to strengthen the pre-trade risk control measures.
"With a view to strengthening the pre-trade risk control measures in equity derivatives segment, Exchange will implement LPP Mechanism with effect from Tuesday, April 16, 2024. Consequently, the Price Reasonability Check will cease to operate from the said date," the exchange said in a circular on Friday.
The features of LPP Mechanism would be as follows:
Limit price orders within the LPP range of 60% of the reference price for option contracts and 3% of reference price for future contracts shall be accepted by the trading system and orders beyond this price range would get rejected.
The changes will be available for testing during the mock trading session on April 13 (Saturday) to facilitate a smooth roll-out, it said.
Based on the usage of these enhancements and further inputs from market participants, the exchange said it may review these measures periodically and implement further changes as necessary.
The Limit Price Protection mechanism aims to protect orders during unusual trading activities and prevent freak trades. When the price is placed outside the mechanism range, it gets rejected.
In October 2022, the National Stock Exchange had put in place the LPP mechanism in the futures and options segment to strengthen the pre-trade risk control measures for preventing aberrant orders and to ensure orderly trading.
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