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Introduction of Limit Price Protection

Friday, 28 October 2022

Exchange has a robust risk management framework and continuously reviews and implements various pre-trade risk control measures for ensuring orderly trading, effective risk management and price discovery. To further strengthen the pre-trade risk control measures for preventing aberrant orders and to ensure orderly trading, the Exchange shall put in place the following mechanism of Limit Price Protection (LPP)
              1. LPP range shall be the range on both sides of the reference price to validate price of limit orders
              2. Reference price for each contract shall be computed as follows:
                         a. 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, reference price shall be base price of the contract
                         b. 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 underlying price is not available).
            3. Any incoming Limit order placed beyond LPP range shall automatically be rejected by the Exchange as below:
                     a. Buy order price > High LPP limit
                     b. Sell order price < Low LPP limit

 

Note- 

1.For the SL-Limit orders, aforesaid validation shall be applicable post trigger of the order while releasing in the RL book.

2.The LPP range on both the side of reference price shall be computed as follows:-

Reference price (in Rs)  Absolute  % of Reference price
 <=50  +/- 20 -
>50  -   +/-40%

 

3.LPP mechanism shall be applicable for Index Options (Weekly & Monthly expiries) and Stock Options.

Click here for reference.

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