NSE Circular – Limit Price Protection

The department of Futures & Options Segment at NSE has released a Circular with Ref. No.: 129/2022 on Limit Price Protection.

To increase pre-trade risk control procedures for preventing unusual orders and ensuring orderly trading, NSE shall implement the following Limit Price Protection system (LPP).

1. The LPP range must include both the price range above and below the reference price used to validate limit order pricing.
2. The reference price for every contract shall be determined as follows:
   1. At Market Opening – LLP will be calculated theoretically using the underlying price as discovered in the cash market pre-open session, the benchmark interest rate as the MIBOR rate (for option contracts, the Black Scholes model will be utilized along with suitable volatility). If the underlying price is not accessible at the time of computation, the reference price is the contract’s base price.
   2. During trading hours – LLP will represent the simple average of that contract’s trading prices over the past 30 seconds. 
      1. The reference price for contracts that have traded in the past 30 seconds will be changed at 30-second intervals throughout the day. 
      2. The reference price shall not be changed for contracts that have not traded in the past 30 seconds. 
      3. However, if the contract remains untraded for more than 15 minutes after the previous reference price update event, the reference price shall be the theoretical price based on the most recent available underlying price (or the contract’s base price if no underlying price is available).
3. The LPP range on both sides of the reference price must be calculated as follows:

Instruments	Reference Price (in Rs)	Absolute	% of Reference Price
OPTIDX	<=50	+/-  –  20	–
>50	–	+/-  –  40%

4. Any inbound Limit order placed outside of the LPP range will be instantly rejected by the Exchange.
   1. Buy order price > High LPP limit
   2. Sell order price < Low LPP limit
5. The LPP validation must also apply to order change requests. Order change requests with prices that exceed the LPP limit (as defined above) will be rejected.
6. LPP will be used as an extra validation if the order price is within the current operating price range.
7. When an order is rejected due to LPP validation, the following notice will be shown on the appropriate trading terminal.

“Order price is beyond LPP limit”

8. For SL-Limit orders, the aforementioned validation shall be applicable post-trigger of the order when released in the RL book, taking into account the current LPP restrictions. As a result, members are asked to keep this in mind while placing SL-Limit orders.
9. LPP limit must be automatically flexed when at least 10 orders are denied due to LPP validation between two LPP revision events, And so when such orders involve at least 5 distinct UCCs. The LPP range must be bent in the direction where the parameters are satisfied.
10. Passive orders, i.e., current ongoing orders inside the OPR, will stay in the order book even if the LPP range has altered and shall be matched according to price-time priority.
11. The LPP method will be used for Index Options for the time being (Weekly & Monthly expiries).

Based on its experience and feedback from market players and regulators, NSE may periodically examine the process as mentioned above and various pertinent factors.

Members should trade responsibly and prudently since trading away from regular pricing and deceiving or disrupting normal trading may result in an investigation and regulatory action.

These adjustments will be implemented in live from the trade date of October 31, 2022, and will be accessible for testing in mock from October 29, 2022.

For any clarification, please get in touch with our Centralized Support Desk

Monday to Friday, 9 AM – 6 PM

Phone: 080-35215000 | 080-45490850

E-Mail: [email protected] 

Happy Trading!

Team Alice Blue

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