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Understanding Enhancement of Dynamic Price Bands for Derivative Segment Scrips

By Sonali Palande | Updated at: Nov 25, 2024 12:01 PM IST

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The National Stock Exchange (NSE) has issued a new circular (NSE/FAOP/64995) dated November 8, 2024, which aligns with the SEBI Circular (SEBI/HO/MRD/TPD-1/P/CIR/2024/58) issued on May 24, 2024, and the Exchange Circular (NSE/FAOP/64627) dated October 18, 2024. These circulars collectively highlight important revisions aimed at improving the functionality and transparency of the derivatives market.

The updates focus specifically on the 1.Enhancement of dynamic price bands for scrips in the derivatives segment. They also detail revised criteria for 2.Sliding Price Bands and changes to the regulations governing trading in the options segment during cooling-off periods.

These measures have been introduced to ensure orderly price discovery and mitigate risks during significant price movements.

Update

Previous Criteria

New Criteria

Sliding price band on account of flexing

In the event of a market trend in either direction, the dynamic price band shall be relaxed at a time in the direction of the price movement during the day in co-ordination with the other Exchange as follows:

If the last trade occurs at 9.90 % or more of the base price, the dynamic price band shall be relaxed to 15%. Subsequently, if the last trade occurs at 14.90% or more then the same would be relaxed to 20% and so on by relaxing dynamic price band

Whenever the price band of a scrip is flexed in the direction of price movement on meeting the objective criteria of flexing the price band on the other side (i.e. lower band in case of upward price movement and higher band in case of downward price movement) would also be flexed concurrently by equivalent amount in the direction of price movement. Thus, ensuring that the price band slides in the direction of price movement instead of expanding.

Pending orders with LIMIT prices which are not within the new price band would be cancelled by the Exchange.

Trading in Options Segment During Cooling Off in Underlying/Futures Contracts

LPP related norms as per point (E) in chapter 1.15 Pre-Trade Risk Controls in Exchange circular reference NSE/FAOP/61814)

A temporary price floor or ceiling on LPP limits of stock options in the sentimental direction of price trend in the underlying, as applicable, would be placed once underlying triggers cooling off.

The changes outlined above will officially come into effect starting November 18, 2024. These modifications aim to enhance the trading experience and ensure seamless functioning in the derivatives segment.

For more details and in-depth information regarding these changes, please refer to the official NSE communications by accessing Circular 1 and Circular 2.

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