The Bombay Stock Exchange (BSE) has announced the introduction of a Limit Price Protection (LPP) mechanism in its equity derivatives market, beginning April 16, 2024, with the goal of strengthening pre-trade risk control procedures.
What Amounts to Changes in Limit Price Protection?
The derivatives market's price range for orders will be limited under the new method, which was disclosed on Friday, April 5. The trading system will accept limit price orders under this initiative, as long as they fall within predetermined ranges determined by the reference price.
What's in the BSE Circular?
A mock trading session has been scheduled by the BSE for Saturday, April 13, 2024, to ensure a smooth transition and give market participants a chance to become acquainted with the new mechanism.
Mock Trading Session
The exchange emphasized in the BSE circular, which was released on April 5, that "To strengthen the pre-trade risk control measures in the equity derivatives segment, Exchange will implement LPP Mechanism with effect from Tuesday, April 16, 2024."
LPP Mechanism Goals
The main goals of the LPP mechanism are to prevent anomalous trading activity and to reduce erratic trades. The system will reject orders that are placed outside of the specified price range automatically. Analogous to the NSE LPP Mechanism
The BSE's action comes after the National Stock Exchange (NSE) took a similar step in October 2022 to strengthen pre-trade risk management and guarantee orderly trading. The NSE implemented an LPP mechanism in its futures and options section. Similar Projects in the Future
The BSE made it clear that it would monitor how these improvements were being used on a regular basis and make any additional changes it saw appropriate in response to comments from market players.
