Pre-trade Risk Controls
Summary
This circular mandates the implementation of pre-trade risk controls, including order-level checks and dynamic price bands, to mitigate trading disruptions. It requires stock exchanges to enforce collateral utilization limits that trigger a mandatory risk-reduction mode for stock brokers. The directive outlines specific procedural steps for exchanges to implement these systems within one month and report compliance to SEBI.
Text
it has been decided to prescribe a framework of dynamic trade based price checks to prevent aberrant orders or uncontrolled trades... stock exchanges shall implement the measures as given below.
Any order with value exceeding Rs. 10 crore per order shall not be accepted by the stock exchange for execution in the normal market.
stock exchange shall ensure that appropriate checks for value and / or quantity are implemented by the stock brokers based on the respective risk profile of their clients.
stock exchange are directed to ensure that stock brokers put-in place a mechanism to limit the cumulative value of all unexecuted orders placed from their terminals to below a threshold limit set by the stock brokers.
Stock exchanges shall enhance monitoring of the operating controls of the stock brokers... and levy deterrent penalty in case any failure is observed at the end of stockbroker in implementing such checks.
Stock exchange shall set the dynamic price bands at 10% of the previous closing price for the following securities: Stocks on which derivatives products are available, Stocks included in indices on which derivatives products are available, Index futures, Stock futures.
in the event of a market trend in either direction, the dynamic price bands shall be relaxed by the stock exchanges in increments of 5%. Stock exchanges shall frame suitable rules with mutual consultation for such relaxation...
Stock exchanges shall ensure that the stock brokers are mandatorily put in risk-reduction mode when 90% of the stock broker’s collateral available for adjustment against margins gets utilized...
All unexecuted orders shall be cancelled once stock broker breaches 90% collateral utilization level.
Only orders with Immediate or Cancel attribute shall be permitted in this mode.
All new orders shall be checked for sufficiency of margins.
Non-margined orders shall not be accepted from the stock broker in risk reduction mode.
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Source: SecMarx — Pre-trade Risk Controls. Verbatim text is public record; SecMarx structuring (linkage to applying orders) is cited to us.