NSE prescribes reference, execution limits for F&O contracts - Livemint

The reference price for each contract shall be the theoretical price based on the underlying price at market open, and during trade, it would be the simple average of trade prices of that contract in the last five minutes, according to NSE. Photo: Mint

Mumbai: The National Stock Exchange of India Ltd (NSE) has prescribed reference and execution range for futures and options (F&O) contracts which will be applicable from 5 May to promote orderly trading.

In a release on Friday, NSE said such orders shall be matched and trades shall take place only if the trade price is within the reference price and execution range.

The reference price for each contract shall be the theoretical price based on the underlying price at market open, and during trade, it would be the simple average of trade prices of that contract in the last five minutes.

For contracts that have traded in the last five minutes, the reference price shall be revised throughout the day on a rolling basis at one minute intervals. For other contracts, the reference price shall be the theoretical price based on the latest available underlying price and shall be revised throughout the day at 30-minute intervals.

The execution range for future contracts would be 5% around the reference price. For option contracts, between Rs.25–100 reference prices, it would be 20% around the reference price, and for option contracts above Rs.100 reference price, it would be 10% of such reference price. The execution range will not apply to India Vix Futures and long-term option contracts on Nifty.​

Any incoming order, if it results in execution of a trade outside the reference price and execution range, such an order, either fully or partially, will be automatically cancelled.

"This circular implies that orders and trades which are not close to the market price or strike price will get automatically weeded out," said Arun Kejriwal, director of research firm Kejriwal Research and Investment Services. This circular shall initially be applicable to mid and far month futures and options contracts.

A BSE spokesperson said the bourse is yet to study the NSE proposal. "BSE will have to also consult Sebi (Securities and Exchange Board of India) in this regard," the spokesperson said.

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