Sebi tweaks framework for price band formulation in derivatives segment

Sebi on Friday modified the framework for price band formulation for scrips in the derivatives segment in order to address issues related to sudden price movement and fat finger errors.

The regulator has enhanced the number of trades, unique client codes, and trading members for ‘flexing’ of price bands. Flexing is changing the price band towards the direction of the trade.

For instance, for the previous day’s closing price of Rs 100, the next day’s lower band and upper band are Rs 90 and Rs 110 respectively. If the price trends upwards, the upper price band can be flexed to Rs 115 after satisfying certain pre-conditions.

And the lower band shifts upwards to Rs 95, and orders lying between Rs 90 and Rs 95 stand cancelled. The regulator has also announced measures for better alignment of price bands between the underlying cash and futures contracts.

It has also strengthened the volatility and risk management system for minimising information asymmetry and reducing extreme price movements. The new measures will be made applicable in two phases starting August 19 and October 21.