Sebi sets trade limits to prevent flash crashes

Mumbai: In an effort to prevent flash crashes on stock exchanges due to erroneous orders or manipulation by brokers, India’s capital market regulator on Thursday imposed pre-trade order limits on exchanges and enhanced risk-management controls for the bourses. A late evening release by the Securities and Exchange Board of India directed the exchanges to reject orders above ₹ 10 crore for trade execution on equity, exchange-traded funds and derivatives.NextMAds Additionally, the exchanges need to ensure that required checks for value and quantity of orders are implemented by the stock brokers according to their clients’ risk profile. Some stocks, typically large ones, are excluded from the requirement of price bands and stock exchanges have implemented a mechanism of dynamic price bands or dummy filters that prevent the acceptance of orders for execution that are placed beyond the price limits. The capital market regulator ordered the exchanges to reset the dynamic price bands from 20% to 10% of the previous closing price for stocks on which derivatives are traded, stocks on indices on which derivatives are available, index futures and stock futures.sixthMAds However, this initial dynamic price band can be relaxed by stock exchanges in increments of 5% in the event of a market trend in either direction.