I assumed F&O has no circuit limits, because I’ve seen Futures stocks go up more than 20% in a day. Under what circumstances are the price bands relaxed and increased?
Technically, Futures and Options have no circuit filters(fixed upper and lower circuit limits for a day), but they do have daily dynamic price bands. These price bands were introduced to prevent false or erroneous order entries into the system as per the pre-trade risk control guidelines.
The minimum operating range of the price bands are as follows:
- For Index Futures: at 10% of the base price
- For Futures on Individual Securities: at 10% of the base price
- For Index and Stock Options: A contract specific price range based on its delta value is computed and updated on a daily basis.
Here, base price is the daily settlement price of the F&O contracts. The settlement price is the average trading price of the last 30 minutes.
Singular orders placed above these operating ranges will reach the exchange as a freeze price and will be canceled. But these price bands do get relaxed when certain conditions are met.
Dynamic price bands are either increased or decreased in multiples of 5% based on the trend of the derivative securities. Also, the price bands are relaxed only in the direction of the price trend and only for that trading day.
Conditions under which price bands are relaxed:
To relax price bands, the exchange ensures that a minimum of 10 trades is executed by Unique Client Codes(UCC) on both the buying and selling side between 9.9% and 10% from the base price. If this condition is met, the price band is relaxed to 15% on the side of the trend.
Similarly, if a minimum of 10 trades is executed by Unique Client Codes(UCC) on both the buying and selling side between 14.9% and 15% from the base price, the price band is relaxed to 20% and so on and so forth.
Let’s take an example:
BPCL Futures settled at 504.50 on 18 Aug 2017. Now the operating range for 21 Aug is 10% from 504.50 which is between 554.95(maximum range) and 454.05(minimum range).
Now if BPCL goes up 10% and if a minimum of 10 trades is executed from unique client codes between 554.45(9.9% from base price) and 554.95(10% from base price), then the maximum range is relaxed to 15%.
The same steps follow for the price bands to be relaxed further.
So even for options around every strike price CE/PE there is price band/range. I did a quick test to confirm the same … in live markets. However, the rejects do not seem to be from exchange but from the broker OMs. So my understanding is that probably the exchanges are publishing this file on a regular dynamic basis and brokers are reading the same and enforcing necessary validation on order entry. My question is can this file be accessed in some fashion on real time basis?
I see how Price Bands for FNO scrips get changed dynamically;
If someone can please explain me how trading continues in the scrip even beyond that PB while my orders for prices beyond that PB get rejected in Kite (even if the LTP is beyond that PB!); the orders get through only after some time has elapsed?
Have missed quiet many opportunities due to this.
Respect and gratitude to all of you present here…
(after a very long time of inactiveness)
Tata chemicals on 2/5/2022 made a move of more than 11% but when it hit 10% price band limits, the stock halts for only 5 min…why so? According to the rules it must halts for 15 mins before it get relaxed as itis a f&o stock…