With an aim to check systemic risk from erroneous trades, the National Stock Exchange has asked brokers to restrict their trade orders within 10 per cent of the prevailing price of shares and other securities.

The proposed move, which will come into force from December 24, follows SEBI’s directives regarding pre-trade controls after the 900-point flash crash in Nifty due to erroneous trade.

The flash crash on October 5 had halted trading for about 15 minutes and wiped out nearly Rs 10 lakh crore of investor wealth.

“It is hereby notified that as per revised operating policy, the dynamic price bands shall be 10 per cent for stocks on which derivatives products are available and stocks included in indices on which derivatives products are available,” NSE said in a circular.

The exchange advised trading members not to place orders beyond the dynamic price bands in force.

NSE said in the event of a market trend in either direction, the dynamic price bands may be relaxed during the day in co-ordination with other exchange.

If the last trade occurs at 7 per cent or more of the base price, the dynamic price band would be relaxed to 15 per cent, subsequently, if the last trade occurs at 12 per cent or more then the same would be relaxed to 20 per cent and so on by relaxing dynamic price band in multiples of 5 per cent.

The existing policy for price band would continue to apply in case of all other securities.

Last week, SEBI had directed stock exchanges not to execute orders exceeding Rs 10 crore in the normal market. The regulator had also decided to tighten the initial price threshold of the dynamic price bands.

(This article was published on December 18, 2012)
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