Exclusive: SEBI, exchanges in discussion over bringing back trade execution range; know what is triggering the move

A discussion on price limit of shares on re-trading in the event of freak trades has began. Freak trades are erroneous trade where the price hits an abnormal level deviating from the current market price in F&O contracts. Zee Business has learnt through its top sources that market regulator Securities and Exchange Board of India (SEBI) and exchanges are mulling over implemetation of trade execution range again. Brajesh Kumar reports.

A discussion has begun on whether trade execution range (TER) should be brought back. It is also being considered if the trade execution range should be made dynamic instead of a prior practice where it was fixed. The discussion is ongoing on this issue between SEBI, exchanges and other stakeholders, Kumar added.

This is being contemplated to ensure that traders do not face problems while executing trades and freak trades in large transactions are avoided. While creating a range for dynamic trade execution, important parameters in the formula must take in view volatility in prices, price and liquidity.

The trigger for reconsideration of  trade execution range was a freak trade that happened in Nifty options on 2 June. According to estimates, a trader incurred loses of nearly Rs 200 cr

If dynamic trade execution range is implemented, trades will be executed with a certain range from the current price. Any level beyound this range will automatically be not executed. This will reduce possibilities of freak trades.   

NSE, last year in November decided to end the practice of trade execution range after facing issues with it. Many trades were unable to get executed because of it on many occasions.    

The brokers had then complained and urged to bring a system based on demand and supply. This would ensure that brokers execute trades understanding their risks. 

However, there is no unanimity among the share-broking community over this issue. Many share brokers have suggested that they get freedom to execute trades. This is because brokers can cover their risks through insurance.

Most share brokers are of the view that freak trades have the potential to spoil the overall mood of the markets like it happened in 2012. There must be some solution regarding this.

Trade Execution Range was started by the NSE in 2014. THere have been changes in this from time-to-time.

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बाजार से जुड़ी अहम खबर..

फ्रीक ट्रेड से बचने के लिए नया ट्रेड एक्सिक्यूशन रेंज, SEBI और एक्सचेंजेज के बीच फिर से मुद्दे पर बातचीत..2 जून को निफ्टी ऑप्शंस में फ्रीक ट्रेड होने के बाद से चिंता...

जानिए पूरी खबर हैं ब्रजेश कुमार से...@SEBI_India @BrajeshKMZee @AnilSinghvi_ pic.twitter.com/CB6q4hj21B

— Zee Business (@ZeeBusiness) June 23, 2022

Why was Trade Execution Range discontinued 

- Traders found their trades getting stuck in the execution range 

- Problems were faced at the time of market opening and during market volatility 

- Many times the current price was beyong the trade execution range 

- The exchange had to manually increase or decrease the range 

- The thought was that let demand-supply decide the price   

What happened on 2 June

-12.5 lakh units wassold at 15 paise, Rs 200 Cr loss  

- Doubts were if by mistake instead of 16500, 14500 call was sold

How is TER is calculated?

-Market opening - underlying price + theoritical price based on MIBOR-based interest rate   

- Current market price - sample average price of trade executed in last 1 minute