Sebi steps in to prevent flash crashes at bourses

The Securities and Exchange Board of India (SEBI) on Thursday announced a series of measures to prevent flash crash. It has asked exchanges to put an upper limit on a single order at Rs 10 crore and also decided to tighten the dynamic price band around a stock that will stretch only 10 per cent either way.

The measures are a response to the possibility of flash crashes like the one which happened in October 5 this year at the NSE.

This means no order of above Rs 10 crore will be accepted by the stock exchange for execution in the market.

The dynamic price band is tighter than the circuit filters that exchanges apply on stock prices daily. The new band will also be applicable on index futures and stock futures.

Sebi has however said that in case of a market trend in either direction, the dynamic price bands shall be relaxed by the stock exchanges in increments of 5 per cent.

"It has been decided to tighten the initial price threshold of the dynamic price bands. Stock exchange shall set the dynamic price bands at 10 per cent of the previous closing price," said the Sebi circular issued on Thursday.

Market participants say that this sort of limit has come for the first time.

"This is the first time that a dynamic price band has been fixed for such stocks as earlier there used to be just dummy filters which was more like an internal mechanism and an artificial filter and that never halted trade," said a market source who did not wish to be named.

As a result of the upper limit on single order, the regulator has made it impossible for anyone to avoid the block deal window and route trades through the normal window.

... contd.

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