SEBI Proposes Measures on Price Band Formulation in Equity Derivative Segment

SEBI Report 2; dated: 20.05.2023

SEBI has floated a consultation paper on price band formulations for scrips in the equity derivative segment. The objective is to strengthen volatility management and minimize information asymmetry in the market. Price bands for scrip or a derivative contract represent the boundaries within which the competing orders of buyers and sellers are accepted for the day by the trading system of the stock exchange.

Further, for scrips having derivative contracts on them, these price bands are dynamic and can be flexed depending on trading during the day.

SEBI proposed that in case a share in the futures and options segment falls or rises beyond 20% a day, a cooling-off period should be increased in a phased manner, subject to a maximum of cooling-off period of 1 hour from the current 15 minutes at present. After this, such scrip should be permitted to move only a further up to 2% as against the current limit of 5%.

Also, once the scrip touches the price band till the time the price band is flexed after the cooling off, the regulator suggested that a revised temporary ceiling in the price band of the options be introduced depending on the Last Traded Price (LTP) of the options contract.

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