SEBI has introduced an updated framework to ensure smoother operations and better risk management in the Futures and Options (F&O) segment. Here's an overview of the changes, along with examples for better understanding:

1. Enhanced Conditions for Flexing Price Bands

To revise price bands for a stock or index in the F&O segment:

• Minimum Trades: At least 50 trades must occur.
• Market Participation: These trades must involve at least 10 trading accounts and 3 trading members, ensuring revisions are based on genuine and diverse market activity.

Example:

If Stock XYZ hits its price limit and requests a revision:

• There should be 50 trades involving at least 10 unique trading accounts across 3 different brokers.
• If only one broker contributes all the trades, the price band will not be revised.

2. Alignment of Stock and Futures Price Bands

Price bands for a stock will now be revised if either:

• The stock hits its price limit, or
• The current month futures contract on that stock reaches its limit.

Example:

• If Stock ABC hits its 10% upper price band, the price band for its current month futures will also be revised to reflect the same price movement.
• This synchronization ensures both the cash and derivatives markets operate seamlessly, avoiding unnecessary trading halts.

3. Cooling-Off Periods and Stepped Flexing of Price Bands

Price bands will increase gradually in smaller increments with defined cooling-off periods to manage volatility.

Example:

• Stock DEF starts trading with a price band of ±10%.
• If the upper limit is breached, the band flexes to ±15% after a 15-minute cooling period.
• If the price continues rising, it flexes again to ±20%, with another 15-minute cooling period.
• Further movements result in smaller flexes (e.g., ±3%) with longer cooling-off periods (30-60 minutes).

4. Sliding Price Bands

Sliding price bands to dynamically adjust limits during significant price movements. Here's how it works:

1. Simultaneous Adjustment: When the price band is flexed in one direction (upward or downward), the opposite band adjusts by the same percentage, ensuring balanced flexibility.

2. Automatic Order Cancellation: If the price bands are revised, all orders that were valid under the old band but fall outside the new adjusted band are canceled automatically. This prevents trades from executing outside the updated permissible range.

Example Scenarios

• Initial Price Band: Suppose the price band is set at ₹90 (lower limit) and ₹100 (upper limit).

• Price Moves Up by 5%:

  • The lower limit adjusts to ₹95, and the upper limit extends to ₹115.
  • Any orders between ₹90 and ₹95 are canceled because they are now outside the revised range.

Summary of Benefits

• Enhanced Market Integrity: Genuine market activity ensures fair price band revisions.
• Reduced Trading Halts: Aligning stock and futures price bands minimizes disruptions.
• Better Risk Management: Stepped flexing and cooling-off periods provide orderly price discovery.
• Flexibility in Options Trading: Temporary limits enable hedging and position adjustments during volatility.