Guidelines for trading members

1. Placing orders away from fair prices -

1. The Exchange vide circular nos. NSE/FAOP/49118 and NSE/CD/49119 dated July 31,2021 has introduced changes in Pre-Trade Risk controls. Trading Members and Investors should take cognizance of the same and exercise due caution while placing their orders. Orders should be placed in all contracts in a manner so as to ensure a fair and orderly market. Trading Members to introduce appropriate checks in their order management systems to ensure due compliance of the above.
2. The Exchange has observed instances wherein Trading Members place orders at prices which are at extreme ends of the operating range defined by the Exchange and have no apparent economic rationale when compared with last traded price/reference price/theoretical price/underlying price movement. Such orders lie passively in the order book leading to aberrations in the order book. Trades executed from such orders placed at unrealistic prices lead to aberrations in the normal price discovery process in the secondary market.
3. Trading Members should refrain from placing orders at unrealistic prices which, prima facie, appear to be non-genuine on their own account and/or on behalf of their clients.
4. Trading Members should put in place appropriate internal systems and procedures at their end to ensure that such orders/transactions are not placed on the trading system of the Exchange, including trades through IBT/STWT/Algorithmic trading.
5. Non-compliance in this regard attracts appropriate disciplinary action proceedings as per the Capital Market and F&O Regulations of the Exchange, which may include de-activation of trading terminals.

2. Surveillance Obligations Alerts & Compliance – Member Surveillance Dashboard (MSD)

1. Trading Members should have an independent Market Surveillance Policy for effective monitoring of alerts. This monitoring mechanism must be capable of analyzing the trading pattern of the clients to detect any abnormal behavior w.r.t price and/or volumes of any scrips.
2. Any alerts generated by the said monitoring mechanism must be analyzed by Trading Members and reported to the Exchange on MSD portal on a quarterly basis.
3. Trading Members have to report to the Exchange, only those alerts which are generated by their internal monitoring mechanism and not those alerts which are sent by the Exchange to Trading Members.
4. Reporting of such alerts to the Exchange must be done within 15 calendar days from the previous quarter end in the format as per Exchange circular no. NSE/SURV/48818 dated July 01, 2021. This quarterly submission is mandatory for all Trading members including only Proprietary Trading Members. The quarterly submission would be considered as complete once all the details in the requisite format (3 tables as per said circular) has been submitted by the Trading Members.
5. Delay/non submission/incomplete submission in this regard attracts penalty as prescribed under Exchange circular no. NSE/SURV/48818 dated July 01, 2021.

3. Persistent Noise Creators (PNC) –
   1. As per Exchange circular no. NSE/SURV/52992 dated July 15,2022, Trading Members should avoid placing excessive orders which are attributed as 'noise' in the market. The excessive order messages may be attributed as “noise” in the market with prima facie no intention to execute trade by modifying or cancelling them.
   2. This results in an increase in the overall “Information Asymmetry” for other algos / players in the market.
   3. The Exchange on a daily basis sends details of clients whose trades are observed to be categorised as PNCs to the Trading Members. Trading Members can download the said details at EOD on daily basis through FTP. The file name for the same is “Persistent Noise Creator Client Level Segment”.

4. Additional Surveillance Deposit (ASD) – 500 crores position limit –
   1. As per Exchange circular no. NSE/SURV/43915 dated March 22, 2020, all Trading Members need to independently monitor the positions of all their clients and maintain them below Rs. 500 cr on daily basis.
   2. The Exchange calculates the ASD on excess positions for a day independently and not on incremental basis at Trading Member level. The ASD will be levied by the Exchange till the position is not reduced below prescribed limit by Trading Members.
   3. If any Trading Member/Client breaches the prescribed position limit of Rs. 500 cr and ASD is levied, then Trading Member/Client is required to immediately reduce the position below Rs. 500 cr, else ASD will be levied on continuous basis till that position is reduced by Trading Members.
   4. Trading Members should independently monitor their Proprietary and Client positions to adhere to the prescribed limits. However, the Exchange also sends a cautionary email to Trading Members having short positions and are nearing the prescribed limit on daily basis.

5. Order to Trade Ratio (OTR) -
   1. All Trading members should monitor live Order to Trade Ratio (“OTR”) on Member Surveillance Dashboard Portal for the respective segments during the market hours. As per Exchange circular no. NSE/SURV/45016 dated July 14, 2020, Trading Members should ensure that the OTR is under control to avoid any penal action.
   2. The Exchange on daily basis sends to Trading Members their respective order-to-trade ratio on Member Portal for Equity, Equity Derivatives and Currency Derivatives Segments.
   3. In addition to the above, in case, if the OTR is 2000 or more on three occasions in the previous thirty trading days (on a rolling basis), Trading Member will not be permitted to place any orders for the first 15 minutes on the next trading day as a cooling off action.

6. Algo tagging -
   1. As per Exchange circular nos. NSE/SURV/39958 dated January 15, 2019 & NSE/SURV/50154 dated October 29, 2021, all Trading members should tag orders with their corresponding algo ids. The Exchange checks whether all Algorithmic orders are tagged with the unique identifiers allocated by the Exchange. In case of any deviations observed, the Exchange levies a penalty of Rs. 10,000/- per day up to 5 instances, and thereafter post 5 instances Rs. 50,000/- per day.
   2. The 13th digit of the 15th digit NNF id represents the flag for Algo/Non-Algo. If the 13th digit is 0, it depicts the NNF id is an Algo id and if the 13th digit is 1, the id is classified as non-algo. The Exchange checks whether any NNF id updated as Algo is tagged with a valid Algo ID registered with the Exchange. In case of any mismatch observed in Algo ID or not entered at all, the Exchange levies the aforesaid penalty.
   3. The Exchange sends a mismatch details file on daily basis at End of day to Trading Members, which can be downloaded through FTP on location: File path: “/Surveillance/Dnld”.

7. Monitoring of Foreign Investment limits in listed Indian companies (FILLIC)
   1. In pursuance to SEBI circular no. IMD/FPIC/CIR/P/2018/61 dated April 5, 2018, regarding monitoring of Foreign Investment limits in listed Indian companies and NSE Circulars NSE/SURV/37906 & NSE/SURV/ 50158 dated June 04, 2018, and October 29, 2018, respectively, has specified aggregate FPI limit, the aggregate NRI limit and the sectoral cap.
   2. In view of the above NSE Circular, a penalty on trading members is levied if they buy on behalf of their FPI/NRI clients in scrips where the aggregate FPI/ NRE / sector cap limit has been breached. The penalty shall be at 0.10% of the total value or Rs.50,000/- whichever is higher per security.
   3. The exchange website keeps an updated list of scrips where the aggregate FPI/NRE/sector cap limit has been exceeded. Members are required to check the breach list prior to making a purchase on behalf of their FPI/NRI clients. Furthermore, the Circular (Circular Ref. No: 1077/2018) specifically mentions it.

               “The Red Flag List and Breach List files shall be available on the Exchange website at the following location”

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