FAQs on Limit Price Protection (LPP)
Background:
With reference to circular NSE/FAOP/54242 dated October 28, 2022, members are requested to note that Exchange have introduced the mechanism of Limit Price Protection (LPP) w.e.f. October 31, 2022 in the Futures and Options segment to strengthen the pre-trade risk control measures for preventing aberrant orders and to ensure orderly trading. LPP range is dynamic and may change throughout the day based on market activity. Any incoming limit order placed beyond LPP range shall automatically be rejected. There is no change in the existing validation of ‘Operating price range’ on order entry requests. LPP validation is an additional check, over, and above, OPR validation.
LPP range is an additional validation apart from prevailing operating price range (OPR). LPP range shall be the range on both sides of the ‘reference price’ to validate price of limit orders.
Any incoming limit order placed beyond LPP range shall automatically be rejected by the Exchange as below:
- Buy order price > High LPP limit
- Sell order price < Low LPP limit
- At market open - It shall be computed theoretically using underlying price as discovered in the cash market pre-open session, benchmark interest rate as MIBOR rate (for option contracts, Black Scholes model shall be used along with appropriate volatility). In case underlying price is not available at the time of computation, reference price shall be base price of the contract.
- During trading hours - It shall be the simple average of trade prices of that contract in the last 30 seconds. For contracts that have traded in last 30 seconds, the reference price shall be revised throughout the day at 30 seconds interval.
- For contracts that have not traded in the last 30 seconds, the reference price shall not be revised. However, in case contract remains untraded for continuous 15 mins from last reference price update event, the reference price shall be the theoretical price based on the latest available underlying price (or base price of the contract if underlying price is not available).
Currently, the LPP range in both the side of reference price is computed as follows:
| Instruments | Reference Price (in Rs) | Minimum Absolute Range (Rs.) | % of Reference Price |
|---|---|---|---|
| OPTIDX & OPTSTK | <=50 | + / - 20 | - |
| >50 | - | + / - 40 % | |
| FUTIDX | <= 10000 | + / - 200 | - |
| > 10000 | - | + / - 2% | |
| FUTSTK | <=50 | + / - 1.5 | - |
| >50 | - | + / - 3% |
Note: The Exchange may review and modify the parameter values in future, if required and the same shall be informed through circular issued from time to time.
Currently, LPP mechanism is applicable for all Futures & Options contracts in Equity Derivatives segment.
LPP validation/ mechanism is applicable for all the permitted order types having limit price.
For the SL-Limit orders, LPP validation are applied post trigger of the order while releasing in the RL book, considering prevailing LPP limits.
Limit order placed beyond LPP range shall automatically be rejected by the Exchange as below:
- Buy order price > High LPP limit
- Sell order price < Low LPP limit
Additionally, the triggered SL order shall be rejected with transcode 2231 in LPP validation.
Instances of stop loss order rejections can be minimized by not placing stop loss orders at extreme prices near operating ranges and keeping minimum difference between the limit price and trigger price.
Yes, LPP validation mechanism are applicable for PRO (Proprietary) as well as CLI (Clients) - Custodial Participant (CP), Non-Custodial Participant (Non-CP) orders.
Yes, LPP validation is also applicable at the time of order modification request. Order modification request having price beyond LPP limits shall be rejected. Hence, original order, in state prior to order modification request, shall continue to remain in the order book.
An appropriate rejection message is displayed on trading terminal for orders rejected due to LPP validation.
Following is the error code for the rejected orders due to LPP validation.
- Error Code Value: 17070
- Description of Error Code: “The Price is out of the current execution LPP range”
Members are requested to refer the latest API specification document of FO Segment available on NSE website for handling of LPP mechanism.
Currently, LPP limit is flexed automatically when minimum 10 orders are rejected on account of LPP validation, between two LPP revision events; AND when such orders involve minimum 5 unique UCCs and minimum of 3 unique trading members. LPP range shall be flexed in the corresponding direction in which the criteria are met.
Exchange broadcast the applicable LPP range for the active as well as reserved strikes through a separate LPP specific broadcast channel for Non-NEAT frontend (NNF) users. The range for each token is computed periodically throughout the day and same is broadcast by the Exchange whenever there is change in LPP ranges.
Members are requested to note the following broadcast parameters provided for the LPP range:
|
Limit Price protection Range (LPP) Parameters |
|||||
|---|---|---|---|---|---|
|
|
Source 1 |
Source 2 |
Approx. bandwidth utilization |
||
|
Segment |
Multicast IP Address |
Broadcast Port |
Multicast IP Address |
Broadcast Port |
|
|
FO Segment |
239.55.55.21 |
55021 |
239.55.55.121 |
55121 |
2 Mbps |
Currently there is no validation for reserve strikes/ contracts in LPP mechanism, but LPP range is calculated and broadcasted for the same. Kindly note that Exchange creates strikes which are reserved and not available for trading. The same may be enabled during the day in case of market movement in the respective direction and once the reserve strikes are enabled for trading, LPP validation will be implemented.
Any passive orders i.e., existing outstanding orders shall continue to remain in the order book even if the LPP range has moved/flexed and shall be matched as per existing price time priority matching mechanism.
-
Illustrations
For e.g.
- Operating Price Range (OPR) : 50 to 150
- LPP Range : 80 to 120
Buy limit order having price greater than 120 shall be rejected due to LPP validation. Effectively, Buy limit order is permitted between price range of 50 to 120.
Sell limit order is permitted between price range of 80 to 150. Sell limit order having price lesser than 80 shall be rejected due to LPP validation.
Any limit order (Buy/Sell) with price lesser than 50 & greater than 150 shall be rejected on account of OPR validation.
Illustration - I
|
Transaction |
Operating Range |
Current LPP Range |
Order Acceptance Limit |
|---|---|---|---|
|
Buy Order |
50 to 150 |
80 to 120 |
50 to 120 |
Illustration – II
|
Transaction |
Operating Range |
Current LPP Range |
Order Acceptance Limit |
|---|---|---|---|
|
Sell Order |
50 to 150 |
80 to 120 |
80 to 150 |
Download FAQs on Limit Price Protection(.pdf)
Disclaimer:
“This document/FAQ has been drafted in order to ease Member’s/reader’s understanding of the subject matter. The information and/ or content (collectively ‘Information’) provided herein is general information only and NSE has issued detailed circulars to that effect from time to time. While reasonable care has been exercised to ensure that the information is adequate and reliable, no representation is made by NSE as to its accuracy or completeness and NSE, its affiliates and subsidiaries accept no liability of whatsoever nature for any direct or consequential loss, including without limitation any loss of profits, arising from reliance on this Information. The readers are expected to undertake their own diligence and are advised not to solely rely on this document. Any such reliance shall be at the reader’s own risk. Nothing stated herein shall bind NSE, in any manner whatsoever.”
Updated on: 24/09/2024
