SEBI initiative to reduce risk on stock exchanges

‘All unexecuted orders shall be cancelled once the stock broker breaches 90 % collateral utilisation level’

The Securities and Exchange Board of India (SEBI), on Thursday, asked stock exchanges to ensure that stock brokers are mandatorily put in risk-reduction mode when 90 per cent of the stock brokers’ collateral available for adjustment against margins gets utilised on account of trades that fall under a margin system.

“All unexecuted orders shall be cancelled once the stock broker breaches 90 per cent collateral utilisation level,” SEBI said as a measure for risk reduction.

SEBI further said that all new orders should be checked for sufficiency of margins and non-margined orders should not be accepted from the stock broker in risk reduction mode.

The stock broker would be moved back to the normal risk management mode as and when the collateral of the stock broker was lower than 90 per cent utilisation level.

The regulator said that it had been decided to prescribe a framework of dynamic trade-based price checks to prevent aberrant orders or uncontrolled trades. This is applicable to all categories of orders.

“Any order with value exceeding Rs.10 crore per order shall not be accepted by the stock exchange for execution in the normal market,” SEBI said.

SEBI has also decided to tighten the initial price threshold of the dynamic price bands. “Stock exchanges shall set the dynamic price bands at 10 per cent of the previous closing price for stocks on which derivatives products are available, stocks included in indices on which derivatives products are available, index futures and stock futures.”