Call it the effect of price movements of Anil Ambani group shares or DHFL stock slump! To prevent executing orders at non-genuine prices, on account of fat-finger error or otherwise, capital market regulator SEBI on Monday proposed a few measures including circuit filter for all stocks that are part of the futures and options (F&O) segment.
Currently, individual stocks in the compulsory rolling settlement attract a maximum of 20 per cent circuit filter. However, for the scrips on which derivative products are available or the scrips included in the indices on which derivative products are available do not attract any circuit filter. SEBI now proposes to cap the maximum daily movement of up to 20 per cent for all stocks including those that are part of the F&O segment.
“There have been concerns that investors’ wealth is getting wiped out in a single day by recent falls in stocks on which derivative products are available, as no price band is applicable on them,” SEBI said, and added “in view of recent abnormal intra-day price movements, suggestions are being made to review the rules to prevent such extraordinary price movements.”
According to SEBI data analysis on derivative stocks in the last six months, 40 witnessed intra-day movement of over 20 per cent; 29 saw intra-day movement of between 20 per cent and 30 per cent; five scrips moved between 30-40 per cent; and six registered an intra-day movement of over 40 per cent.
In a consultation paper, SEBI has asked whether individual scrip-wise price bands of 20 per cent either way be adopted for all scrips, including scrips on which derivatives are available, in the compulsory rolling settlement.
Further, it suggested combination of dynamic and fixed price band or call auction mechanism.
The proposals may arrest abnormal movement and give some opportunity to companies and its promoters to assess the movement of the stock price and enable them to make market announcements. However, these moves may hamper fair price discovery and liquidity, SEBI opined. Besides, in the case of a scrip which is also a constituent of an index, computation of the index may become a challenge during the period of the call auction on account of lack of availability of current market price of the scrip during the period, it further said.
SEBI has sought comments from the public by February 20 on this proposal. The final regulation will be out after taking into account suggestions from all stakeholders.
https://www.thehindubusinessline.com/markets/is-this-not-the-right-time-to-introduce-circuit-filter-for-derivative-stocks-too/article25073343.ece