The proposal remains under active examination.
Stock exchanges are actively back-testing and optimising model-based volatility control bands to curb erroneous trades triggered by ‘fat-finger’ errors—mistakes caused by the wrong input of numbers while placing buy or sell orders—ahead of regulatory changes slated for later this year, sources said.
The Securities and Exchange Board of India (SEBI) had floated the idea last year, proposing that exchanges adopt narrow price ranges within the broader intraday of 2 to 20 per cent for stocks in the cash segment for enhancing orderly price bands. The aim is to limit sudden price swings caused by input errors, without affecting the extant trading range of a stock.
The proposal remains under active examination. NSE and BSE are internally experimenting with various model configurations designed to create “impact walls”—automated mechanisms that contain sharp, unintended volatility caused by human error, said a source aware of the discussions.
“The mechanism will take time, stock exchanges are working on it. Different models are being developed, back-tested on historical data, and optimised based on the observed outcomes,” said the source.
Control bands
Once implemented, the volatility control bands will allow only those orders that fall within a pre-set percentage of the last traded price (LTP). Orders that fall outside the specified range are likely to be rejected. These bands will reset dynamically every 15 to 30 seconds, adjusting to the latest LTP in real time, another source said.
For example, if a stock has an LTP of ₹1,000 and a 10 per cent volatility control band is in effect, orders would be accepted only within the ₹900–₹1,100 range. If the LTP moves to ₹1,100 after 30 seconds, the updated band would shift accordingly to ₹990–₹1,210.
The specific width of the band and reset frequency may also vary depending on a stock’s liquidity and trading volumes. An email sent to SEBI seeking comments remained unanswered.
System update
The system is also being designed to adapt to unusual market conditions. On days with major news events—or when thresholds such as high order rejections or a surge in unique client codes are breached—the bands can be widened temporarily to accommodate larger trades and maintain orderly functioning.
Once a suitable model is finalised, exchange systems will be upgraded to generate these control bands, which will then be implemented for brokers to consume in a phased manner. The entire exercise is expected to take four to six months, with the final implementation likely only towards the end of the year, an exchange official said.
The implementation is expected to follow the usual SEBI route—first via a discussion paper, and subsequently through a circular, similar to the process followed for dynamic price bands already in place.
Published on April 13, 2025
