BSE to prevent trade reversals in equity derivatives

To ensure safety of the securities markets, top stock exchange BSE will introduce a new mechanism to automatically cancel reversal trades executed on its equity derivatives segment from this week.

The new mechanism, Reversal Trade Prevention Check (RTPC), is aimed at preventing potential cases of trade reversal taking place on the exchange's trading platform which may have been undertaken for the purposes of tax evasion.

It will act as a preventive measure wherein the second leg of a potential reversal trade will be automatically cancelled by trading system at the time of order matching in an on-line real time manner.

The exchange is implementing the new measure with effect from March 14, 2016, the exchange said. To begin with, RTPC has been made applicable on select set of contracts in equity derivatives segment. The facility would be applicable on all contracts available for trading in the equity derivatives segment except for stock futures, futures contracts as well as current and near-month options contracts on S&P BSE Sensex.

Besides, a mock trading session was conducted yesterday to enable the trading members to conduct necessary testing of their trading applications for this check. Reversal of trade implies that for a buy transaction initially entered into by a broker for a particular client for a specific quantity, there is a corresponding sale transaction which takes place during the day for the same quantity between the same set of broker/clients and vice-versa.

Earlier, BSE had implemented self-trade prevention check functionality and periodic price bands to curb manipulation in the capital markets.