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Quantity Freeze Limits – What you should know


Posted on 06-Jul-2017 Comments  0




Stock exchanges around the world lay down rules and regulations  to protect and sustain the market activity in the long-run. Quantity Freeze is one such rule introduced to regulate the flow of orders within a certain specified quantity and avoid abnormal moves in either direction.  Order size above the pre-defined limits will be automatically cancelled by NSE, the margin for the given order and the trading in the given scrip will be blocked till the freeze is released. Freeze duration is approximately 8 minutes, after which the client can again place the order  with the quantity lesser than the freeze limit.

 

How Quantity Freeze works:


In a dynamic marketplace where transactions happen every split of a second, things can go out of control if the flow is disrupted by abnormally large buy/sell orders.  These orders could be placed by large non-institutional players, rogue traders or it happens by accident and it can affect the short-term prices of the underlying derivative contract. For instance, assume that a trader sends an order to sell/short 20,000 Nifty Bank futures by mistake instead of 200. Let’s also assume that he has enough limits in the account for that trade. By mistake, he would’ve put himself at huge risk and in the process disrupted the order flow for other traders. This is referred to as a fat finger trade and such errors have happened in the markets before. A quantity freeze ensures that such mishaps do not happen and trading happens without any disruption. If traders want to buy or sell large quantities beyond the freeze limits, then they will have to break it into smaller orders.

 

Benefits of Quantity Freeze:


• Smooth order flow.
• Better liquidity (Large orders will have to be sent in smaller quantities).
• Better execution
• Avoids accidents (Fat finger trades)
• Discourages the formation of dark pools (As institutions don’t have the incentive to hide from large HFT to some extent).

 

Information on Quantity freeze limits:


Quantity freeze limits are changed from time to time. These limits can change based on the exchange’s internal checks and controls. NSE publishes these revisions via circulars. 


Click here to see a sample of such circulars

   


 

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