Description

BSE introduces pre-open session for equity derivatives futures contracts with detailed FAQs on eligible contracts, timings, order types, and price discovery mechanism.

Summary

BSE has introduced a pre-open session for equity derivatives segment covering current-month futures contracts on indices and single stocks. The 15-minute session runs from 9:00 AM to 9:15 AM, followed by continuous trading at 9:15 AM. During the last five trading days before expiry, next-month futures contracts are also included. Calendar spread futures and all option contracts are excluded from the pre-open session.

Key Points

  • Pre-open session timing: 9:00 AM to 9:15 AM (15 minutes duration)
  • Applicable to current-month futures on indices and single stocks
  • Next-month futures included during last 5 trading days before expiry
  • Calendar spread futures and all options excluded from pre-open
  • Only limit orders and market orders allowed; limit orders get priority
  • Order entry period: 9:00 AM to 9:07/08 AM (random stoppage between 7th & 8th minute)
  • Order matching period: 9:08 AM to 9:12 AM
  • Buffer period: 9:12 AM to 9:15 AM
  • Continuous trading starts at 9:15 AM for all derivatives contracts
  • Special orders (displayed quantity, stop loss) not allowed
  • Pre-open indicator added to contract files (field values: 0 or 1)

Regulatory Changes

Session Structure:

  • New pre-open session introduced before continuous trading
  • Three distinct phases: Order Entry Period, Order Matching & Confirmation Period, and Buffer Period
  • System-driven random stoppage between 7th and 8th minute of order entry period

Contract Eligibility:

  • Current-month index futures and stock futures eligible
  • Next-month futures eligible only during last 5 trading days before current-month expiry
  • Calendar spread futures and all option contracts (index and stock) excluded

Order Types:

  • Only limit orders and market orders permitted
  • End of session (EOS) and Immediate or Cancel (IOC) orders allowed
  • Displayed quantity orders not allowed
  • Stop loss orders not allowed

Data Feed Changes:

  • New field added to contract files: “Pre-Open session Indicator”
  • Files affected: EQD_CODDMMYY.csv, EQD_CO_abr_DDMMYY.csv, EQD_INDEX_CODDMMYY.csv, BSE_EQD_CONTRACT_DDMMYYYY.csv, BSE_EQD_CONTRACT_abr_DDMMYYYY.csv
  • Field values: 0 (not in pre-open), 1 (in pre-open)

Compliance Requirements

Trading Members:

  • Update trading systems to handle pre-open session orders
  • Implement order type restrictions (reject displayed quantity and stop loss orders)
  • Modify order placement logic to accommodate pre-open timings
  • Update contract file parsing to read new pre-open indicator field
  • Train dealers on new session timings and order rules

System Updates:

  • Ensure order management systems support pre-open session workflow
  • Implement controls to prevent order modification/cancellation after 9:08 AM
  • Update risk management systems for pre-open price volatility
  • Modify front-end systems to display indicative price and matchable quantity during matching period

Order Management:

  • Orders can be added/modified/cancelled only during 9:00 AM to 9:07/08 AM
  • No order modifications allowed from 9:08 AM to 9:15 AM
  • Market orders will execute at last closing price if no limit orders exist

Important Dates

  • Effective Date: Not explicitly mentioned in the circular (marked as “Update”)
  • Session Timing: Daily from 9:00 AM to 9:15 AM
  • Continuous Trading Start: 9:15 AM onwards
  • Next-month contract inclusion: Last 5 trading days before current-month expiry

Impact Assessment

Market Impact:

  • Enhanced price discovery mechanism at market opening for futures contracts
  • Reduced volatility at market open through structured pre-open session
  • Better transparency with dissemination of indicative price and matchable quantity
  • Improved order matching efficiency through volume maximization logic

Operational Impact:

  • Trading members need significant system upgrades to support pre-open functionality
  • Modified trading workflows for dealers and algorithms
  • Risk management systems need recalibration for pre-open price movements
  • Data vendors must update feeds to incorporate new pre-open indicator field

Price Discovery Mechanism:

  • Opening price determined through volume maximization logic:
    1. Price with maximum tradable quantity
    2. If tie, price with minimum absolute order imbalance
    3. If still tied, price closest to previous day’s closing price
  • Limit orders prioritized over market orders
  • Market orders execute at last closing price if no limit orders present

Trading Strategy Impact:

  • Traders can gauge market sentiment during indicative price dissemination (9:08-9:12 AM)
  • Algorithm trading strategies need adjustment for pre-open participation
  • Reduced market impact for large orders placed during pre-open
  • Better execution quality for opening trades

Impact Justification

Introduces significant change to derivatives trading mechanism affecting all market participants. New pre-open session impacts order placement strategies, price discovery, and trading workflows for all equity derivatives traders.