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Order Based Surveillance Measure - Persistent Noise Creators (PNC)


Over the years, Exchanges and SEBI have issued various guidelines to regulate Algo based trading in the securities market. One metric to gauge the algo related activity of a trading member is the “Order to Trade Ratio (OTR)” which was implemented in 2012. Further, tagging of orders with their corresponding algo id has been made mandatory in the year 2019. Proactive surveillance measures on possible algo based manipulations such as “Surveillance measure on Order Spoofing” was implemented in May 2019.

The excessive order messages may be attributed as “noise” in the market with prima facie no intention to execute trade by modifying or cancelling them. This results in an increase in the overall “Information Asymmetry” for other algos / players in the market.

This order-based surveillance measure – Persistent Noise Creators (PNC) shall be applicable on the daily trading activity at the Client / Proprietary account level in a security / contract and shall be based on the following parameters:

Noise 1:

  • Persistent order modifications by the Client / Proprietary account leading to maintained / deferred / lowering of order execution priority which has accounted for a considerable percentage of the overall modifications in the respective contract / security

AND

  • High Order to Trade Ratio (OTR) in value terms (i.e. Value of all Orders Entered / Modified / Cancelled in a Security / Contract by a Client / Proprietary account vis-à-vis Value of all Trades in the Security / Contract by a Client / Proprietary account

            AND

  • High Number / Instances of Order modifications

Noise 2:

  • Persistent order modifications by the Client / Proprietary account leading to maintained / deferred / lowering of order execution priority which has accounted for a considerable percentage of his own modifications in the respective contract / security

AND

  • High Order to Trade Ratio (OTR) in value terms (i.e. Value of all Orders Entered / Modified / Cancelled in a Security / Contract by a Client / Proprietary account vis-à-vis Value of all Trades in the Security / Contract by a Client / Proprietary account

                          AND

  • High Number / Instances of Order modifications                                                                                                                                                                          

Refer Exchange circular - NSE/SURV/52992 dated July 15, 2022(criteria applicable w.e.f 26 August, 2022) in continuation to NSE/SURV/47814 dated March 26, 2021(currently applicable)

For more information on PNC refer to our FAQs.

Over the years, Exchanges and SEBI have issued various guidelines to regulate Algo based trading in the securities market. One metric to gauge the algo related activity of a trading member is the “Order to Trade Ratio (OTR)” which was implemented in 2012. Further, tagging of orders with their corresponding algo id has been made mandatory in the year 2019. Proactive surveillance measures on possible algo based manipulations such as “Surveillance measure on Order Spoofing” was implemented in May 2019.

The excessive order messages may be attributed as “noise” in the market with prima facie no intention to execute trade by modifying or cancelling them. This results in an increase in the overall “Information Asymmetry” for other algos / players in the market.

The surveillance measure shall be applicable on the daily trading activity at the Client / Proprietary account level in a security / contract which are exceeding the following parameters:

Noise 1:

  • Persistent order modifications by the Client / Proprietary account leading to maintained / deferred / lowering of order execution priority which has accounted for a considerable percentage of the overall modifications in the respective contract / security

   AND

  • High Order to Trade Ratio (OTR) in value terms (i.e. Value of all Orders Entered / Modified / Cancelled in a Security / Contract by a Client / Proprietary account vis-à-vis Value of all Trades in the Security / Contract by a Client / Proprietary account

                                                        AND

  • High Number / Instances of Order modifications

 

Noise 2:

  • Persistent order modifications by the Client / Proprietary account leading to maintained / deferred / lowering of order execution priority which has accounted for a considerable percentage of his own modifications in the respective contract / security

                                                        AND

  • High Order to Trade Ratio (OTR) in value terms (i.e. Value of all Orders Entered / Modified / Cancelled in a Security / Contract by a Client / Proprietary account vis-à-vis Value of all Trades in the Security / Contract by a Client / Proprietary account

                                                       AND

  • High Number / Instances of Order modifications                                                    

 

Note: The threshold limits applicable to the aforesaid parameters has not been disclosed in the public domain.

The instances identified based on either of the aforesaid conditions (Noise 1 or Noise 2) shall be considered as “1 instance count”. Kindly note that whenever both Noise 1 and Noise 2 criteria gets satisfied for a Client / Proprietary account in a security/contract, the same would be considered as single instance count and not multiple instances.

(Refer Exchange circular – NSE/SURV/52992 dated July 15, 2022 in continuation to NSE/SURV/47814 dated March 26, 2021)

Trading members are required to have systems and alerts in place for detecting high modifications in orders in a symbol/contract as part of their surveillance obligation.

 The penal action based on count of instances over a period of rolling 20 trading days is as under:

 1. Trading disablement of such a Client / Proprietary account for a time period of first 15 minutes of trading (in the normal continuous market) at PAN level across the Exchanges in the Equity and Equity Derivatives segments simultaneously provided number of instances identified as above exceed 99 on a rolling 20 trading days basis. The disablement shall be carried out on the next trading day.

Members may kindly note that the instance count of 99 is separately computed for cash, futures and options. While the instance count is separate for each segment, disablement will be applicable at PAN level across the Exchanges in the Equity and Equity Derivatives segments simultaneously on breaching count of 99 in any segment.

  1.  Any additional instance of repetitive violation on consecutive trading days by a Client / Proprietary account (say N times) on a rolling 20 trading days basis will lead to trading disablement for a period of ‘N’ instances X 15 mins, subject to a Maximum Disablement of 2 Hours (i.e. N < = 8). The count of instances shall be considered on a rolling 20 trading days basis. The PAN shall continue to remain disabled on an incremental basis for the specified duration until the aggregate count of instances does not come to 99 based on rolling 20 trading days. Kindly refer detailed example below.

Day

Count of Instances on T day

Count of instances on 20 rolling days

Applicable trading disablement period effective T+1 day(Mins)

1

1

1

N.A

2

5

6

N.A

3

7

13

N.A

4

0

13

N.A

5

0

13

N.A

6

0

13

N.A

7

0

13

N.A

8

89

102

15

9

0

102

30

10

0

102

45

11

0

102

60

12

0

102

75

13

0

102

90

14

0

102

105

15

0

102

120

16

0

102

120

17

0

102

120

18

0

102

120

19

0

102

120

20

0

102

120

21

0

101

120

22

0

96

N.A

23

0

89

N.A

24

0

89

N.A

25

3

92

N.A

26

0

92

N.A

27

2

94

N.A

28

0

5

N.A

29

0

5

N.A

30

0

5

N.A

The aforesaid surveillance measure has come into effect from April 05, 2021. The revised criteria as per circular no 52992 dated July 15, 2022 shall come into force w.e.f 26th August,2022. Further, instances as per the existing as well as revised criteria shall be taken into account for the computation of cumulative instances for a period of rolling 20 trading days, wherever applicable.

Example: For 26th August 2022, the instance count for past 20 rolling days will be aggregate of instance count for period 28th July 2022 to 25th August 2022 (computed as per old thresholds) and instance count of 26th August 2022 (computed as per revised thresholds).

Note:

  • The surveillance measure shall be independent to the extant framework of High Order to Trade Ratio (OTR).
  • The extant OTR framework as per Exchange circular - NSE/SURV/45016 dated July 14, 2020 shall continue to be in force.

All Algo and Non Algo orders shall be considered for computation. All market orders and spread orders shall be excluded.  

An Immediate or Cancel (IOC) order shall be included at the time of order entry but order cancellation shall be excluded in the computation of OTR.

The said surveillance measure shall be applicable in the Equity and Equity Derivatives segments.

Trading disablement of the shortlisted Client / Proprietary account for a time period of first 15 minutes / specified duration of trading across the Exchanges in the Equity and Equity Derivatives segments.  

Please find below, an illustration on various scenarios of client level disablement. 

  • Applicable trading disablement period: 15 Minutes
    • Equity segment:  09:00 a.m. to 09:30 a.m.
    • Equity Derivatives segment:  09:15 a.m. to 09:30 a.m. 
  • Applicable trading disablement period: 45 Minutes
    • Equity segment: 09:00 a.m. to 10:00 a.m.
    • Equity Derivatives segment:  09:15 a.m. to 10:00 a.m.

Note: Trading shall be permitted in segments other than Equity and Equity Derivatives segments as applicable. The first trade shall be allowed after expiry of N * 15 minutes (as applicable as per point 2(b)above) in the normal (continuous) market of the Equity and Equity Derivatives segments.

The PAN shall be completely disabled for the specified duration and shall not be allowed to square off the open positions during the disablement period.

The count of instances shall be considered on a rolling 20 trading days basis. The PAN shall continue to remain disabled on an incremental basis for the specified duration until the aggregate count of instances does not come to 99 based on rolling 20 trading days.

In the above case the clients first disablement shall be for 15 mins, as illustrated in Point no. 6 since the instance of repetitive violation on consecutive trading days is not satisfied at the Exchange level.

The disablement of shortlisted clients shall be implemented across Exchanges and the duration of disablement shall be uniform.

Details of shortlisted clients shall be downloaded to Trading Member at EOD whenever a client gets shortlisted for “1 instance count” as defined under Point no. 2. 

The details of files are as under: 

Persistent Noise Creators_Client Level Segment

Member Code Client Code Client PAN Total Instances - Previous day Total Instances up to current day

  

  

  

   

Trading members are also hereby informed that the above data shall be made available on daily basis (in case of any instance) in the following folder on the extranet for Equity and Equity Derivatives <Member Folder>/Surveillance/Dnld. 

Trading Members shall be intimated details w.r.t. client and duration of disablement vide e-mail at EOD prior to disablement. 

In case of any further queries, you may write to us at surveillance@nse.co.in or call on +91-22-26598129 / 8166 or +91-44-6630 9949 / 9993.

This circular is not applicable for the designated Market Maker of a segment only for the respective symbols.

Yes, the circular is applicable for order activity in pre-open segment for cash market.

No, the instance count is separate for cash segment, futures segment and options segment. The same will not be aggregated as 90.

Modification Scenario

Priority

Buy Modification
Price Same
Quantity/Volume Increase

Lowered/Deferred

Buy Modification
Price Decrease
Quantity/Volume Increase/Decrease/Same

Lowered/Deferred

Sell Modification
Price Same
Quantity/Volume Increase

Lowered/Deferred

Sell Modification
Price Increase
Quantity/Volume Increase/Decrease/Same

Lowered/Deferred

Buy Modification
Price Same
Quantity/Volume Same

Maintained

Sell Modification
Price Same
Quantity/Volume Same

Maintained

Buy Modification
Price Same
Quantity/Volume Decreased

Maintained

Sell Modification
Price Same
Quantity/Volume Decreased

Maintained

Updated on: 18/08/2022
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