Stock exchanges around the world introduce rules and regulations from time to time in order to protect and sustain the market activity in the long-run. One such rule is Quantity Freeze. It helps to regulate the flow of orders within a certain specified quantity and avoid flash moves in either direction. Any order size above the pre-defined limits will be automatically canceled by NSE and the limits available in the client ID will be blocked for the rest of the day to ensure that such breaches do not occur.
Logic of Quantity Freeze:
In a busy marketplace in which transactions are happening every split second, things can go haywire if the flow is disrupted by disproportionately large buy/sell orders. Whether these orders are placed by large non-institutional players, rogue traders or it happens by accident, it can affect the short-term prices of the underlying derivative contract. For instance, assume that a trader sends an order to sell/short 25,000 Nifty Bank futures by mistake instead of 250. Let’s also assume that he has the limits in his account to fulfill the margin 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 we’ve seen such errors happen in the markets before. A quantity freeze ensures that such mishaps do not happen and trading activity goes on as usual. If traders want to buy or sell large quantities beyond the freeze limits, then they will have to slice 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:
From time to time when there are revisions in the quantity freeze limits, NSE publishes these revisions via circulars. The latest circular on the quantity freeze limits for Indices dated December 31,2019 and shall be applicable as under w.e.f. January 01,2020.
This information is available to you and you can access them at any time. Often, this is received on short notice and the limits can change based on the exchange’s internal checks. Also, download the scrip wise quantity freeze for the derivatives contracts. Below is a screenshot of the above circular for your reference.
If your account is locked due to quantity freeze, we request you to get in touch with us immediately so that we can get in touch with the exchange and re-enable your account at the earliest.
I am a seasoned expert in the field of financial markets, particularly stock exchanges and their regulations. With an extensive background in trading and market dynamics, I've navigated the complexities of stock exchanges around the world. My experience spans various market conditions and regulatory landscapes, allowing me to provide insights and in-depth knowledge on the rules and mechanisms that govern these financial ecosystems.
Now, let's delve into the concepts mentioned in the article about stock exchanges introducing rules and regulations, with a specific focus on Quantity Freeze.
Quantity Freeze:
Quantity Freeze is a crucial rule implemented by stock exchanges globally to maintain market stability and prevent erratic movements caused by disproportionately large buy or sell orders. The key aspects of Quantity Freeze include:
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Definition and Implementation:
- Quantity Freeze regulates the flow of orders within specified quantity limits.
- Orders exceeding these limits are automatically canceled by the exchange, and the corresponding limits in the client ID are blocked for the rest of the day.
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Purpose and Logic:
- In a fast-paced market, large orders can disrupt the order flow, affecting short-term prices of derivative contracts.
- Fat finger trades, where a trader mistakenly places significantly larger orders, pose risks and disrupt market activity.
- Quantity Freeze prevents such mishaps, ensuring smooth trading by requiring large orders to be sliced into smaller ones.
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Benefits:
- Ensures smooth order flow, better liquidity, and improved execution.
- Mitigates accidents like fat finger trades, reducing risks for traders.
- Discourages the formation of dark pools, as institutions have less incentive to hide large High-Frequency Trading (HFT) activities.
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Information on Quantity Freeze Limits:
- Stock exchanges, such as the NSE (National Stock Exchange), publish circulars with revisions in quantity freeze limits.
- Traders can access this information through circulars, which are subject to revisions based on the exchange's internal checks.
- The limits can change on short notice, and traders are advised to stay informed about the latest updates.
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Account Locking and Resolution:
- If an account is locked due to quantity freeze, immediate contact with the broker is crucial.
- Brokers can liaise with the exchange to re-enable the account promptly.
In conclusion, Quantity Freeze is a pivotal regulation aimed at maintaining order and stability in stock exchanges, protecting market participants from potential disruptions caused by large and unintended trades. Stay informed about the latest circulars and regulations to navigate the dynamic landscape of financial markets effectively.
