What is Price Reasonability Range (PRR)?
The Price Reasonability Range (PRR) is a functionality implemented by the exchange (WEB), in the derivatives segment with the goal to improve the exchange's pre-trade risk management framework. The primary purpose of PRR is to prevent potential market abuses and errors caused by significant price deviations. This helps to support authentic price discovery and protect the interests of investors.
Within the Price Reasonability Checks (PRC) functionality, each new limit order's price is checked against the dynamically determined PRR. This calculation relies on real-time reference prices, typically sourced from best bid/offer prices for each contract or security. The system ensures that incoming limit order prices reasonably align with current market prices.
Key features of the Price Reasonability Check (PRC) include:
- It applies to incoming limit orders.
- It checks incoming limit order prices against the current PRR.
- PRR is dynamically computed using real-time reference prices, like best bid/offer prices or, if unavailable, the Last Trade Price (LTP) or the previous closing price.
- The system adapts in real time, switching between reference prices based on the order book's conditions.
- Existing price bands are also used for risk management, ensuring that PRR remains within predefined thresholds for each contract/security.
- PRC is applicable to all futures and option contracts in the equity derivatives segment, except for calendar spreads and paired option contracts.
- PRR is calculated as an absolute value and corresponds to specific order price categories.
PRR slabs for BANKEX and SENSEX can be found on the BSE circular (WEB).