What is Price Reasonability Range (PRR)?

The Price Reasonability Range (PRR) is a functionality implemented by the exchange (WEB) in the derivatives segment, aiming to enhance the exchange’s pre-trade risk management framework. PRR serves a crucial role in preventing potential market abuses and errors resulting from significant price deviations, thereby supporting authentic price discovery and safeguarding the interests of investors.

Here are the key aspects of the Price Reasonability Check (PRC) functionality:

Application to Incoming Limit Orders:

PRC is applicable to incoming limit orders.

Checking Against Current PRR:

Each new limit order’s price undergoes a check against the dynamically determined PRR.

Dynamic Computation of PRR:

PRR is dynamically computed using real-time reference prices, typically sourced from best bid/offer prices for each contract or security.

If best bid/offer prices are unavailable, the Last Trade Price (LTP) or the previous closing price is considered.

The system adapts in real time, switching between reference prices based on the order book’s conditions.

Risk Management and Thresholds:

Existing price bands are utilized for risk management, ensuring that PRR remains within predefined thresholds for each contract/security.

Applicability to Contracts:

PRC is applicable to all futures and option contracts in the equity derivatives segment, excluding calendar spreads and paired option contracts.

Absolute Value and Order Price Categories:

PRR is calculated as an absolute value and corresponds to specific order price categories.

Specific PRR Slabs:

PRR slabs for BANKEX and SENSEX can be found on the BSE circular (WEB).