BSE to discontinue stop loss market orders to check freak trades

SL-M is a type of order that automatically sells or buys a security at the market price when the trigger price is reached.

Analysts said the exchange's move will prevent erroneous orders help in avoiding unnecessary market volatility. | Image: Pexels

Stock exchange BSE has decided to discontinue Stop Loss Market (SL-M) orders from October 9 to prevent erroneous order placement arising out of manual or algo trades. This comes after a recent freak trade incident caused a lot of angst among the trading community earlier this month due to an SL-M order.

SL-M is a type of order that automatically sells or buys a security at the market price when the trigger price is reached.

"As a measure to prevent erroneous order placement, stop loss orders with market condition in equity segment, equity derivatives segment, currency derivatives segment, and commodity derivatives segment shall be discontinued by the exchange with effect from October 9," BSE said in a notice.

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Welcoming the decision, Narendra Solanki, Head, Fundamental Research - Investment Services, Anand Rathi Shares and Stock Brokers, said it is a good step to prevent erroneous orders, and should prove beneficial to small and retail traders, as such freak trades harm and create unnecessary volatility in the markets.

"We believe that this is a positive and progressive step that will benefit all market participants by improving the trading process and market quality as SL-M can also lead to extreme price executions during low volumes or when the market price fluctuates sharply," said Tejas Khoday, Co-founder and CEO of FYERS.

This measure will protect traders from such incidents and align its operations with the NSE, which discontinued SL-M orders in September 2021.

Khoday said traders can use Stop Loss Limit (SL-L) orders instead of SL-M orders.

An SL-L order is another type of stop-loss order that only sells or buys a security at the specified price in a range.

This helps to avoid executing orders at strike prices with low volumes or sharp movements in the market.

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