1. What is Reversal Trade Cancellation Mechanism (RTCM)?

RTCM is designed to:

• Automatically cancel trades classified as reversal trades.
• Prevent artificial volumes and abnormal trading activities in the market.
• Operate on an intraday basis in the Equity Derivatives Segment.

2. Conditions for Reversal Trade Cancellation

A trade is considered a reversal trade when:

• It involves two parties (identified by PANs or CP codes).
• The same quantity of a contract is bought and sold between these parties.
• The trade breaches any of the thresholds outlined below:

3. Example of Reversal Trade

• First Leg: PAN A buys 500 units from PAN B.
• Second Leg: PAN A sells 600 units to PAN B.

Outcome:

• Reversal Quantity: 500 units.
• Reversal Ratio: 83.33%.
• Square-off Difference: ₹2500.
• Reversal Quantity Ratio: 50%.

If these parameters breach NSE’s thresholds, the trade will be canceled automatically.

4. Client Code Modifications

Trades arising from Client Code Modifications during market hours that result in reversal trades will also be canceled under RTCM.

5. Timing of RTCM

• Active Hours: 10:30 AM to 3:00 PM.
• Trades executed between 9:15 AM and 10:30 AM will be monitored for potential reversal trade cancellation.
• RTCM does not apply to trades executed after 3:00 PM (last half-hour before market close). 
•  Trades executed after 3:00 PM are not subject to automatic RTCM cancellation. However, they may still be reviewed post-market and reported under the standard surveillance framework. They can still result in a clarification notice.

6. Contracts Covered Under RTCM

RTCM applies to:

• Monthly Expiry Contracts: Futures and Options contracts nearing expiry.
• Weekly Expiry Contracts: Index Futures and Options, subject to specific conditions.

7. What Happens When a Reversal Trade is Detected?

• When a reversal trade is identified, the Exchange may cancel the trade(s) in accordance with applicable regulations and surveillance mechanisms.
• A notification will be sent to the client seeking clarification regarding the transaction(s) in question.
• The client's trading account may be placed under Square-Off Mode as a precautionary measure until the matter is reviewed and resolved.
• In line with regulatory guidelines, Navia reserves the right to freeze an amount equivalent to the value of the suspected trades and/or the associated profit or loss arising from such trades, pending further review.
• If the cancelled trade(s) formed part of a broader trading strategy, clients are advised to immediately review their overall positions, margin availability, and risk exposure to avoid any unintended consequences.

RTCM cancellations are irreversible:  Once the Exchange cancels a trade under RTCM, neither Navia nor the client can reinstate it. Any positions or exposures arising from the partial cancellation must be managed independently.

For more details, refer to the official NSE circular here.