Nifty 'flash crash': NSE blames bad orders; Sebi begins probe

Published: 05th October 2012 02:39 PM  |   Last Updated: 16th October 2012 11:58 AM   |  A+A-


A huge 900-point 'flash crash' in stock benchmark NSE Nifty this morning caused panic in market, prompting regulator Sebi to begin a probe into the incident which briefly erased about Rs 10 lakh crore in market wealth.

The National Stock Exchange (NSE) claimed there was no technical glitch in its system and blamed the crash on erroneous orders worth over Rs 650 crore for multiple trades by broker Emkay Global in various stocks at low prices on behalf of an "institutional client".

While NSE said it is investigating into the incident, sources said market watchdog Sebi has also begun a probe into the 'flash crash' due to which trading was halted on the exchange for about 15 minutes.

Sebi is looking into all aspects of the incident, including the probability of technical problems or any intentional manipulative activities by some vested interests, a senior regulatory official said.

The incident occurred on a day when expectations were high for an upward rally on bourses, following some big-ticket reform measures approved by the government last evening, including on FDI in sectors like insurance and pension.

A number of investors and traders, who were hoping for bullish trend in the market suffered losses due to the incident, which triggered steep losses in the futures market, a broker said.

The regulator would look into the entire trading pattern of broker concerned Emkay Global, which has been disabled by NSE from trading for now, as also the trade details of the affected stocks, the official added.

Sebi would look into whether adequate safeguard mechanism was in place to avoid a 'flash crash' like situation, as the so-called freak trades were executed in a number of well-known blue chip stocks, including some large banking shares.

While there is no circuit filter in large blue-chip stocks, market systems are supposed to be well-prepared to handle any mischief or large erroneous trades.

The regulator is also concerned that instances of 'freak trades' seem to be on the rise.

Earlier in March, there were technical glitches at exchanges at the time of government's share sale in state-run energy giant ONGC, while about a month later a flash crash-like situation occurred in Nifty futures trade.

For a brief period, NSE had to halt trading in derivatives segment in May as well due to some technical issues, which led to fall in benchmark indices.

Earlier, a sharp fall in shares of some blue-chips like Reliance Industries due to 'freak trades' or 'fat-finger' orders have also led to 'flash crash' like situations. These terms are used for trade orders placed by mistakes like punching errors on trading terminals.

NSE said the abnormal orders were 'non-algo' in nature and were entered for an erroneous quantity which resulted in executing trades at multiple price points across the entire order book. The exchange has also identified these orders to a specific dealer terminal. Queries made to Emkay Global in this regard remained unanswered.

Sebi is still looking into issues related to algorithmic trade -- a latest-technology mechanism that allows execution of orders at a very high speed to take benefit of smallest of the change in share price, the official said.

This trade mechanism has been criticised in various quarters on apprehensions that it helps market manipulators to take benefit of the high-speed technology.

Sebi has been looking at ways to avoid 'flash crash' like situations in Indian markets for quite some time.


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