A huge 900-point 'flash crash' in stock benchmark NSE Niftythis morning caused panic in market, prompting regulator Sebi to begin a probeinto the incident which briefly erased about Rs 10 lakh crore in market wealth.
The National Stock Exchange (NSE) claimed there was notechnical glitch in its system and blamed the crash on erroneous orders worthover Rs 650 crore for multiple trades by broker Emkay Global in various stocksat 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, includingthe probability of technical problems or any intentional manipulativeactivities by some vested interests, a senior regulatory official said.
The incident occurred on a day when expectations were highfor an upward rally on bourses, following some big-ticket reform measuresapproved by the government last evening, including on FDI in sectors likeinsurance and pension.
A number of investors and traders, who were hoping forbullish trend in the market suffered losses due to the incident, whichtriggered steep losses in the futures market, a broker said.
The regulator would look into the entire trading pattern ofbroker concerned Emkay Global, which has been disabled by NSE from trading fornow, as also the trade details of the affected stocks, the official added.
Sebi would look into whether adequate safeguard mechanismwas in place to avoid a 'flash crash' like situation, as the so-called freaktrades were executed in a number of well-known blue chip stocks, including somelarge 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 largeerroneous trades.
The regulator is also concerned that instances of 'freaktrades' seem to be on the rise.
Earlier in March, there were technical glitches at exchangesat the time of government's share sale in state-run energy giant ONGC, whileabout a month later a flash crash-like situation occurred in Nifty futurestrade.
For a brief period, NSE had to halt trading in derivativessegment in May as well due to some technical issues, which led to fall inbenchmark indices.
Earlier, a sharp fall in shares of some blue-chips likeReliance Industries due to 'freak trades' or 'fat-finger' orders have also ledto 'flash crash' like situations. These terms are used for trade orders placedby mistakes like punching errors on trading terminals.
NSE said the abnormal orders were 'non-algo' in nature andwere entered for an erroneous quantity which resulted in executing trades atmultiple price points across the entire order book. The exchange has alsoidentified these orders to a specific dealer terminal. Queries made to EmkayGlobal in this regard remained unanswered.
Sebi is still looking into issues related to algorithmictrade -- a latest-technology mechanism that allows execution of orders at avery high speed to take benefit of smallest of the change in share price, theofficial said.
This trade mechanism has been criticised in various quarterson apprehensions that it helps market manipulators to take benefit of thehigh-speed technology.
Sebi has been looking at ways to avoid 'flash crash' likesituations in Indian markets for quite some time.