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Sebi Initiates Probe Into 900-Pt Nifty 'Flash Crash'

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Market regulator Sebi has begun initial probe into the 'flash crash' of NSE index Nifty, which fell by nearly 900 points on October 5 morning, halting the trade on the exchange for about 15 minutes.
 
While the National Stock Exchange (NSE) blamed "abnormal" orders placed by stock broker Emkay Global Financial Services in multiple trades of various stocks at low prices for the crash, sources said that regulator is looking into all aspects of the incident.
 
NSE has claimed there were no technical glitches in its system and the crash was due to more than five dozen erroneous orders worth more than $125 million (Rs 650 crore) placed by Emkay Global, which has been now disabled by the bourse for trading. The NSE said a single dealer terminal at Emkay placed 59 erroneous orders for an institutional client. The trades triggered a sudden drop of more than 900 points on the 50-share Nifty to a session low of 4,888.20 points — 15.5 per cent below 4 October's close.
 
After resuming, the index last traded down 0.7 per cent at 12:39 p.m. "These non-algo market orders have been entered for an erroneous quantity which resulted in executing trades at multiple price points across the entire order book, thereby causing the circuit filter to be triggered," the NSE said in a statement.
 
The flash 900-point crash in NSE Nifty index and concerns over the fate of big-ticket reforms also snapped a four-day rally on the BSE with the Sensex falling 120 points to end below 19000 level on October 5.
 
After gaining around 488 points in past four sessions, the BSE benchmark index opened higher at 19115.89 after the government unleashed another round of reforms on October 4. However, the Sensex soon dropped over 200 points mirroring a 900-point fall in NSE Nifty due to a technical glitch caused by sell orders worth Rs 650 crore executed by broker Emkay Global Financial Services.
 
This halted trade in cash market for 15 minutes, hitting sentiment. The 30-share Sensex closed 119.69 points down, or 0.63 per cent, at 18,938.46. The Nifty closed at 5,746.95, down 40.65 points or 0.70 per cent.
 
Coming back to Nifty, an exchange source declined to comment on whether those misplaced trades would be reversed, or what would happen to any other trades placed at the time of the trading halt. Officials at Emkay, a financial services firm founded 17 years ago, did not respond to multiple requests for comment.
 
A senior regulatory official said that 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 are no circuit filters in large blue-chip stocks, the market systems are generally well-prepared to handle any mischief or large erroneous trades.
 
The regulator is also concerned that the instances of 'freak trades' seem to be on the rise, including the recent one that involved the shares of Reliance Industries.
 
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.
 
The incident occurred on a day when expectations were high for a significant upward rally on the bourses, following some major reform measures approved by the government Thursday evening, including on FDI in sectors like insurance and pension.
 
Sebi is also looking into the 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.
 
The trading had commenced normally on Friday at both the BSE and the NSE, with the Nifty opening with a gain of nearly 27 points.
 
While trading continued normally at BSE, a 'flash crash' like situation occurred later in the morning at Nifty.
 
The NSE index showed a sudden fall of nearly 900 points or over 15 per cent within seconds, triggering the circuit filter (maximum permissible limit of movement in the index), halting the trade at 0950 hours.
 
The Sensex had also fallen about 300 points in the morning, in reaction to the Nifty crash, as many stocks are common to the two indices.
 
(Agencies)