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Sebi To Take Steps Against Flash Crashes Soon

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The Securities and Exchange Board of India (Sebi) will soon announce measures to protect investors against stock crashes on the bourses, Sebi chairman U.K. Sinha said on 23 November. This comes after a set of erroneous orders from Emkay Global sent shares tumbling last month.

This announcement follows Sebi's 20 November diktat to BSE and NSE to discontinue mini derivative contracts (with a minimum size of Rs 1 lakh) on their respective indices Sensex and Nifty. This was aimed at discouraging small investors from getting to such instruments.

Derivatives contracts first started with a minimum ticket size of Rs 2 lakh in the country.

Last month, the National Stock Exchange (NSE) witnessed 'flash crash', when the Mumbai-based brokerage Emkay Global Financial Services sent the exchange index tumbling as much as 15.5 per cent in just a few seconds, creating a panic among traders. The crash was the result of erroneous trades worth $126 million, placed by Emkay Global.

"We are going to take some measures so that there is some pre-check in orders, in pricing and there are some other checks also introduced. We are looking at avoiding similar incidents," Securities and Exchange Board of India (Sebi) Chairman U K Sinha told reporters on the sidelines of a securities market conference here.

"We are going to announce some measures based on experts views. Lapses on part of any intermediaries will be looked at separately and actions will be taken," Sinha said.

He assured the regulator is acting on both the fronts — systematic improvement and action for lapses.

Commenting on regulator's decision to discontinue mini-derivatives contracts, Sebi Chairman Sinha said as a measure of experiment, Sebi allowed mini derivatives contracts, but data show that trading in mini contacts constitute only a minuscule and it was felt that there might be certain amount of misuse and mis-selling happening in those contracts.

"Therefore, as a measure to provide safety to small investors we have taken the decision to discontinue mini contracts," Sinha said.

Replying to a query on call-data records, Sinha said, at his meeting with the government officials, they assured him that they are going to find a way on how to provide that data.

"The difficulty on the part of the government is that there is a judicial pronouncement about how conversation can be shared or intercepted. I was given to understand that keeping that sensitivity in mind -- that privacy of all are respected -- at the same time providing some rule whereby regulators like Sebi can get access to call data records.

"They are thinking of amending the rules. I am not talking of law, but the rules. I believe the rule making process is on and hopefully it will be ready soon," Sinha said.

This Sunday, Finance Minister P Chidambaram had told PTI in an interview that Sebi would be allowed to access call records on a case-to-case basis from the designated government agency but could not on its own tap phones.

On rationalisation rules for portfolio investments, Sinha said, the government has accepted only QFIs portion of the report by the working group.

Currently, foreign portfolio investors take various routes like FIIs, QFIs or PE.

"Our interaction with the Finance Ministry indicated that they would like us to start working in that direction.

"They wanted us to work in that direction, so we are in process of setting up working group on small committee which will have representations from tax people, legal and market participants. We hope to set up a committee soon," he said.

On the Sahara imbroglio, he refused to comment saying that "there are certain directions from the apex court and we are working on to implement them. We don't comment on individual cases."