NSE should annul the erroneous trades that happened after last Friday’s ‘freak-crash’, feel market experts and brokers.
Erroneous trades worth Rs 650 crore were punched by a dealer at brokerage firm, Emkay Global Financial Services, thereby shaking up the market.
Market experts say the firm could be staring at losses of about Rs 100-120 crore. The networth of Emkay Global Financial Services was Rs 135.70 crore as at March-end 2012.
Unfair
Brokers and other market players feel that it is unfair that one firm should take such a big hit due to a human error.
“Such human errors can happen. These trades should be annulled as it causes undue hardship to one firm. This would be in the best interest of the markets,” said Nirmal Jain, chairman, IIFL.
The erroneous trade by the Emkay dealer resulted in the NSE Nifty plummeting by about 16 per cent. The exchange’s cash segment was shut down for 15 minutes.
Experts say that trades worth above a certain limit, say Rs 25 crore, cannot be punched in one go. Every terminal has a limit. They further added that even if the broking firm’s mechanism could not pick up the faults, the exchange’s mechanism should have been able to detect it.
“The NSE system was unable to detect the steep declines even though there are filters at various levels — 10 per cent, 15 per cent and 20 per cent. Ideally, the exchange should have had a cooling period of about an hour after the steep decline,” said the head of institutional sales of an Indian broking firm.
Market experts say that the exchange should have shut down the futures & options (derivatives) segment along with the cash segment. But it did not do so as they had already accepted the trades as valid, they added.
The brokers, on their part, have agreed to reverse their trades and sell back shares that they bought at very low prices. These were abnormal gains, said experts, as shares were available 20 per cent cheaper. However, sources, said that it is unlikely that the exchange will entertain an annulment of the trades as the exchange feels it is unfair to those who have already taken positions in the stocks and F&O.
NSE officials said that checks and balances will be further strengthened to avoid such eventualities.
In a clarification sent to the exchanges on Monday, Emkay said, “All our remaining clients' outstanding positions are intact and we will continue to service all obligations. We are hopeful that this obvious and apparent error would justify the annulment of these trades, and we believe in NSE's professional management to see the merits for annulment, which is the practice worldwide."
The stock of Emkay fell a further 10 per cent on Monday to end the day at Rs. 28 per share. On Friday as well, the stock had witnessed a 10 per cent decline.