Reeling from the impact of the ‘flash crash’, market players are awaiting more details on the technical glitch on the NSE. The glitch was a basket of 59 erroneous trades made in the cash market which saw shares worth Rs 650 crore being sold. The NSE Nifty dropped 14 per cent or 900 points triggering the circuit levels and trading was frozen for 15 minutes. NSE has blamed brokerage firm Emkay Global Financial Services for the trades.
‘Non-algo orders’
“These orders were entered by a trading member, Emkay Global Financial Services, on behalf of an institutional client. 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.
“These orders have been identified to a specific dealer terminal,” said a statement from the NSE.
The massive drop in the broader index stumped the markets exposing its lack of depth and the need for more alert and robust technology. “It was an unfortunate incident. In the normal course of the day markets should have been up, but instead it went into a tailspin. It never recovered from it and permeated into everything,” said Sudip Bandyopadhyay, Managing Director & CEO of Destimoney Securities.
Ravi Varanasi, Senior Vice-President, said that the exchange is investigating the matter seriously on the system and control procedures placed at Emkay Global and added the exchange will send report to SEBI.
Vulnerable & shallow
The crash has highlighted the lack of depth in the market in an unprecedented manner. Analysts argue that the trades worth only Rs 650 crore were carried out in the cash market, which is about 10 per cent of the total market. Of the 10 per cent, BSE’s cash market share is about three per cent, while the remaining seven is of the NSE.
“If our markets can fall so sharply because of faulty trades in such a small segment of the market, then what does it say about the depth in our markets? It goes to show how vulnerable and shallow our markets are,” said a director of a brokerage firm.
While they await more clarity on the issue, they believe that the crash may have had a severe psychological impact. “These technological problems are getting repeated time and again. It has had a huge psychological impact on the markets,” said Jagannadham Thunuguntla, Strategist & Head of Research, SMC Global Securities.
The incident also brought to fore the need for multiple layers of filters. “Our markets have been robust in terms of technological support. But yes, there could have been more filters which could have prevented the unprecedented quantity of selling. The systems should have been much more alert,” said Bandyopadhyay.
The scrip of Emkay fell ten per cent to Rs 31.10. The market cap of Emkay is Rs 75 crore.