A ‘flash crash’ sent the National Stock Exchange’s Nifty into a tailspin soon after the market opened.
The Nifty plunged nearly 900 points to a low of 4,888.20 (Thursday close: 5787.6) on what the NSE called ‘erroneous orders’ executed by Emkay Global Financial.
15-minute disruption
Trading was disrupted for nearly 15 minutes following the incident.
However, the Nifty recovered to close the day at 5746.95, a fall of 0.7 per cent.
According to marketmen, orders could not be executed during the period due to a freak algo trade. In algorithmic trading, traders use electronic platforms for entering orders with an algorithm deciding the timing, price and quantity of the order without human intervention.
However, the NSE denied algo trading was the reason for the crash.
The market circuit filter got triggered due to entry of 59 erroneous orders by Emkay Global, which resulted in multiple trades for an aggregate value of over Rs 650 crore, the NSE clarified.
These orders were entered into by Emkay on behalf of an institutional client. Neither the NSE nor Emkay disclosed the name of the client.
Being investigated
The NSE immediately disabled Emkay Global Financial from trading and said the “incident is being investigated”.
The ‘erroneous trade’ took a big toll on some of the key stocks on the NSE: L&T hit a low of Rs 1,307.25 against Thursday’s close of Rs 1,634.05; Tata Motors dipped to Rs 219.45 (Rs 274.30); Reliance Industries to Rs 682.35 (Rs 852.90); Infosys to Rs 2,060.55 (Rs 2,575.65) and SBI to Rs 2,010.30 (Rs 2,345.70).
Though the NSE denied algo trading was the cause of today’s troubles, on a few occasions earlier it did cause some trouble in trading activity.
World over, regulators are now debating how to check algo (or high frequency) trading.
US’s Securities and Exchange Commission imposed circuit filters after the flash crash in 2010. Germany is considering a Bill to bring in a spate of new rules on high-frequency trading, escalating Europe’s sweeping response to concerns that rapid trades have brought instability to the markets.