National Stock Exchange of India investigating crash as exchanges call for tighter regulation
Emkay Global Financial Services, the brokerage behind Friday’s 15.5 percent flash crash in the National Stock Exchange of India’s (NSE) S&P CNX Nifty 50-share Index, said ‘bona fide’ human error was the cause of the $126 mn in mistaken orders, and is lobbying to have the trades annulled.
‘While executing an order to transact a Nifty cash basket in Nifty-50, a dealer committed a bona fide error,’ the company says in a press release over the weekend.
‘The error was in entering the value of the order as the quantity of Nifty-50 baskets to be transacted. The order was transmitted to the NSE trading server as a single large Nifty basket order comprising Nifty 50 stocks.’
Emkay adds that it is ‘hopeful this obvious and apparent error would justify the annulment of these trades’ and that it believes in ‘the NSE’s professional management to see the merits for annulment, which is the practice worldwide.’
Emkay, a Mumbai-based broker, has been temporarily barred from trading pending an investigation into the crash by the NSE, which said it detected as many as 59 erroneous trades on Friday before trading was halted for 15 minutes. The erroneous trades drove down the share price of several of the exchange’s largest companies by 19 percent.
‘Emkay Global Financial Services was asked to close out positions arising out of erroneous trades, which it has done,’ says Ravi Varanasi, head of business development at the NSE, in a statement.
‘The exchange then disabled the member from trading. There is no question of any glitch or malfunctioning in NSE’s systems. The broker’s dealer put in an erroneous quantity in the orders, which is being investigated.’
The NSE, India’s largest exchange with more than 4,000 companies, adds that orders were ‘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.’
Indian exchanges have also asked the regulator to impose stricter limits on share price fluctuations, according to a Bloomberg report citing unnamed sources.
The news agency reported that the exchanges have asked the Securities and Exchange Board of India to impose a price fluctuation limit of 9 percent, instead of the current 20 percent, on 216 of the nation’s biggest and most liquid stocks.
High-frequency trading since the so-called flash crash in the US in May 2010 has prompted investigations by regulators around the world, including authorities in the US, Australia and the UK.
In August this year, less than an hour of erroneous trading cost US market maker Knight Capital Group $440 mn and prompted calls for stricter regulation.
