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HOUSE OF THE WEEK

Saturday, 6 October 2012

NSE Crash: Rs3 Lakh Crore Gone In 15 Mins


It was expected to be another ‘fantastic’ Friday for the markets. It turned out to be a freaky one.
Around 9.50am, a dealer working with brokerage Emkay Global Financial committed a blunder. Instead of putting in a total sell order of Rs 65 crore on the National Stock Exchange (NSE), he punched in Rs 650 crore.
This was a basket-selling order where a client wishes to sell, say Rs65 crore worth of stocks of various companies. In all, a total 59 orders got executed in a flash.
And all hell broke loose.
By 9.51am, the Nifty was down from 5,747 to 4,888, or nearly 16%, momentarily, vapourising Rs3.32 lakh crore of investor wealth.
The markets had risen an average 1.90% in each of the last four Fridays and were expected to post another good session on the back of key reforms announced on Thursday.
That was not to be.
The trades were entered from a specific dealer terminal belonging to Emkay Global Financial, on behalf of its institutional client, the exchange said.
“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.”
Algo or algorithm-based trading is where software decides when to sell and when to buy in micro seconds. Following this, all the Nifty 50 stocks fell 5-20%, with nearly 40% of them falling as much as 20% at that point.
The cash market was automatically closed for nearly 10 minutes after this as per circuit limit rules.
The market was reopened by the exchange with a pre-open phase at 10am and trading resumed at 10.05 am with Nifty on 5751.
The markets could not recover much from this blow as some of the traders would have lost on account of their stop losses getting triggered.
“Though lot of checks are there, such type of errors do happen. While some of them would have got the stocks cheaper than they would have expected, the day traders who would have bought stocks at higher levels, their stop loss would have got triggered,” said Jitendra Panda, head of sales broking at Future Capital Securities.
Interestingly, though trading on the NSE was stopped for 15 minutes, there was no halt on BSE.
HDFC, ITC and Infosys were among the stocks that fell 20% before rebounding.
Nine minutes after the market stopped trading, NSE officials decided to go ahead and open the market after informing the stock market regulator.
“The idea was to keep the market going, not create panic by halting trade for an hour,” said Ravi Varanasi, head-business development at NSE.
The market was reopened by the exchange with a pre-open phase at 10.00.22 and trading resumed at 10.05.00 and the market functioned normally.
The National Stock Exchange is investigating the matter. Once it has a report ready, it would submit the same to Sebi, said an official.
This has been the third instance of flash crash on NSE this financial year and there have been many in the US too, which increases worries among global investors on the safety of automated systems.
The Nasdaq suffered a similar trading error which caused a stock to rise 30% on Wednesday. The exchange later reversed the trade.
But in this case, the NSE has decided not to reverse the trades saying the system is not at fault, so the brokerage carries the can.
While the Nifty closed the day down at 5746.95, down 0.70%, the stock of Emkay Global lost 10% to close the day at Rs. 31.05.
The BSE Sensex, which continued to trade unaffected on its exchange, closed at 18938.46


EXPLORE:  World News      Business      NSE  Crash


Edited By Cen Fox Post Team
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