Flash crash: SEBI working on trade annulment norms

Our Bureaus Mumbai | Updated on March 12, 2018 Published on October 12, 2012

‘Risk management system has withstood test of time’

Stock market regulator SEBI plans to work on a policy of trade annulment after last Friday’s Nifty flash crash on the NSE.

“I think we will work on a policy on trade annulment. It will take sometime,” said U.K. Sinha, Chairman, SEBI, on the sidelines of FICCI’s capital market conference in Mumbai on Friday.

SEBI is looking into the flash crash at NSE last Friday. “There is not much that I can tell you about. We want to be very cautious in whatever structures we will come out with. We have already set up a group, which is looking at various aspects. We will not be in a hurry. We will do wide consultations, stress testing before we come out with any policy,” he added.

The regulator said that SEBI would like to examine the matter in its entirety. “SEBI has a prescription for certain internal checks and balances at the broker level, exchange level and SEBI level. We would like to check whether any such checks and balances were not in place. This will be looked at very seriously. We will be doing stress testing and scenario building,” said Sinha.

He said that risk management system in the country has been very sturdy and has withstood the test of time. “Of and on, there are freak examples of things not going right. SEBI has been looking into it in consultation with the experts.”

“On the one hand there are trades which are coming at very fast speed. And if there is a latency of even say 10 milli-seconds people are unhappy. When the market is shut, there are orders in the pipeline which have to be executed. The index is re-worked three times in the second, whereas the orders can be punched much faster.”

On decreasing latency across stock exchanges, Sinha said “We can’t compromise risk management for latency. We will go for risk management and checks are required.”

He added that IOSCO (the global association of securities regulators) has taken SEBI’s algo guidelines as a landmark development. Australia has implemented almost the same thing as SEBI, and Hong Kong is also thinking on those lines.

He pointed out that such incidents are not restricted to India alone.

“These things can happen and do happen outside India.”

Latency is the time taken by stock exchange servers to send stock prices to its trading terminals located with brokers.It is measured in seconds. Lower the latency of an exchange, faster is the time taken to disseminate prices to trading terminals.



Published on October 12, 2012
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