Rising incidents of likely freak trades on the National Stock Exchange (NSE) are worrying brokers and traders. On Tuesday, yet another unusual trade was reported in the derivatives segment in the futures contract of Reliance Industries (RIL). RIL futures contract expiring on June 30 recorded an intra-day high of ₹3,051 a lot, which is 22 per cent premium against the contract’s opening price of ₹2,500.
Brokers say this was a likely freak trade since the price of the underlying RIL shares was in the range of ₹2,791-2,754 and the intra-day high and low price of RIL current month futures was far away from this. RIL futures for June month closed at ₹2,773 on Tuesday.
RIL futures are among the highest volume-generating contracts in the Indian markets and hence such price movements away from the actual underlying price in the near-month expiry is a rare incident, brokers said. Frequent trading glitches and freak trades on the NSE are concerning, brokers say. On Tuesday, reportedly Nifty futures and options rates too were not updating briefly.
On June 2, a trader on the NSE sold a million call options of the Nifty index at an average price of ₹399 against the prevailing price of ₹2,130. Market sources say several thousands of these options contracts were sold at just ₹0.15 and there was no mechanism, either with the exchange or clearing corporations, to check this. Investigation into the matter is ongoing, but recurring incidents of freak trades on the NSE have brokers and traders worried.
Series of freak incidents
In August 2021, derivative traders witnessed a sharp spike in some options contracts on the NSE. The call option contract for the NSE’s main index Nifty (16450 strike price) for August expiry rose by 800 per cent from ₹100 to ₹800. Similarly, the put option contract for Bank Nifty index (37000) strike price rose by 2,000 per cent from a low of ₹1 to touch a high of ₹2,040. It was the third such incident of a freak trade on the NSE between July and August, and brokers said that the increasing frequency of these kinds of incidents was more than just a coincidence.
On July 5, 2021, Nifty index futures surged 805 points or over 5 per cent, without any similar rise in the underlying cash market. Weeks later, on July 28, Nifty futures for August expiry crashed 5 per cent or over 531 points to a low of 15,256 from its opening 15,787. On all these occasions, the reversal to normal happened in a few seconds. Brokers say that while the cash segment attracts draconian price filters and surveillance measures, there is nothing of such sort in the derivatives, leaving the field open for manipulators.