The payout of ₹100-150 crore, in the matter involving a recent ‘fat finger’ trade in the derivatives segment of the National Stock Exchange (NSE), is likely to be delayed, sources told BusinessLine.
The NSE is examining the matter after stock broker Vardhaman Global Sharecom wrote to market regulator SEBI and the NSE saying that the shares were error trades. Just three brokers, who are proprietary traders from Kolkata and Delhi, are said to have made profits of nearly ₹105 crore out of the trade and the remaining ₹20-crore profits are widely distributed from among other brokers who run automated trading, the sources said.
The NSE is treading a cautious path in the matter since an investigation by SEBI in 2013 had blamed the exchange’s risk management systems for failure to arrest a market fall triggered by a similar ‘fat finger’ error by Mumbai based broker Emkay Global. In a notice issued by BJ Dilip, then deputy general manager of SEBI, it was revealed that the error trades were because of NSE’s lax trading systems.
Risk management
SEBI was of the view that even if the brokers’ systems had failed, NSE’s risk management system should have been robust enough to check the huge error. A trader at Emkay Global had punched an order to sell 17 lakh baskets of Nifty amounting to around ₹974 crore instead of punching a plain sell order for ₹17 lakh worth Nifty. Emkay had suffered a loss of ₹51 crore on the trade. Later, when the matter reached the Securities and Appellate Tribunal, Emkay got 50 per cent of its money back.
In the latest incident, the NSE systems allowed the options trades to be placed at 99.99 per cent discount to the prevailing market price, without there being any significant move in the price of the underlying index. Since there is no circuit filter in the options segment or even a broad price band, the entire order coming from Vardhaman Global worth ₹100-150 crore got executed. Also, it needs to be checked if these were automated trades or manually punched.
Exchanges the worldover have experienced similar problems — for different reasons such as some algos going berserk, sometimes due to market manipulation of algos or just a fat finger trade. Like the case of Emkay, if this time too it was the failure of exchange’s risk management system, which also needs to be investigated, the payouts could get delayed, a regulatory official told BusinessLine.