Bank Nifty crash triggers deluge of stop-loss orders

PALAK SHAH KS Badri Narayanan Chennai/Mumbai | Updated on May 31, 2019

The NSE co-location scam is all about market manipulation at the exchange

Index plunges 1,000 points in half hour till noon, but recovers in 15 minutes

A near 1,000 points — or around 3 per cent — crash in the Bank Nifty index, the most widely-traded derivative contract after the Nifty index of the National Stock Exchange (NSE), from the high point of the day on Friday led to a panic-like situation in markets, triggering a large number of stop-loss orders.

The Bank Nifty index witnessed a sharp crash between 11.30 am and noon on Friday only to recover in the next 15 minutes. Friday’s high of the Bank Nifty index was 31,783, which was hit during morning trade, and the low point of the index was 30,623. Stop losses were triggered between 11.30 am and noon, brokers told BusinessLine.

Stop-loss is an order placed with the broker to sell a security when its price falls to a certain threshold. Stop-loss is for those who are holding a long or short derivative position and want to minimise loss in case of sudden fall or rise in the price. On Friday, those holding long positions as the general sentiment was buoyant on anticipation of a slew of announcements by the Narendra Modi 2.0 government suffered a loss due to the triggering of the stop-loss order.

The benchmark indices — the Sensex and the Nifty — that rose more than 0.5 per cent in morning trade were down nearly 1 per cent around noon, but they too recovered. Only the Bank Nifty’s fall was steeper.


Role of algo trades

“It was a very stressful trading session and there were various rumours floating in the market. Also, such a sharp fall occurs when all algo trades in the queue are executed on the back of sensitive news, leading to dearth of liquidity,” said a dealer with a large brokerage house.

Other dealers put the blame for the fall on messages circulating in the market that the US had suspended its trade programme with India. Global news agency AFP had reported, quoting a US government official, that a key trade pact was a “done deal.” Also, market players said information was pouring in with regard to portfolio allocation in the new dispensation.

When contacted, the NSE said it did not see any unusual trading pattern on Friday.

Published on May 31, 2019

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