NSE’s silence led to panic sell-off: ANMI

Members of the stock brokers association ANMI are blaming the National Stock Exchange (NSE) for the panic sell-off in the stock markets before 3:30 pm on Wednesday.

In a letter to SEBI, the Association of National Exchange Members of India said that its members feel that NSE’s silence or lack of communication up to 3:20 pm on restarting market-wide trading led to panic sell-off by online brokerages of their clients’ positions.

Auto square-off

To make up the loss of four hours of trading between 11:40 am and 3:30 pm on Wednesday, the NSE extended trading hours till 5:00 pm. But guring the four-hour downtime, there was no communication from the exchange on restarting the market, brokers said.

Large online brokers such as Zerodha and Upstox auto square-of client positions for intra-day trades. This was initiated by online brokers at around 3.10 pm as there was no communication from the NSE that the bourse would remain open till 5:00 pm. Between 3:10 and 3:30 pm, many large counters. including Bajaj Finance, Maruti, Indian Oil, Tata Steel, Tata Consumer Products, Maruti, NTPC, Infosys and Lupin, witnessed a fall of 5-20 per cent as they crashed sharply due to the auto square-off.

And, when the NSE extended the trading session, almost all the shares that had declined recovered from their lows. But the majority of the brokerage clients could not trade as they were already facing mark-to-market margin calls. The tech-glitch and the lack of communication by the NSE cost many clients their positions, brokers told BusinessLine.

“Major online brokerages informed around 2:45pm that they will square-off intra-day trades by 3:10 pm. However, the exchange remained silent up to 3:20 pm and then announced the restarting of trading. The exchange could have stepped in at 3:10 pm and assured brokers of resumption of trading. That could have averted the panic sell-off by brokers on another exchange, the BSE, and prevented huge loss to investors. All this happened due to lack of clarification by NSE. A simple proactive communication could have averted the panic,” the ANMI letter told SEBI.

‘Need investigation’

ANMI told SEBI that there is greater need for a deeper investigation as the glitch happened just a day ahead of the monthly derivative expiry where client and market positions were at their peak. ANMI letter also raises questions over the failure of the NSE to switch to disaster recovery (DR) site.

ANMI said its members have suggested that Nifty and Sensex should be allowed to be traded on all exchanges. “If there is uniformity of products across exchanges, the problem noticed today would have got automatically resolved due to interoperability features,” the letter said.