There’re grey areas in trade annulment norm: Sinha

UK Sinha, Chairman, SEBI, has said that defining what constitutes a material mistake while deciding on trade annulment in stock exchanges is a grey area.

Speaking exclusively to BusinessLine, Sinha said: “There are certain situations where grey areas are unavoidable and we have to trust the judgment of the people who are at the helm of affairs at that particular moment at SEBI and in the stock exchange. Because, what they call bright lines cannot be drawn in all situations. It is a limitation.”

However, Sinha observed that the conditions under which annulment would be allowed had been clearly outlined. “We have, for example, provisions for a market-wide circuit filter, the same we can’t do here but the basic principle we have enunciated, so that, if in future there is a need, at least the principles are known to people. I think it is not possible, number one, and not advisable, number two, to provide bright lines here.”

On July 16, SEBI introduced a uniform set of rules, which state that annulment of trades resulting from a material mistake or erroneous orders can be done by stock exchanges either on their own or upon request from a stock broker.

Brokers are required to submit annulment request within 30 minutes of a trade while exchanges have the authority to allow requests from brokers even after 30 minutes and up to 60 minutes.

SEBI required exchanges to prescribe the procedure for submitting annulment requests in electronic form, besides defining criteria to discourage frivolous requests.

It also defined a review mechanism for aggrieved parties in case exchanges rejected annulment requests.

On cyber crime, Sinha said the risk was unavoidable. “In this age of cyber crime, we have come out with our guidelines on cyber crime and how to ensure cyber security, but it is also a fact that no stock exchange or clearing corporation has 100 per cent capacity to deal with these matters.

“That is why we have frequent reporting and frequent inspections. We send out teams — and even SEBI team is not that evolved so we take the help of outsiders, and experts. So, frequent interactions, reporting and inspections will perhaps help. But to some extent, this (risk) is unavoidable.”

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