NOW glitch: Brokers may move NSE for compensation, annulment of trades

PALAK SHAH Mumbai | Updated on May 27, 2018

Claim compensation from investor protection fund

A ‘tech glitch’ on May 24 in the online equity trading platform NOW (NEAT on Web) is likely to result in compensation claims from brokers and their clients worth several crores, sources close to broker associations told BusinessLine.

According to letters written by brokers to the Association of National Exchanges Members of India (ANMI) and other organisations, and reviewed by BusinessLine, the traded quantity overshot by nearly 100 times in some cases due to a bug in the trading software and exceeded the risk and exposure limits of clients.

“Orders placed in the NOW system by our dealers were displayed as rejected but, to our shock and surprise, the end-of-the-day file received from the exchange showed 4,200 Nifty Call options were executed by the NOW software against our input order of 525,” said a letter from an NSE broker, who largely caters to retail clients.

Another letter said: “At 11:29 am on May 24, a single order placed via NOW was executed multiple times and there was no option to stop it. After a halt, when NOW was re-started at around 2:45 pm, we tried squaring up some of our positions but the software automatically executed more trades. At 3:30 pm (end of trading day) there were still more orders pending.”

The ANMI and other associations are now requesting the NSE to dip into its investor protection fund to compensate for the losses, and also annul the trades. However, the NSE is not known to annul trades, say experts. In October 2012, it had refused to reverse trades when it was hit by a glitch that caused a 920-point flash crash in the exchange’s benchmark Nifty index.

The exchange had blamed Mumbai-based brokerage Emkay Global for ‘fat finger’ trade and imposed a huge fine. Later, a SEBI inquiry blamed the NSE, saying the trade error could have been averted by the exchange risk management system.

Root cause analysis on: NSE

When contacted, the NSE said it is conducting a root cause analysis of the May 24 issue.

Last week, the NSE had said that “NOW is a shared CTCL (computer-to-computer link) system, which had a temporary disruption and had been rectified on the same day and the system was up and running. The members had alternative modes of connectivity during the disruption and hence trading was not disrupted. The NSE trading platform is completely different and functioned smoothly with full efficiency that day.”

A source close to the NSE told BusinessLine the exchange, in its initial analysis, had observed that many brokers were able to square their positions and some had even got out of it with profits. Not many had suffered huge losses and a report about the incident would soon be submitted to SEBI.

Published on May 27, 2018

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