Here's what you should know about the freak trade today
In response to NSE’s statement, Emkay said the company is adequately capitalized “to honor our financial commitments towards exchanges”. “We are in process of replying to queries of SEBI (Securities & Exchange Board of India/Exchange) and are very hopeful to start our trading from Monday onwards”.
What happened? The Nifty suddenly dropped by over 900 points to a session low of 4,888.20, a drop of 15.5 per cent below Thursday's closing level in early trade today. Such a sharp drop activated the lower circuit breaker which halted the trade for about 15 minutes on the NSE. Trade on the BSE was normal though the Sensex was also affected by the sharp fall in Nifty prices initially.
Why did the markets fall sharply? The NSE attributed the sharp drop in cash market to erroneous orders, which resulted in multiple trades at low prices. "The market circuit filter got triggered due to entry of 59 erroneous orders which resulted in multiple trades for an aggregate value of over Rs 650 crores," NSE said in a statement.
Who was to blame? A single dealer terminal at Emkay placed 59 erroneous orders for an institutional client, resulting in trades worth over Rs 650 crore. Emkay, a financial services firm founded 17 years ago, closed out all the positions from the misplaced trades, the NSE clarified later, adding the firm had been "disabled" from trading, without giving further details. Emkay Global shares plunged 10 per cent.
How long was trade affected? Spot trading was halted on the NSE for 15 minutes from 9.50 a.m. to 10.05 a.m. "The market was reopened by the exchange with a pre-open phase at 10.00.22 and trading resumed at 10.05.00", NSE said. Trading was not stopped on the BSE.
What does it mean for retail investors? The stop losses for a lot of intraday calls would have been triggered, so retail investors who trade daily may have suffered losses today. A lot of margin calls might also have triggered.
Were individual stocks affected? All Nifty-50 stocks plunged during the freak trade. For example, Reliance Industries shares plunged 20 per cent to an intra-day low of Rs 682. However, individual shares also recovered with the Nifty.
Has it happened before? Earlier this week, New York’s Nasdaq and other exchanges cancelled some trades of Kraft Foods Group following an unusual spike after the market opened. Kraft's shares opened at $45.55 before surging to $58.54. Nasdaq attributed the glitch to a broker error, although it did not name the broker involved. The last time Indian markets were hit by such erroneous trade was in April 2012 when the Nifty futures crashed over 300 points in afternoon trade.
What is Sebi doing? Market regulator Securities and Exchange Board of India has begun a probe into the crash. Sebi would be examining whether adequate safeguard mechanism was in place to avoid a flash crash like situation. It is also examining the role of technology in trading.
What does it mean for NSE? Ravi Varanasi of NSE told NDTV that once the company realized that the slide was because of an erroneous trade, it did not want the markets to be closed. So, markets were opened immediately and the trading member (Emkay global) was disabled pending an investigation into the matter. However, the incident comes at a time when MCX looks set to launch its stock exchange around Diwali.
The unanswered questions: According to rules, the once the circuit breaker was hit there should have been a coordinated halt in trading on all equity and equity derivatives markets across the country. But this did not happen today. The BSE did not halt trading and even the Nifty futures traded normally.
(With inputs from agencies)