Stocks
NSE wants brokers to collect upfront margins to shift the blame for flash crash last year

While NSE want brokers to collect upfront margins from investors to avoid a flash crash like 5th October 2012, why is Sebi going soft on NSE for a obvious systemic failure on that day?

On 5th October 2012, the Nifty crashed by over 900 points when a dealer for stockbroker Emkay Global punched a wrong order. While National Stock Exchange (NSE) quickly blamed Emkay for the crash, but has not bothered to explain why its market-wide circuit filters failed to work. And now, NSE is seeking approval from the market regulator for its proposal under which brokers will have to collect margin money upfront from investors for trading in shares or the cash segment, similar to futures and options (F&O) trading.

 

At present, Exchanges collects upfront margins from brokers, but brokers do not ask clients for money in advance in the cash segment. In short, brokers are funding the clients, who settle the trades on next day using the ‘T+1’ settlement. The NSE move follows a show cause notice issued by Securities and Exchange Board of India (SEBI), after the 5 October 2012 flash crash.

 

NSE blamed 'abnormal' orders, worth $126 million, placed by the stockbroker in multiple trades of various stocks at low prices, for the crash. NSE claimed there were no technical glitches in its system and the crash was due to 'erroneous' trade orders worth over Rs650 crore by Emkay, which was disabled by the bourse for trading.

 

According to a report from Business Standard, in the notice (to SEBI), NSE had said mandating upfront margins even in the cash segment would have prevented the flash crash in October 2012. This is incorrect and an attempt to shift the blame.

 

Even if Emkay Global had collected 150% margin and then punched a wrong order, would the results be any different? NSE has continued to blame Emkay for the crash, but has still not bothered to explain why its market-wide circuit filters failed to work. Brokers are increasingly getting angrier at being held responsible for all technology problems and want a fair and open investigation.

 

In fact, when NSE index showed a sudden fall of nearly 900 points or over 15% within seconds, triggering the circuit filter (maximum permissible limit of movement in the index) at 0950 hours on 5 October 2012, the Exchange was supposed to halt trading for an hour. This is as mandated by SEBI circular on circuit filters. However, without the halt, NSE resumed trading at 1005 hours. This by not following SEBI circular, NSE has violated the norms on circuit filters.

 

NSE informed SEBI that the decision to reopen the cash market after a halt of 10 minutes was taken by the Exchange as F&O markets and other markets were functioning normally and the fall was apparently on account of freak orders from a particular member.

 

Last year, in August, the chief technology officer of the NSE preposterously told Business Standard that the Exchange had ‘attained nirvana’ in technology by being able to put through transactions at the speed of light. This when the Exchange had already had serious issues in three consecutive months—March (ONGC), April (Nifty futures algorithmic trading) and May (derivatives snag) and a fourth bigger one was about to happen in October.

 

As Moneylife has already said, the NSE as well as the Bombay Stock Exchange (BSE) seem to have ignored every check prescribed by SEBI. Trading was not halted in both bourses and across market segments; but the regulator’s only reaction is to launch an investigation.

 

The NSE has always successfully evaded a close scrutiny of all technology issues for over a decade. In its initial years, especially under the leadership of the late Dr RH Patil, the NSE was seen as an extension of the regulator and the government system. Not any more. Today, the NSE is driven by profits, pay and perquisites of senior executives, which are tied to a desperate need to maintain market share.

User

COMMENTS

sathyacumaran

3 years ago

sathya cumaran
operational head india
singapore media and channel group

this margin concept of stock broker is cheating even when the client opt out of this margin funding the broker desist from this concept and they lure the investors and cheat them and as such margin trading should be strictly controlled for which sebi nse bse never have intention to control infact they have formed an cartel and innocent investors is left in throught as such in india we donot have any protection for indian investors and it lies with the unscrupulous broking community and this is the ptiable status for this instead of spendig govt exchequer by establishing sebi nse bse these institution could be wounded and leave the market to broker even now the same status instead govt expenditure could be curtailed and this amount could be used for some welfare scheme instead paying hefty salary to staff of these unscrupulous govt servant is our surmise

sathyacumaran

3 years ago

sathyacumaran

noramlly the stock brokers cheat their customer with existing position of stocks they have they lure the investor by margin funding for which they cahrge upto 21% of interest and apart from this even if the client had not opted for this margin funding the brokers never divulge whether they have been removed from margin funding is not disclosed and as such there is again shady transaction going on but the sebi and nse bse are well aware of this fraud but they party to it but they say investor protection which is not so they proctector for fraudlent stock broker and as such investing and trading in stock market that to country like india where corruption in all walks of life even the govt organisations like sebi nse bse where there is lacking honesty integrity and dependability which our sole concern but with the present UPA II govt everything is lost is the pitable case and even justice is denied and officials of sebi and nse bse are highly corrupt is surmise we can say not single officer above corruption only GOD has to Punish and restore justice even if we take the case to supreme court the supreme court judges are threatened by these unscrupulous brokers and even the officials of sebi and nse bse inorder to save their skin they put the blame on others and as such there is totally collapse of justice and morale everythig is lost

REPLY

Vaibhav Dhoka

In Reply to sathyacumaran 3 years ago

SEBI,NSE,BSE has formed cartel to dupe investors and help Brokers.And you have correctly mentioned Justice system is near collapsed.

AEGON Religare conveniently misinterprets surrender clause for Invest Maximiser plan

AEGON Religare is misinterpreting surrender clause to force four premium payments and also not giving satisfactory answer to policyholders on surrender while enticing new product sale without any surrender charge for old policy. Will the IRDA wake up?

AEGON Religare Life Insurance (ARLI) has given Dinesh Mehta (name changed) evasive answers on policy surrender charges for over six months even though he has been repeatedly asking for an answer to a simple query. The customer care personnel has been blindly sending him cut-paste replies from the surrender clause in product brochure without even looking at Mr Mehta’s case. When Mr Mehta persisted to get an answer, the customer care got email replies from the product team of “Invest Maximiser Plan ULIP” to give clarifications. Mr Mehta was able to get inter-department emails. It shows customer care’s lack of knowledge. Moreover, they resorted to the cut-paste job even after getting clarification from the product team.
 

After Moneylife Foundation Insurance Helpline intervention, Mr Mehta was able to get a one-line specific answer to his question on what would be the surrender charges if he were to surrender the policy after 48 months of policy term and payment of three premiums. The reply was – “We would like to inform you that there will be surrender charges applicable of 15% of regular premium fund value.”
 

While Moneylife Foundation was able to force ARLI to give specific reply after taking the issue to highest level, the problem is that ARLI has clearly misinterpreted the surrender clause of its product to its own benefit. Here is the wordings from Invest Maximiser Plan ULIP product brochure which the customer care personnel were doing the cut-paste job:

Surrender - You can surrender the policy any time after the first 3 policy years. There is no surrender charge after 4 policy years. Surrender value is fund value minus the surrender charges. If you surrender the policy before 4 years, charges will depend upon the period for which you have paid your premiums, as given below:

 

Regular premium paid period (months)

Less than 12

12 to 23

24 to 35

36 to 47

48 onwards

Surrender charges as a % of fund value of regular premium

100%

25%

20%

15%

NIL

 

If Mr Mehta paid three premiums and was willing to wait for 48 months from policy inception, there should be no surrender charges as per plain reading of the surrender clause. But, ARLI has created its own interpretation and insists on payment of fourth premium or else there will be 15% surrender charges.
 

In fact, ARLI is lax about the surrender clause if the policyholder pays four premiums and surrenders the policy even before 48th month. In this case, ARLI does not levy charges even though it should, as per surrender clause. Here is the reason for it. According to Mr Mehta, “In Ahmedabad the Renewal Manager is approaching every one to pay 4th premium and withdraw immediately and invest in a new plan. There is no rationality of 48 months surrender charges.” He has given an example of his friend’s policy for which no surrender charges were levied even though it was surrendered in 37th months. The key here is that 4th premium was paid.

 

It is not the first time ARLI has been vague about is its terms in the product brochure. Last year, Aegon Religare launched Educare, a traditional child plan. The product brochure does not mention about who pays the future premium in case of death of the policyholder. While the insurer intends to offer waiver of premium (WoP), why does the brochure omit such an important line? Is such vagueness strategically inserted?

 

Read: Aegon Religare Educare—Does it really offer waiver of premium?

User

COMMENTS

Rahul Mukherjee

11 months ago

Aegon Religare Insurance Company is a fraud insurance company. They sell their product with fake commitment. And Customer Care is too dull to respond properly. I lost around Rs. 55000 in investing in Aegon Religare, and decided not to pay a single premium to them.I suggest all peoples not to Purchase any Policy of Aegon Life Insurance (Previously Aegon Religare). They are just fake. Our Money is invaluable to them.

Raman Jain

2 years ago

The interpretation taken by Aegon is appropriate. If you read carefully and without blinkers you will be able to make sense of what is written.

Please do not defame companies for your own profit.

REPLY

Debashis Basu

In Reply to Raman Jain 2 years ago

"Own Profit"?
Can you please elaborate. Or is it designed to defame us?

raj pradhan

In Reply to Raman Jain 2 years ago

It may be your interpretation about the article. No problem with it.

We can also interpret that you can be insurer man writing under personal name.

If the insurer has an issue, they can write to us. They have not done it since last 10 months of the article.

ABHIK DE

3 years ago

IF THE INSURER IS HONEST,THE AGENT WONT BE ABLE TO SELL POLICIES/ULIPS,IF THE EXISTING ONES ARE IN LAPSED STATE.THE SYSTEM/COMPUTER OF THE INSURER WILL REJECT THE NEW ONE,TILL LAPSED ONE IS REVIVED.BUT THE TOXIC COMBINATION OF STANCHART/BALIC CAN TURN IMPOSSIBLE TO POSSIBLE.AND DOES IT.

Sensex, Nifty may suffer further declines: Tuesday closing report

We had mentioned yesterday “while the market is on a firm uptrend, there is a chance of a sharp decline at least on an intraday basis. A fall below 5,530 will signal the first weakness”. Expect further decline after 650 points loss in Sensex today

Except for few minutes of trading in the green, Indian indices saw a gradual slide downwards, trading in the negative for the entire session and ending with a huge decline on today. The 30-share BSE Sensex opened higher at 19,003 and hit an intra-day high of 19,007. The index hit the low of 18,166 and closed down at 18,235 (down 651 points or 3.45%). The Nifty opened higher at 5,575 and, after hitting an intra-day high at 5,581, ended at 5,324 (down 209 points or 3.77%). The percentage loss on the Sensex and the Nifty is the highest since 16 August 2013. The National Stock Exchange (NSE) saw a higher volumes of 62.63 crore shares.

 

All the other indices on the NSE closed in the negative. The top five losers were Bank Nifty (5.20%); Realty (4.88%); Finance (4.87%), FMCG (4.63%) and Media (4.47%).

 

Of the 50 stocks on the Nifty, three ended in the green: Lupin (2.59%); Coal India (1.14%) and Cairn (0.91%). The major losers were Axis Bank (-10.65%); IndusInd Bank (-8.67%); DLF (-7.17%); Reliance Infrastructure (-7.11%) and Punjab National Bank (-7.05%).

 

Last week, after the passage of the Food Security Bill, the market was pulled down on concerns of rising fiscal deficit. Yesterday, the Rajya Sabha approved a $20 billion scheme to distribute subsidised wheat and rice to 80 crore people.

 

Partly because of rising concerns of higher fiscal deficit, Standard & Poor's (S&P) considers chances of a credit ratings downgrade for India higher than for Indonesia. According to S&P, there was more than a one-in-three chance for India rating cut within two years. The ratings agency has a "BBB-minus" rating on India with a "negative" outlook. A downgrade would push Asia's third largest economy to "junk" status. S&P rates Indonesia at "BB-plus."

 

Goldman Sachs has cut India's GDP forecast to 4% from 6% for FY14 and to 5.4% from 6.8% for FY15. It says the downgrade reflects the more difficult external funding conditions for Asia as markets increasingly anticipate Fed tapering and eventual exit from unconventional monetary policies. They have also put out more bearish forecasts for the rupee, expecting the currency to trade at 70 in three months, at 72 in six months and back to 70 in 12 months against the US dollar.

 

Adjustment in the rupee, which has fallen by nearly 20% since May, was called for as the country has seen higher inflation compared with other countries, Prime Minister's Economic Adviser C Rangarajan said. Today the rupee reached closer to its all time low level of 68.80 per US dollar. Just six months ago, a clueless Rangarajan had pointed out that rupee should trade between 55-53 to the US dollar.

 

Rising crude oil prices due to fears about a potential US military strike on Syria  also added to woes in stock markets. Russian defence ministry was quoted by a news agency as saying that the radar station at Armavir, near the Black Sea, which is designed to detect missiles from Europe and Iran, had detected two ballistic "objects" fired towards the eastern Mediterranean. However, there was no sign of a missile strike on the Syrian capital Damascus according to Russia's state-run RIA news agency.

 

Except for Straits Times (down 0.03%) all other Asian indices ended in the green. Nikkei 225, was the top gainer, up 2.99%.

 

China's official purchasing managers' index (PMI) for the non-manufacturing sector dipped slightly to 53.9 in August from July's 54.1, according to the National Bureau of Statistics. A reading above 50 indicates activity in the sector is accelerating, while one below 50 indicates it is slowing. The services sector index followed the bureau's manufacturing PMI on Sunday, which showed China's factory activity expanded at the fastest pace in more than a year in August with a jump in new orders.

 

Australia’s central bank left its benchmark interest rate unchanged and omitted a reference to scope for more easing. Governor Glenn Stevens and his board kept the overnight cash-rate target at a record-low 2.5%. The Governor said, “The easing in monetary policy since late 2011 has supported interest-sensitive spending and asset values, and further effects can be expected over time.”

 

US stock markets remained closed on Monday, on account of the Labor Day holiday.

 

Europe's financial markets were trading lower in early trade on Tuesday ahead of monetary policy decisions in Japan, the Euro zone and the UK on Thursday and the US employment report on Friday. US futures were sharply up.

User

COMMENTS

pravsemilo

3 years ago

Everytime the anchors and analysts of CNBC TV18 turn hopeful (just by the looks of pre-opening session), market turns to prove them wrong.

A good case study for behavioral finance.

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