SAT upholds NSE decision to refuse Emkay Global's plea

According to SAT, if trades are executed due to negligence or breach of duty they cannot be considered material mistake and therefore not qualify for annulment


Holding on to the sanctity of trades on the exchanges, the Securities Appellate Tribunal (SAT) on Thursday upheld National Stock Exchange (NSE)'s decision to refuse Emkay Global Financial Services plea for annulment of erroneous trades executed in October 2012.

At the same time, SAT has asked NSE to review trades executed by Emkay with two brokers - Inventure Growth and Securities and Prakash K Shah Shares and Securities.

The case relates to orders entered by a dealer of Emkay on 5 October 2012, that had led to a flash-crash of over 900 points (fall of 15.5%) in the NSE's benchmark index Nifty, forcing the bourse to temporarily halt trading.

Emkay had approached SAT after NSE refused to accept its request for annulment of the erroneous trades.

In a final ruling dated 26th August, SAT has upheld NSE's contention that norms related to trades on exchange should be inviolable "to ensure sanctity of dealings on the exchange".

"If trades are executed due to negligence or breach of duty they cannot be considered material mistake and therefore not qualify for annulment," SAT said.

As per the tribunal, 'material mistake in the trade' would be attributable to unforeseen circumstances, which vitiate sanctity of the trades executed on exchange.

"Breach of duty/negligence would not be unforeseen circumstance that can be said to vitiate the trades executed on the exchange," SAT said.

Among others, SAT noted that Emkay had not installed a "validation mechanism" before entering sell orders and was also negligent in transmitting erroneous trades from the dealer's terminal to the NSE's server by ignoring four to five level checks that were available in the system.

Moreover, SAT also rejected Emkay's contention that NSE's trading system was faulty and in violation of market norms on grounds that the matter was pending before Sebi and it "would not be proper" for the tribunal to comment on the same.

However, SAT noted that while Emkay Global during the trades had incurred losses of Rs51 crore on account of sell orders, two counter-parties - Inventure Growth and Securities and Prakash K Shah Shares and Securities - had made huge profits running into several crores of rupees.

According to SAT, violations committed by - Inventure Growth and Prakash K Shah Shares - "were serious violations" and NSE should have considered that the trades were "vitiated" on account of such violations by the two brokers.

Accordingly, the matter in this regard has been remanded back to NSE for fresh consideration.


Mid-caps register a 40% growth in operating income in June quarter

Even though growth in revenues was marginal, quarterly results declared by 266 mid-caps on Moneylife’s database reported much higher profitability


Companies classified by Moneylife as mid-cap (market-cap between Rs500 crore and Rs2,000 crore) reported an aggregate growth in revenues of just 2% for the quarter ended June 2014. However, operating income of these companies grew substantially by 40% during this period. Moneylife tracks a database of 1,294 companies, of which 1,222 companies have declared their results for the June 2014 quarter. Of these 1,222 companies, 266 are mid-caps. Aggregate revenues of the mid-caps form a share of 8.39% of the total revenues of the 1,222 companies.


Over the one year period ended 26 August 2014, the market-cap of these mid-cap companies have nearly doubled, thanks to improving performance and hopes of higher economic growth following a change in government. During the quarter ended June 2014, the aggregate market-cap of the 266 companies has increased by 47%. Valuation, as defined as market-cap to operating profit, had increased by 40.79% over the year.

As many as 42 companies registered a loss in the June 2014 quarter. While the number of companies that have declared a net-loss in the period have remained the same, the quantum of the loss registered has come down by 32% from the June 2013 quarter. A little over half the mid-cap sample or 139 mid-cap companies have reported a double digit growth in sales and 128 companies reported a double digit growth in net profits. Even 16 loss-making companies of the June 2013 quarter have made a turnaround in the latest quarter.


Profitability margins have improved in the latest June quarter, compared to the quarter a year ago. The aggregate operating profit margin has increased to 8.88% for the June 2014 quarter, up from 6.45% in the June 2013 quarter. As many as 149 or 56% of the companies have reported an increase in operating margins, while, 138 or 52% of the companies have reported an increase in net profit margins.


Coming to valuation, the mid-caps as a whole are quoting at a market-cap to operating profit (MC/OP) of 6.9 times. Large-caps are quoting an MC/OP of 8.5, while Mega-caps are quoting an MC/OP of 12.8 times.


Out of the mid-cap sample, the market-cap of 252 or 95% of the companies has risen over the one-year period ended 26 August 2014. As many as 232 or 87% of the mid-cap companies are quoting a higher valuation compared to the period a year ago.




Rajeev Kapur

3 years ago

It appears that people are rushing in with the hope to make windfall gains. The experts are egging public to trust the tall claims of promotors for huge future gains. Is caution the need of hour or should every one join in the party?

Will real estate follow the uptrend in equities or continue to languish? Conservative investors may invest in real estate as it is less risky than Stocks if due diligence is done.

A friend asked if he should buy more midcaps or invest in a third house property for a 5-10 yrs horizon? House is safer but he would be liable to wealth tax and may have to take a loan if he does not want to liquidate his stock investments. What is your view?

Parimal Shah

3 years ago

The high profi shown by many midcaps is a prelude to entering the market with FPO or similar tricks to fool retail investors again.
Brace yourself for a flood of such issues in next and the next quarter.


Rajeev Kapur

In Reply to Parimal Shah 3 years ago

Yes, when the tide is up even leaky boats may rise.

Nifty, Sensex likely to head higher – Thursday closing report

Nifty has to stay above 7,900 for the upmove to continue


We had mentioned in Wednesday’s closing report that the current upmove on the NSE's CNX Nifty may continue if it sustains above the level of 7,900.  On Thursday again, the market managed to make a new opening high, after which it continued to move sideways. Volatility was higher towards the end of the session on account of the expiry of August futures and options.


The S&P BSE Sensex opened at 26,620 while Nifty opened at 7,942. Sensex moved in the range of 26,574 and 26,674 while Nifty moved between 7,939 and 7,968.  Recording gains for the sixth consecutive trading session, Sensex closed at 26,638 (up 78 points or 0.29%), while Nifty closed at 7,954 (up 18 points or 0.23%). NSE recorded a higher volume of 96.93 crore shares. India VIX rose 0.03% to close at 13.0675.
The stock markets will remain close on Friday for Ganesh Chaturthi.
The Indian government will release Q1 June 2014 GDP data on Friday. Global credit rating agency Moody's Investors Service said that India's sovereign ratings are constrained by persistently high inflation. Without a significant increase in food output, the risk from continued inflation could limit India's growth prospects, Moody's said.
The government has notified a new law empowering market regulator SEBI to pass orders for attachment of properties, arrest of defaulters and to access call data records.
The union government has taken a decision to allow the Ministry of Road Transport and Highways to decide on mode of delivery and amendments in the model concession agreement in respect of national highways projects for expediting of implementation of road infrastructure projects in the country.
Department of Industrial Policy and Promotion (DIPP) on Wednesday issued a notification allowing 100% foreign direction investment (FDI) through the automatic route in railway infrastructure. Among other players in the sector, Bhel which has an exposure to the sector may be benefitted. Bhel (5.04%) was among the top three gainers in ‘A’ group on the BSE and was the top gainer in Sensex 30 pack.
Bhushan Steel (4.97%) continued to hit a new 52-week low and was among the top two losers in ‘A’ group on the BSE. The stock, which was in the news in relation to the Syndicate Bank bribery case was further pulled up by the Reserve Bank of India (RBI), which has put the Rs40,000 crore exposure of banks in the company under the corrective action plan (CAP) for stressed loans. There are three options — including bringing new investor, restructuring the account and recovery of loans — under CAP for stressed assets.
There are reports that the Economic Offence Wing (EOW) of Mumbai police is probing the role of public sector banks relating to the fixed deposit (FD) scam. Indian Bank (5.01%), Andhra Bank (3.93%), IOB (3.12%) and Dena Bank (2.99%) were among the top ten losers in the ‘A’ group on the BSE. SBI (1.70%) was among the top three losers in Sensex 30 stock.
US indices closed Wednesday flat with positive bias. Asian indices showed mixed performance. Jakarta Composite (0.37%) was the top gainer while Hang Seng (0.71%) was the top loser.
China's industrial profits rose 13.5% in July after climbing 17.9% in June, its fastest pace since September, according to data released by the National Bureau of Statistics today, 28 August 2014.
European indices were trading in the red. US Futures too were trading lower.


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