NSE Nifty Futures: Did Micro Stoppage of 27 Seconds Lead to Huge Unexplained Price Movements on 5th July?

Moneylife Digital Team 07 July 2021

The National Stock Exchange (NSE) has sought an explanation from a member about trades in Nifty futures that were higher than the prevailing market prices on 5th July. The Exchange has issued a press release saying, "We have received some enquiries about certain Nifty futures trades that were higher than the prevailing prices on 5 July 2021. An explanation has been sought from the member as to why the order was placed at a price higher than the prevailing price in the market which could have misled the market."

"We would like to reiterate that the exchange systems functioned normally and all orders were executed as per the operating and trade execution ranges as prescribed," the Exchange added.

According to NSE, at the time of market opening, a trading member's dealer placed a buy order manually for Nifty near month futures at a price which was significantly higher than the prevailing price in the market. “Since the order was within the operating range, it matched with the existing sell orders in the order book and the two trades got executed at a price within the trade execution range,” it says.

"The dealer subsequently cancelled the remaining order. In the meanwhile, there were some orders that were received from the other members at prices like the above-mentioned order, and those orders which were within the trade execution range, were executed," NSE clarifies.

Interestingly, this incident happened on the very day that the Securities and Exchange Board of India (SEBI) came out with new rules to make stock exchanges pay for technical glitches.

Meanwhile, social media posts suggest that the incident in question may have been technical. One tweet says there was a 'micro stoppage of 27 seconds with huge unexplained price movements'. Yet, NSE, has ruled out any technical issues in its operations.

@SEBI_India Freak trade happened in nifty futures. High 16546.5. CMP 15830.
What is happening at NSE
— Saillesh Vilas Rane (@RaneSaillesh) July 5, 2021

However, many brokers say the flash spike in Nifty futures created tremendous losses for all small algos. Quoting a regulatory official, a report from the Hindu BusinessLine says, "For nearly 27 seconds after the NSE commenced trading at 9.15am, there seemed to be some stoppage as many trade orders could not go through. After that, in a ‘flash’, Nifty futures touched a high of 16,546. This is what caught most brokers and their clients off-guard."

Its micro stoppages with huge unexplained price movements creating tremendous losses for all small algos.Instead of stopping market for 4 hours,now someone has found technology to stop markets for20 seconds and 800 point difference between cash futures in index.Another co lo scam
— Fintechupdate (@Fintechupdate1) July 5, 2021

@NSEIndia It is like a smarter way to halt market for few seconds (20 seconds) instead of stoppage of market for couple of hours with huge price movement putting small algos with big losses.
Smarter and another way of colo scam
— Saillesh Vilas Rane (@RaneSaillesh) July 5, 2021

Meanwhile, in a rare, tough measure aimed at reducing the instances of technical glitches occurring at market infrastructure institutions (MIIs) like stock exchanges, clearing corporations and depositories, SEBI’s new rules say that it will make such institutions and their officials liable in the event of failure to provide services.

SEBI had issued a detailed framework for penalising MIIs— which includes stock exchanges, clearing corporations and depositories— for technical glitches. MIIs are systemically important institutions as they provide the infrastructure necessary for the smooth and uninterrupted functioning of the securities market, SEBI says.

Under the new framework, MIIs will have to pay Rs100,000 per day in case of delay in submission or incomplete submission of root cause analysis (RCA). The regulator has said a comprehensive RCA report needs to be submitted within 21 days of the incident. Failure to promptly address a technical glitch will attract a penalty of Rs2 lakh per day for the first 15 days, Rs3 lakh per day for subsequent 15 working days and additional penalty of Rs25 lakh beyond 30 working days.

Failure to declare a disaster within the stipulated timelines could attract financial disincentive of 10% of average of stand-alone net profit for the previous two financial years or Rs2 crore, whichever is higher on the MII. The managing director (MD) and chief technology officer (CTO) will have to part with 10% each of their respective annual salaries (both fixed and variable components) for the financial year when the disaster occurred, SEBI says. (Read: SEBI Brings In Rules To Make Stock Exchanges Pay For Technical Glitches)

Earlier, on 24 February 2021, trading on NSE was halted at 11.40am due to 'issues with the links with telecom service providers'. There was an issue with live ticks for NSE indices like Nifty 50, Nifty Bank, and others across brokers. (Read: Will SEBI Give Us the Real Story behind the NSE System Failure? )

The technical advisory committee (TAC) appointed by SEBI too had questioned the management of NSE for the Exchange's failure to shift the operations to the disaster recovery (DR) site from the primary site on 24th February. (Read: SEBI TAC Questions Failure of NSE Management in Shifting Operations to DR Site; Revises Time Frame for Disaster)

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