While the NSE claims to have “attained nirvana” in technology, brokers are being penalised for an error that should have been spotted and rectified or rejected by the ‘robust’ systems at the exchange
The National Stock Exchange (NSE) is blaming brokerage firm Emkay Shares & Stock Brokers for triggering circuit breakers but is far from admitting error in its systems. Last Friday the Nifty fell sharply by about 800 points or 16% to a low of 4,997.6 during the morning trading, which was blamed on 59 erroneous trading orders placed by Emkay. However, this is not the first time the so-called ‘robust’ systems at NSE have malfunctioned.
As usual, both NSE and market regulator Securities and Exchange Board of India (SEBI) have ordered probes into this incident. However, there is no word on previous such probes in freak trade halts on the NSE.
It has been found, time and again, that the ‘robust’ systems at NSE are in fact vulnerable to trading errors. The freak trade halt on NSE on Friday was fourth such incident since March this year. Brokers and traders are unhappy with increasing frequency of trading halts at NSE due to “system malfunction” or “technical glitch”. They also allege that they are being penalised in case their end of the day client positions exceeds the limits due to this technical error.
• The auction for sale of government’s 5% stake in ONGC on 1 March 2012 turned out to be a complete fiasco and in the end the Life Insurance Corporation of India (LIC) had to save the day by subscribing for over 25% of the shares. Complete mismanagement of the bidding process by the two stock exchanges, NSE and BSE was blamed by market intermediaries for the disinvestment auction fiasco, where subscription had to be managed in a hurry towards the end of trading.
• Later on 20th April, Nifty futures dropped by as much as 6.7% in the afternoon trade which dragged down spot indices. That time also while NSE officials denied any technical error, several brokers said the halt was due to a trading mistake caused by an attempt to sell both Infosys futures and Nifty futures at the same time. In other words, both trades were sold at the best available selling price at a time when the order book was shallow. Following the suspected erroneous trading, Nifty futures tumbled by 6.7% while Nifty and Sensex also fell by over 1.5% each.
• Next month, on 14th May, another technical glitch in NSE’s derivatives trading system brought afternoon trade in index futures to near halt. According to dealers, the malfunction began at around 1.15pm and went on till market close. In a release, the NSE had said, “An erroneous order cancellation request was received by the trading system today which disrupted the execution process. Concurrently, there was a malfunction in the network layer. These led to the interruptions in the derivative trading system. It was therefore, required to start the process on the contingency machine for the market to function. The contingency machine was pressed into service in a short span of time and matching continued.”
• Last Friday at 9.50am, the Nifty circuit filter got triggered which immediately closed the cash market. The fall in the Nifty was apparently due to abnormal orders resulting in multiple trades at low prices. “While the exchange systems functioned normally without any glitch, the above abnormal trades caused market closure automatically due to the index circuit filter getting triggered,” NSE said in a release.
All these technical glitches are happening when NSE has been claiming to have “attained nirvana” in technology. Ravi Apte, chief technology officer of NSE, while speaking to Business Standard, had said, “Trading speed on NSE is close to the speed of light. And this is the limit”.
However, systems at NSE allow anyone to punch orders exceeding his margin limits, alleged one of the traders. According to the trader, one of his dealers punched in a trade for 10,000 lots in the US dollar in the currency derivatives segment on the NSE, instead of 10,000 quantity (or 10 lots). At that time the trader had a currency limit of Rs6.83 lakh with his clearing member. This means, even though the dealer had punched in a wrong trade, it should have been automatically cancelled due to unavailability of sufficient margin. Instead the systems at NSE accepted the order resulting in a mark-to-market (MTM) loss of Rs20 lakh to the trader. He was also slapped a penalty of Rs1 lakh by NSE.
In an email reply, the NSE, reiterated that there was no system error or glitch. "The trader placed the order at 16.58 hours, which is close to market closing hours i.e. 1700 hours. In the given case, the trading member (TM) placed an erroneous order for 10000 lots and trades were executed substantially and margins were applied and the member was immediately disabled from trading any further," the Exchange said.
“On one hand NSE and SEBI are taking steps to increase market penetration at semi-urban and rural areas, while on the other hand they are penalising and also slapping suspension notices on traders for a human error, which could have been automatically rectified at NSE’s end,” the trader said.
