NSE flash crash pulls nifty down 899 pts

Mumbai: A flash crash on the National Stock Exchange, India's premier bourse, on Friday morning due to erroneous trades by a dealer in 59 frontline stocks pulled the nifty index down by 15.5% to 4,888 points. Not only did the 899-point plunge raise questions about the robustness of the bourse's software, it also left the exchange red-faced on the eve of a visit by finance minister P Chidambaram to the city. The index recovered at the end of the day's trade to close at 5,747, down 41, while sensex closed 120 points down at 18,938.      Although NSE suspended Emkay Global Financial Services, the broking house where the trades had originated, the incident invited severe criticism from market players about why the trading was not automatically stopped when the index went down 10%. TNN Sebi probes NSE flash crash Mkt Players Question Claim That Circuit Breaker Stopped Trade... TIMES NEWS NETWORK  Mumbai: The NSE has come under fire over the 15.5% plunge in nifty during early trade on Friday, with market players questioning why trading was not automatically stopped by the exchange given that Sebi's rules stipulate that a circuit filter should kick in when the index goes up or down 10%.      In this case, the trading was stopped when the index went down 15.5%, which also triggered stop losses for several investors, thus aggravating losses for no fault of theirs. The flash crash also prompted Sebi to start a preliminary investigation into the whole affair.      Ravi Varanasi, head-business development, NSE, was quoted in a statement as saying that the circuit filter was triggered at 10% and the cash market was stopped, but the orders that were already in the system were executed in the next few seconds.      Friday's session had started on a positive note, with the nifty up about 30 points. Between 9.50am and 9.52am, large chunks of several frontline stocks, that included RIL, Infosys, ICICI Bank, SBI, TCS and almost all the 50 nifty constituents, were sold at prices which were about 20% lower than the previous closes. This led to a 899-point fall in nifty within a few minutes, although as per the NSE's September 28 circular trading should have been halted as soon as the plunge crossed 570 points.      At the BSE, trading continued undisrupted and a statement from the exchange, soon after the NSE incident, said the market at BSE was "working fine and trading members are informed that there are no issues, technical or otherwise".      Some marketmen are not buying into the NSE's views. They questioned that if the cash market was indeed stopped, how could it have been possible to execute orders in a market which is shut. "570 points becoming 900 in intra-day trade, which is around 16%, is unacceptable, unexplainable and cannot be tolerated when the circuit is at 10%," said Arun Kejriwal, director, KRIS, an investment advisory firm. Pointing at some of the system glitches at the NSE in April and May, Kejriwal said such failures showed something could be 'amiss at the leading bourse'. "An enquiry of the highest order must be started by Sebi and the finance ministry immediately," he said.      Market players also questioned the NSE's decision to resume trading within 15 minutes after the shutdown due to the circuit breaker. A June 2001 Sebi circular stipulated that if trading is halted due to a 10% circuit breaker, either up or down, and if such stoppage happens before 1pm, the exchanges should give a one-hour gap before resuming trading. If the index again goes up or down and breaks the 15% level, there should be a two-hour halt. And if the change in the index is 20%, the exchanges should be shut for the day.      For example, on May 18, 2009, soon after the Congressled UPA came back to power with a better majority, the markets were closed within a minute of their start after the two leading indices, sensex and nifty, gained 10%. After trading resumed following an hour's gap, the markets were shut for the day when the indices shot past the 15% mark.  ...seek Chidambaram's intervention      Friday's flash-crash has raised several issues that the market players want to discuss with finance minister P Chidambaram when the architect of the recent wave of reforms meets the market regulator Sebi, top officials from the bourses, broking houses and FIIs on Saturday in Mumbai. Here are some of those:  • Should exchanges have control over every order for individual stocks, indices, and futures & options with some circuit filters?  •Should such orders be linked to the margin deposited by the broker who is putting the trade on the exchange's system?  • At a time when the government is on an overdrive on the reforms front, shouldn't there be stricter compliance of the hygiene factors at the bourses?  • How did NSE's surveillance system succumb to the erroneous trades that pulled the nifty beyond two of Sebi's three circuit filter limits?  •As Friday's flash crash magnified due to co-location due to which counterparty orders at abnormal levels got triggered instantaneously through systems operating in a co-located environment without any discretionary control of the broker putting the order?  • Even if a large but wrong order by a dealer gets accidently entered into the system, that may be due to some punching error, can the exchanges put some filter to control such