Sebi mulls annulment policy for erroneous stock trades
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In the light of the recent flash crash on NSE due to an erroneous trade, market regulator Sebi would look into the possibility of putting in place rules to reverse such trades. On Friday, Sebi chairman U K Sinha assured some representatives of the broking community about such a measure that will also deal with the annulment of trades. But Sinha said he was not rushing into it. He also said that after the slew of measures taken to revive the mutual fund industry, it was for fund houses to act.
"It (the rules on annulment of trades) will take some time because we want to be very cautious in whatever new structures are in place. Our risk management mechanism, put in place in 2000, has by and large withstood the test of time," Sinha said. "We don't want to tinker with it in a hurry," he added.
The Sebi chief was speaking to reporters on the sidelines of a Ficci summit on capital markets in the city.
He also said that a group has already been formed to look into the matter.
On October 5, an erroneous trade order placed by an NSE broker led to a 15.5%, or 899-point crash in nifty, and a subsequent halt of the day's trade. Post the crash, NSE had suspended the broking house but revoked its own order on Wednesday after the broker met all its obligations during the settlement of trades.
Deena Mehta, a former president of BSE, told TOI that she had requested the Sebi chief to look into the possibility of Sebi and NSE giving some relief to the broker that did not default on its commitments and made all the payments on time.
"Since the broker acted responsibly, I requested him to look into the possibility of some reversing of undue profits (made by the buyers of the erroneous trades)," Mehta, MD of local brokerage Asit C Mehta Investment Intermediates, said.
The Sebi chief has taken note of the same, she said.
Sinha also told reporters that the regulator was looking into the whole flash crash incident very seriously. "I am not using the word 'investigation'. But there is not much I can tell you about it".
On the complexities of the technology-driven algo trading, Sinha said even when the market is shut, there are orders in the pipeline for execution. "The index is reworked three times in a second whereas the orders can be placed much more faster. So there will be a time lag," Sinha said. (Times of India)
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