Emkay freak trade: After crash, exchanges want narrower trading band

Shares of Emkay Global Financial Services continued their freefall even as the company sought annulment of the 59 erroneous trades that resulted in a 899-point crash in the Nifty index.

According to a Bloomberg report, in response to the flash crash, exchanges have asked regulator Sebi to lower the daily moving range for 216 of the biggest and most liquid stocks from 20 percent to 9 percent.

“Lowering these limits may prevent flash crashes in the future,” Nirakar Pradhan, chief investment officer at Future Generali India Life Insurance Co, has been quoted as saying in the report.

He said traders will get room to review and modify their orders after price limits are reached.

[caption id=“attachment_482768” align=“alignleft” width=“380”]  The fallout of Emkay’s erroneous trade. Reuters[/caption]

More from Investing

MSMEs are breaking the traditional convention. Look who’s funding them Scale-up your startup without an investor! Here’s how

Emkay is believed to have incurred a loss of Rs 51 crore due to the erroneous trades. A release from the company, however, did not give any figure.

According to a report on moneycontrol.com,efforts are on to convince broker members (who bought the shares at lower levels) to return the profits to Emkay and help it reduce the loss.

“It is not a wrong trading call on the market; it is a mistaken order. Members should not try to thrive on the misery of fellow members,” a broker who is part of the negotiations, has been quoted as saying in the report.

At 10:28 a.m, Emkay shares were down 10 percent at Rs 28 on the BSE.

Earlier, Emkay clarified that all its remaining clients’ outstanding positions are intact and that it will continue to service all obligations.

The NSE has only disabled trading for the brokerage and not suspended its membership, the release said, adding that the company is adequately capitalised to meet all its financial obligations.

“We are hopeful that this obvious and apparent error would justify the annulment of these trades, and believe in the NSE’s professional management to see the merits for annulment, which is the practice worldwide,” it said in a press release on Saturday.

Frequency of such freak trades have increased with high-speed trading gaining currency. According to another Bloomberg report, regulators around the world are probing “market structures and electronic trading after a series of malfunctions”.

In May 2010, Dow Jones Industrial Average had crashed about 1000 points, instantly washing out more than $1 trillion in market capitalisation.