Bourse declines settlement in Emkay case

Says they can withdraw annulment application for crash trades and settle outside its mechanism if they so desire

The National Stock Exchange (NSE) has declined to entertain a settlement engineered by the brokers concerned in the matter related to the flash crash of October 2012. A dealer error caused a domestic brokerage to execute an abnormal order, sending the markets crashing 15 per cent in moments. Emkay Global Financial Services had losses of Rs 51 crore as a result of the trade, yet to be settled.

Appeals for anulling the trades are still ongoing. Meanwhile, Emkay had been in talks with two of the major counter-parties to the deal, to settle the matter for Rs 33-34 crore, which the exchange has now disallowed.

"The company and the said two counter-party brokers have approached NSE for a mutually agreed distribution of payout amount, which has been rejected by NSE. NSE decided to deal with the matter on merits and in accordance with and in the context of the SAT (Securities Appellate Tribunal) directives. The loss, if any, amount of which is not quantifiable shall be accounted on final disposable of the matter," according to the notes to Emkay's latest financial statement.

An NSE spokesperson, in an emailed response, said it had declined to allow a settlement as such a move would not be in keeping with existing exchange regulations.

"The Standing Committee of Annulment of NSE as per its order dated December 5, 2014, declined to accept the settlement proposal...implementation of such proposals would clearly be outside the purview of the byelaws, rules and regulations of the exchange. Further there is an established mechanism for settlement of payouts as per the regulatory requirements, which will have to be followed in all cases without any deviation," said the spokersperson.

The person added the members could consider alternatives if they did wish to settle the matter. "...However, the Committee also concluded that it shall be open to withdrawal of its annulment application unconditionally and effect such settlements outside the NSE settlement mechanism," it said.

Emkay had asked for annulment on the grounds that it was on account of a 'material mistake'. It had moved the SAT on the matter, which asked the exchange to consider it in August 2014.

The tribunal's majority order had asked NSE to consider if trades involving two counter-parties, Inventure Growth and Securities and Prakash K Shah Shares & Securities, could be annulled. The majority order was passed by presiding officer J P Devadhar and member Jog Singh. The third tribunal member, A S Lamba, said there should not be an annulment but fines need not be imposed.

The Emkay flash crash had temporarily resulted in roughly Rs 3 lakh crore of investor wealth being temporarily erased, before the market recovered. The Securities and Exchange Board of India has subsequently taken steps to prevent a recurrence, including dynamic trade limits and tweaks to the order matching system to purge residual orders after a circuit breaker is triggered. Existing orders in the system had caused the market to fall further, even after the circuit breaker had halted trading.

NOT OVER YET
Emkay had moved SAT over annulment of trades

• NSE was asked to look into the matter
• Emkay approached exchange for settling payment dues through a settlement agreement with two counter-parties
• NSE said it couldn't allow this, as it was violation of regulations. Said Emkay and others could withdraw application and seek settlement outside NSE framework