Emkay flash crash: Sebi censures NSE

Securities and Exchange Board of India (Sebi) on Friday passed an order against the National Stock Exchange (NSE), censuring it for lapses in the 2012 flash crash, triggered by punching of erroneous orders by brokerage Emkay Global.

Sebi, in a 40-page order, said the exchange lacked proper risk management systems in place that a single error brought the entire system to a halt.

The regulator directed NSE to set up an independent review to check for system robustness and suggest ways for its improvement.

In October 2012, the benchmark NSE Nifty had crashed 920 points after the dealer erroneously punched a wrong order worth Rs 650 crore.

Prima facie, NSE was found failing to meet Sebi requirements, as the trading didn't halt at the 10 per cent circuit limit, the order said.

Sebi had issued a show-cause notice to the exchange in April last year for violations of the Sebi Act.

The market regulator had alleged that the bourse had failed to implement market-wide circuit breaker; there was inadequate risk management at the level of exchange and stock broker and had failed to implement coordinated trading halt in equity and derivatives segment nationwide.

"Trading halt for two hours was also not coordinated in all equity and equity derivatives markets nationwide as required in terms of the Sebi Act," the order said.

Sebi had also criticised the exchange for putting the entire onus on the broker for the flash crash when the exchange should hold equal responsibility. The Sebi order has also found that the counter parties to the trades of Emkay Global had collateral that was less than five per cent of the total buy value.

NSE had rebutted the allegations by saying that it was a "one off incident".

"However, I do not agree with this submission. The technological systems in a stock exchange should be robust enough to anticipate and prevent such events from happening," said Prashant Saran, a whole-time member, Sebi.

Industry players say NSE has increased checks and balances following the Emkay incident to prevent a repeat.