Flash-crash settlement talks on between Emkay, brokers

Amount discussed in the range of Rs 33-34 cr

The flash crash of October 2012, when a dealer error caused a domestic brokerage to execute an abnormal order, sending the markets crashing 15 per cent, might be moving to a settlement.

Emkay Global Financial Services is in talks with two of the major counter parties to the deal, according to a person familiar with the matter.

“The NSE (National Stock Exchange) will also have a say; one will have to see how it works out. It would make sense for the counter parties involved since their money is also locked up, as the issue is yet to be resolved with finality,” said the person cited above.

An Emkay spokesperson did not respond to a request for comment.

Talk of a settlement is mentioned as part of a 'limited review' of the company's operations, put up after the last quarter’s results. “...regarding the uncertainty related to the final outcome of the matter pending before NSE for fresh consideration as directed by Securities Appellate Tribunal (SAT) vide its order dated 26.08.2014, of company's annulment application in case of two counter party brokers whose payout of Rs 33 crore (approx) has been withheld and to distribution by NSE on account of settlement reached between the Company and said counter party brokers. The impact of the above said matters on the Company's financials is dependent upon the outcome of the said matters and cannot be quantified,” Emkay said in a notification to stock exchanges.

The brokerage had asked NSE to annul the trades as it was on account of a “material mistake”. The exchange set up a committee to look into the matter. However, it ultimately declined to do so. Emkay, then, moved the Securities Appellate Tribunal on the matter. The tribunal referred the matter back to the exchange in August. It asked NSE to review the fines imposed on brokers which profited from the mistake, buying the shares as they dropped on account of the Emkay error. This resulted in a total loss of Rs 51 crore for Emkay.

SAT also asked NSE to consider if trades involving the two brokers — Inventure Growth and Securities and Prakash K Shah Shares & Securities — should be annulled. This was the opinion of the majority order that presiding officer J P Devadhar and member Jog Singh passed in the matter. The third member of the tribunal, A S Lamba, ruled against an annulment but said fines could be set aside. An exchange spokesperson could not be contacted for comment on account of the holidays. Emkay's stock price has moved up 27.6 per cent in three months, from Rs 41.55 at the end of September to Rs 53 according to its latest closing level. The Sensex gained 1.7 per cent in the period, closing at 27,208.6 on Wednesday.

The company has a free float of Rs 32.38 crore and total market capitalisation of Rs 129.52 crore. It reported a net loss of Rs  13 crore in the September quarter, according to exchange data.

New year resolution:

• Flash crash had cost Emkay Rs 51 crore
• It moved SAT seeking annulment
• SAT asked NSE to reconsider annulment after it had refused it once
• Meanwhile, Emkay and major counterparties are talking settlement
• Stock is up over 27% in last three months