SAT asks NSE to partially reconsider Emkay flash crash orders

The Securities Appellate Tribunal (SAT) has asked the National Stock Exchange (NSE) to review the amount of fines imposed on brokers which profited from Emkay Global Financial Services’ ‘flash crash’ of October 2012.

It has also asked if trades related to two brokers, Inventure Growth and Securities and Prakash K Shah Shares and Securities, should be annulled. The tribunal has asked the bourse to preferably decide in three months.  

The crash was on October 5, 2012, when a trader had punched an order to sell 1.7 million baskets (of shares belonging to the Nifty index) instead of putting through a sell order worth Rs 1.7 million.

Emkay had contended in its appeal that the trades were only executed on account of unrealistic orders placed by some brokers, ‘far away from the market price and that too in some cases without adequate margin money.’ They said this was in violation of regulatory norms.

The tribunal said imposing a penalty of Rs 20-25 lakh on both the party which lost Rs 51 crore as well as those who made profits of several crores might not have been appropriate and asked NSE to look at the matter afresh.

Emkay had asked the exchange to annul the trades after the incident. NSE set up a committee to look into the matter but decided against the annulment. The brokerage then moved SAT against the decision. It said the trades were the result of a ‘material mistake,’ and only put through because of a fault in NSE’s trading system.

The majority order was passed by presiding officer J P Devadhar and member Jog Singh. The third member of the tribunal, A S Lamba, had a different opinion. While he also said annulment was not possible, he opted for setting aside the fines, instead of remanding the matter back to NSE.

Flash crash of October 2012

* Punching error by a dealer at brokerage firm Emkay led to 15% drop in the benchmark Nifty index

* Instead of punching order for Rs 17 lakh worth of Nifty, the dealer entered 17 lakh Nifty units (worth Rs 980 crore)

* Emkay asked NSE to annul the trades

* NSE rejected appeal stating trades cannot be reversed

* Emkay moves SAT

* SAT asks NSE to partially reconsider its orders

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