Sebi moves to prevent repeat of Emkay flash-crash

Residual orders will now be purged from the system when circuit-breaker triggers

The Securities and Exchange Board of India on Monday moved to plug a system loophole which exacerbated a flash-crash which occurred in October 2012.

A dealer from Emkay Global Financial Services had mistakenly entered orders which caused the National Stock Exchange's Nifty index to drop nearly 16 per cent and wiped out Rs.3.3 lakh crore in investor wealth before bouncing back after a trading halt.

The exchange has index circuit breakers which trigger if there is a large one-way movement. While this was triggered in October 2012, residual orders which remained in the system were executed even after the circuit breaker came into play.

"In the event of breach of market-wide circuit breaker limit, stock exchange shall stop matching of orders. All unmatched orders present in the system shall thereupon be purged by the stock exchange," said the latest Sebi circular.

It further added that the order for such a purge should have priority over other system messages.

"BSE and NSE shall implement suitable mechanism to ensure that all messages related to market-wide index circuit breakers are given higher priority over other messages.Further, the systems (including the network) for computation of market-wide index, checking for breach of circuit breaker limits and initiating message to stop matching of executable order and acceptance of fresh orders, shall not be used for any other purposes," it said.