Nifty crash: SAT upholds NSE decision to refuse Emkay plea

Holding on to the sanctity of trades on the exchanges, Securities Appellate Tribunal today upheld NSE's decision to refuse Emkay Global Financial Services plea for annulment of erroneous trades executed in October 2012.
At the same time, SAT has asked NSE to review trades executed by Emkay with two brokers -- Inventure Growth and Securities and Prakash K Shah Shares and Securities.
The case relates to orders entered by a dealer of Emkay on October 5, 2012, that had led to a flash-crash of over 900 points (fall of 15.5 per cent) in the NSE's benchmark index Nifty, forcing the bourse to temporarily halt trading.

Emkay had approached SAT after the National Stock Exchange (NSE) refused to accept its request for annulment of the erroneous trades.
In a final ruling dated August 26, SAT has upheld NSE's contention that norms related to trades on exchange should be inviolable "to ensure sanctity of dealings on the exchange".
"If trades are executed due to negligence or breach of duty they cannot be considered material mistake and therefore not qualify for annulment," SAT said.

As per the tribunal 'material mistake in the trade' would be attributable to unforeseen circumstances which vitiate sanctity of the trades executed on exchange.

"Breach of duty/negligence would not be unforeseen circumstance that can be said to vitiate the trades executed on the exchange," SAT said.
Among others, SAT noted that Emkay had not installed a "validation mechanism" before entering sell orders and was also negligent in transmitting erroneous trades from the dealer's terminal to the NSE's server by ignoring four to five level checks that were available in the system.
Moreover, SAT also rejected Emkay's contention that NSE's trading system was faulty and in violation of market norms on grounds that the matter was pending before Sebi and it "would not be proper" for the tribunal to comment on the same.

However, SAT noted that while Emkay Global during the trades had incurred losses of Rs 51 crore on account of sell orders, two counter-parties -- Inventure Growth and Securities and Prakash K Shah Shares and Securities -- had made huge profits running into several crores of rupees.
According to SAT, violations committed by -- Inventure Growth and Prakash K Shah Shares -- "were serious violations" and NSE should have considered that the trades were "vitiated" on account of such violations by the two brokers.
Accordingly, the matter in this regard has been remanded back to NSE for fresh consideration.