NSE puts in place annulment policy to check frivolous trades

To tackle the menace of freak and erroneous trades, premiere bourse NSE has adopted a new policy for annulment of trade.
The National Stock Exchange (NSE) has also enabled an online facility for trading members to submit their request for trade annulment.
The new policy, however, provides for such requests to be entertained only in the exceptional circumstances and charges would be imposed to "discourage frequent or frivolous requests".
Last month, the BSE had also initiated a similar policy to check such frivolous trades.
Erroneous or freak trades also include trades taking place due to malfunctioning of a trading system, as also the transactions executed due to a punching error by a dealer, which in the market parlance is known as 'fat-finger trades'.

There have been some cases where overall markets have also taken a hit due to such 'erroneous' trades.

In a circular, the NSE said that trade annulment request can be placed only by the executing trading members (buyer or seller) who have executed the trade to be annulled.
Prior to initiating such requests, trading members would have to ensure that they had taken adequate precautions such as defining order quantity limit, order value limit, user value limit, branch value limit and all the risk management measures as provided by the exchange from time to time.
For cancellation of trade, members would have to submit such request to the exchange within 30 minutes from execution of trade which is sought to be annulled.

Also, trade annulment request once submitted will not be allowed to be recalled or cancelled.
Each request would be charged with 5 per cent of the trade value, subject to minimum fee of Rs 1 lakh and maximum fee of Rs 10 lakhs.
The NSE can suo moto initiate annulment of trades in cases having market wide impact including wilful misrepresentation or manipulation or fraud, trades may be annulled as provided in the Rules, Bye Laws and Regulations of the Exchange.
A mechanism to request a review of the decision taken by the exchange would be provided to the trading members and the trading members need to submit such request to the exchange before the payout deadline of the trades in question.

"In case there is more than one instance from the same trading member in the same segment in a calendar quarter, an additional amount equal to one per cent of trade value subject to minimum of Rs 1 lakh shall be charged....This shall be in addition to the Annulment request application fee," NSE said.
Markets regulator Sebi, in July, had asked exchanges to define suitable criteria so as to discourage frivolous trade annulment requests from the brokers and also asked to penalise brokers placing erroneous orders and discourage the annulment requests.