Futures contracts of five blue chip companies traded on the National Stock Exchange (NSE) saw unusual price spurt on Tuesday.
According to data provided by NSE, futures contracts of HDFC, Bharti Airtel, HDFC Bank, Tata Consultancy Services (TCS) and Reliance Industries (RIL) jumped around 10 per cent each for a few nanoseconds in early trading. This was seen in contracts expiring in September as well as October. In the case of HDFC and HDFC Bank even November contracts were impacted.
For instance, the price of futures contracts of HDFC soared to Rs 3,135 even as the spot price was around Rs 2,850-level. Similarly, RIL skyrocketed to Rs 2,616 even as the spot price was around Rs 2,370. The prices in the cash segment for the five stocks were not impacted due to what many called “freak trades”.
“Some unusual trades were observed today which were executed by a trading member. The same is being examined by the regulatory team of the exchange. These trades were executed within the operating range permitted by the exchange,” said NSE in a tweet.
Market experts blamed low liquidity caused by the new higher margin norms for the unusual trades.
“This month onwards, the markets have transitioned to 100 per cent peak margin requirement. As a result, during the start of the trade there aren’t too many pending orders in the system. The risk of large basket trade distorting prices has increased as liquidity is often low say at 9:15:003 am,” said Abhilash Pagaria, assistant vice-president, Edelweiss Alternative Research.
The new margin norms have increased the capital requirement for intra-day traders. This has reduced overall leverage in the system, said experts.
Also, brokerage firms are barred from providing any additional intraday leverages for both equity and derivatives trading. As a result, intra-day traders are required to fund the minimum margins (VAR+ELM for stocks and SPAN+Exposure for derivatives) from their own pocket.
SPAN is standard portfolio analysis of risk, VAR is value at risk, and ELM is extreme risk margin — metrics used to determine the risk to investment for a particular security.
“Many non-institutional traders have moved to the options segment as the lot sizes in the futures segment has increased. This is also leading to lower liquidity in the futures segment. I think as the markets get used to the new system, instances of freak trades will reduce,” added Pagaria.
In recent days and weeks, several traders have also complained about unusual price rises in the options segment.