A 20 per cent fall in the share price of the most heavy scrip, Reliance Industries Ltd (RIL), on June 1 was a freak trade and no manipulation was involved. This was stated by the Bombay Stock Exchange (BSE) on Wednesday, after an investigation. The trades, however, would not be reversed.
A large SELL order for 1,60,000 shares was entered in error, manually, by a dealer of one of the BSE member firms, with MARKET as the order condition. The order was not time-sliced into smaller orders, as instructed by the client. MARKET orders are entered in the order book without any price and get matched with counter-orders available in the order book at that point in time.
The prevailing market price at 12.50.24 pm on June 1 was Rs 1,027.55 per share. At the time the SELL order was entered, there were large BUY orders in the order book. As the order was “at market”, it swept through all the orders on the buy side. As a ‘dummy’ circuit filter was set at the price of Rs 836.05 (20 per cent below the previous day’s close) and the lowest priced buy order in the order book was Rs 840.55, it prevented the price from falling further and all the balance quantity was executed at Rs 840.55.
The execution of the entire order took approximately 12 seconds in 1,610 separate trades, with 222 counter-parties. BSE has in place “dummy” circuit filters of 20 per cent even for scrips eligible for equity derivatives trading. Under the “dummy” circuit filter logic, LIMIT orders more than 20 per cent above or below the previous day’s closing price are rejected upon order entry.
“'This is the reason there were no buy orders on the book below 20 per cent and the reason that the price did not fall more than 20 per cent below the previous day’s close,” said BSE.
Immediately after the execution of this order at 12.50.36 pm, the price of RIL’s scrip rebounded to Rs 999.50 on BSE.
