Amid rising instances of 'freak trade' in the market, the Securities and Exchange Board of India (Sebi) is planning to issue a framework on the annulment of trade. However, the regulator might take the step only after scenario-building, stress tests and consultations with all market participants.
"We will work on a policy on trade annulment," Sebi chairman U K Sinha said at a conference organised by the Federation of Indian Chambers of Commerce and Industry. "It (rules on trade annulment) will take some time. We want to be very cautious in whatever new structure we'll come out with," he added.
On October 5, the benchmark Nifty index had recorded a sharp drop of about 15 per cent, or 900 points, following erroneous trade orders aggregating Rs 650 crore by domestic broking firm Emkay Global. This had led to a temporary halt in trading. Citing international practices, the brokerage had requested the National Stock Exchange for annulment of trade. However, currently, there is no provision of trade annulment in India.
In April, erroneous trade had resulted in a 300-point crash in the Nifty futures index. Infosys shares, too, recorded a drop of 20 per cent on the same day.
Sinha said instances of freak trade' were not restricted to the Indian market. He added these shouldn't lead to investors thinking the scenario in the country wasn't good. "The risk management system in the country has been very sturdy and has stood the test of time. Off and on, there are freak examples of things not going right. Sebi has been looking into it," he said.
Sebi had already set up a group to look at various aspects related to high-speed trade, reconciliation between speed of trades, the frequency of change in the index value, etc, he said.
On last week's 'freak trade', Sinha said, "Sebi has a prescription for certain internal checks and balances at the broker and exchange levels. We would like to check whether any such checks and balances were violated."
On whether there would any change in current guidelines to curb such instances in the future, Sinha said, "One can expect some measures in the foreseeable future and a host of other measures after sometime."