The systemic lapses might not be material to the brokers' appeal in the Securities Appellate Tribunal (SAT) against the action on them, said a person with knowledge of the matter. "The notice is between the regulator and NSE. It won't affect the course of action," said the person, who has reviewed the notice.
A dealer at Emkay is said to have entered an incorrect figure while putting through an order for an institutional client on October 5, 2012. The person put through sell orders worth Rs 650 crore instead of Rs 17 lakh. The brokerage subsequently tried to reverse the trades but eventually ended with losses of Rs 51 crore. It appealed to the exchange to annul the trades but a committee set up by the exchange did not find it a fit case for doing so.
The brokerage subsequently moved the SAT. The tribunal heard the appeal in May and June. It is slated for final hearing on July 23. The exchange had also penalised other brokers who were counter-parties to the trades, on account of their violations of exchange regulations on margins and capital adequacy. They are a part of the ongoing SAT appeal.
Attempts to contact senior Emkay officials were not successful. They did not respond to calls or messages requesting comment. Officials related to other penalised entities also declined to comment. An exchange spokesperson also did not offer comment.
The regulator had issued a showcause notice to the NSE on its own handling of the Emkay debacle. Sebi had sought to know why the market was not halted with a trigger in place, to stop trading for one hour in case of a 10 per cent move in the index. The exchange is said to have replied that it did not do so since the fall was on account of a single freak trade rather than a fall triggered by news flow. Also other market segments and exchanges were not affected. The index fell 15 per cent on the day.
After the incident, both the exchange and the regulator took steps to tighten risk management. NSE asked brokers to set limits for every branch and every user. Sebi is said to be working on guidelines to prevent the recurrence of such events.
NO BREATHER FOR BROKERS
- Regulator asks NSE to explain handling of Emkay debacle
- Suggests systems failure at the exchange level
- Exchange should have halted trade for an hour after 10% fall
- Trading halted for 15 minutes only
- Exchange said decided on smaller halt because drop was on account of freak trade
- Sebi showcause does not impact appeal process
- No respite likely for brokers penalised by NSE