Sebi NSE crash: Quick changes spiked

Sebi said changes in the rules governing trade annulment in the event of massive erroneous trades will take some time.

Written by Agencies | Mumbai | Published: October 12, 2012 3:39:56 pm

A week after the worst crash of the NSE,markets regulator Sebi today said changes in the rules governing trade annulment in the event of massive erroneous trades will take some time as it does not want to rush with modifications in the existing risk management system.

“It (the rules on annulment of trades) will take some time because we want to be very cautious in whatever new structures we place. Our risk management mechanism,put in place in 2000,has by and large withstood the test of time.

“We don’t want to tinker with it in a hurry,” Sebi chairman Upendra Kumar Sinha told reporters on the sidelines of a capital markets summit (Capam) organised by  Ficci here.

However,the chairman said Sebi has set up a group to look into the issue.

“I have already set up a group and that group is working on various aspects and that group will also be looking into this particular aspect. But we will not be in a hurry. We will do very wide range of consultations,we will do some stress testing,technical people will be involved and then we will do it,” Sinha said.

He was responding to a query whether the capital markets watchdog is planning to change the rules regarding annulling of erroneously trades.

Last Friday,an erroneous trade order placed by a broker at Emkay Global led to a massive 15.5 percent or 900 points crash on the Nifty 50 index of the NSE,leading to a temporary halting of trade.

Subsequently,the NSE had suspended the brokerage from trading till this Wednesday when it had paid up the penalties to the nation’s largest bourse.

When asked about whether the Sebi is probing the NSE crash,he said,”we are is looking into it very seriously right now. I am not using the word ‘investigation’. But there is not much I can tell you about it”.

On the complexities of the technology driven algo trading,Sinha said even when the market is shut,there are orders in the pipeline for execution. The index is reworked three times in a second whereas the orders can be placed much more faster. So there will be a time lag,Sinha said.

“Now the question before us and the exchanges is the following: is it not possible for us to reconcile the two – that at the millisecond or the microsecond that the index is hit,at the same time the orders are executed ? The second question is ‘if that is not possible,then can we at least improve the time gap ?

“Thirdly,if both of them are not found to be good then Sebi and the exchanges should work towards informing the investors,” Sinha said.

When asked what is Sebi doing immediately to avoid such crashes,Sinha said,”I am sure all the actors who are concerned have all become very conscious. Discussions are taking place through Sebi and also amongst themselves. We are seriously discussing with them. You can expect some measures in the foreseeable future and a host of measures after some time.”

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