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It’s Freaky Friday again

Saturday, 2 February 2013 - 7:00am IST | Place: Mumbai | Agency: dna

Erroneous trades send TaMo, UltraTech into flash crash.

For the fourth time this fiscal, erroneous trades nearly brought the house down on a Friday.
The stocks of Tata Motors and UltraTech Cement tanked 10% each during the closing hour of trade on the National Stocks Exchange, before recouping part of the losses.

Erroneous trades punched by some broker is suspected to have caused the fall.
The losses could have been sharper, but for the risk control measures introduced by the Securities and Exchange Board of India (Sebi) in December to prevent freak orders from causing flash-crashes.

The regulator had asked stock exchanges to set the dynamic price bands at 10% of the previous closing price for securities on which derivative products are available.

Prior to that, there was no tight limit on stocks on which futures and options were available and which were excluded from requirement of a price band.  

Friday’s crash in the two stocks happened around 3.06 pm when a large sell order suddenly led to Tata Motors diving from Rs293 to Rs268.25 and UltraTech from Rs1,899 to Rs1,712.35 within minutes. The impact was also felt on BSE, where the two stocks fell 9.35% and 4.12%, respectively, before recovery set in.

An NSE official said they were investigating what had caused the crash.
Experts, however, said that even assuming the crash was due to some broker punching the orders intentionally or accidentally, the consistent nature of such freak events on Friday were of concern.

On April 13 last year, Nifty fell more than 1.5% due to alleged basket selling of Nifty futures by some foreign brokerage.

Barely a week later, on April 20, the markets lost over 1.6% in afternoon session when Nifty futures, then trading at 5315, suddenly dipped to 5000 due to ‘wrong’ data entry at an institutional investor’s desk. Briefly, though, the Infosys stock had tanked 19.27%.

The biggest drop was witnessed in October when wrongly punched orders from an Emkay dealer led to a 900 point fall in the Nifty.

“With such volatility, the confidence of HNI and retail investors gets shaken. Supposing someone had put up a stop loss order, his order would have got triggered and he would have suffered a loss without any fundamental negative trigger,” said Jitendra Panda, head of sales-broking at Future Capital Securities.

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