When a software glitch took BSE investors on a rags-riches-rags ride

In March last year, a woman in the US was reported to have won millions in a casino, only to find out that her winnings were less than $10. A software glitch had caused the wrong amount to be displayed, according to news reports of the time.

Something similar played out on the Bombay Stock Exchange on Friday. A software glitch temporarily added more than Rs3.5 lakh crore to investor wealth, only to take it all away a short while later.

Incorrectly matched orders resulted in the shares of some of India’s largest companies to rise as much as 20% on the exchange with the benchmark Sensex rising 1001.45 points, or 5.38%.

Of the Rs3.5 lakh crore by which the value of the Sensex constituents rose, just one stock — Reliance Industries (RIL) — accounted for Rs56,749 crore.

By the end of the day’s trade — after the orders had been cancelled — the Sensex was down 56.28 points, or 0.30%, at 18561.92.

RIL dropped from its lofty 20% gain to close with a 0.74% gain.
The problem apparently originated in the pre-open session of trade, which starts 15 minutes before regular trading begins on the exchange and during which the first orders of the day are matched at an ‘equilibrium’ price.

There is a 20% limit on orders in the pre-open session which, ironically, was started to reduce market volatility.

The order matching system did not function as intended and the BSE later cancelled all the trades which took place in the pre-open session.

“Due to certain technical glitches the pre-open matching system has been impacted,” said a notice on the exchange website.
It went on to add that all pending orders from the pre-open session had been cancelled and 1,354 trades that took place would be annulled.

Shares of 15 blue-chips rose 20% over their Thursday’s close — DLF, TCS, SBI, Infosys, Tata Steel, L&T, Wipro, ICICI Bank, RIL, HDFC Bank, Bhel, SAIL, Suzlon Energy, ONGC and Reliance Capital.

Four counters saw a drop of 20% — Hero Honda, Reliance Power, ONGC and Reliance Capital.

Common to the two lists were ONGC and Reliance Capital, an indicator of just how surprised the market must have been.
All the 50 stocks that make up the National Stock Exchange’s Nifty index and the 3,600-odd listed on the BSE are part of the pre-open session.

Brokers say the fluctuation did not affect their operations.

“All the pre-session orders seemed to be fluke trades with low volumes. I don’t think that there was a serious impact,” said a person from a mid-sized brokerage, not named due to the sensitivity of the issue.

“Most of the trades happened on the National Stock Exchange (NSE). There was no serious issue,” said a person from another brokerage.

In June last year, a freak trade attributed to human error had resulted in a similar 20% plunge in RIL shares on the BSE, causing the Sensex to plunge 626.24 points to 16318.39 before it rebounded.

But the BSE isn’t alone. A similar freak trade had pulled down the Dow Jones Index by nearly 1,000 points in May last year,
before it bounced back. This was blamed on the fat-finger syndrome where a trader hits a key he does not intend to on his terminal.

Incidentally, the unlucky American woman is reported to have been offered a free meal by the casino, but there were no free lunches announced for the investors.