MumbaiErroneous orders placed by a brokerage halted trading on India’s largest stock exchange and sent its main index crashing, temporarily eroding the value of the country’s top 50 stocks by as much as $70 billion.
Most of the stocks recovered Friday after trading resumed on the National Stock Exchange. But the incident created panic among traders. The 50-stock Nifty index dropped as much as 16%, to 4880.20, in morning trading. When the market reopened after a 15-minute trading halt, the index recouped most of its losses and closed 0.7% lower, at 5746.95.
The incident was the third instance since April when trading on the National Stock Exchange was affected because of incorrect orders.
The snafu occurred as competition is set to intensify among India’s stock-market operators with the entry of the MCX Stock Exchange, which is expected to start operations next month, and comes at a time when regulators around the globe are concerned that high-speed traders have brought instability to the markets.
The National Stock Exchange said Friday that its systems functioned normally, and the decline in the index was due to orders that resulted in multiple trades at low prices. The trades triggered a circuit breaker, a trading band that, if breached, causes an automatic halt in trading, the National Stock Exchange said in a statement.
The problem at the NSE occurred after brokerage firm Emkay Global Financial Services Ltd. 532737.BY -9.86% placed 59 erroneous orders on behalf of an institutional client, the exchange said. The orders have been identified to a specific dealer’s terminal, it added, and were attributed to human error rather than electronic program trading. The value of the orders was about $126 million.
The NSE said all stock positions from the trades at issue have been settled, and Emkay has been temporarily barred from trading. Executives at Emkay declined to comment.
The push for greater scrutiny comes as regulators and investors across three continents fret over the recent dominance of high-frequency traders, which often profit from paper-thin differences in stock prices, and the role their computer programs may have played in some of the market’s most frantic moments since the financial crisis.
In the U.S., the Securities and Exchange Commission is looking into brokerages’ trading controls and planning an enhanced stock-trading record system, among other measures. The scrutiny follows a series of recent technical mishaps, including problems at Nasdaq OMX Group Inc. NDAQ -0.46% that marred the stock-market debut of Facebook Inc., FB -4.73% and a software glitch at trading firm Knight Capital Group Inc. KCG -0.77% that led to a $440 million trading loss, forcing the company to seek a bailout from six financial firms.
In Germany, a bill is moving forward that would impose new rules on high-frequency traders. France introduced a high-frequency trading tax in August, part of a larger effort to regulate the finance industry. The U.K. also is considering new strictures on high-speed trading. Also, regulators in Hong Kong and Australia have proposed more policing of algorithmic traders.
Regulators in India also are becoming more vigilant.
In March, the Securities and Exchange Board of India put in place controls to check sudden price movements in shares caused by algorithmic trading. It asked exchanges and brokers to adopt risk-control measures that included limiting the quantity of shares traded.
A spokesman for the regulator couldn’t be reached to comment. Trading on India’s other main exchange, the Bombay Stock Exchange, was mostly normal, though some stock prices were affected because of what happened on the rival exchange. Its benchmark Sensitive Index ended 0.6% lower, at 18938.46, after dropping up to 1.6% in morning trading.
Shares of Emkay ended down 9.9%, the daily trading limit set for the stock, at 31.10 rupees (60 U.S. cents).
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