Too fat, too fast: Dilemma posed by erroneous trades

By Suhail Nathani and Yogesh Chande, Economic Laws Practice
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In May 2010, when the Dow Jones industrial average mysteriously dipped 1,000 points in the blink of an eye, the “flash crash” was initially blamed on a “fat-finger” error, possibly from a trader mistaking “million” for “billion”. In a similar case in India, the Securities Appellate Tribunal (SAT) by an order dated 26 August 2014 while stressing the sanctity of trades on the exchanges upheld the decision of the National Stock Exchange (NSE) to refuse Emkay Global Financial Services’ plea for annulment of erroneous trades executed in October 2012.

Background

On 5 October 2012, a trader at Emkay punched in an order to sell 1.7 million Nifty 50 units worth a total of ₹9.8 billion (US$160.8 million) instead of an order to sell ₹1.7 million worth of Nifty 50 units. The sell order led to a transaction because the respondents placed unrealistic orders to buy Nifty 50 units at prices far from the market price, without adequate margin money.

The erroneous trades led to a plunge of over 900 points in the NSE’s benchmark Nifty 50 index, prompting a temporary halt in market trading.

Emkay, which lost about ₹510 million as a result of the trades, asked the NSE to annul the trades, saying they resulted from a one-off error. However, a panel constituted by the NSE to look into the matter rejected Emkay’s request.

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Suhail Nathani is a partner and Yogesh Chande is an associate partner at Economic Laws Practice. Malek-ul-Ashtar Shipchandler, a trainee, assisted with research. This article is intended for informational purposes and does not constitute a legal opinion or advice.

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