After ‘Fat Finger’ Loss, NSE Warns Brokers Against Non-Genuine Trades
India’s biggest stock exchange has cautioned stock brokers against executing orders which appear to be non-genuine, leading to deviation in the normal price discovery process.
This came after the National Stock Exchange’s derivatives segment witnessed a ‘fat finger’ trade on Thursday that may have caused a loss of Rs 200-250 crore to a brokerage house. This could be the biggest trading mistake in the domestic market’s history.
In market parlance, a ‘fat finger’ trade is an erroneous action resulting from pressing a wrong key.
In a circular, NSE asked its trading members to strictly desist from entering or executing transactions which prima facie appear to be non-genuine on their own account or on behalf of their clients and refrain from indulging in practices which lead to aberrations in the order book.
They have been asked to put in place appropriate internal systems and procedures to ensure that such orders/transactions are not placed on the trading system of the exchange, including trades through algorithmic trading.
“Non-compliance of the circular shall attract suitable disciplinary action … which may include deviation from the trading terminals,” NSE said.
The exchange said there have been instances whereby few trading members have placed orders on the exchange platform at prices which do not reflect the current market price and are far away from the last traded price.
There are also instances where trading members are placing orders at prices which are at the extreme end of the operating range defined by the exchange and have no apparent and economic rationale when compared with the last traded price, it said.
Some of these orders, placed at the extreme end of the operating range, lie passively in the order book, NSE said, adding “trades arising from such orders placed at unrealistic prices lead to aberrations in the normal price discovery”.