A ‘fat finger’ trade, which is an error caused by punching a wrong key or a misclick, had reportedly hit the National Stock Exchange (NSE) last week. 

On Thursday, which is the weekly expiry day for Nifty options, between 2:37 pm and 2:39 pm, a trader reportedly sold 25,000 lots of Nifty call options at 14,500 strike at prices of as low as Re 0.15, as per TOI. At that time, the market price for this contract was about Rs 2,100. When this trade was put into the exchange, the Nifty was hovering at the 16,600 level. 

Each lot of Nifty contract is for 50 numbers, so the estimated total loss is up to Rs 250 crore which happened in a matter of a few minutes. It’s not yet known which broking house incurred the loss, but this is the biggest such trading mistake in India, as per the TOI report. 

shutterstock

What is a ‘fat finger’ trade?

A fat finger trade refers to an erroneous action due to a mouse misclick or punching a wrong key, which could lead to a huge loss for the one initiating the trade and a windfall gain for others.

Who Gained?

Market players said that at least two Kolkata-based brokers made windfall gains from the incident, with one richer by Rs 50 crore and the other by Rs 25 crore, as per TOI. 

Officially, NSE has not commented on the issue. But according to an NSE official, since it was between brokers, there was a likelihood that the trader who put the erroneous order had insurance and the loss would be covered.

shutterstock

On Thursday (June 2), the NSE Nifty was reportedly at 16,628. Market players were scrambling for answers as to how such trades, with prices so far off from the ruling market level, could hit the exchange’s trading engine, as per TOI. 

Officials at broking houses reportedly said after the Rs 60 crore fat finger fiasco on NSE in 2012, several broking houses have over the past few years installed in-house systems to detect and kill such trades even before they could be transmitted to the exchange.

A recent media report said that to neutralize fat finger trades from hitting its trading engine, the NSE was to put an alert system for trades that were at a substantial premium or discount to the market price. However, on Thursday, no such system had kicked in, an investment adviser said, as per TOI.

Also Read: World’s Biggest Stock Market Crashes Of The 20th Century

shutterstock

For the latest financial news, keep reading Indiatimes Worth. Click here.