‘Fat finger’ trade on NSE may have cost broker Rs 250cr loss
TNN
Mumbai: A ‘fat finger’ trade, an error caused by punching a wrong key, hit the NSE’s derivatives segment late on Thursday that could have caused a loss of Rs 200-250 crore to an unknown broking house which placed the order. This makes it the biggest such trading mistake in India. Nearly a decade ago, a trader at brokerage Emkay Global had incurred an estimated Rs 60-crore loss due to pressing a wrong key for price and quantity in Nifty derivative contracts.
A fat finger trade is 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.
On Thursday, between 2.37pm and 2.39pm, a trader sold 25,000 lots of Nifty call options at 14,500 strike at prices as low as Re 0.15. At that time, the market price for this contract was about Rs 2,100. Each lot of Nifty contract is for 50 numbers. So the estimated total loss is between Rs 200 crore and Rs 250 crore, market players said (that is, 25,000 x 50 x Rs 2,000 = Rs 250 crore).
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.
Officially, NSE has not commented on the issue. But, according to an exchange 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.
When this trade was put into the exchange, the Nifty was hovering at 16,600 level. On Thursday, the index closed 105 points up at 16,628. Market players were scrambling for answers as to how such trades, with prices so far off from the ruling market level at that time, could hit the exchange’s trading engine. Officials at broking houses said that after the 2012 fat finger fiasco on the NSE, several broking houses had 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 neutralise 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 it happens after such incidents, conspiracy theories also started doing the rounds. According to a Kolkata-based trader, it could have been a set-up trade between two parties where one had to take losses in their books, so the other party helped the first one out.
Mumbai: A ‘fat finger’ trade, an error caused by punching a wrong key, hit the NSE’s derivatives segment late on Thursday that could have caused a loss of Rs 200-250 crore to an unknown broking house which placed the order. This makes it the biggest such trading mistake in India. Nearly a decade ago, a trader at brokerage Emkay Global had incurred an estimated Rs 60-crore loss due to pressing a wrong key for price and quantity in Nifty derivative contracts.
A fat finger trade is 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.
On Thursday, between 2.37pm and 2.39pm, a trader sold 25,000 lots of Nifty call options at 14,500 strike at prices as low as Re 0.15. At that time, the market price for this contract was about Rs 2,100. Each lot of Nifty contract is for 50 numbers. So the estimated total loss is between Rs 200 crore and Rs 250 crore, market players said (that is, 25,000 x 50 x Rs 2,000 = Rs 250 crore).
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.
Officially, NSE has not commented on the issue. But, according to an exchange 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.
When this trade was put into the exchange, the Nifty was hovering at 16,600 level. On Thursday, the index closed 105 points up at 16,628. Market players were scrambling for answers as to how such trades, with prices so far off from the ruling market level at that time, could hit the exchange’s trading engine. Officials at broking houses said that after the 2012 fat finger fiasco on the NSE, several broking houses had 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 neutralise 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 it happens after such incidents, conspiracy theories also started doing the rounds. According to a Kolkata-based trader, it could have been a set-up trade between two parties where one had to take losses in their books, so the other party helped the first one out.
