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Tulip IT freak trade: No clarity on relief

Published on Thu, Jan 05, 2006 at 19:01 | Source : Moneycontrol.com

Updated at Fri, Jan 06, 2006 at 09:27

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Tulip IT Services , which listed on the BSE and NSE yesterday, turned out to be a teetering tale of tears. The stock was traded at just Rs 0.25 paisa against the average price of Rs 185 on the Bombay Stock Exchange.

Data available through Telerate suggests that during this rollercoaster ride, a person who sold close to 11,78,101 shares has lost Rs 12.69 crore, on an average, in just 38 seconds.

Details as available on Telerate:

Time	Price	No of shares	Amount
14.24.21	0.25	4,04,800	101,200
14.24.30	100	5,95,575	5,95,57,500
14.24.42	175	17,165	30,03,875
14.25.51	160	41,530	66,44,800
14.25.00	180	62,625	1,12,72,500
14.25.09	185	56,406	1,04,35,110
Total		11,78,101	9,10,14,985

Weightage average selling price: Rs 77.25
Current Market Price: Rs 185.00
Loss per Unit: Rs 107.74
Number of shares sold: 11,78,101
Loss Amount: Rs 12,69,33,700

Brokers say trade cannot be reversed automatically. They also say both parties must agree to reverse trade. However, it is not clear who are the parties involved in the trade.

Ambareesh Baliga of Karvy Stock Broking, while speaking about the fateful transaction said, "In my personal opinion, BSE may reverse these deals. I do not think that one can make someone pay so much for a mistake. It is a big mistake. But I think that there will be some reversals. I cannot think of the name of the stock, but I think that there is a precedence to it."

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As per the guidelines issued by Sebi, the Exchanges are required to apply a daily circuit filter of 20% on all scrips except on the scrips on which derivatives products are available, or are included in the indices on which derivative products are available. The imposition of circuit filters on scrips ensures that the price cannot be pushed upward or downward beyond the limit set for a day.

Despite this stricture, a mishap had taken place. So is there a hole in the safety net of the market? Experts are of the view that BSE and NSE set 2-20% circuit filter limits for different stocks. Under circuit filter, the stock price of a company can go up or down by the set percentage limit. However, stocks in which there are no circuit limits can go up or down to any limit.

Talking about the occurance of this freak trade, Shashibhushan of IL&FS Investsmart said, "It is quite possible because on the first day of listing, circuit filters are not there. Circuit filter is based on the price of the first day and if there is no indication of this price then the circuit filter cannot be placed. So this trade could have taken place for 25 paisa also."

He further says that it could be due to punching error. "I think it is a punching error and normally any trading that happens on the first day in the market, the limit is done in a particular order because circuit filters are not there. So probably the dealer must have made some mistake; the order which was without limit, was a big order and so this trade happened at the lower level."

He is of the opinion that BSE should have circuit filter even for the first day, like NSE. "If BSE also adopted this kind of system like the NSE then I am sure even they could have identified this problem like today's," he says.

"In NSE, on the first day itself we have circuit filters and here the circuit filter is for 100%. So if this same trade had taken place on the NSE then the circuit filter would have been for less than Rs 60 and above Rs 240. But because BSE does not have circuit filter for the first day, the shares were traded for even 25 paisa," he adds.

On claim options:

Obviously, the seller had to bear huge losses on account of this particular transaction. The broker concerned has limited options because exchange doesn't reverse the transactions as there are a lot of legalities involved. However, he does have a few options, says Shashibhushan.

One-he claims from the BSE protection fund. But here he will get a benefit of only Rs 5 lakh.

Two- he can claim through insurance.

Three- All those who bought the stock after seeing it was quoting at 25 paisa, can mutually decide to cancel the trades. But all those who were standing in the line and got the shares at that price may not agree to cancel the deal and neither can the BSE force them to do so.

Meanwhile, Tulip, closed above its issue price of Rs 120. On the BSE, it closed at Rs 182.55, with volumes of 1,17,34,207 shares. It touched an intraday high of Rs 201.4 and an intraday low of 0.25 paise

On the NSE, it closed at Rs 182.30, with volumes of 1,53,54,069 shares. It touched an intraday high of Rs 202 and an intraday low of Rs 150.

The stock opened at Rs 180 on the BSE and at Rs 150 on the NSE. Its BSE ID is 532691 and NSE ID is TULIP.

The company entered the capital market on December 9 with a public issue of 90 lakh equity shares of Rs 10 each for cash within a price band of Rs 100-120. The issue closed on December 15, 2005. It was subscribed 25.08 times.

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