SENSEX NIFTY
May 02, 2013, 12.16 PM IST | Source: Moneycontrol.com

NSE fines Prakash K Shah, Inventure in Emkay freak trade

Prakash K Shah and Inventure had benefitted the most from Emkay Global's mistaken trade in October last year, as they had placed buy orders well below the previous day's closing prices.

Moneycontrol Bureau

The National Stock Exchange has penalized broking firms Prakash K Shah and Inventure Growth & Securities Rs 40 lakh and Rs 50 lakh respectively for violating margin requirement norms.

The two brokerages benefitted the most from Emkay Global's mistaken trade in October last year, as they had placed buy orders well below the previous day's closing prices.

Of the penalty, half will be refunded after six months subject to no more violations of NSE regulations.

The NSE's Disciplinary Action Committee probing the freak trade found that the two broking firms had not put up enough margins to cover the large buy orders they had placed in the system.

The Emkay dealer had mistakenly punched in a sell order for Nifty shares (stocks forming the Nifty index) many times more than the actual quantity that the institutional client wanted to sell. The brokerage ended up selling Rs 650 crore of Nifty shares, and then had to undo the wrong trades by buying an equivalent amount of shares at higher prices, resulting in a loss of Rs 51 crore.

Usually, when there margins are inadequate, the trades get closed out immediately, and the broking firm’s trading terminals are deactivated. However PK Shah and Inventure were able to square off their positions swiftly before the system could deactivate their terminals.

The Committee also observed that the two brokerages had violated an earlier NSE circular, warning its members against putting orders way off the market prices.

Emkay shares were down around 8 percent to Rs 17.05 on the NSE today, after the NSE panel rejected its plea to reverse the mistaken trades.

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