Traders must inform exchanges of the erroneous trades within 30 minutes; Exchanges can charge fee of 5% for accepting trade cancellation request
New Delhi : To tackle the menace of freak and erroneous trades, markets regulator Securities and Exchange Board of India asked stock exchanges to penalise brokers placing erroneous orders and discourage the annulment requests.
Erroneous or freak trades also include trades taking place due to malfunctioning of a trading system, as also the transactions executed due to a punching error by a dealer, which in the market parlance is known as ‘fat-finger trades’. There have been some cases where overall markets have also taken a hit due to such ‘erroneous’ trades. Stock exchanges are empowered to annul trades and they have their own bye-laws to deal with such cases.
The traders are required to inform the exchanges of the erroneous trades within 30 minutes of the trade. The deadline can be extended to 60 minutes in exceptional cases.
To bring in uniformity and transparency, the market regulator said in a circular that examination of trade for annulment can be taken up either suo moto by the stock exchange or upon receipt of request from a stock broker.
The stock exchanges have to make a decision on trade cancellation before the close of the trading day on which trade is made. But the exchange can consider price setting of the scrip which is erroneously traded, if it is a less disruptive mechanism.
Exchanges can charge fee of 5% of trade value for accepting trade cancellation request and they can frame rules to put trade cancellation systems in place.
Generally, ‘price reset’ is a mechanism where the price of executed trades are adjusted to a new determined price. Besides, Sebi has provided a mechanism to review the decision taken by the stock exchange. However, the aggrieved party would have to submit such request to the exchange before the payout deadline of the trades.
Globally, bourses that have adopted a ‘no trade modification or cancellation policy’ expect stock brokers to have appropriate checks to prevent faulty trades at their ends. Considered one of the worst trading disruptions, a flash crash saw American benchmark stock index Dow Jones Industrial Average plunging nearly nine per cent in May 2010.
