NSE rejects Emkay plea for cancellation of erroneous trade

Brokerage firm Emkay Global today said the National Stock Exchange has rejected its plea for cancelling an erroneous trade executed by one of its brokers and is considering to challenge the bourse's decision.

A disciplinary panel constituted by NSE to look into the matter has rejected Emkay's plea, which would result in the company suffering a loss much higher than even its total market value.

The erroneous trade on October 5, 2012 had led to a massive plunge of over 900 points in the NSE's benchmark index Nifty, prompting a temporary halt in overall market trading. Emkay had to bear the losses, amounting to about Rs 51 crore, caused by this trade, but the brokerage firm later requested for annulment of the trade terming it as a one-off error.

"The Relevant Authority of NSE has denied our application for annulment of trades arising out of a clearly erroneous entry of sale order on October 5, 2012," Emkay Global said in a regulatory filing.

Sources said the committee has also imposed penalties on two counterparties, Inventure growth and Securities and Prakash K Shah.

Inventure and Prakash K Shah would have to pay Rs 25 lakh and Rs 20 lakh, respectively, as penalties. The two would also have to pay additional suspended penalties of similar amounts, which would refunded to them after monitoring by the exchange for six months subject to certain compliances.

The fines have been imposed for insufficient margins collected by the member from clients.

Emkay Global said it received a communication last evening from NSE, wherein its application for annulment of trades was rejected.

According to the brokerage firm, it is now considering to take various legal course of action to challenge NSE's decision.

"The company is considering various legal course of action including challenging the decision in exercise of its statutory right to appeal," Emkay Global noted.

On Emkay Global, a sub committee of the NSE board concluded that "there was gross negligence, non compliance and lack of internal control systems at the end of the member (Emkay Global)".

The panel felt that large sections of market could not be put at risk, because of a gross negligence by the member.

It noticed that more than 60,000 trades were executed, with 665 counterparty trading members and more than 14,000 clients, pursuant to the said erroneous trade order.

In spite of all the checks and balances appearing on the order screen, the order was okayed and partly executed and the order could have been corrected at various stages, the probe found.