)
To tackle the menace of freak and erroneous trades, leading bourse BSE has put in place a new trade annulment policy and would soon announce a new framework for penalising traders entering erroneous orders.
While BSE has also enabled an online facility for trading members to submit their request for trade annulment, the new policy provides for such request to be entertained only in the exceptional situations and charges would be imposed to "discourage frequent or frivolous requests".
Last month, markets regulator Sebi had 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.
Announcing the new policy, BSE asked its trading members to implement "appropriate risk management checks and due precautions" at their end to mitigate the need for making trade annulment requests.
Also, trade annulment request once submitted will not be allowed to be recalled or cancelled.
Each request would be charged with 5 per cent of the trade value or Rs one lakh, whichever is higher. The upper cap on such fee would be Rs 10 lakh. The fees might be reviewed from time to time to discourage frequent and frivolous requests.
BSE also said that a framework for penalty for entering erroneous orders would be published in due course, which would be in addition to all the processing charges.
BSE can suo moto initiate annulment of trades in cases having market wide impact including wilful misrepresentation or manipulation or fraud, trades may be annulled as provided in the Rules, Bye Laws and Regulations of the Exchange.
Giving details, BSE said the trade annulment request must be submitted within 30 minutes from the occurrence of the trade and it should be "arising out PAN based wash trades".
Wash trade refers to a form of stock manipulation wherein a trader simultaneously sells and buys the same security.
BSE said it can reject or accept such requests and may even carry out price reset for such trades.
The exchange further said it would "undertake annulment or price reset only in exceptional cases in the interest of the investors, market integrity, and maintaining sanctity of price discovery mechanism".
A mechanism to request a review of the decision taken by the Exchange would be provided to the trading members and the trading members need to submit such request to the exchange before the payout deadline of the trades in question.
A detailed procedure along with the applicable charges for such a review would be published in due course.
