Press Information Bureau

Government of India

Ministry of Finance

20-December-2012 18:00 IST

There has been one such instance since March 2012, when erroneous trading caused a crash and led to a brief halt in trading in the cash segment of the National Stock Exchange of India Ltd. (NSE) on account of the NIFTY circuit filter getting triggered.

The trading halt was on account of 59 erroneous orders by a trading member that resulted in multiple trades for an aggregate value of over Rs. 650 crore. As a result, the NIFTY fell to the day’s low of 4888.20 points, which was 899.40 points lower than its previous close of 5787.60 points.

NSE initiated action against the trading member for entering the erroneous orders on the same day itself. Pursuant to the same, trading facility of the trading member was withdrawn for 3 days in all segments and a penalty of Rs. 25 lakh was levied.

Pursuant to consultations with market participants, stock exchanges, the Risk Management Review Committee (RMRC) and the Technical Advisory Committee (TAC), Securities and Exchange Board of India (SEBI) vide circular dated December 13, 2012 has implemented various pre-trade risk controls, such as order-level checks, dynamic price bands and risk reduction mode.

This was stated by the Finance Minister Shri P. Chidambaram in reply to a question in the Rajya Sabha today.

* * *

DSM/RS/bs

Pre-trade risk controls implemented to curb erroneous trading and protect market stability after exchange trading halt. A trading member's erroneous orders caused multiple trades and a sharp intra-day index decline, prompting the exchange to withdraw the member's trading privileges temporarily and impose a penalty. Regulators, after consultation with market stakeholders and risk committees, implemented enhanced pre-trade risk controls including order-level checks, dynamic price bands and a risk reduction mode to prevent and mitigate erroneous trading.