Published On: Sun, Oct 7th, 2012

Technical Glitch Results in India Flash Crash

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Ravi Narain, Managing Director & CEO of NSE

Ravi Narain, Managing Director & CEO of NSE

Indian stock markets fell sharply with the Nifty plunging by over 900 points and the BSE Sensex giving away almost 300 points after a technical glitch resulted in a market moving trade.

The National Stock Exchange (NSE) hit a low of 4,888 intraday while the benchmark BSE Sensex skidded below the 19,000-mark on Friday.

The technical fault froze the cash prices for some time at the NSE after its index touched the lower circuit filter. However, trade was bought back to normal later in the day with the BSE saying in a statement issued Friday, “The market at BSE is working fine and trading members are informed that there are no issues technical or otherwise at BSE”.

“These non-algorithmic orders have been entered for an erroneous quantity which resulted in executing trades at multiple price points across the entire order book, thereby causing the circuit filter to be triggered,” the NSE mentioned in an earlier statement.

Technical experts as well as the Indian stock markets experts had no clue whatsoever about what was happening at the Indian equity markets after a sharp decline dented investor confidence dearly.

Calling it a hard nut to crack, they said that there was no rational explanation for the glitch which resulted in a “Flash Crash” eroding 16 percent of value within few minutes. They further elaborated that the problem may have emerged from a programming fault with the Foreign Institutional Investors (FII) where some punching error may have been the cause.

The technical problem also forced the NSE to come to a standstill for about 15 minutes following that a brokerage house placed 59 incorrect orders which nearly wiped out around 60 billion US dollars from the value of India’s biggest companies.

Later, the Exchange authorities stepped forward to undo the errors by cancelling the orders but it couldn’t stop the Nifty index from closing down 0.8 percent on Friday. Moreover, the glitch has cast a shadow of doubt in the minds of investors and put regulators under stern pressure to take actions against any possible future glitch in the wake of a series of high profile trading errors in the US.

Only last week a technical glitch on Nasdaq forced authorities to cancel trading in Kraft whose share price shot up by almost 30 percent. Earlier this year, the launch of Facebook’s shares also had exposed the technical frailty of the Exchange as an excess demand of the stock jammed the system. If that wasn’t enough, another automation process glitch resulted in thousands of mistaken stocks orders at the US broker Knight Capital which recorded losses worth 440 million US dollars in just about 45 minutes.

The NSE authorities initially put the blame on a human error but experts doubted the claim saying there was no possibility in the world that a human error pushed the NSE Nifty down by 16 percent such a short time.

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