Tuesday, January 22, 2008

Trading halted in BSE after 'miscalculation'

As the market continued to plummet by more than 600 points by noon on Monday, brokers began to receive phone calls from the National Stock Exchange (NSE) risk department officials, asking them to make early pay-in of funds.
"When the market falls by more than 5 per cent, NSE begins to call up its members asking them to make early pay-ins since there is a fear that payment may not come on time, in which case the stocks may have to be sold off," said the risk and compliance officer of a broking firm.
Pay-ins usually happen at 10.30 am the next day in a T+2 system but with the market in an extremely volatile condition, members were asked to pay according to a T+1 system (around 5.30 pm of the same day).
Margin calls were also triggered, aggravating the downfall. Some brokers also opted for heavy distress selling of the pledged or warehoused stocks of high net worth individuals (HNIs) and retail clients in a desperate bid to limit their losses or meet the payment obligation of the exchanges, market sources said.
Meanwhile, trading was also halted for 3-4 minutes on the Bombay Stock Exchange (BSE) after 2.30 pm because of a 'miscalculation', said market sources. In case there is a 10 per cent movement of the indices, trading is halted for an hour if the movement is before 1 pm.
In case the movement takes place at or after 1 pm but before 2.30 pm, trading is stopped for half-an-hour. If the movement takes place at or after 2.30 pm, there will be no trading halt at the 10 per cent level and the market will continue trading.
This is where the BSE got its calculation wrong. What the BSE has termed a "technical snag", market participants are calling a "miscalculation".
Sensex was down by about 10 per cent by 2.30 pm but index-based circuit breakers could not be applied. If the market was down by 15 per cent on or after 2 pm, trading would have been halted for the day.
The Securities and Exchange Board of India (Sebi) has asked for explanation from the BSE for the shutdown in trading just after 2.30 pm as the rules allow the circuit filter (or the maximum allowed fall) of 15 per cent before one-hour of close.
"It was only a technical snag. It was not a circuit filter. It was just a coincidence (that the shutdown occurred when the Sensex fell over 10 per cent)," explained a spokesman for the BSE.

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