Mumbai: The Securities and Exchange Board of India (Sebi) on Friday censured the National Stock Exchange of India Ltd (NSE) for failing to adhere to market-wide circuit breaker norms in October 2012.

In October 2012, a flash crash on NSE due to erroneous trades by a dealer in 59 large-cap stocks pulled the 50-share Nifty index of NSE down 15.5% to 4,888 points, raising doubts about the robustness of the exchange’s software technology.

NSE had suspended brokerage firm Emkay Global Financial Services Ltd, where the trades originated but the incident was in breach of Sebi’s rules that stipulate a market-wide circuit filter to be triggered in the event of the index going up or down by 10%. In this case, trading was stopped when the index plunged by 15.5%.

Sebi on Friday directed NSE to be careful and cautious in its dealings in the securities market and comply with all legal requirements that govern its functions as a stock exchange. Additionally, NSE has been directed to carry out a comprehensive review of the bourse’s systems and processes by an independent expert.

The expert will suggest a more robust securities trading system and submit its report to the exchange’s board within three months. Subsequently, within three months of receipt of the report, NSE has to submit a report to Sebi along with its “plan of action", Sebi said.

“By not sending ‘halt’ trigger to its matching engines at the instance of breach of 10% circuit breaker on 5 October 2012 and by not halting trading exactly at 10% and 15% circuit breaker limits, by cutting short the market halt duration and by re-opening the cash market earlier than the duration mentioned in the circular, by not halting trading in its equity derivatives segment when the circuit breaker was triggered in the cash market and by not co-ordinating with the other stock exchanges regarding the market halt, NSE had not adhered with the provisions of the Sebi," said the order of the markets regulator.

An email sent to NSE seeking a response to Sebi order remained unanswered.

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