Active Stocks
Thu Mar 28 2024 14:29:24
  1. Tata Steel share price
  2. 156.40 2.32%
  1. ITC share price
  2. 432.80 1.12%
  1. HDFC Bank share price
  2. 1,456.05 1.07%
  1. Power Grid Corporation Of India share price
  2. 278.85 2.88%
  1. State Bank Of India share price
  2. 758.30 3.30%
Business News/ Market / Stock-market-news/  Sebi prescribes rules for annulment of trades
BackBack

Sebi prescribes rules for annulment of trades

Sebi has said an exchange can consider a trade for annulment either on its own or following a request by a stock broker

Sebi has also noted that the exchange should consider the impact of annulling a trade on trades of other stock brokers and investors and, in some cases. Photo: Abhijit Bhatlekar/MintPremium
Sebi has also noted that the exchange should consider the impact of annulling a trade on trades of other stock brokers and investors and, in some cases. Photo: Abhijit Bhatlekar/Mint

The Securities and Exchange Board of India (Sebi) has prescribed rules for the annulment of trades undertaken on the stock exchanges.

In a circular issued on Thursday, the capital market regulator said an exchange can consider a trade for annulment either on its own or following a request by a stockbroker. Stock exchanges should, however, define suitable criteria to discourage frivolous requests.

“Stockbrokers shall submit such requests to the stock exchange within 30 minutes from execution of trade(s) which is sought to be annulled. However, a stock exchange may consider requests received after 30 minutes, but no longer than 60 minutes, only in exceptional cases and after examining and recording reasons for such consideration," Sebi said in its circular.

Annulment refers to cancellation of trades that can be done only by the exchange after it is convinced that there is a genuine reason for the trades to be cancelled.

Stock exchanges have been asked to examine and decide on such requests not later than the start of the next trading day. Sebi further noted that the exchange should consider the impact of annulling a trade on trades of other stockbrokers and investors and, in some cases, consider resetting the price of the trade if that is considered less disruptive.

The reasons for an annulment or a price reset must be recorded in writing in the interest of investors and market integrity, said Sebi. The regulator added that exchanges should inform all stockbrokers and stock exchange members of such requests in a suitable and time-bound manner.

To discourage frivolous requests for annulments, stock exchanges will charge an application fee equal to 5% of the value of the trade for accepting an annulment request. This is subject to a minimum fee of 1 lakh and a maximum fee of 10 lakh, said Sebi.

“Stock exchanges may suitably increase the upper limit of the application fee as deemed necessary to discourage frequent or frivolous requests for annulment. The amount realized as application fee shall be credited to the ‘Investor Protection Fund’ of the concerned stock exchange," said Sebi.

In October 2013, Sebi had issued a discussion paper for a framework on trade annulment. It sought market feedback on the kind of exceptional circumstances under which exchanges could annul trades.

The discussion paper may have been triggered by the flash crash in the National Stock Exchange’s Nifty index on 5 October 2012, wherein 59 erroneous orders by Emkay Global Financial Services Ltd resulted in multiple trades for an aggregate value of over 650 crore. As a result, the Nifty circuit-breakers got triggered and trading in the cash segment of the NSE was halted.

Emkay asked NSE to annul the trades, but in May 2013, the exchange denied the brokerage’s application to cancel the erroneous trades that had resulted in the 50-share Nifty index dropping 15.5% and trading being halted for 15 minutes.

Emkay filed an appeal with the Securities Appellate Tribunal (SAT), but in March, the trbunal disposed of Emkay’s appeal.

Exchanges, in the past, have annulled trades on various occasions after ascertaining whether the trades were purely erroneous or were done on account of fraud or market manipulation.

According to Sebi’s discussion paper, the BSE had annulled all the trades in its equity derivatives segment on 26 October 2011, which resulted due to a malfunction in the trading algorithm of a stockbroker.

NSE has annulled trades twice—one each in the case of Maruti Organics Ltd and Kamal Overseas Ltd—for market manipulation. In the case of Kamal Overseas, the documents were also falsified, according to the Sebi paper.

Rajnikant Patel, a former chief executive officer of BSE, said the regulatory clarity on the manner in which trade annulment has to be handled by exchanges is a welcome step that will bring in more uniformity.

“Any kind of annulment impacts the credibility of market participants as well as the exchange since it is a settlement of trade issue. There could be multiple legs of the trade and many participants could be impacted. Such annulment should be done in exceptional circumstances and should not become a practice," said Patel.

Unlock a world of Benefits! From insightful newsletters to real-time stock tracking, breaking news and a personalized newsfeed – it's all here, just a click away! Login Now!

Catch all the Business News, Market News, Breaking News Events and Latest News Updates on Live Mint. Download The Mint News App to get Daily Market Updates.
More Less
Published: 16 Jul 2015, 06:09 PM IST
Next Story footLogo
Recommended For You
Switch to the Mint app for fast and personalized news - Get App