2 min read.Updated: 24 Jul 2020, 06:06 PM ISTNeil Borate
NSE on Friday suspended trading and cancelled all trades till 9.50 am in Axis Nifty ETF and Axis Gold ETF.
Axis Gold ETF and Axis Nifty ETF surged 6,553% and 741%, respectively, while gold was up around 1% and Nifty was down 0.19% from its previous close.
Axis Gold ETF and Axis Nifty ETF logged a surprise spike of 6,553% and 741%, respectively, on Friday due to a technical error on the National Stock Exchange (NSE). Axis Nifty ETF closed at ₹1,151 on Friday, when NSE halted trading, against the previous closing of ₹136.80, while Axis Gold ETF closed at ₹3,482.85 against ₹52.35 a day before.
An ETF or exchange-traded fund merely tries to replicate the underlying asset. However, in the case of Axis Nifty ETF and Axis Gold ETF, neither the Nifty index nor gold, respectively, saw an unusual jump on Friday. While the Nifty was down 0.19% from its previous close, gold was up around 1%, on Friday.
NSE suspended trading on Axis Gold ETF and Axis Nifty ETF at 9.50am and cancelled the trades that happened before that on Friday. “Members are requested to note that trades in Axis Gold and Axis Nifty till 09.50 am will be cancelled by the exchange. Trading in these securities shall resume with the revised price band post this activity and the same will be notified in advance," said an NSE spokesperson, in a notification issued later in the day.
The two ETFs were split in the ratio of 1:10 and 1:100, respectively, and began trading ex-split on Thursday. When a spilt happens, the price of a security falls proportionately since additional units are credited to unit holders. According to an Axis MF filing with the BSE, the split was done to improve liquidity in the ETFs.
A person with knowledge of the matter, who did not wish to be named, said that the trades happened on NSE at these erroneous pre-split prices.
According to the NSE data, the traded volume was 46.53 lakh and 279 lakh for Axis Nifty ETF and Axis Gold ETF, respectively, at Friday’s prices. It is unclear what proportions of these volumes were traded at erroneous prices.
Even before Friday’s glitch, the two ETFs jumped 20% each on the previous day. But this was due to poor liquidity and not because of an exchange error. The person mentioned earlier said that volumes were thin on 23 July due to the stock split in the two ETFs and this could have caused the surge. Market maker activity was also low, he added. Market makers continuously buy and sell ETFs in order to provide liquidity in these products.
“The extreme price moves in ETFs have a lesson for investors. They should stick to large and liquid ETFs only. Smaller ETFs will see such issues and retail investors run the risk of seeing trades at unjustified prices," said Anubhav Srivastav, partner, Infinity Alternatives, an alternative investments advisory firm.