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Emkay Has To Pay For Fat-Finger Trade, Says NSE

Six months after their “fat finger” trade in October 2012 (Read: The Flash Crash: Fat Finger or Algo, Emkay Must Pay) when the market fell nearly 15% on a mis-entered order by Emkay Global, the NSE has ruled that the brokerage firm must pay for the losses and will not annul the trades.

A panel probing the ‘fat finger error’ that caused a flash crash on October 5 has rejected cancellation of trades that dealt a body blow to Emkay Global. The error was caused by a dealer at the brokerage, which faces a Rs 51-crore hit, equivalent to its net profit for the past six years.

The decision by the panel, comprising board members of NSE, where trades worth Rs 660 crore were executed, could trigger a legal tussle between the bourse and Emkay. "The panel feels gross negligence by a single member cannot be allowed to impact 60,000 trades executed by 14,000 clients of 665 exchange members," said a person aware of the decision.

Well, thank you NSE for taking the right decision. I have argued that annulling the trades would be grossly unfair, and if they had 14,000 counterparties, it’s even more reason to stay put.

Emkay’s stock has taken a beating, now off nearly 50% from the traded price just before the fat-finger trade:

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It’s off another 5% today at 17.5.

Remember, the trade was a single hit of over 950 cr. – it is inconceivable that any dealer was allowed to put in an order of this magnitude without any level of risk checks and approvals. Their excuse was that the computer did not have risk management systems installed as it was replaced just one hour earlier. But that’s their fault, and they should have to pay for it.

I’m saying this because if I had a fat finger trade, I couldn’t get away with any amount of crying; the rule should apply to everyone, big or small.