The markets have been on a roll over the last few weeks on the feeling that much awaited reforms are now happening. This gung-ho mood was severely impacted on Friday when a dealer at a local brokerage punched an erroneous order. The order actually entered was to sell stocks forming part of the NIFTY in the cash market for a total value of Rs 650 crs. What was the actual order and how the mistake occurred is a matter of conjecture till actually clarified by NSE. The fact of the matter is that within a span of 10-13 minutes the NIFTY which had closed at 5,787.60 on Thursday hit the low of the day at 4,888.20 points. The fall was a staggering 899.40 points. It may be mentioned that there is a circuit filter in place which should trigger when the market moves 10%, 15% and 20% in a day with the first level coming into play and the next two happening 5% at a time.

In the case of Friday the 5th of October the circuit filter for the quarter October-December 2012 was 570 points, but it did not trigger. The circuit filter triggered only after crossing the second circuit of 5% making the total fall cross the 15% level and overshoot to 899 instead of 855 points. This overshooting meant that the NIFTY had fallen a staggering 15.77% for the moment. The exchange did not shut off automatically and exposed the integrity of the entire exchange.

To make matters worse rather than admitting that there was a system glitch and something had gone wrong which needed to be investigated, NSE chose to defend itself that they had done no wrong, there systems were fine and everything that happened was because of the broker. Such an explanation coming from an exchange which has a dominant market share is unexplainable and needs to be taken up at the highest order. To compound matters the exchange official said that the system did not shut off because it allows orders in the system to be executed. This statement is not only ridiculous but one without a base. The exchange shuts off every day at exactly 3.30 pm and certainly there are orders pending at that point of time. They stand cancelled and are returned as unexecuted. Why was there a need for this special treatment on Friday for these orders?

In the past as well there have been instances when the system has malfunctioned and it was attributed to ‘algo’ trade or dealer error. The NSE believes that they can do no wrong and need not offer any explanation. They must remember that times are changing and one more exchange is breathing down their neck and would be commencing operations shortly. At that time all stake holders would use a platform that has a human side and face to it unlike the NSE.

Some questions that emerge from the freak trade which NSE must answer.

• Why did the circuit filter not activate first at 570 points?

• In May 2009 the exchange saw three circuit filters being exercised on the 18th of May when the UPA-II returned to power. The 10%, 15% and 20% circuits were hit all in one day and the markets closed. There was immediate shutdown of the exchange and more important it did not allow pending orders to be executed. The question why the difference or discrimination?

I believe the time has come for NSE to shed its holier than thou image and work towards creating an atmosphere of mutual trust and respect for each other. The integrity of the exchange is the sole responsibility of the people who run it. There is no way they can absolve themselves of this responsibility by making frivolous and petty statements which even a first grader in school would argue out.

In conclusion one hopes that NSE does fact finding, soul searching and most importantly accepts publicly its system glitch. It needs to establish trust and confidence once again.