Did a fat-finger error trigger a 271-point Nifty plunge at closing auction?
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The abrupt swing in the Nifty that marked the debut of the closing auction session (CAS) on 3 August returned on Wednesday, this time in the opposite direction. In just 30 seconds after the order session under CAS opened at 3:20 pm, the bellwether index slumped 271.4 points or 1.11% to 24005.5, from its reference rate of 24276.9 released at 3:15 pm. Though the index recovered to close at 24207.75, just 0.28% below the reference rate by 3:30 pm, the abrupt slump caught market participants off-guard. At close, the Nifty settled 0.52% below Tuesday's close, while the BSE Sensex closed 0.24% lower. The 24300 call and put on Nifty were the most actively traded contracts on Wednesday, exchange data showed. The slump was attributed to a bid placed 3% below the reference rate for Bharti Airtel, the stock that saw the highest volumes during CAS. While this is in line with the Sebi rule that allows a participant to place an order 3% above or below the reference rate determined at 3:15 pm, what puzzled participants was that the order went through. While it's understandable for a buyer to bid at the lowest price, the seller would naturally want the highest price, which was not the case here. During CAS, the buyer bid at ₹1,857.7, which was 3% below Bharti Airtel's reference rate of ₹1915.1. What foxed markets is that the seller agreed to that price. "This is surprising," said a broker who was at his trading desk during CAS. "As a buyer, I would want to buy at the lowest rate. As a seller, I would want to sell at the highest rate. So, this trade going through 3% below the reference rate could be because of a fat finger error by the seller." A fat finger error is an accidental keyboard mistype or wrong data entry that triggers an unexpected, often massive stock transaction. A prop trader confirmed that such a trade went through. CAS data on Bharti Airtel also confirms this as the indicative close hit ₹1857.7, 3% below the reference rate of ₹1915.1, just 35 seconds after the order session began at 3:20 pm. The price recovered gradually as buyers swooped in, and closed finally at ₹1902.1, 2.3% below Tuesday's close. The recovery In Bharti stock helped the Nifty, which trimmed the day's losses to 126.80 points. "This was what caused the Nifty to slump 271 points at the open of the order placing session," confirmed the prop trader. "We don't know how the sell trade went through at 3% below the reference rate." An NSE official was not immediately available for comment. On 3 August, CAS replaced the volume-weighted price calculation for 213 stocks on which derivatives are offered. These stocks include Nifty 50 constituents and their price movements during the session influence the Nifty's closing. For instance, activity on the Bharti Airtel counter on Wednesday accounted for 6% or ₹68.25 crore of the total auction volume of ₹1,085.18 crore, making it the most active stock during the session. The reference rate for the Nifty and CAS stocks is based on the volume weighted average price of trades between 3 pm and 3:15 pm . After a transition period of 5 minutes, limit and market orders are placed between 3:20 pm and 3:25 pm. Between 3:25 pm and 3:30 pm, only fresh limit orders can be placed or modified . A single equilibrium price is discovered for CAS stocks and Nifty between 3:28 pm and 3:30 pm. These are prices used to offer cues for derivatives trading which continues through 3:40 pm. On the first day of CAS, Nifty had surged 200 points between 3:28 pm and 3:30 pm due to low supply of shares bid for as retail investors and arbitrage funds stayed away. The low participation continues, though market participants believe CAS would gain traction over time.
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