SAT puts an end to bickering over Emkay fat finger error

MUMBAI: After two-and-half years, the bickering over the fat finger error at brokerage Emkay Global and the subsequent cancellation of these trades has been resolved. The Securities Appellate Tribunal (SAT), a quasi-judicial authority, has asked National Stock Exchange to release 50% of the payout fund that it withheld to two beneficiaries of the erroneous trade -Inventure Growth and Prakash K Shah Shares -and the balance to Emkay.

Three parties involved in the fat finger error -Emkay Global, Inventure Growth and Prakash K Shah Shares -moved SAT after agreeing for a settlement. As per the settlement, both beneficiaries of the erroneous trade agreed to forgo their 50% pay-in in favour of Emkay. "We understand that the annulment proceedings are over, though the disciplinary part in this case may continue," an NSE spokesperson told ET.

When contacted, one of the brokers said, "After going through a legal battle for more than two years with the stock exchange, we have mutually decided to close the issue to avoid delay and legal hassles as our money was locked in with the exchange".

The trade in question dates back to October 5, 2012, when a dealer at Emkay Global punched an order on behalf of Templeton Mutual Fund to sell a basket of shares comprising the Nifty index. However, instead of a sell order worth Rs 17 lakh on Nifty, the dealer punched in a sell order of 17 lakh shares of the 50 Nifty shares, worth Rs 974 crore; of Rs 660 crore was executed. The incident, which took place in early trades on October 5, halted trading for 15 minutes after the Nifty tumbled within seconds. Emkay suffered losses of Rs 51 crore. An NSE panel which probed the 'fat finger error' refused to annul the trades as requested by Emkay, citing alleged failure of risk management procedures that could possibly have blocked the trades from being executed.

NSE not only withheld the payout of Rs 33 crore to the two beneficiaries of erroneous trades but also imposed a penalty of Rs 50 lakh on Inventure. Emkay Global filed an appeal in SAT against the NSE order, rejecting its plea for cancelling the trades. Last August, SAT directed NSE to reconsider the matter after hearing the parties afresh. Moreover, it clarified that NSE will decide whether it would be 'just and proper' to annul some of the trades executed between Emkay and two counterparties.

SAT in the order in August noted that while Emkay Global during the trades had incurred losses of Rs 51 crore on account of sell orders, the two counter-parties -Inventure and Prakash K Shah Shares -had made huge profits.

According to SAT, violations committed by Inventure Growth and Prakash K Shah Shares "were serious violations" and NSE should have considered that the trades were "vitiated" on account of such violations by the two brokers.