Public comments on the discussion paper can be submitted till Oct 31

To tackle instances of erroneous trading activities in the securities market, Securities and Exchange Board of India (SEBI), on Wednesday, proposed a slew of measures for the stock exchanges, including well-defined parameters and time-bound approach, for deciding on annulment of such trades.

The latest suggestions from SEBI come against the backdrop of at least four instances of faulty trades disrupting the market in recent times, the latest being placing of erroneous orders on the National Stock Exchange in February this year.

Releasing a discussion paper on policy with regard to erroneous trades, the SEBI said the objective was to “have a uniform policy for trade annulment.”

Transparent approach

According to the market regulator, stock exchanges shall adopt a transparent and time-bound approach to decide upon cases related to annulment of trade before making the final settlement.

Suggesting that bourses need to define minimum parameters to identify erroneous orders/trades, it said that cancellation should happen only in exceptional situations. The exceptional circumstances include fraud and market manipulation.

“Stock exchanges shall examine cases of erroneous orders/ trades and apply deterrent penalties in the form of fines or suspension of trading rights of the stock broker,” the discussion paper said.

At present, SEBI has not prescribed regulatory framework with regard to ‘annulment of trades’ and stock exchanges are empowered to take action as they deem fit.

Public comments on the paper can be submitted to SEBI till October 31. The stock exchange shall clearly define the circumstances for entertaining requests for cancellation of trade or price reset. Generally, ‘price reset’ is a mechanism where the price of executed trades are adjusted to a new determined price. Besides, the market watchdog has proposed that bourses should analyse the potential effect of trade annulment.

With regard to framework adopted by stock exchanges, the paper has said that they should specify the type of entities who can invoke the mechanism for cancellation of erroneous trades.

Among others, SEBI has suggested that stock exchanges shall provide a mechanism for parties concerned to request a review of the decision related to erroneous trades, and also publish the same on their websites. — PTI