The Nifty futures contract, probably the most liquid instrument in India, crashed over 300 points or 6.7% in a little over one minute at 2.26 pm today. This was on account of a suspected erroneous trading by a large trader. The sudden crash dragged down spot indices too.
Here are 10 things to know about the flash crash.
1) The Nifty futures crashed over 300 points in afternoon trade after which the Sensex fell as much as 1.56% (intraday low of 17,231) and the Nifty declined 1.64% (day low of 5,245).
2) Charts showed volumes in the Nifty spiked at 2:26 pm, sparking sharp falls in the futures index. The Nifty April futures plunged to a low of 5,000. A total of 51.49 lakh shares were traded between 2.25 pm-2.35 pm.
3) Earlier in the day, a similar trade was witnessed in Infosys, which is India's second biggest software services exporter. Infosys April futures hit a low of Rs 1,950 at 10.45 am. Analysts are not sure if the two events are inter-connected.
4) Traders said it appeared to be a case of a dealer looking to sell both Nifty futures and Infosys futures in the National Stock Exchange (NSE), citing an examination of the unusual price and volume action. However, while inputting the trade, the dealer is believed to have neglected to put in the selling price, according to these traders. That meant futures for both trades were sold at the best available selling prices at that time when the order book was shallow.
5) Other analysts made a case for punching error, which would have triggered stop losses.
"These are individual events that are completely not correlated in which case it’s a huge punching error by someone on the Nifty that has led to a lot of executions... I doubt it’s an algorithmic error because algo-errors would have been across certain segments and not Nifty alone," Rajesh Baheti, managing director of Crosseas Capital Markets told NDTV Profit.
6) A NSE official said the exchange was looking into the matter, though they would not confirm whether the sudden drop in the futures index was due to a trading mistake.
7) Last Friday too, the benchmark indices saw sharp falls in mid-session, when the Sensex lost 266 points in six minutes. "What I think also happened is a few days ago we had a basket selling in the market at 2.30 pm and we ended 250 points lower," Ravi Chadha, MD & CIO of Prodigy Investment Management told NDTV Profit.
8) In 2010, shares of Reliance Industries, India's biggest company by market cap, crashed nearly 20% on execution of a large 'sell' order at a very low price. The Sensex plunged more than 600 points after the order was executed on BSE. Reliance has the highest weightage on the Sensex.
9) The sharp fall was reminiscent of a flash crash in US stocks on May 6, 2010 in which the Dow Jones Industrial Average plunged about 1000 points—or about 9%—only to recover those losses within minutes. It was the second largest point swing, 1,010.14 points, and the biggest one-day point decline, 998.5 points, on an intraday basis in Dow Jones Industrial Average history.
10) Markets recovered and closed off the day’s low following the freak trade. The Sensex ended 129.87 or 0.74% lower at 17,373.84 while the broader Nifty index declined 41.55 points to 5,290.85.
(With inputs from Reuters)