SEBI Proposed New Measures for Stock Exchanges to Deal with Incorrect Trades

The Securities and Exchange Board of India (SEBI) on 9 October 2013 proposed new range of measures for stock exchanges in order to deal with the fraudulent trading activities in the securities market. These measures include time-bound approach as well as well-defined parameters.
SEBI announced the measures in the backdrop of at least four instances of incorrect trades which in turn disrupted the market in the recent past. The latest one includes placement of incorrect orders on the National Stock Exchange in February 2013.

SEBI, for this purpose, released the discussion paper on policy in context with the incorrect trades. SEBI explained that the objective of this is to have a uniform policy for trade annulment. The stock exchanges shall adopt the transparent and time-bound approach in order to decide the cases related to annulment of trade, before the final settlement is made. SEBI also announced that cancellation should take place only in certain exceptional situations. These exceptional situations include market manipulation and fraud.

The discussion paper said that in order to facilitate certainty to trades executed on the stock exchange's trading platform, the trades should not be annulled under normal circumstances. Trade annulment should come only under certain circumstances which include regulatory action, error which impacts the sanctity of price discover, market manipulation as well as fraud.

Apart from all this, the SEBI also proposed that the bourses should analyse the impact of trade annulment. SEBI, after releasing the discussion paper explained that prevention of the practices like these was a crucial part of the risk management framework of stock exchanges. The stock exchanges also have online surveillance mechanisms for the purpose of preventing market manipulations.