India 8-second stock rout brings trading paranoia to Mumbai

Stocks tumbled as much as 16% instantly

Reliance Tumble

The Nifty slipped 0.7 percent to 5,746.95 by the 3:30 p.m. close of trading yesterday. Reliance Industries Ltd., owner of the world’s largest refining complex, rose 0.6 percent at 857.8 rupees, rebounding from a 20 percent plunge, while Housing Development Finance Corp., India’s biggest mortgage lender, lost 5 percent to 749.95 rupees after also falling 20 percent.

Of the 4,100 companies trading on the exchange, 19 fell 19 percent or more intraday. Mumbai-based Reliance dropped from 856 rupees to 816.7 in one trade at one second before 9:51 a.m., traded again at that price, then rebounded. A second later, it fell to 682.35 rupees in two trades, Bloomberg data show.

The stock jumped back to 856 during the same second. A total of six trades occurred below 840 rupees during the session, all of them at the bid price.

Housing Development Finance opened at 775.80 rupees and traded at an average price of 753.63 during the day. Thirty-five trades occurred at prices below 740 rupees. The day’s low was reached because of two trades at 2 seconds before 9:51 a.m. executed at a price 16 percent below the previous transaction.

ADRs Fall

An index of Indian stocks traded in New York fell the most since Sept. 25, after rising over the previous two days. The Bank of New York Mellon India ADR Index dropped 1.2 percent to 1,071.40 by 2:47 p.m. American depositary receipts of Infosys Ltd., India’s second-largest software exporter, declined for the first time in seven days, losing 1.5 percent to $48.93.

“The crash definitely hurts as there has been a lot of foreign flows in the last two months and any erroneous order would impact investor confidence,” Daphne Roth, head of Asian equity research at ABN Amro Private Banking in Singapore, which oversees about $207 billion, said by e-mail. “Investors would still ultimately look to future reforms, not just related to the bourse but also to the economy.”

Combined daily volumes on the nation’s two biggest bourses averaged 989 million shares last month, 27 percent more than in August, data compiled by Bloomberg show. Trading last year in the Nifty, at 35.5 billion shares, was the lowest in four years.

Not Needed

“It’s not something that India needed at this stage when volumes are just beginning to recover,” Aquarius’ Rajan said.

In a separate statement, the NSE said it had “disabled” Emkay Global and closed out the broker’s outstanding positions. N. Hariharan, a spokesman at the Securities & Exchange Board of India, the market regulator, wasn’t available for comment.

The NSE, founded in 1992, began trading equities electronically in 1994, spurring the 137-year-old BSE, which runs the BSE India Sensitive Index, to follow suit.

Trading at both exchanges takes place through an open electronic limit order book, where order matching is undertaken by the trading computer.

The entire process is order-driven, meaning market orders placed by investors are automatically matched with the best limit orders and buyers and sellers remain anonymous. The order- driven market brings more transparency by displaying all buy and sell orders in the trading system, though there’s no guarantee that orders will be executed because of the absence of market makers.

More Competition

All orders must to be placed through brokers, many of which provide online trading facilities to retail customers. Institutional investors can gain direct market access through trading terminals provided by brokers for placing orders directly into the stock market trading system.

Competition among Indian bourses is poised to intensify with a third bourse, the MCX Stock Exchange, planning to start trading equities around Diwali, the Hindu festival of lights, which falls in November.

“With another exchange set to be operational in about a month investors would have an alternative,” Kejriwal of Kejriwal Research said.

Bloomberg News

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