NSE shutdown! What explains –The GRS Solution
The GRS Solution After a sharp rally of over 1.5
percent last week nobody was expecting a freak trade on the NSE shoutdown on
Monday which leaves many traders stuck with their positions at least in the
first hour of the trading sessions.
The benchmark indices hit a fresh
record high largely led by short covering after Securities And Exchange BoardOf India (Sebi) has put in place restrictions on foreign portfolio investors
from issuing participatory notes where the underlying asset is a derivative.
The trading resumed for the fourth
time at 12:30 PM on the NSE but the spread between the bid and the ask price
was huge which raises many questions.
The Bid-ask spread or the
difference between the lowest ask price and highest bid price for a stock
represents the (variable) cost that an investor pays for a (round trip) trade.
Thus, the magnitude of the spread
is an important decision variable that an investor considers in choosing a
trading venue, as well as the stocks to buy/sell, as per NSE.
In an exchange where one can get
the bid and ask quotes separately and (price quantity) orders arrive
intermittently, the bid-ask spread depends upon a number of factors, including
the probability of information-based trading, the volume of trade, the pricing
grid (tick size) and share price.
One possible reason for the wide
bid-ask spread could be a technical glitch but the more probable reason is the absence
of arbitragers who have decided to stay put after earlier morning technical
flitch at the NSE, said a trader to GRS Solution.
“There is a fear among many traders
about orders they have put in might get annulled. A lot of arbitragers are now
out of action because of the way things have moved on the NSE. They are worried
that if they make arbitrage trades and one leg of those trades get canceled,”
Kunal Saraogi, CEO of Equityrush.com said in a report.
“There are a lot of arbitragers
have decided to stay put worrying that there will be some exchange action
towards the end of the day,” he said.
Dipan Mehta, Member BSE & NSE
also voiced a similar concern that the bid bid-ask spread could be because of
the absence of arbitragers. He also confirmed that they are also facing
difficulty in executing a trade in cash segment.
SEBI{Our SEBI No.INA000007225}
Action:
Finance ministry sources told
CNBC-TV18 that it expects market regulator SEBI to submit an interim report on
the technical glitch by today evening.
Saraogi further added that SEBI
would not have to take a call on trades which happened in the first hour of
trade. Almost Rs 77,000 crore worth of F&O trades got placed on the
exchange in first 60-minutes.
“If the exchanges allow those
trades or if they don’t allow then there will be other ramifications and people
might end up going to court because a lot of traders who made money might not
like it,” he explains.
