Freak trade: blue chip stocks see ‘unusual’ price rise on NSE
The futures contracts of five blue chip companies traded on the National Stock Exchange (NSE) saw an unusual price spike on Tuesday.
According to data provided by NSE, futures contracts for HDFC, Bharti Airtel, HDFC Bank, Tata Consultancy Services (TCS) and Reliance Industries (RIL) jumped about 10% each for a few nanoseconds at the start of trading. This was seen in contracts expiring in September as well as October. In the case of HDFC and HDFC Bank, even the November contracts were affected.
For example, the price of HDFC futures soared to Rs 3,135 even as the spot price was around Rs 2,850. Likewise, the RIL skyrocketed to Rs 2,616 even as the price cash was around Rs 2,370. Prices in the cash segment for the five stocks were not affected due to what many called “abnormal transactions”.
âSome unusual transactions were seen today that were executed by a trading member. The same is being reviewed by the stock exchange regulatory team. These trades were executed within the operating range allowed by the exchange, âNSE said in a tweet.
Market experts blamed the low liquidity caused by the new higher margin standards for unusual trades.
âFrom this month, the markets moved to a maximum margin requirement of 100%. As a result, at the start of the trade there are not too many pending orders in the system. The risk of large shopping baskets skewing prices has increased because liquidity is often low, say at 9:15:03 am, âsaid Abhilash Pagaria, assistant vice president, Edelweiss Alternative Research.
The new margin standards have increased the capital required for intraday traders. This reduced the overall leverage in the system, the experts said.
In addition, brokerage firms are not permitted to provide additional intraday leverage for trading in stocks and derivatives. As a result, intraday traders are required to fund the minimum margins (VAR + ELM for stocks and SPAN + Exposure for derivatives) out of their own pocket.
SPAN is the standard analysis of portfolio risk, VAR is value at risk, and ELM is tail risk margin – measures used to determine investment risk for a particular security.
âMany non-institutional traders have moved to the options segment as the lot sizes in the futures segment have increased. This also leads to a decrease in liquidity in the futures segment. I think as the markets get used to the new system, the cases of abnormal trading will decrease, âPagaria added.
In recent days and weeks, several traders have also complained about unusual price increases in the options segment.