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TMI Blog2019 (6) TMI 843X X X X Extracts X X X X X X X X Extracts X X X X ..... ne, Advocate JUDGMENT Per: Dr. C.K.G. Nair 1. This appeal is filed challenging the order of the Independent Oversight Committee ("Oversight Committee" for short) of the National Stock Exchange of India Limited ("NSE" for short) dated July 07, 2017. By the said order the Oversight Committee rejected the request of the appellant for annulment of certain trades executed on September 26, 2013 in NIFTY Options Contract. 2. The relevant undisputed facts in the matter are the following:- a) On September 26, 2013 at around 3:20 pm, the Ahmedabad Branch office of the appellant decided to square-off and close existing intraday open positions in NIFTY Options of five of its clients. Since these Options Contracts were expiring on this day, approval of the clients was also sought and obtained for squaring-off their open position before closure of the trade hours since squaring off attracts lower Securities Transaction Tax ("STT"). b) The dealers prepared batch files and placed orders around 3:26 pm, opting for the "market rate" and not the "limit rate". This would mean that these batch orders would be executed at the prevailing market rates in terms of the price-time order matching ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... audulent activity involved in the matter. Accordingly, the appellant sought annulment of the trades and sought further hearing in the matter and requested that in the interim not to make payout to the counter party brokers. It was also submitted that as per the bye-laws of the Stock Exchange as well as its Clearing Corporation annulment of trade is possible on account of factors as in the case of the trades of the appellant got executed on September 26, 2013. g) NSE after forwarding the representation of the counter parties to the appellant and after hearing the parties including the counter parties rejected the appellant's application for annulment on May 06, 2014. h) The appellant filed an Appeal No. 297 of 2014 against this order in this Tribunal. i) On August 26, 2014 this Tribunal passed the judgement in the matter of M/s. Emkay Global Financial Services Limited V/s The National Stock Exchange of India Limited and Others (Appeal No. 64 of 2013 decided on August 26, 2014) ("Emkay" for short). j) On November 16, 2016 this Tribunal remanded the matter to NSE to pass a fresh order in view of the judgement in the matter of Emkay (Supra) as sought by the counsel for NSE. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he appellant would not know what is beneath these best prices shown on the screen. Therefore, the appellant assumed that in the light of the instructions to brokers not to place orders at far away prices failing which disciplinary action would be initiated, prices too far away from what is shown on the trading screen are not in the system. Though, the appellant initially requested cancellation of all impugned trades, later on it was brought down to trades matched at less than 50% of the last traded price / market price which was further restricted to the trades in respect of the 10 respondents in this appeal. Accordingly, it was submitted, that for the genuine mistake of the dealer traders of the appellant by placing a market order instead of a limit order, the bye-laws of the Exchange and Clearing Corporation allow annulment of trade and the present matter is a fit case for invoking the byelaws for annulling the trades. The appellant also submitted that out of compulsion the appellant has already settled the matter with 2 respondents (i.e. Respondent Nos. 2 & 3). 6. The learned senior counsel for the appellant heavily relied on the decision of this Tribunal in the matter of Emka ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the minimum and maximum prices are decided by this model rather than decided by any manual exercise. Though, subsequently by a Circular dated April 11, 2014 this range has been narrowed and circuit filter introduced, at the relevant time of September 2013 there was no such specification and the range was automatically decided by the said Black-Scholes model. The appellant, like other brokers, was fully aware of this. The submission that they could see only the five best prices available on the screen, though is a fact, the appellant was fully aware that the price could potentially go down up to Rs. 0.05 as per the Black-Scholes based formula. 9. He further submitted that the market price was punched erroneously by the trader-dealers, instead of the limit price, does not stand to scrutiny because of the fact that the appellant filed a police complaint on the same evening alleging fraud and manipulation by his employees in the Ahmedabad Branch Office. Further in another submission the appellant also attributed negligence on the part of the traders in opting for the market price instead of the limit price option. Therefore, there is no consistency in the submissions made by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r, the Exchange may by a notice annul the deal(s) on an application by a Trading Member in that behalf, if the relevant authority is satisfied after hearing the other party/parties to the deal(s) that the deal(s) is/are fit for annulment on account of fraud or willful misrepresentation or material mistake in the trade. (b) Notwithstanding anything contained in clause (a) above, the Exchange may, to protect the interest of investors in securities and for proper regulation of the securities market, suo motu annul deal(s) at any time if the relevant authority is satisfied for reasons to be recorded in writing that such deal(s) is/are vitiated by fraud, material mistake, misrepresentation or market or price manipulation and the like. (c) Any annulment made pursuant to clauses (a) and (b) above, shall be final and binding upon the parties to trade(s). In such an event, the trading member shall be entitled to cancel the relevant contracts with its constituents." A reading of the above bye-law makes it clear that annulment of trade is resorted to only in rare cases particularly when fraud, willful misrepresentation or material mistake in the trade happens. The submission that erro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a liquid market, the market moves even within the time when an order is placed and a huge order itself will move prices are known to all experienced traders like the appellant. 13. Reliance placed by the appellant in the order of this Tribunal in Emkay (Supra) is distinguishable since admittedly the NIFTY Index itself moved substantially in the matter of Emkay while in the matter before us the NIFTY did not move at all, a point emphasised by the appellant. Moreover, in Emkay (Supra) it was evident from the facts that the counter parties therein had entered orders violating position limit and margin rules. Coupled with this fact and the abrupt movement in the NIFTY Index and consequently some traders taking extra advantage of the movement in the NIFTY led to a SEBI investigation. In the present matter, on the contrary, without any movement in NIFTY, because of orders placed at prices far away from the last traded price contrary to the expectations of the appellant, and because of the large quantity of the order placed by the appellant in the last four minutes of trading part of his sell order got matched at low prices as well. 14. Though, certain cautionary Circulars had been is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ree with the contention that annulment of trade should be resorted to only in extreme cases as specified under this bye-law. Considering all the factors in the present matter, we do not agree with the contention of the appellant that it was a material mistake from the side of the trader / dealers of the appellant and, therefore, we do not agree that the impugned trades are liable to be annulled. 17. However, we note that the Exchange was not very clear when they issued advisories to the trading members that they should not be placing orders at far away prices. It is also noted that such advisories were issued even on August 14, 2013. Similarly, the Circulars dated November 16, 2010 and April 24, 2012, the issue of price range and flexing of price range from Rs. 1 to Rs. 3 etc. is ambiguous. Regulatory instruction, particularly relating to trading and settlement matters should be clear and unambiguous and also clearly stating the consequences of violations. Such violations, if any, also need to be dealt with appropriately. However, we refrain from issuing any directions to NSE in this regard at this time since by the Circular dated April 11, 2014 greater clarity and certainty have ..... X X X X Extracts X X X X X X X X Extracts X X X X
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