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Traders Spooked as Friday Freak Trade Streak Continues on NSE Derivatives – Moneylife

Traders on the National Stock Exchange (NSE) are a worried lot currently. They are spooked by the increasing frequency of freak trades on the NSE derivatives segment (many of which have coincidentally happened on a Friday) leading them to be afraid of “Freaky Fridays”. 



What happened today?


Today, the 37100 put options of Bank Nifty was trading at Rs448 and within a a fraction of a second suddenly hit a high of Rs1921 — a spike of almost 4X and then in moments it came back to 448.. 


This is the sixth such incident in the last two months. Traders have tried drawing the regulator’s attention by writing several emails to the Exchange and capital market regulator, trending a hashtag on this topic on Twitter, conducting a “No Trading Day” on 1st September but to no avail. 


One angry trader told Moneylife “This shows the lethargy on the side of the regulator and the Exchange and also their audacity. Where is the accountability? It makes my blood boil to see all those screenshots from people who have lost. Many of them are not rich and are trading out of a capital of Rs 1 -2 lakh, and imagine them losing Rs60000 within moments and that too when it is not their fault. It is daylight robbery. You can be the best trader in the world but because of this freak trade you can go bankrupt in split seconds. Stock market is becoming akin to gambling because of this and the regulator is obviously sleeping at the wheel. They have turned a deaf ear to all requests – retail traders, brokers’ association, ANMI, commodity brokers association came together to make a request to the regulator and despite all these collective requests, the freak trade scene continues.”


He added that if this continues, traders will look to find a way to trade other markets. “They will get frustrated, lose their faith in the Indian equity markets and start trading somewhere else,” he said.


Within minutes of the freak trade, Twitter was flooded with screenshots from traders who lost large chunks of money. Many of them tagged Moneylife in their desperate distress SOS tweets requesting us to look into the matter. 



















This is similar to what happened on 20th August when around 2.18pm, suddenly there was a freak trade whereby 16,450 call options which was trading at Rs80 suddenly traded at Rs800 that too with a huge volume of over six lakh quantity within a minute. 


Traders had kept stop losses at Rs120-Rs200 and all of these stop-losses got triggered and they couldn’t understand the reasons. All this happened within a minute and this was not even recorded on the charts; so when they went back and checked the charts, the candle had not even reached Rs200 levels leaving traders totally perplexed. The stop-losses could have triggered a domino effect. This freak trade made retail investors lose a lot of money; many have lost over Rs10 lakh.


This has also given rise to many memes over the terrible plight of traders. 



While brokers are raising questions about the frequency of such trades, some even suggested that it could be more than a coincidence. 


Interestingly, like one market expert pointed out the market regulator Securities and Exchange Board of India (SEBI) has been focusing only on manipulation in the cash market segment and penny stocks on the Bombay Stock Exchange (BSE) while such highly unusual price movements are becoming frequent on the NSE’s derivative segment and, more often than not, even go unreported. 


Traders also point out that media houses and mainstream media are ignoring this issue completely. 


Given the opaque style of functioning of NSE and the Exchange being the favoured exchange of SEBI, it is likely that the Exchange will go scot-free once again. However, it is high time the market regulator seeks a clarification from NSE about the increasing frequency of these freak trades and the action being taken by the Exchange to address the issue.


In a supreme irony, while the Exchange and the regulator have failed to protect retail traders interest, it is a stockbroking firm which has stepped forward and is trying to safeguard the same. Zerodha has come up with a solution in the form of a circuit filter where market orders for index F&O with an impact cost of more than a certain percentage of the last traded price will be disallowed. To calculate this impact cost, the system will consider the best five bids and offers and the quantities available at those prices while placing the order. If the impact cost from that market order is more than a certain percentage, the order form will reject the order and nudge you to place a limit order. The feature is expected to go live soon.