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2019 (6) TMI 843 - AT - SEBIAnnulment of certain trades executed in NIFTY Options Contract - order of the Independent Oversight Committee of the National Stock Exchange of India Limited challenged - HELD THAT:- All trading members who were doing the trades at the relevant time, therefore, were expected to be aware of the possibility of prices moving within these ranges. We are also told that along with the best five prices shown on the trading screen the quantities on offer are also available against those best prices. So traders wanting to trade in large quantities had to be conscious of the possibility of matching their trades at prices substantially varying from the five best prices shown on the screen. It is not for this Tribunal to get into the issue of how prices can vary suddenly from ₹ 100 to ₹ 10 or even ₹ 1 within a fraction of a second except restating that the automated trading system of a highly liquid options market is so complex and fast changes in prices based on various factors are expected in milliseconds or even microseconds. In 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. It is an admitted fact that the traders of the appellant did not use the limit order route. It is also an admitted fact that a large quantity of NIFTY Options were placed for sell in the last few minutes of the closure of the trading day which was also the expiry day of the contract. It is also a generally known fact that on the expiry day of a contract prices tend to fall and, therefore, executing large orders will invariably gravitate towards lower prices. Here the price range was set by the Black-Scholes methodology and in the range of ₹ 0.05 to ₹ 570.10 for NIFTY put Options ₹ 6000 and between ₹ 0.05 to ₹ 687.45 for NIFTY call Options ₹ 5700. When a methodology was known to the market participants and as per the methodology price range was set we cannot interfere with such a system in arbitrarily deciding what should be far away prices from the intrinsic value. There were 101 counter parties who all were aware of the applicable price ranges and placed orders at different prices. Bye-law 5 of the Exchange NSE is essentially about upholding the sanctity of trade since it is on “inviolability of trade”. Accordingly, we agree with the contention that annulment of trade should be resorted to only in extreme cases as specified under this bye-law. 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. 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 ₹ 1 to ₹ 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 been brought in clearly stating the range within which only trading is possible in the options segment as well.
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