a loss of Rs. 650 crores incurred by a brokerage house…and says they can pay up. I gulped. We used to run a brokerage business and I am so so happy we are not in Emkay’s shoes.

However let us get the facts right.

In our office we had 12 terminals. Each terminal had a quantity limit, value limit and client limits. And the limits were goddamn low. In 1993-5 these limits were value limits of Rs. 100,000 for active customers, Rs. 50,000 for inactive customers.

We had a quantity limit of 2500 shares if shares had a face value of Rs. 10 and a limit of 500 shares if it had a face value of Rs. 100.

If a client wanted to sell say 45,000 shares of a ‘B’ group share, HE HAD TO CALL at 9am and confirm the transaction. One terminal limit would be increased by the accounts or internal audit guy and the transaction entered. However if he wanted to do it during the day….the CHAIRMAN’S terminal (RM was his name, and not telling u the full name) and the transaction would be entered. I HAVE PERSONALLY TURNED AWAY CLIENTS where we were not sure of getting delivery the next day.

If somebody tells me that there was a company where an employee COULD commit such a mistake (or fraud) I think the BOARD deserves to be sacked. The auditor was saying ‘adequate controls…’ God in one swift move he has wiped out the company? I shudder to think.

We were such a small company, we would have required about 30 generations to recoup this loss….

Now let us come to NSE. Here is a small company which does transactions worth say Rs. 10 -12 crores of transaction. Suddenly if the transaction goes to Rs. 650 crores – that too in 59 different transactions, should it not have triggered off some alarm button?

I remember when the ‘zero’ key got stuck…and the client was trying to sell 10 ACC….however the machine saw it as 10000. Nse called and I still remember being asked “Harshad aya hai kya tumhare office mein”…Similarly some quantity checks, some price checking HAS TO HAPPEN, RIGHT?

I still cannot believe that Emkay is calling this a ‘fat finger’ mistake……what say?

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  1. FAT Finger!!!!

    yeah, sure… blame it on FAT finger, has happened several times in US but yet NO regulation what-so-ever…. HFT (high frequency trading) is the name of the game these days in capital markets. Don’t expect any regulation as so called these FAT fingers are lobbying for HFT, huge money making business…. BUT who gets chopped??? Ofcourse retail investors…. 🙁

  2. YES, you are right, unless I hold shares of Emkay… what if I did!!!

    In short, this is becoming prevalent in Investment Brokerage firm and FAT fingers are becoming common every 6mths to a year….

    Side effects of FAT finger in US:
    1. Shares of Accenture and P&G were sold at .001 cents on stock exchanges… including many other firms
    2. Many STOP LIMIT orders were hit, naturally who suffered!!! retail investor

    So did we see any regulation!!! or even triggers in place to avoid it!!! well wait for next FAT finger and we will know…. 🙂

  3. heard of TRADING RISK? if you are not ready for that, well, you should not trade. I have a running fight re the poor risk control mechanism with brokers, exchanges and the most imp the regulator. Sadly in this case, SEBI should LEVY a huge fine on NSE and cr it to the investor protection fund. Emkay should GO. However it is too powerful, so IT WILL NOT BEAR THE 60 CRORE LOSS. The small guy will – the Investor Protection Fund will bear the loss 🙁

    However protection of the shareholder of a trader member is not a priority for a market regulator.

  4. Well, a retail investor can also lose because of these guys. Many of these brokerages have a fancy scheme called PMS – Portfolio Management Services. I know people ‘investing’ 50 lakh to 1 cr in these. They have to give a blanket permission to the PMS provider that they can do anything with the money including futures/options. What if Emkay has used that money for this trade?

  5. Owneers, Managers and Auditor’s all believe if they (individually) control it, the have adequate internal controls. Maker and Checker means governance. However, it is viewed as loss of authority!THE EGO !!!!!!!

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