Axis Nifty ETF and Axis Gold ETF logged a surprise spike of 6,553% and 741%, respectively, on Friday due to a technical error on the National Stock Exchange (NSE). An ETF merely tries to replicate the underlying asset, and in this case, neither Nifty nor gold saw a big rally on the day.
“Members are requested to note that trades in Axis Gold and Axis Nifty till 09.50 am will be cancelled by the exchange. Trading in these securities shall resume with the revised price band post this activity and the same will be notified in advance," an NSE spokesperson said in a notification.
Moreover, Axis Nifty ETF and Axis Gold ETF surged 20% on Thursday against a rise of 0.80% and 1.5% in the Nifty50 index and gold prices, respectively. The two ETFs were split in the ratio of 1:10 and 1:100, respectively, and began trading ex-split on Thursday. According to the experts, this spike was compounded by an error at the NSE, which displayed the pre-split prices on Friday.
According to a person with knowledge of the matter who did not wish to be named, trades happened at these erroneous pre-split prices. NSE suspended trading on Axis Gold and Nifty ETFs at 9.50 am and cancelled the trades that had happened prior to this time.
Axis Nifty ETF had a net asset value (NAV) of ₹1,160.59 as on 23 July, while Axis Gold ETF had an NAV of ₹4,421. Since the two ETFs began trading ex-split on 23 July, prices should ideally be 1/0th and 1/100th of these levels, respectively, meaning around ₹116 and ₹44.21.
However, Axis Nifty ETF closed at 136.80 on the NSE, about 17% higher and Axis Gold ETF closed at ₹52.35, a rise of around 18%. The aforesaid person said that volumes were thin on 23 July due to the stock split in the two ETFs and this could have caused the surge. Market maker activity was also low, he added. Market makers continuously buy and sell ETFs in order to provide liquidity in these products.
This sharp spike was compounded by an exchange error on NSE on Friday. The exchange began displaying the pre-split prices for Axis Nifty ETF and Axis Gold ETF, thus opening at ₹1,375 and ₹4,353, respectively. According to the NSE data, a volume of 46.53 lakh and 279 lakh, traded at today’s prices. It is unclear what proportion of these volumes were traded at erroneous prices.
“The extreme price moves in ETFs have a lesson for investors. They should stick to large and liquid ETFs only. Smaller ETFs will see such issues and retail investors run the risk of trading at unjustified prices," said Anubhav Srivastav, partner, Infinity Alternatives.
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