Sebi, Finmin seek detailed report from NSE as trading halts due to glitch

The country’s top bourse the National Stock Exchange (NSE) on Wednesday suspended trading in its cash and derivative segments for several hours, jeopardizing the interests of several market participants. The exchange cited issues with its telecom service providers for the glitch that prevented stocks and index quotations from getting updated. The issue came to light less than an hour after normal trading had commenced, with several brokers complaining of freezing of live price feeds.

At 11:40am, the exchange halted equity market trading, forcing investors to redirect their cash market trades to BSE—where ‘impact costs’ are high due to shallow trading volumes.

“NSE has multiple telecom links with two service providers to ensure redundancy and we have received communication from both the telecom service providers that there are issues with their links due to which there is an impact on NSE system,” the exchange said in a statement without disclosing the names of the service providers.

Sources said the Airtel and Tata Communications are among the service provides to NSE. An email sent to them seeking details about the outage wasn’t immediately answered.

NSE enjoys virtual monopoly in the futures and options segment, while has over 90 per cent market share in the cash market. As a result, many participants, especially in the futures and options (F&O) space had no choice but to wait for the trading to resume.

The exchange didn’t respond to queries on why the DR site wasn’t activated or why it took several hours to resolve the issue.

Both the Finance Ministry and the Securities and Exchange Board of India (Sebi) sought detailed report from NSE as suspension went on for several hours.

“Sebi has advised NSE to carry out a detailed root cause analysis of the ‘trading halt’ witnessed at today and also explain the reasons for trading not migrating to the disaster recovery (DR) site,” said the market regulator in a statement.

A senior official in the finance ministry said “We are looking at the severity of the issue and whether any consequential damage occurred due to this. We are also seeking details on instances of past glitches and remedial measures taken by the exchange.”

Sources said an interim report will be submitted to the ministry and Sebi within 24 hours and a root-cause analysis could take a week.

With no communication from NSE on trade resumption even as normal closing time of 3:30pm approached, several brokers started cancelling open orders in the system and decided to square off intra-day cash market positions on the BSE.

This lead to distortion in prices of several stocks, with shares of HDFC Bank and Tata Consultancy Services (TCS) witnessing unusual drop on the BSE.

Less than 15 minutes before close, NSE and BSE announced they were extending trading hours from 3:45pm to 5pm.

Several market players slammed NSE for the last minute announcement. However, sources said regulatory approvals for the extension of trading hours took time.

NSE reported trading turnover of Rs 45,837 crore and Rs 30.6 trillion in the cash and derivatives segment respectively. The volumes were lower than February average of Rs 79,302 crore and Rs 41.3 trillion respectively. BSE, on the other hand, recorded volumes of Rs 7,281 crore and Rs 3 trillion in the cash and derivatives segment. The volumes were above this month’s average o Rs 5,425 crore and Rs 2.9 trillion.

Trading glitches are not an uncommon occurrence both in India as well as globally. In November, the Australian Securities Exchange (ASX) had to halt trading for 20 minutes due to software issues. In October, the Tokyo Stock Exchange halted trading for an entire day due to a hardware failure. In June, an erroneous price feeds for certain F&O contracts had disrupted trading on NSE.

However, Wednesday outage brought back memories of 2017 when NSE had to halt trading for three hours as quotation stopped updating.

Several such outages have prompted market regulator Sebi to device a methodology for compensating investors suffering from technical glitches.

According to the regulator’s annual report for 2019-20, it is actively considering a proposal to introduce a framework for ascertaining the incidents of technical glitches where compensation needs to be paid to the investors.

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