It turned out to be manic Monday for traders as a technical glitch at the National Stock Exchange, India's largest stock exchange, hit trading in cash and F&O (futures and options) segments, even as business at rival Bombay Stock Exchange remain unaffected.
This, almost three hours trading disruption at NSE, has raised several questions over the exchange's preparedness and why the backup systems did not work. The finance ministry too has sought a report from market regulator Securities and Exchange Board of India in this matter.
Traders and investors faced problem in executing trades on NSE since morning and rates were not getting updated, forcing the exchange to halt trading. It tried resuming normal market operations from 11:15 am, but as technical problems persisted, there was a further delay. Finally, normal trading resumed from 12:30 pm.
Members in the derivatives segment were given fifteen minutes window 12:15 pm – 12:29 pm to cancel their outstanding orders.
“NSE cash market segment did not function normally due to technical problem at the opening today and accordingly was closed. F&O and CDS (currency derivatives) market segments opened normally. Subsequently after giving notice to the market, the F&O segment was also closed,” said a spokesperson for the exchange.
This glitch, particularly hit intra-day traders and arbitrageurs, who typically use the stock price differences between the two exchanges to earn a profit.
“Since market opened in the morning, rates were not getting updated. Trades were going through only on the BSE. Only after 12:30 pm did some normalcy return on the NSE,” said a stock broker.
Deena Mehta, managing director, Asit C Mehta Investment Intermediaries questioned why NSE's disaster backup did not work on Monday.
NSE has a disaster recovery site in Chennai. It is essentially a set up where all exchange data is backed up on a real time basis, and trading can begin if there is a problem with the primary server. NSE has in the past conducted live sessions to test the disaster recovery site in Chennai. The fact that the system didn't work on Monday would be a concern.
NSE said internal as well as external technical team were examining Monday's technical glitch to ensure there would not be a repeat.
“The matter is being examined by the internal technical team and external vendors to analyse and identify the cause which led to the issue and to suggest solutions to prevent recurrence,” the spokesperson said.
“The matter has been referred to the Standing Committee on Technology, comprising of public interest directors and technology experts for review of the problem and to approve measures to prevent recurrence of such glitches.”
The technical issues come at a time the exchange has been looking to go public with its initial public offering and will certainly hurt investor confidence.
“This is something one wouldn't expect to happen with NSE. People's confidence becomes shaky that the systems may not be as robust as was being assumed,” said Sageraj Bariya, vice-president at East India Securities.
Despite being among the newer stock exchanges, almost 80 per cent of the trades on the equity cash as well as derivatives segments are carried through NSE presently. Monday's glitches would have clearly benefited BSE, which saw a surge in trading volumes on a day the benchmark indices hit new life highs. The BSE Sensex surged 355 points or 1.1 per cent to 31,715.64. The NSE Nifty, after resuming trading, rose 105 points or 1.1 per cent to close at 9,771.05.
According to Bloomberg data, BSE's total volume was 350.55 million as of Monday, against the average 268.92 million over the last one month. BSE officials said trading volumes surged more than 250 per cent after trading was halted on the NSE.
NSE's woes also attracted investors to shares of BSE, Asia's oldest stock exchange, which went public last year. Its shares listed on the NSE, saw “a significant increase in volume,” prompting NSE to seek a response from the exchange.
In its response, BSE said, “There is no announcement or price sensitive information, which is pending to be intimated by the company to the stock exchanges concerning the operations or performance of the company.”
BSE shares closed 1.7 per cent higher at 1,085.25.
Monday's issues will only give more headache to NSE, which is already under regulatory scanner over issues related to high-frequency trading and preferential access given to a few brokers through the exchange's co-location facility. Securities and Exchange Board of India had already issued showcause notices to the exchange and some of its officials in that matter in June.
Several of its key executives have quit over the last few months. Chitra Ramakrishna, the MD and CEO of NSE quit abruptly in December 2016 for personal reasons. Last month, Ravi Narain, vice-chairman and one of the founding members of the exchange in 1992, also left amid the Sebi probe.
Presently, NSE is being managed by J. Ravichandran, interim CEO. Sebi has already cleared the appointment of Vikram Limaye, MD, IDFC, as the new MD and CEO of NSE on a caveat that he will be relieved from the Supreme Court-appointed committee that is running India's cricket board.
Limaye is expected to take charge of the exchange sometime in July.
This is not the first time that a stock exchange in India has been hit by major technical issues.
In November 2010, trading was halted on BSE for nearly two-and-a-half hours due to a problem in the software. In October 2012, erroneous orders placed by Emkay Global Financial Services sent the NSE Nifty index crashing more than 900 points, following which trading in the cash segment was briefly halted. In July 2014, trading on the BSE was stopped for more than three hours as many brokers were unable to connect to the exchange servers due to a technical fault.
