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Brokers write to SEBI; say NSE outage led to huge losses for investors

Zerodha says it was forced to square off user positions due to lack of communication

nse-nifty-reuters [File] A guard walks past the NSE building in Mumbai | Reuters

Stockbrokers have dashed off a letter to the Securities and Exchange Board of India alleging huge monetary losses to investors following Wednesday’s technical glitch at the National Stock Exchange that led to trading being halted for almost four hours on the world’s largest derivatives exchange.

“The glitch happened one day before the expiry of monthly and weekly contracts, which has caused huge monetary loss to members and investors, including intra-day traders. Hence there is a huge need of engaging deeper investigation in the matter,” the Association of National Exchanges Members of India (ANMI) said in its letter to the market regulator.

Troubles had begun on Wednesday a little after 10 am as major NSE index prices stopped updating. Eventually at 11:40 am NSE halted trading across all market segments. It only resumed at 3:30 pm and BSE and NSE conducted extended trading till 5 pm to cover up for some of the lost time. Trading outages on stock exchanges have happened in the past too, but this was the longest.

NSE has blamed the troubles on problems with telecommunication links. However, brokers complain they were not kept in the loop of the problem and when trading would restart in the morning. Questions are also being raised over why trading was completely halted when only two spot indices were not updating.

“There was an issue with two spot indices and all other things were working fine for more than an hour. Hence, trading could have been continued,” said ANMI.

However, NSE says given that the online risk management system was not available, market functioning couldn’t continue normally and hence had to be shut down.

“NSE has multiple telecom links with two services providers and we received communication of instability of all their links from both the service providers. While there was no impact to the trading system, this instability had an impact to the online risk management system, also configured in a high availability mode,” an NSE spokesperson said.

Even as trading was halted on the NSE, there were no issues with the rival BSE. Due to a lack of clarification on when trading would resume by NSE, online brokers began closing open intra-day positions on the BSE, which resulted in huge losses for some investors.

Many people vented their anger on Twitter against Zerodha saying they lost money as it had automatically squared off positions at arbitrary prices. The country’s largest online broking firm has defended its action.

“While there was nothing we could do about the intraday futures and options positions on NSE, at around 2.30 PM, we sent a message to all our customers that we will exit the intraday equity NSE positions on BSE. This was important (and in the clients’ best interest) because these positions could have led to leveraged positions, short delivery and huge auction penalties if held overnight. Since there were no further updates from NSE on the possibility of a reopening or an extended session, around 3:10 PM, we squared off all NSE MIS (margin intraday square-off) & CO (cover order) positions on BSE,” Zerodha said.

ANMI also says that the NSE only announced the commencement of trading from 3:30 pm ten minutes before the fact. It could have stepped in earlier assuring stakeholders of resumption in trading, which in turn could have averted “panic sell-off” by online brokers, it said.

The NSE spokesperson said it was continuously working on a resolution of the problem and once the same was resolved, NSE announced the re-opening of markets.

Questions have also been raised why NSE was not able to shift trading to its disaster recovery site, which is essentially a back up in such circumstances. SEBI has also sought an explanation on this from NSE.

“SEBI has advised NSE to carry out a detailed root cause analysis of the trading halt witnessed at NSE and also explain the reasons for trading not migrating to the disaster recovery site. SEBI has asked NSE to submit its report at the earliest,” it said.

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