NSE, India’s largest exchange by trading volume, suffered a major technology glitch on Wednesday, which left traders scrambling to square off open positions, resulting in losses for many.Many small traders complained of having suffered big losses.
What baffled traders and dealers was that it was a small issue and the exchange went in for over-reaction. What worsened the situation was the timing, as the incident occurred just a day before the February series F&O expiry.
What exactly happened?
The problem started when dealers reported around 10 am that the tickers of Nifty and other NSE indices were not working. Eventually, the exchange halted trading completely to resolve the issue, much to the amusement of the investor community.
“The biggest question in this whole issue is why was the entire market shut just because the index feeds were not refreshing? Feeds for underlying contracts were fine, and so was order matching. So, why shut down the entire market?” asked Jimeet Modi, CEO & Founder, Samco Ventures .
What caused the glitch?
NSE said the technical glitch was due to issues with two telecom services providers. The bourse has multiple telecom links with two service providers to ensure redundancy.
It received communication from both the telcos that there are issues with their links due to which there was an impact on the NSE system. NSE did not name the telcos responsible.
Why trading time extended?
NSE could not resolve the issues at hand within a reasonable time. With the F&O expiry due on Thursday, dealers scrambled to close the positions during the closing hours of the market.
Brokers said if NSE didn’t open for trading, they would be unable to settle intraday F&O positions. That triggered panic.
NSE eventually resolved the issues and on a request Sebi allowed both the Mumbai-based exchanges to extend trading hours till 5 pm from the usual 3.30 pm.
How it affects BSE?
BSE functioned normally, but trading volume surged as brokers directed all trades to the exchange. BSE’s total equity turnover soared to Rs 40,698.08 crore, nine times the usual volume of last one week.
Besides a spike in volume, traders’ scramble to square off positions led to some unusual movement in the indices. Some traders said many stocks hit lower circuits suddenly.
Why does NSE don’t have backup?
Actually, NSE has a disaster recovery site. In the past, it has demonstrated live trading from that system to show that operations can be conducted seamlessly and smoothly in case an extraneous event hits the functioning of the main trading centre in Mumbai.
However, the exchange has not provided any explanation as to why this was not used on Wednesday. Sebi has now asked the exchange to explain.
What next?
It is too early to say if there will be any regulatory action and if the exchange can learn something from this. Now all eyes are on Sebi, which has asked NSE for a report after a root-cause analysis. Everyone will await the report now.
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