Trading glitches: Stricter norms are the need of the hour

KS Badri Narayanan Chennai | Updated on October 07, 2019

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Compensation formula should be worked out to assess the loss incurred by a trader due to a glitch

Of late, trading glitches, especially on the NSE, have been hurting traders and investors big time.

September 23 (Monday) was a crucial day for traders and investors, as the market witnessed record buying activity after Finance Minister Nirmala Sitharaman (on Friday) announced major measures to prop up the economy.

However, on that day, brokers were hit by a trading glitch as stock prices and index levels were not updating on the terminals linked to the NSE. Some brokers could not see the updated NSE feeds or prices on their screens due to a ‘technical glitch’ with one of the service providers.

ICICI Direct, in fact, tweeted to its customers saying ‘price feeds not coming from NSE due to technical issue at NSE end. Limit orders not going across all products. Please place limit price’.

According to an NSE spokesperson, there was an issue with one of the Internet service providers — Sify — and the issue got resolved. “The Sify PoP (point-of-presence) issue has been resolved,” NSE said in a tweet at 12.27 pm on that day.

An hour after the issue was resolved, ICICI Direct sent another tweet saying ‘NSE price feeds are now coming. Issue resolved at exchange end. You can place market orders now. All margin products enabled for trading’.

However, some traders still faced interruptions in updation of feeds towards the closing hours on that day. The exchange settled trades taking the weighted average price of the previous 20 minutes prior to the technical glitch and attributed the same to an issue with one of its vendors.

Earlier too (on September 13), traders using NSE NOW, a trading terminal, faced interruptions and disruptions in Gujarat, Rajasthan and in some parts of Maharashtra. However, on that occasion, SEBI slapped a penalty of around ₹50 lakh on the NSE.

Settlement day woes

On August 29 (Thursday), traders at discount brokerage Zerodha were unable to execute their trades for a large part of the day, as the broker’s website faced a technical glitch.

That too was an important day for traders, especially for those operating in the futures and options (F&O) segment, as it was the settlement day of August contracts. Clients were unable to place orders and faced additional margin blocks.

They were unable to square off their positions in time, leading to not just financial losses, but also being forced to take physical delivery of shares on some trades. Zerodha admitted to the technical glitch, saying that it was on account of a large order that was placed in a penny stock which overburdened its system. “It is normal for a large single order to get executed in multiple trades at the exchanges, usually up to several hundred trades. But today, a single order for 10 lakh quantity placed at around 9.40 am on a sub ₹1 stock (penny stock) on BSE got executed in almost 1+ lakh individual trades. This is unprecedented and an overload,” the statement had said. The down time was about 30 minutes only, it further added.

What is the recourse

So, is there any recourse available to traders for the lost opportunities? Of course, traders can knock on the doors of the exchange concerned or SEBI to annul or reverse the trades. However, the discretion to accept this rests with the regulator and the exchange.

Though SEBI is looking into the matter of trading glitches that took place at the NSE on September 23 ‘very seriously’, it is time strict regulations are put in place and action taken, such that they bind all parties concerned.

The regulation should clearly state the arbitration recourse available to investors, who have suffered losses due to trading glitches.

A clear compensation formula should be worked out to assess the loss incurred by a trader due to the glitch.

More importantly, it should also have a clear timetable for the whole process.

Repeat offenders should even see the cancellation of their licence. A mere penalty on brokerages or on the exchanges will not suffice.

Published on October 05, 2019

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