Dissecting the technical glitch at NSE

Lokeshwarri S K BL Research Bureau | Updated on January 11, 2018


The three-hour trading halt on the NSE on Monday, the longest in the history of Indian exchanges, took everyone by surprise and caused pandemonium in the stock market. With different reports flying around regarding the incident, are you confused about what exactly happened? Here’s a brief, based on the information available so far.

How it unfolded

Before trading begins on Indian stock exchanges at 9.15 am, there is a pre-opening session in which investors are allowed to enter their buy and sell orders. These are executed once the exchange opens after the orders are matched. When the market opened on Monday morning, investors found that the transactions in the cash segment were not going through. The display of the order book also appeared faulty. After trying to address the issue for a while, the exchange shut down the cash segment at 9.30 am.

The futures and options segments of the exchange – both equity and currency – were functioning smoothly through this. But with the cash segment closed, it was felt that equity f&O also needs to be shut down. This is because in the absence of an underlying, price discovery in futures and options would be faulty. So the equity f&O was shut at 9.55 am. The currency derivative segment continued to work smoothly through the day.

With the entire equity segment shut, the exchange frantically tried to address the issue and re-start trading. Since the problem appeared to involve software, the exchange did not consider switching on the back-up server.

In a circular issued late at night, the exchange clarified the issue saying, “NSE has received queries as to why trading was not shifted to the BCP site when the main site faced technical issues in the cash market segment. It is clarified that the BCP mechanism is normally invoked during any disaster, hardware failure and connectivity related issues. Preliminary assessment indicated a software problem. Secondly, the system was expected to be rectified quickly and shifting to the BCP site would have taken a longer time.”

Explaining the problem in lay-man terms, Nitin Kamath, Founder & CEO, Zerodha says, the problem is similar to the one you face when your lap-top hangs. You will think twice about re-starting the system if it means you might lose a lot of unsaved data. “The primary server was functioning, there was no problem with the derivative segment; it was forcibly shut-down. Since the problem was in just one segment, moving to disaster recovery servers did not make sense.”

After two attempts, trading began at 12.30 pm in both cash and derivatives for equities. However, reports suggest that the exchange continued to face problems in the cash segment even after the system re-started. As a result, turnover on the NSE on Monday was half its daily average. But the f&o segment recorded volume of Rs over 3 lakh crore, which is robust.

Surprisingly, brokers did not seem too perturbed by the trading halt. Many said their clients were trading in the BSE’s cash segment but trading in f&o segment had come to a virtual halt. It's therefore not surprising that BSE’s cash segment turnover was thrice its daily average on Monday.

In hallowed company

Both NSE and BSE have faced technical glitches in the past, but Monday’s trading halt is the longest in history. Surprisingly, the Indonesian stock exchange too faced issues at the opening on Monday morning. It imposed a trading halt for about 30 minutes due to a problem in the ‘market information distribution system’. This sounds dangerously close to the NSE’s statement of issue with the ‘display in the cash segment.’

Since India and Indonesia are among the preferred markets for foreign investors among the Asian emerging markets, its possible that bulk deals by some of the foreign investors could have caused disruptions in both the markets.

Similarly, other global stock exchanges have also faced software problems that have led to trading halts that have gone on for a few hours. The NYSE, Singapore Stock Exchange, the Nasdaq and the Chicago Mercantile Exchange are a few exchanges that have reported such instances.

Such incidents highlight the need for exchanges to spruce up their act further in dealing with such eventualities without inconveniencing investors.

Published on July 11, 2017

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