A temporary telecom glitch at India’s largest stock exchange has rattled the country’s government and regulators.
On February 24, the National Stock Exchange was forced to abruptly halt trading for four hours due to failure in telecom connectivity as the company’s two service providers simultaneously went down. This resulted in heavy losses for many investors.
Now, Union Finance Minister Nirmala Sitharaman has reportedly said that the unanticipated issue and the failure to smoothly navigate the situation would “cost us”. India’s stock market regulator, the Securities and Exchange Board of India has also reportedly called for a meeting with the top officials of India’s two biggest stock exchanges, NSE and Bombay Stock Exchange, along with officials from clearing corporations and depositories on March 2.
Among other things, the technical glitch could tarnish Indian stock exchanges’ reputation at a time when foreign investors have been flooding the markets and taking them to historic highs.
At 10 am on February 24, Nifty indices – groups of benchmark stocks on NSE – suddenly stopped updating even as trading continued. At 11:40 am, the situation worsened as NSE abruptly halted trading without sharing any reasons.
This left many traders in a lurch. The uncertainty mounted as there was no communication from the exchange as well as regulators for halting trading. The lack of communication meant that brokerages were forced to square off (closing all open positions) intraday trades and suffer losses.
At 3:30 pm, NSE announced it would be holding an extended session between 3:45 pm and 5 pm, during which the market surged by 1,000 points, but by then the damage had been done.
In a blog post, tech-focused discount broker Zerodha claimed that since NSE did not inform it about holding an extended session before 3 pm, it decided to exit intraday trades. As the closing time for Indian markets is 3:30 pm, the brokerage had squared off all intraday positions by 3:17 pm. “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,” Zerodha said.
While the Mumbai-based stock exchange is still examining the incident, it has blamed the “instability of telecom links” for the error. “NSE has multiple telecom links with two service providers to ensure redundancy and we received [a] communication of instability of the links from both the service providers,” it said in a statement released on February 26.
Besides lack of communication, another criticism levelled against NSE is that it did not shift trading to a disaster recovery website. This is a backup site created to ensure that trade does not stop if there is a glitch.
But the exchange defended itself saying, “post shut down of trading on NSE, we considered all the available alternatives on hand including the invocation of disaster recovery to decide on the course of action that would bring up the market at the earliest with least disruption to market participants and post evaluation, a decision was taken to bring up the systems at the primary site”.
In a statement, NSE also asserted that it invests heavily in technology. “NSE has almost tripled its annual cash spend on capital and operational expenses on technology to approximately Rs 900 crore with a strong technology workforce of approximately 1,500 plus people [employees and vendor staff],” it said.
While the war of words over the incident continues, SEBI has asked NSE to prepare a detailed report and explain why it did not move to the backup site.
This article first appeared on Quartz.