Despite facing severe criticism over Wednesday's four-hour-long trading halt, the National Stock Exchange (NSE), while expressing sincere regrets, defended its decision of not moving the trading to disaster recovery (DR) site since its online risk management system was unavailable due to failure of telecom links.
In a statement, NSE says, "While there was no impact on the trading system, the instability of telecom links resulted in an impact to the online risk management system of NSE Clearing and other systems. Critical systems such as the risk management system are configured with redundancies such that there is no single point of failure. Given that the online risk management system was unavailable, market functioning could not continue normally on NSE and hence had to be shut down. NSE informed market participants around 11:30am that trading on NSE will close at 11:40am."
At a time when questions are being raised about why the disaster recovery site did not come to the rescue during the incident, NSE said that it took the decision of not migrating to the recovery platform after detailed consultation and evaluation.
Post-shut-down of trading, NSE says it considered all the available alternatives on hand including invocation of DR to decide on the course of action that would bring up the market at the earliest with least disruption to market participants. "Post evaluation, a decision was taken to bring up the systems at the primary site. NSE regularly tests its DR readiness in line with Securities Exchange Board of India (SEBI) regulations wherein quarterly drills are conducted and live trading sessions from DR site are conducted twice a year," the Exchange says.
NSE says, trading shut down and re-open were done after giving due notice to the market. To ensure orderly opening of the market, the Exchange says, "all outstanding orders were cancelled and a pre-open session was conducted to discover re-open price and then the markets were opened. It is important to note that there was no impact on trades executed before the market shut down at 11:40am. The process followed is as per international best practices."
Market regulator SEBI, which has sought a detailed root cause analysis from the Exchange, has also asked the NSE to explain the reason for not migrating to the recovery site.
In the release, NSE stressed on its commitment towards providing a robust, stable, and reliable platform and outlined its investments made towards in the strengthening of the platform.
"NSE has a robust, resilient, secure and fault tolerant technology infrastructure supported by best-in-class equipment from vendors like Cisco, HP, Dell, Hitachi, Checkpoint, Palo Alto, and Oracle aided by able technology service providers like TCS, Cognizant, and Wipro," it says.
Further, the bourse added that it has a strong technology governance process in place wherein the technology infrastructure is reviewed on a regular basis by committees such as the standing committee on technology which has technology experts. Also, NSE says multiple types of audits are carried out by various firms and institutions with specialised expertise.
The NSE mentioned that it invests heavily in its technology infrastructure on a continuous basis and, over the past three-four years, it has almost tripled its annual cash spend on capital and operational expenses on technology to around Rs900 crore with a strong technology workforce of around more than 1,500 people, including employees and vendor staff.
Noting that it is the largest derivatives exchange in the world by volumes, it said that NSE has "demonstrated track record of handling significantly high volumes despite a challenging external environment over the last one year due to the pandemic without any impact on trading."
Stating that the Exchange constantly endeavours to provide a glitch-free environment, it said that the complex technology architecture, however, has significant external and vendor dependencies in terms of connectivity and hardware.
It cited examples of similar outages in Australia, New Zealand, Japan, Germany, and the UK, which occurred in the past two years.
NSE reiterated that it is awaiting detailed root cause analysis from its vendors regarding Wednesday's incident.