Stock trading at the National Stock Exchange (NSE) came to a halt on Wednesday, one day before the expiry of February derivatives, following a technical error with its telecom links and issue with live ticks for NSE indices like Nifty 50 and Nifty Bank. After the rates stopped updating on NSE at 10.08am, NSE closed futures and options (F&O) trading at 11:40am and cash market at 11:43am. Later, NSE cancelled all open orders in the equity, F&O and currency (CDS) segments.
Interestingly, at the same time that NSE halted trading, there were issues with NSE Clearing Ltd (NCL), which clears the trades on NSE. Trades of Bombay Stock Exchange (BSE) are cleared through Indian Clearing Corporation Ltd. Troubles at NCL has prevented the market from smoothly shifting over to BSE’s trading platform, as part of what is called interoperability of clearing corporations (CC).
More than two years ago, on 27 November 2018, market regulator, Securities Exchange of Board of India (SEBI) had issued a circular that was supposed to take care of the situation affecting the market today. The circular allowed interoperability among the two CCs. Interoperability among CCs can help market participants consolidate their clearing and settlement functions at a single CC, irrespective of the stock exchange on which the trade is executed.
When the circular was issued, SEBI had said “It is expected that the interoperability would lead to efficient allocation of capital for the market participants, thereby saving on costs as well as provide better execution of trades.”
SEBI had got the feasibility of interoperability examined at length through sub-committees for risk management, technology, finance and taxation Thereafter, the SEBI board approved suitable amendments to various regulations and finally issued the circular. But, today, when this facility was needed, NSCCL has developed a glitch.
Asks a market source angrily: “After interoperability was introduced, it was expected that when one exchange stops, the volumes will shift to other exchanges as brokers would be able to use the same margins.
"But today when NSE closed, NSCCL, the NSE-controlled clearing system also went down either by quirk of fate, by accident or by design. So, brokers and their investors could not trade on BSE and have become prisoners of the NSE system.
"All noble intentions of SEBI and ministry of finance have been brought down to earth by NSE and NSCCL breaking down at the same time. What should be done by regulators? Or will they continue to promote NSE’s mismanagement and mis-handling and mishaps for next 20 years at a huge cost to the investors and the country?”
An NSE spokesperson says, "NSE has multiple telecom links with two service providers to ensure redundancy and we have received communication from both the telecom service providers that there are issues with their links due to which there is an impact on NSE system.”
However, another Exchange source says, NSE has seven telecom vendors and not two.
More importantly, he asks, “Why couldn’t NSE start trading system from their disaster recovery (DR) site as per SEBI regulations? Who is responsible for making such decisions? What is the accountability of NSE management? How is it that in last two years, NSE has developed a glitch 4-5 times near the expiry?”
So far, there is no word or statement from the market regulator, SEBI. NSE is also mum over why the disaster recovery site has not been able to take over and re-start the Exchange after several hours.
The fact is that behind its aura and image of professionalism, NSE has repeatedly got away very lightly over the years with its series of wrongdoing such as client-code modifications, fat-finger crash of October 2012, irregular appointments to the top, stakes in unrelated business and the monumental algo scam.
Often, the pretext of not taking action against individuals has been that “we cannot harm the institution and undermine the market’s confidence.”
How long will this excuse be used?