9 Glitches in NSE’s Trading System in Less Than 4 Years

Debashis Basu 25 February 2021

Investor Interest

The National Stock Exchange (NSE), which faced a severe outage on Wednesday, has suffered at least nine serious glitches in since July 2017, that is the past three and half years. NSE is the largest derivatives exchange in the world and the third largest in the cash segment by volume. Among the various issues that it faced in the last three years were—a malfunction with its front-end software for brokers, called NOW, leading to orders placed by brokers repeated by the system several times and in some cases, hundreds of times resulting in unintended trades; NSE being unable to upload end-of-day data on futures and options contracts on its website or other issues, like Wednesday’s telecom problem, that were blamed on the vendor.

Stock trading at the NSE halted for most of the trading session on 24th February. NSE and BSE later had announced an extended session from 3.45pm to 5pm. In its official communication, NSE has sought to blame a technical error on its telecom links. However, the issue was with NSE indices like Nifty50, Nifty Bank. These values stopped updating at 10.08am. NSE closed futures and options (F&O) trading at 11:40am and the cash market at 11:43 am. Later, NSE cancelled all open orders in the equity, F&O and currency (CDS) segments.

On Thursday morning NSE issued a statement saying it “has multiple telecom links with two service providers to ensure redundancy and we received communication of instability of all their links from both the service providers.

"While there was no impact to the trading system, this instability resulted in an impact to the online risk management system.”

This meant that the market could not function normally and, hence, had to be shut down.

(Source: https://www1.nseindia.com/technology/content/nse_schematic.html)

The statement also says “NSE was continuously working on resolution of the problem and once the same was resolved, NSE made an announcement with respect to re-opening of the markets. NSE is awaiting detailed root cause analysis from telecom service providers and vendors regarding this incident. NSE is in close contact with SEBI and keeping them updated of developments.”

Unfortunately, NSE mismanaged its communication on Wednesday leading to forced liquidation of many positions by large brokers like Zerodha. It appears that everyone was in the dark that NSE had intended to reopen the market. Zerodha has reportedly said that even if NSE had told the market by 3pm that it was planning to have an extended period of trading, the broker would have not squared off the intraday positions. But NSE failed to communicate this crucial information in time and a lot of traders simply assumed that the market would not open.

According market sources, NSE’s reason for Wednesday’s glitch is not credible. “They have more than seven telecom services providers. More than 95% orders and more than 65% of all trades come from within NSE’s colocation. It is not that brokers were not able to log in. The real issue was the Exchange was not being able to calculate and distribute indexes at least from 10.07am onwards. Some had suspected that since 9.15am, the index calculations went awry. This may be the real reason for closing the market.”

The bigger issue for traders was that NSE closed its clearing corporation, NSE Clearing Ltd (NCL) too. Consequently, 90% of the brokers, who clear their trades through NCL could not place orders on BSE.

As we mentioned, it was precisely to prevent this from happening that market regulator Securities Exchange Board of India (SEBI) had put in place a system of interoperability among the two clearing companies in November 2018. It had said that this was being done “for efficient allocation of capital for the market participants as well as provide better execution of trades.” (Read: NSE Shut for Trading: What Happened to Interoperability?)

BSE has complained to SEBI saying that it was “anti-competitive and unethical on part of NSCCL to stop its operations to preserve NSE monopoly and hold the market to ransom.”

But SEBI’s press release issued on 24th February makes no mention why interoperability did not come into effect immediately. It has only asked NSE for a root cause analysis and why its disaster management system did not start functioning. (Read: NSE Trading Halt: SEBI Asks Why Trading Was Not Migrated to Disaster Recovery Site)

On Thursday, SEBI issued a further release that says its framework of interoperability "facilitated market participants to continue their transactions at other stock exchanges, thereby allowing them to seamlessly trade or square off their existing positions."

"The same is evident from the fact that the trading turnover at BSE in equity segment jumped to Rs40,600 crore on 24th February as compared to an average daily trading turnover of about Rs5,200 crore during the previous 30 days," SEBI says.

But there is a difference of opinion on whether the interoperability worked.

Recognising the importance of business continuity, SEBI has asked market infrastructure institutions (MIIs) to carry out live trading from disaster recovery site for two consecutive days every six months apart from conducting quarterly disaster recovery drills.

S.No.	Date	Issue	Link
1	July 10, 2017	A major technical glitch in NSE in the early morning trade compelled the exchange to abruptly shut down its operation	https://www.indiainfoline.com
2	May 24, 2018	Malfunction at NOW lead to thousands of orders placed by hundreds of brokers repeated by the system a number of times and in some cases, hundreds of times resulting into unintended trades for brokers/clients	https://www.moneycontrol.com
3	August 30, 2019	NSE has been unable to upload end-of-day data on futures and options contracts on its website for over a month now	http://www.cogencis.com
4	September 23, 2019	NSE hit by 2 glitches on the same day	https://www.moneycontrol.com https://www.deccanherald.com
5	Nov 19, 2019	Brokers write to NSE, complain of losses after ‘technical glitch’; bourse blames vendor	https://www.moneycontrol.com https://www.livemint.com
6	February 3, 2020	Retail stock market players were hit by another tech glitch at the National Stock Exchange (NSE)	https://www.thehindubusinessline.com
7	February 12, 2020	Marred by tech glitch, NSE halts migration to new brokers’ platform	https://www.thehindubusinessline.com
8	June 4, 2020	Traders left in lurch as technical glitch strikes NSE again	https://economictimes.indiatimes.com
9	July 24, 2020	2 ETF prices jump up to 6,553% in NSE tech glitch; all trades cancelled	https://economictimes.indiatimes.com