What happened at NSE on 24th Feb 2021?

%name What happened at NSE on 24th Feb 2021?

The legendary Warren Buffett once famously said, “Let them shut down the stock exchanges for five years and I would still not worry about my equity portfolio”. What Buffett meant was that when you are a long-term investor, then short term vagaries in the stock market should not really worry you. But even the Buffett of Buffets would have been a worried man on 24 February in India when the NSE virtually suspended operations for the entire day.

Technical glitches in the stock market are nothing new across the world. There have been similar instances of trading halts in other countries like Japan and even in the US, which are much larger and liquid markets in terms of volumes and market cap. Here is what actually happened at the NSE on 24 February.

Why was trading halted on the NSE on 24 February?

The NSE trading on 24 February started off quite smoothly and the normal trading continued till about 10.08 am. However, since 10.08 am, the brokers started complaining of price feeds not getting updated. It started off as an issue with live ticks of highly liquid F&O contracts underlying the Nifty and the Bank Nifty. Subsequent to this, around 11.40 NSE officially put out a communication to its members saying that it was suspending trading due to a telecom linkage issue with its partners. While no time lines were provided, trading eventually stayed halted till 3.30 pm. The trading again resumed at 3.30pm and an additional 90-minute window was open by both NSE and BSE for traders to square off their positions till 5 pm.

NSE shut F&O trading at 11:40am and cash market trading at 11:43am. At 10.08am, the rates stopped to update on NSE. In its statement, NSE cited a downtime in its telecom links with both its telecom service providers as a resultant of which the main trading link and the redundancy link became non-operative. Redundancy is the back-up trading system or the disaster recovery site that NSE can fall back on in case the main system fails.

Extended trading systems offered by NSE and BSE

BSE on the other hand announced that it was not facing any glitch in its trading platform.  To make use of this and to avoid clients ending up with short positions that would eventually burden them with auction and related penalties, we started intimated clients around 3 pm, to square off their NSE Equity MIS, CO, BO orders in BSE. We too started squaring off positions of clients where they could not do it on their own. To accommodate such an abnormal situation, we also waived of the Call and Trade charges of Rupees 75 for the day.

However, there was little to be done on futures positions as they are exchange-specific contracts and hence were stuck till the trading resumed at NSE. This was extremely important because this system downtime came just one day ahead of the F&O expiry on 25 February.

Once the NSE system resumed at round 3.30 pm, both NSE and BSE decided to reopen markets for extended trading from 3.45pm to 5.00 pm. It was decided that MIS auto square off would be done at 4.30pm and was done accordingly. Only Cash-n-Carry and normal orders were allowed in the extended session.

SEBI and Ministry of Finance seek detailed report

Clearly, the SEBI and the Ministry of Finance have moved in quickly and sought a detailed report from the NSE and also a root cause analysis (RCA) from the NSE in order to understand the actual reason for such a crisis and also remedial measures to prevent such an occurrence in future.

SEBI has asked for a detailed report and has also asked NSE to keep the members informed on a regular basis. But there are larger questions to be addressed. Should SEBI look at standardizing F&O contracts across exchanges so that, like in cash, such positions can be at least squared off at the other exchange. That is food for thought as Indian markets get into a tense expiry.

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