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The crash at NSE: What happened, who was impacted?

Given that this came a day before the monthly expiry of derivative contracts in the crucial Budget month, the trading halt and subsequent opening of the market for an extended time created significant volatility.

The National Stock Exchange (NSE), the world’s largest derivatives exchange by trading volume for the calendar year 2020, came under intense criticism for failing to communicate effectively with market players following a technical glitch on Wednesday (February 24), which led to a halting of trading.

Given that this came a day before the monthly expiry of derivative contracts in the crucial Budget month, the trading halt and subsequent opening of the market for an extended time created significant volatility.

What exactly happened at NSE

The indices, including NIFTY and Bank NIFTY, had stopped updating from around 10:08 IST, but the exchange did not communicate anything till 11:30 IST, creating confusion and nervousness among market participants.

At 11:38 IST, NSE sent a message through its National Exchange for Automated Trading (NEAT) terminals, saying trading was being halted from 11:40 IST. It gave no indication when it would resume. Around 15:17 IST, the NSE abruptly informed all brokers that trading will open again at 15:45 IST, and continue till 17:00 IST for both cash and futures and options (F&O) segment.

On Thursday (February 25), the NSE said that as “the online risk management system was unavailable, market functioning could not continue normally and hence had to be shut down”. NSE is awaiting detailed root cause analysis from telecom service providers and vendors regarding this incident, the exchange said in a statement.

Who was impacted the most

The trading halt impacted day traders, brokers, and people trading on margin, as most brokers took the call of squaring off cash positions at BSE prices.

“We were nervous because this halt came a day before monthly derivatives expiry. The silence was problematic… All brokers took a call to square off intra-day positions based on prices at BSE, as it was working fine,” said a stock broker.

As a sharp surge was noticed after the NSE extended the trading hours after the technical glitch was resolved, traders whose trades were squared off at lower prices, were impacted. “If NSE had informed brokers of a potential reopening or extension of trading hours at least by 3 pm, we, along with many other brokers, would not have had to take risk mitigation measures and square off positions on BSE. Unfortunately, because no updates were given to brokers, we had no other choice. The last minute notification of the trading extension at 3:17 pm came a little too late,” stock broker Zerodha said.

How common are trading disruptions

Trading disruptions are occasional occurrences, but are not unheard of. They often result from software glitches, hardware issues, and telecom/Internet connectivity failures.

On October 1, 2020, trading was halted for the entire day due to hardware failure at the Tokyo Stock Exchange, while software issues led to a 20-minute trading halt at the Australian Securities Exchange (ASX) on November 16, 2020.

Tokyo Stock Exchange president and CEO Koichiro Miyahara had stepped down after taking “seriously his responsibility for the failure in the…trading system” that led to the daylong shutdown.

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