Stockbrokers body blames NSE for investors’ loss due to tech glitch

Members of the stockbrokers association ANMI blame the National Stock Exchange (NSE) for the panic sell-off in the stock markets before 3.30 pm on Wednesday.

The NSE was hit by a massive tech-glitch that started at around 10.8 am leading to the suspension of market-wide trading by the exchange at 11.40 am. In a letter to SEBI, ANMI has now said that its members feel that NSE’s silence or lack of communication up to 3.20 pm on restarting market-wide trading led to panic sell-off by online brokerages of their client positions. Regular stock market trading in India is conducted between 9.15 am and 3.30 pm. On Wednesday, to make up the loss of four hours of trading between 11.40 am and 3.30 pm, the NSE traded for extended hours between 3.30 pm and 5 pm. But between 11.40 am and 3.20 pm, there was no communication from the exchange about restarting of the markets, brokers said.

Large online brokers like Zerodha and Upstox run auto square-off of client positions for the intra-day trades. The online brokers initiated this auto square-off at around 3.10 pm as brokers said there was no communication from NSE that the markets would remain open till 5 pm. Between 3.10 pm and 3.30 pm many large counters including Bajaj Finance, Maruti, Indian Oil, Tata Steel, Tata Consumer Products, Maruti, NTPC, Infosys and Lupin among others witnessed a fall of between 5 to 20 percent as they crashed sharply due to the auto square-off. Later, when NSE commenced extended trading session trading at 3.30 pm, almost all the shares that had declined recovered from their low levels. But the majority of the brokerage clients could not trade as they were already facing mark-to-market margin calls. The tech-glitch and the lack of proper communication by NSE caused many clients their positions, brokers told Business Line.

“Major online brokerages informed around 2.45 pm that they will square-off intraday trades by 3.10 pm. However, the exchange continued to remain silent up to 3.20 pm and then announced the markets restarting. The exchange could have stepped in at 3.10 pm and assured brokers of resumption of trading. That could have averted the panic sell-off by brokers on another exchange BSE and prevented huge monetary loss to investors. All this happened due to a lack of clarification by NSE. A simple proactive communication could have averted the panic,” ANMI letter told SEBI.

ANMI has further told SEBI that there is a greater need for a more in-depth deeper investigation as the glitch happened just a day ahead of the monthly derivatives expiry, where client and market positions were at their peak. ANMI letter also raises questions about NSE’s failure to switch to a disaster recovery (DR) site, an alternate solution in emergencies.

“We believe the exchange had knowledge at the initial trading hours when the positions remained at the peak levels. However, no steps were taken to minimise the damage or loss to investors. Also, despite having DR site as back-up, it is a grand failure to not switch to the back-up site. Reasons for not activating the DR site within 45 minutes of the glitch are unknown,” ANMI letter said.

ANMI said its members have suggested that Nifty and Sensex be allowed to be traded on all the exchanges in the future. “If there is uniformity of products across the exchanges, the problem noticed today would have got automatically resolved due to interoperability features,” the letter said.