The recent trading halt at the New York Stock Exchange had everyone lauding the resilience of the market infrastructure in the US and the manner in which trades were effortlessly routed to exchanges where the trades could be transacted. The episode highlights why it is good to have the stocks traded from multiple exchanges within a country.
Despite stocks exchanges being driven by very sophisticated software, trading halts, flash crashes and so on are quite common across the globe. Things can get especially tricky when migrating to an upgraded version of the software, as was witnessed on the NYSE on July 8 when trading in all stocks was suspended for three-and-a-half hours.
But traders and investors on the US markets hardly suffered as the NYSE routed the trades to other exchanges. The decision was made easier by the fact that the NYSE trades only 14 per cent of the totally traded stocks in the US market with exchanges such as the Nasdaq Stock Market and Bats Global Markets, besides dark pools and private trading platforms accounting for the rest of the turnover.
India too has stocks traded on two major venues, the National Stock Exchange and the Bombay Stock Exchange. Despite the NSE accounting for around 90 per cent of the exchange turnover, the fact that almost all the stocks are also available for trading on the BSE will ensure that market intermediaries with membership on both exchanges can route transactions to the BSE if the NSE develops a glitch or vice versa. The Metropolitan Exchange which is still trying to find its feet can also act as a back-up once volumes pick up there.
But is there a case for SEBI allowing dark pools in India to counter this risk?
No, these are non-transparent platforms that put retail investors at a disadvantage since the order book in the dark pools is not revealed to the public. These platforms account for around 40 per cent of the trades in the US equity market but this is one technological improvement we can do without.
Deputy Editor and Head of Research