Trading glitch: An impact assessment

For the second time in two months BSE had to halt trading

Despite the disaster management drills and mock trading sessions, exchanges remain prone to errors and technical glitches. On Thursday, BSE had to halt trading almost as soon as it opened for business, the fourth time in as many months.

“Due to a network outage being currently faced, BSE has decided to close all markets,” the exchange said in a statement. Subsequently, it added all orders placed before the network outage would be cancelled.

Deena Mehta, managing director at Asit C Mehta Investment Intermediates, says: “There is a huge technology risk associated with the kind of systems we work with and incidents such as this make us conscious of this fact. We are so used to exchanges working efficiently and believe they’ll never fail. But that’s not the case. This realisation should now come to everyone. The Securities and Exchange Board of India has already insisted on displaying a technology risk document…Fortunately for us, there is another exchange that’s working and most investors/players would have had the option of trading on either of the exchanges. However, in case of mid- and small-cap stocks, BSE is far more active. To that extent, there could have been some impact. Having said that, we did not see price formation and, therefore, the impact would have been limited.”

Perhaps, this was one of the biggest technical glitches, bringing trading to a halt at a time when trading volumes were at their peak. In June, the cash segment’s daily average turnover on BSE stood at about Rs 4,002 crore, nearly double that in January this year.

Impact
So, should you be worried? And, what do you stand to lose in such a situation? Ashu Madan, chief executive, Religare Securities, says retail investors won’t be impacted much, as most operations ran smoothly on the National Stock Exchange (NSE). “Since most stocks are available on the NSE, the impact would have been limited. Most investors prefer to trade on the NSE now, and the current rally is not limited to stocks listed on BSE,” he says.

Deven Choksey, managing director and chief executive, KR Choksey Securities, says: “This is pure bad luck for the exchange. This issue has been haunting them quite frequently. In case a broker has executed a transaction on behalf of an investor and has an alternative available in terms of trading on the other exchange, he/she will not be hit badly… Since the glitch happened almost as soon as trading began, there wouldn’t have been not be too many trades in the system; that’s what could possible save the traders. In case people were playing on both exchanges simultaneously from a proprietary desk, they might have faced some issues, as they would not know whether their order was executed or not.”

Experts say if one is a proprietary trader and if the transactions are stuck in the order channel, traders could be in a spot, as one has to exit from one place and enter trades in the other exchange.

A propriety trade is when a firm, to make a profit for itself, trades stocks, bonds, currencies, commodities, their derivatives, or other financial instruments with the firm’s money, not the depositors’.