Failure at NSE clearing arm led to Feb outage, says RBI

MUMBAI: In a revelation, the RBI on Friday said that shutting down of the system at NSE Clearing (NCL) had led to the day-long trading blackout at the bourse on February 24.
Since the trading halt on NSE, the country’s largest exchange, it was believed that the trouble originated at two telecom service providers that led to stoppage of trading. The trading session was extended by one and half hours till 5pm to mainly help investors limit their losses after consultations among the government, Sebi, NSE and BSE, depositories and clearing corporations.
The major issue was the ineffectiveness of interoperability because of shutting down of the NCL, the RBI said in its ‘state of the economy bulletin’. “While NSE’s trades are cleared by NCL, trades on the BSE are cleared through Indian Clearing Corporation. In 2018, Sebi had announced interoperability between these two clearing corporations to help brokers consolidate their clearing and settlement functions at a single clearing house, irrespective of the stock exchange on which the trade is executed,” the central bank said in the report.
During the February 24 trading outage, NSE said that it had “multiple telecom links with two service providers to ensure redundancy and we have received communication from both the telecom service providers that there are issues with their links due to which there is an impact on the NSE system”.
“Another important failure was the inability to switch operations to the disaster recovery site,” the RBI said. “Robust risk management system encompassing disaster management and recovery are essential components for the smooth functioning of a stock exchange,” it noted.
The central bank also flagged that according to brokers, timely communication and clarification (from the NSE) could have averted the panic selloff by online traders on the BSE and prevented huge losses to investors.
Allowing Nifty and the sensex to trade on all the stock exchanges, extension of interoperability to include usage of trading infrastructure of another exchange and allowing entry of more exchanges to increase competition may need to be considered, besides focusing on strengthening of risk management frameworks at the exchanges,” the RBI noted.
A day after the NSE’s trading blackout, Association of National Members of India, a pan-India association of brokers had suggested that contracts on Nifty and the sensex should be allowed to be traded on both the leading bourses of India. Currently, while Nifty is traded only on the NSE, the sensex is traded only on BSE.
After the NSE blackout, finance minister Nirmala Sitharaman had said that it had cost the country and lessons were being learnt. Around the same time Sebi also set up a technical committee for a ‘root cause analysis’ of the failure.

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