InvestorQ : What are some of the key lessons to be learnt from the NSE trading halt?
Rutuja Nigam made post

What are some of the key lessons to be learnt from the NSE trading halt?

1 year ago

Here are some key takeaways from the NSE trading halt that happened on 24 February, which had left a lot of traders and investors confused.

· There is an urgent need for better communication flow with the members. Such technology problems have happened everywhere in the world and so communication assumes importance and it has to be timely.

· There should have been a back-up plan of action communicated considering that 24 Feb was just one day ahead of F&O expiry with added pressure to square off F&O positions and also to roll over to next month.

· The big question is why the redundancy system at the disaster recovery site was not activated. The NSE has offered an explanation but the markets would have preferred to have the communication earlier so they could measure their risks and prepare for it.

· NSE has communicated that only the risk management systems was impacted as a result of which the trading had to be halted. A quicker and transparent communication would have avoided problems for other brokers and also for individual customers. positions.

· The ANMI has put forth a suggestion for cross handling of positions in the F&O market just like in the cash market. Futures contracts, especially on indices are unique to each exchange. One solution worth looking at in an emergency situation is to enable worst case cross closure of positions and these can be done at a theoretical price as is the practice in many illiquid asset classes including unlisted debt.

· One key lesson is that there is the need to invest more in technology. ET has pointed out that it was high time to encourage more investments in the tech area by the NSE. The reasons are also obvious. In last few years, pressure on NSE has been high due to the algo/order case and holding profits in escrow. That has impacted tech investments.

· The undertone of markets have change and stock markets have become largely institutional with focus on slice trades, program trades and HFT trades as well as low latency operations. Technology is the missing link.