Nasdaq halt: Sebi reviews Indian stock exchange systems

In the wake of an over three-hour technical glitch at the US bourse Nasdaq, Securities and Exchange Board of India is taking a precautionary stock of trading and risk management systems at stock exchanges in India to reassure their robustness.

While the systems in place at leading Indian bourses are considered to be very robust and can withstand any possible technical glitches, it is advisable to conduct a precautionary check after an unprecedented three-hour trading halt at a large exchange like Nasdaq, a senior Sebi official said.

The capital markets regulator and the stock exchanges in India as such conduct regular tests of various risk management systems and trading platforms to ensure their stability against technical and other glitches, he added.

Trading activities were paralysed at Nasdaq on Thursday after trading was halted for nearly three hours ‘due to issues with quote dissemination’ on its platform.

The exchange said the halt was due to a ‘connectivity Issue’ that has been identified and addressed, while adding that it would further investigate the issue and would take necessary steps to enhance the platform.

Nasdaq has been traditionally favoured by technology companies for trading of their shares and some big names traded there include Facebook, Apple, Yahoo and Google.

Some of the Indian companies listed on Nasdaq include Sify and Rediff.

IT major Infosys also used to be listed on Nasdaq, but it later moved to another US bourse NYSE, where many other Indian companies are also listed and include ICICI Bank, HDFC Bank, Wipro, Tata Motors, Dr Reddy's and Sterlite Industries.

The US markets regulator SEC is also looking into the issues at Nasdaq, which had last year also came under fire in the wake of certain technical glitches during the IPO of social networking giant Facebook in May 2012.

The exchange later paid a penalty of $10 million to Securities and Exchange Commission in that matter.

The instances of technical glitches in Indian stock market have been fewer in comparison

to even some much more developed markets, although there have been some cases in the recent past when quotes of individual stocks and some indices were not getting updated properly for small durations.

Sebi Chairman U K Sinha recently said that the capital market infrastructures in India are better than those in many other countries, including some most developed economies.

"We have created market infrastructures which are world class and where trading today takes place in a much more transparent manner, which is much better than the way market functions in many other parts of the world including some really developed markets," Sinha had said, while speaking about Sebi's 25-year journey since it was set up in 1988.

To check stock market losses caused by technical glitches, Sebi has also made it mandatory for the brokers and traders to get their trading systems and software tools tested and audited in consultation with bourses.

The capital markets regulator has asked the stock exchanges to levy ‘deterrent penalties’ in the form of fines or suspension to the concerned stock broker and traders in cases of any malfunctioning of software systems used by them, with effect from October 1.

"Various incidents of malfunctioning of software used by market participants have been observed in Indian as well as foreign securities market in the recent past.

"Such incidents have emphasised the need for a stringent and thorough testing of software before its introduction in the securities market.

“This applies equally to any subsequent changes to the software used by the stock brokers/trading members," Sebi said in a circular dated August 20.

The decision was taken by Sebi after consultations with the stock exchanges, software vendors, system auditors and the regulator's Technical Advisory Committee to streamline and strengthen the process of testing of software.

Consequently, all market participants would have to follow a stringent testing procedure before deploying any software system or applications for connecting to the stock exchanges and for the purposes of trading and real-time risk management.

These would include systems like Internet Based Trading, Direct Market Access, Securities Trading using Wireless Technology, Smart Order Routing and Algorithmic Trading.