Allow Sensex, Nifty trading on all bourses: RBI article

Against the backdrop of a nearly four-hour outage at the National Stock Exchange last month, an RBI article on Friday suggested allowing trading of benchmarks Nifty and Sensex on all stock exchanges.

Trading was halted at the NSE for nearly four hours on February 24, reportedly due to telecom links failure leading to unavailability of the online risk management system of the NSE Clearing Ltd (NCL).

NCL, a wholly-owned subsidiary of NSE, is responsible for clearing and settlement of all trades executed on the exchange, according to the article.

NSE is one of the world's largest derivatives exchanges.

The article, published in the latest bulletin of the Reserve Bank of India (RBI), noted that the major issue in this incident was the  ineffectiveness of interoperability because of shutting down of the NCL.

"Another important failure was the inability to switch operations to the disaster recovery site.

"Robust risk management system encompassing disaster management and recovery are essential components for the smooth functioning of a stock exchange," it noted.

According to the article, brokers believe that timely communication and clarification could have averted the panic sell-off by online traders on the BSE and prevented huge losses to investors.

The article has been prepared by RBI Deputy Governor Michael Debabrata Patra and others, and the views expressed do not necessarily represent the views of RBI.

Post the incident, Sebi has advised NSE to carry out a detailed root cause analysis of the trading halt and the reasons for trading not migrating to the disaster recovery site.

"Allowing the benchmarks Nifty and 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," it noted.