Markets still await clarity on NSE’s technical glitch

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First demutualised electronic exchange in the country, National Stock Exchange had a technical glitch which led to a big confusion during the first three trading hours on Monday. Share prices had stopped updating and the orders by the investors and traders were not going through. NSE Chairman, Ashok Chawla termed Monday’s glitch as ‘one more straw on the camel’s back’.

Market regulator, Securities and Exchange Board of India (SEBI) is seeking a detailed report from NSE for the temporary halting of exchange on Monday. However, the market analysts are speculating the reasons for this technical glitch. As per market analysts, SEBI’s move to ban P-notes on derivatives led to an increase in the derivative trading volume as investors unwound their P-note positions. They speculate that this could be the reason for NSE’s temporary halt on Monday. SEBI in a recent announcement said that the P-notes based derivatives will no longer be issued.

The foreign investors holding P-notes which have underlying derivatives position and are not for the purpose of hedging the equity shares have to liquidate such instruments latest by the date of maturity.

On the other hand, some market observers believe that the P-notes were not the reason for the collapse of the order matching system of NSE on Monday. The notional exposure of P-notes is around Rs 47,000 crore which is nearly one-fourth of just one day’s trading volumes in options. Nowadays, foreign investors hardly take a route of P-notes for investing in Indian markets. P-notes on derivatives is only around less than 2% of total FPI-owned assets. Therefore, P-notes is presumably not the sole reason for the technical glitch at NSE. Meanwhile, markets still await an official reason for the Monday fiasco.

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