Mumbai: For two weeks starting Tuesday, D.K. Pathak, a sub-broker with a Mumbai-based trading firm, can afford the luxury of a tea-break, perhaps even a snack, right in the middle of what should have been the peak trading period.
That’s because India’s two main stock exchanges, the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE), will be closed for trading between 11.45am and 12.25pm from 4 March to 18 March due to a technical glitch caused by the sun’s position.
However, Pathak may find himself working longer than he usually does because the exchanges extend their trading hours to make up for the time lost.
Market interrupted: Brokers at BSE. Sun outages are a global phenomenon but only Indian exchanges close. Using ground-based fibre optics to trade between terminals is one way of checking the outages.
Brokers connect to their stock or commodity exchange trading systems using two-way satellite ground stations known as VSATs (very small aperture terminals). This is usually an efficient platform that can handle data transmission speeds at rates of up to 56kbps, adequate for the purpose. However, the screens go blank when the sun is directly behind the satellite through which the signals are transmitted. This happens during two fortnights a year, one in March and the other in late September and early October. The result: a complete halt in trading activity across the country.
Trading systems across India are not affected simultaneously. VSAT platforms in Chennai might face a blackout or distortion when the sun is in line with the satellite (Insat 3B) as it passes over the city, while systems in the western city of Ahmedabad may experience the blackout a while later.
From the country’s eastern-most point to its westernmost one, the blackouts last all of 45 minutes. However, exchanges across the country stop trading to block any arbitrage opportunity for brokers, which can emerge if one exchange is closed while the other is working.
The so-called sun outages are a global phenomenon but only Indian stock exchanges close for trading. Established in 1875, BSE is a Mumbai-based exchange, while NSE has a pan-India presence with over 3,000 VSAT terminals covering more than 1,500 cities. One way to deal with this would be to use land-based communication systems as other bourses across the globe do.
London Stock Exchange (LSE), for example, uses ground-based fibre optic connections. A spokesperson for LSE said: “The overwhelming majority of our trading members uses fast, ground-based fibre optic connections to our markets, so the impact of any disruptions to satellite networks on our markets would be marginal.”
Stating that LSE has never been disrupted by such outages, the spokesperson said: “We constantly assess the impact of any interruptions to the global communications infrastructure on the operation of our markets and this is a central element of our contingency and business continuity planning.”
A spokesperson for the Hong Kong Stock Exchange declined to comment on the technology used to deter the effect of the sun outage but said the exchange is not affected. A Singapore Exchange Ltd spokesperson said: “SGX (Singapore Exchange) members connect to our systems over land-based communication lines and are therefore not affected by X-rays and UV radiation emitted during solar flares.”
The problem isn’t new in India and has been a regular feature since the exchanges started using VSATs.
Depositories not hit
However, there is no impact on networks that carry depository data, as these are not sensitive to delays. “BSE and NSE carry real-time trading data where every minute counts and, therefore, the impact is more noticed. However, depository data is not delay-sensitive and therefore CDSL (Central Depository Securities Ltd) and NSDL (National Securities Depository Ltd) continue their operations,” said a BSE official who did not wish to be identified.
A depository is a facility that holds securities. NSDL is the largest depository for Indian stocks and is directly linked to NSE, while trading in BSE is linked to CDSL.
The two exchanges are not willing to say if they have a plan to address the issue. An NSE spokesperson said, “It is not that we do not have land-based systems. But not everybody is equipped with that. Many of our traders use both landlines as well as VSATs. We need to close down the exchange so we can bring everybody on a uniform platform. Anyway, nobody is impacted as we extend our trading hours.”
BSE and NSE extend their trading time by about 45 minutes during the two fortnights when sun outages occur.
Traders, too, do not seem to have a problem with the halt in trading. “It’s true that the outage can be checked if ground-based fibre optics are used to trade between the terminals but it does not make much sense for a country like India,” said Amitabh Chakraborty, president, equity research of brokerage Religare Securities. “India is a vast country. Thanks to NSE, you can trade from the remotest corner if you have a satellite connection. Sun outage is no big deal,” he added.
An official with Mumbai-based commodity exchange Multi Commodity Exchange India Ltd said the impact of the sun outage on commodity markets is minimal. “Definitely, there will be an impact when trading stops since we are linked with global markets. We keep informing our counterparts through circulars about the outage,” added the official who did not wish to be identified.
Sun outages affect anything that depends on satellites, including TV signals. A note on the Time Warner Cable Web site reads, “The effects of sun outage vary in degree from minimal to total outage throughout the 15-day period. Once it reaches its peak, the interference will gradually decrease becoming less noticeable each day after. Unfortunately, there is technically nothing we can do to prevent sun outages from occurring.”
For traders and brokers, the outage is merely a break in the trading day and does not involve any loss in business. “Everyone knows the market will be closed and so they just go for lunch,” said Kishore Narne, vice-president for commodities research at Anand Rathi Securities, a domestic brokerage. For others, it is time to sit back and take a closer look at the portfolios they manage. Gaurang Shah, an analyst with Geojit Financial Services Ltd, said: “Nothing much happens. We call the clients and discuss their portfolios.”
“It might be a problem for markets whose underlying securities are linked globally. But in Indian context, it’s not a problem. We just pick up from where we left. We have learnt to live with it,” said Chakraborty. Former chairman of stock market regulator Securities and Exchange Board of India G.N. Bajpai said the Indian trading system is extraordinarily robust.
Only, it is yet to tackle the sun outage problem.