Modules for Beginners
Trading orders 101: Everything you need to know
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Surviving technical issues: What happens to orders when NSE/BSE have execution issues?
In this penultimate chapter of this module, we’re going to be dealing with something very new - technical glitches in stock exchanges. Since the entire stock market trading mechanism is built of technological platforms that operate under high speeds and extremely heavy loads, we’re bound to run into technical issues now and then.
These glitches and downtimes are not something new. They have been in existence ever since the introduction of electronic trading. That said, in the past few years, the frequency of these issues have gone down tremendously. Apart from a one off incident here and there, both of our premier stock exchanges - the NSE and the BSE - have served us well.
That said, the focus of this chapter is going to be to try and understand what exactly happens when the stock exchanges run into technical issues, such as problems with order executions, and what can be done about it. So, let’s kick it off with a short overview on the most recent technical glitches that hit the Indian stock markets.
Technical issues faced by the Indian stock exchanges: An overview
One of the most recent technical glitches hit the National Stock Exchange on July 10, 2017. It wasn’t just one, but multiple technical glitches that impacted the exchange, which led to trading being halted for as many as 3 hours on that day.
The exact cause for the downtime wasn’t revealed to the public and it seemingly happened at around 9.55AM, just as the market was preparing to gear up for full fledged trading. Despite the best efforts of the NSE to reopen the market, two of its attempts still remained unsuccessful, with the third one finally proving to be a success.
Another instance of technical glitches bringing the markets down happened as recently as February 24, 2021. Here again, it was the NSE that had to bear the brunt of it. At around 10AM, the price feeds for the Nifty Bank index and the Nifty 50 index stopped updating abruptly.
The exchange came out with a statement at around 11.40AM and said that it would be suspending trading across both the cash and the derivatives segment. Trading was finally resumed at around 3.45PM with an announcement that said that the markets would continue to remain operational till 5PM. The cause of this technical glitch was traced back to a problem with the communication lines of NSE’s telecom service providers.
What happens to the orders when the stock exchanges are hit with technical glitches and execution issues?
Depending on the various circumstances of the technical glitch, either of the following can happen to the orders placed by the investors.
1. Scenario 1: Orders might not get placed
In most cases, this is what is likely to happen whenever the stock exchanges face technical difficulties. Generally, almost all of the trading outages are caused due to the failure of the stock exchange’s communication lines, leading to a downtime in its internet connectivity. And so, the orders that investors place would get rejected since the stock exchange is not in a position to confirm the same.
What can you do?
If you’re a trader looking to initiate a new position, then consider yourself lucky. You don’t want to start your new position when the market is trying to recover from a technical glitch, since it can significantly impact your strategy. The best course of action for you would be to ride out the trading session on the sidelines and come back once the stock market is up and running smoothly.
On the other hand, if you’re trying to square off or close an existing position, then there’s something that you can do. If your existing position is in the equity segment and only one exchange has been impacted by the technical glitch, you could try and close your position by switching to the other exchange.
For instance, let’s assume that the NSE is facing execution issues and you wish to close out your long position in the equity segment through the exchange. What do you do in this case? The answer is simple. You simply switch the exchange from the NSE to the BSE and square off your open positions there.
That said, if you’re trying to square off an existing position in the derivative segment, then unfortunately there’s nothing that you can do. The derivative contracts of NSE can be bought and sold only on NSE and the derivative contracts of BSE can be bought and sold on BSE. You would have to wait till the exchange opens the market up for trading again, and then close out your positions.
2. Scenario 2: Orders might be placed but not executed
In some cases, the orders that you place might be accepted by the exchange, but may not get executed. In such a scenario, the order book on your trading platform would show your order as ‘pending.’ If you encounter such a situation, here’s the best course of action.
What can you do?
If you’ve placed a market order, irrespective of whether you’re initiating a new position or closing out an existing one, the best course of action in this case would be to cancel your order immediately. This is because, when the markets finally get reopened after an outage, they may do so with a gap up or a gap down opening.
And since you’ve placed a market order, your order will get executed at the market price prevailing during the reopening, which could either be favourable or unfavourable to you. If the price at which the market reopens again is unfavourable, you might have to suffer a heavy loss.
Alternatively, in the case of a limit order, since you’ve already set your sights on a price that you’re comfortable with, you can leave it as it is. When the market reopens again, depending on the market price prevailing, your order might get a chance of being executed.
That said, here’s something that you should keep in mind. Sometimes, when a stock exchange reopens for trading after an outage, it might cancel all the pending and unexecuted orders, requiring you to place fresh orders. And so, it is crucial for you to be prepared for such an event as well.
3. Scenario 3: Orders might show up as executed but with no confirmation of the same
In very rare cases, the orders that you place might show up as executed in your order book. But there may be no corresponding confirmation of the same in the trade book. If you encounter such a situation, here’s what can be done.
What can you do?
Sometimes, due to the technical issues, the confirmation might take a while to reach you. And so, in this case, the best course of action would be to wait till you get a confirmation of the order execution in the trade book of your trading platform.
Meanwhile, you could also take screenshots of the order book and the trade book sections of your trading platform and formally lodge a complaint with both your stock broker and the concerned stock exchange respectively.
Encountering technical issues right in the middle of a trading session can be frustrating and may even cause you to panic. However, the key thing here is to keep calm and stay patient till the issues are all sorted out. That said, before we wrap up, let’s tell you about 10 things you need to check when placing orders.
A quick recap
- Since the entire stock market trading mechanism is built of technological platforms that operate under high speeds and extremely heavy loads, there are technical issues every now and then.
- Due to glitches, orders might not get placed. If you’re a trader looking to initiate a new position, the best course of action for you would be to ride out the trading session on the sidelines and come back once the stock market is up and running smoothly.
- Glitches may also be the reason orders might be placed but not executed. In that case, if you’ve placed a market order, irrespective of whether you’re initiating a new position or closing out an existing one, the best course of action in this case would be to cancel your order immediately.
- Lastly, orders might show up as executed but with no confirmation of the same.