Blatant mistake: Zerodha on BSE panel order that brokerage inaction led to tech issue

On July 7, the complainant-trader had tried to exit his short position on Sensex but was unable to do so because of the tech problem.

Zerodha has pointed to a “blatant mistake” in the order issued by the BSE’s Grievance Redressal Committee (GRC), which asked the brokerage to pay compensation of Rs 8,225 to a trader for losses caused due to a technical issue on its platform.

In late August, the committee passed a precedent-setting order saying the brokerage did not take corrective action when it was alerted about utilisation of its bandwidth reaching 70 percent levels. In the order, the GRC attributed the technical hitch faced by the trader to a bandwidth utilisation issue (or overloading of bandwidth).

Also read: Don’t backtrack, keep escalating, says trader on winning compensation from Zerodha

“Adding the line ‘As per exchange officials’ alerts were sent to them on 70% utilization, still no corrective actions were taken by the Trading Member’ in the GRC order was a blatant mistake which we’d missed to spot, which we’ve now brought to the Stock Exchange’s notice for them to act upon,” Zerodha’s chief operating officer Venu Madhav said in a post. “If we’re able to obtain a copy of the corrected order, we’ll make it a point to share it.”

According to the brokerage, it was not even informed that a technical issue had arisen from bandwidth problems.

“I do not want to sound confrontational or indulge in mud-slinging, but were we informed by the MII that there was a bandwidth issue on 30th June? The simple answer is ‘no’. Matter of fact, till date, there isn’t a system for members to proactively track bandwidth utilization during the day,” Madhav said in the blog post. “It was only on July 21, 2023, 14 days after the bigger issue of 07th July, that the stock exchange issued a circular that they would be sending reports via email to trading members notifying them of the bandwidth utilization."

Madhav said in the post that there was indeed a technical issue on June 30, which lasted for 14 minutes between 3.08 pm and 3.22 pm and affected a “smaller set of users” who were unable to place, modify or cancel their orders.

That same evening, the brokerage’s team reached out to its technology vendor, Refinitiv, which said the disconnection happened due to a network connectivity issue in the line between the stock exchange and the brokerage’s order management system/risk management (OMS/RMS) systems.

“There are P2P leased lines connected between the Stock Exchange & the broker OMS systems and these lines were flapping on account of which the issue had occurred,” Madhav said in the post.

The brokerage claimed it reached out to the stock exchange on the same day and asked them to increase the bandwidth capacity on all their lines “to eliminate any possibility of bandwidth-related disruptions”.

Also read: ‘Technical issues are a gray area; traders have to factor in this risk, regulator’s call final': Sandeep Parekh

On July 7, the complainant-trader tried to exit a short position on the Sensex but was unable to do so because of the tech problem. The trader tried to place a squaring-off order at Rs 3 but because of the tech problem, the order could only be placed and the position could only be settled later when the price reached Rs 19.