Moneycontrol Pro Panorama | Market glitches give investors a hard time

Dear Reader,

The Panorama newsletter is sent to Moneycontrol Pro subscribers on market days. It offers easy access to stories published on Moneycontrol Pro and gives a little extra by setting out a context or an event or trend that investors should keep track of.

Market participants have always been at the receiving end of errors and mishaps that take place in exchanges. Be it a fat-finger trade, or a broker’s system conking off or an exchange shutting down, there is no compensation for the losses incurred by investors.

Brokers and exchanges have protected themselves by multiple layers of clauses that clients, mostly unknowingly, sign for when they open a trading account. With no redressal mechanism in place, the clients always end up picking the bill for no fault of theirs.

On February 24, 2021, trading on the National Stock Exchange (NSE) was halted due to connectivity issues experienced by telecom providers. The backup systems at NSE were not put into action by the exchange, which resulted in the exchange remaining shut for more than four hours.

Market regulator the Securities Exchange Board of India (SEBI) after looking into the reasons, has sent show-cause notices to top employees of the exchange in connection with the glitch. The NSE has protected its employees saying the disruption was on account of road work around its headquarters.

The exchange says there is no reason to blame NSE employees as civic workers had dug up the road for redevelopment, damaging underground telecom cables serving the NSE. While the exchange personnel may not be involved in the digging, nothing prevented them from following the emergency protocol and shifting the servers to allow the exchange to function rather than shut it down.

Unfortunately, market participants are mute spectators and will not be compensated for the loss while the exchange was shut. SEBI had earlier imposed a princely fine of Rs 25 lakh on the NSE for the glitch.

While the secondary market is struggling with these problems, exchanges have approved a T+1 settlement that will be implemented in a phased manner from February 25, 2022. The move will benefit market participants as funds will be credited to their accounts a day in advance for any sale transaction. But if it is so beneficial, why have so few exchanges in the world moved to T+1? Read our analysis here.

The consolidation in the secondary markets seems to be affecting the primary markets. Two high profile IPOs – One 97 Communications (Paytm) and Sapphire Foods, the operator of KFC and Pizza Hut -- are struggling to get their IPOs subscribed. At the time of writing, Paytm had just managed 100 percent subscription. In comparison, other internet company public issues garnered 100 percent subscription on day 1. In both the Paytm and Sapphire issues, the retail segment got oversubscribed early. HNIs and institutional investors are shying away from both issues.

A part of the blame for the muted response can be put on SEBI and RBI, which rightly came out with rules to curb IPO funding. Only time will tell if the IPO frenzy is coming to an end. If it does, it would be bad news for the government’s plans of listing LIC.

More investing insights from our research team:

M&M to outperform on strong order book, new products
Britannia: Tepid volume, inflationary input costs mar the show
Kajaria Ceramics – An impressive quarter
Shemaroo: Stable Q2 numbers, attractive long-term investment
Goldiam International: Will this niche jewellery maker continue its strong play?
Shyam Metalics and Energy: Lean balance sheet, higher capacity key long-term draws

What else are we reading?

Who will pay the costs of mitigating climate change?
Personal Finance: Keep track of transaction costs on your investments
Interview | RERA, lower interest rates driving up home sales: Prestige CMD Irfan Razack
Crypto Learn: What is Blockchain and how is it being used?Elon Musk’s tweets are a bad joke (republished from the FT)

Picks from our technical analysts: IOC, Bandhan Bank, Bank of Baroda and KPIT Tech (These are published every trading day before markets open)

Shishir Asthana
Moneycontrol Pro