Alarm as NSE trading fails again for 6 hours

The Nairobi Securities Exchange (NSE) #ticker:NSE trading system failed for more than six hours yesterday, costing investors heavy losses while raising fresh concerns over the reliability of the stock market infrastructure.

Monday’s system outage was the third in a span of six months, following similar collapses in January this year and October last year.

Market turnover dropped 57.4 percent to Sh369 million compared to Sh865.3 million recorded on Monday last week, indicating heavy investor losses from the system glitch.

Trading was extended beyond normal hours, to 5pm, following restoration of the system at about 3.49 pm having failed to start trading at the usual 9 am.

The system outage is the latest in a streak of costly failures in recent years that have left NSE investors counting heavy losses.

The NSE attributed Monday’s glitch to “technical challenges” occasioned by the unavailability of connectivity to the Central Depository System (CDS), which made it impossible to buy or sell shares. “The aforementioned has affected core services including trading of equities and bonds,” said the NSE in a statement.

NSE chief executive Geoffrey Odundo later said extension of trading hours had helped investors to move Sh369 million worth of shares. “The NSE and CDSC are in the process of upgrading our respective infrastructures that will provide more efficient system availability. In the interim we will ensure challenges leading to such failures are addressed,” said Mr Odundo.

Central Depository and Settlement Corporation (CDSC) chief executive Rose Mambo, however, said the problem was restricted to NSE’s automated trading systems (ATS). “We are waiting for a technical report from the system providers on what exactly caused the problem. All CDSC services were working well, but the NSE ATS was unable to connect to our database,” Ms Mambo said in an interview. The capital markets regulator said it was monitoring the issue. Capital Markets Authority (CMA) chief executive Paul Muthaura said the regulator wants the market players to comply with international standards for infrastructure providers.

“As the Authority we see the stability of financial markets infrastructure providers being the NSE, CDSC and the Central Bank’s CSD as being critical to our visibility and recognition as an attractive financial centre so the maintenance of the integrity and stability to those systems are a national priority,” said Mr Muthaura in an interview.

“The NSE and the CDSC have been working in the last couple of years on building and upgrading their infrastructure to come into compliance. Right now we are not operating on the upgraded systems,” he said.

“They are still in the process of finalizing, testing and operationalisation of the new system, which is why we continue to face some of these outages. The core focus is accelerating the process to complete testing and transitioning the market to the new infrastructure.”

Following the January outage, Mr Odundo had said then the bourse would invest an undisclosed amount of money to upgrade infrastructure and address gaps in its service recovery capacity by June. The ATS system connects remotely to stockbroker offices, allowing them to trade from the comfort of their premises.

The ATS went live in September 2006, replacing the open outcry system that had been in place for decades since establishment of the bourse in 1954.

The loss of more half a day’s trading is likely to depress the market numbers for this week.

Investor wealth at the bourse stood at Sh2.36 trillion on Friday, having fallen by Sh21.2 billion through the week. Stockbrokers in particular lose whenever there is limited or no trading, given that they derive their income from commissions charged on trades. Resumption of full-day trading today is likely to see heightened activity on the back of pent-up demand. The NSE has in the past blamed some of the hitches on the fact that its trading system is coupled with the CDSC platform, meaning that any problem on either affects trading.

A Sri Lanka-based information technology firm that specialises in selling electronic trading systems installed NSE’s automated system while India's Chella Software provides the broker back office system. Mr Odundo earlier defended the quality of the software provided by the Colombo headquartered IT firm in the wake of the recurring hitches, saying it also provides the same trading platforms to larger bourses including the London Stock Exchange and the Johannesburg Stock Exchange.