nse: Absence of co-lo facility stopped NSE’s switch to a backup?

Mumbai: Why did the National Stock Exchange (NSE) decide not to move to the Disaster Recovery, or DR, site after the main platform shut down on February 24? After several dry runs, the replica of the primary site should have been up and running with the main system failing. But it may have been a conscious call by the exchange to not move to the DR site, said sources in the know. A reason for this is that the co- location servers cannot be replicated in this backup system, the sources said, though NSE denied it.

In response to an email query by ET, NSE said its decision not to restart trading on the DR site had little to do with the absence of the colocation facility. “Non-availability of co-lo (co-location) in DR or inability of any category of market participants to trade through the DR site has absolutely no bearing on the decision to move or not move trading to the DR site in the event of a contingency,” said an NSE spokesperson.

The co-location facility allows market participants to place their servers closer to the exchanges’ data centers for a higher fee. This system gives its premium users better and quicker access to prices, giving them the so-called latency advantage.

In the case of NSE, 90 per cent of the orders and about 66 per cent of all trades come from co- location facilities, according to official data.

If NSE had moved to the DR site soon after the main platforms shut down, market participants, who use the co-location facility, would not have got the advantage, sources said.

“DR sites doesn’t have co-location facility,” said a member of Sebi’s expert committee on secondary market. “In future also if there is a bigger disaster, exchanges may not shift to the DR site as majority of orders are coming from co-location.”

NSE said trades of participants using co-location facilities are executed through the DR site on two consecutive days every six months.

“On February 24, if the trading was undertaken from DR site, orders from co-lo participants would have been routed to DR site as is done during live trading sessions from DR site,” the NSE spokesperson said.

Trades of market participants using the co-location facility that are routed through the DR site do not enjoy the nanosecond latency advantage.

A former senior exchange official said no stock exchange in the world provides co-location facility for the DR site.

The glitch had resulted in the country’s largest bourse shutting down trading in equities and derivatives for about four hours and then extending trading time by two hours beyond the usual closing time of 3:30 PM. The event evoked criticism from the government with Finance Minister Nirmala Sitharaman saying, “…glitch has caused us immensely and lessons are being learnt.”