MUMBAI: Inter-depository settlement disruptions hit investors for a second consecutive day on Thursday as operations at National Securities Depository Ltd (NSDL) remained suspended because of a technical glitch.
As a result, investors who bought shares on Tuesday did not receive them on Wednesday in their demat accounts, while those who sold did not see sale proceeds credited. Short-term traders, who depend on timely settlement to square off positions, have been hit hardest by the disruption.
Apart from short-term traders, investors looking to pledge or repledge shares for funding and those wanting to make early pay-ins were also unable to do so because of the glitch.
Early pay-in refers to the fulfillment of funds and/or securities obligations for an executed trade before the stipulated settlement date. Providing an early pay-in allows traders to benefit from lower margin requirements.
NSE Clearing Ltd, the clearing corporation of the National Stock Exchange (NSE), issued instructions to brokers to move shares and funds from their pooled accounts with depositories to client accounts. However, many of these instructions were not matching, according to two brokers familiar with the matter.
“There are cases where shares have not been paid out to customers because the pay-in of funds has not happened,” said one of the brokers.
A broker’s pooled account is used to transfer shares or funds to the client account upon instructions of the clearing corporation. If the pay-in of securities or funds from one or the other party does not take place, the clearing corporation steps in to complete the settlement.
“NSDL on Thursday said the beginning-of-day procedure should start at 4 pm, then by 6.30 pm, the pay-out of securities will start, and then the funds should come in at night,” the broker quoted above said.
The depository remained offline until the time of writing. Emails sent to NSDL seeking comment went unanswered.
In a circular on Wednesday, NSDL informed exchanges that it had experienced a network connectivity issue with the other depository, leading to a temporary disruption of certain services.
“…we hereby inform you that the company experienced a technical glitch pertaining to network connectivity issue with other depository resulting in temporary disruption of certain depository services. The issue is currently being resolved as BCP options for network connectivity with other depository is implemented,” NSDL said in a disclosure to the BSE.
Securities and Exchange Board of India (Sebi) rules require market infrastructure institutions (MIIs) to inform regulators about glitches immediately and no later than two hours from the time of occurrence. If the incident qualifies as a disaster, it must be reported immediately.
MIIs must submit a preliminary report within 24 hours, followed by a comprehensive root cause analysis and details of corrective action within 21 days. MIIs are liable to pay a fine of ₹2 lakh per working day for up to 15 days for continuing failures. The penalty increases thereafter.
How settlement works
Trade settlement on Indian stock exchanges follows a T+1 cycle. If investor A buys shares and investor B sells shares on Monday, A’s demat account must be credited with the shares and B’s bank account with the funds on Tuesday before 3 pm.
Brokers maintain pooled accounts with either NSDL or Central Depository Services Ltd (CDSL). Client demat accounts can also be with either depository. Transfers of shares between client accounts take place based on instructions from clearing corporations, which are subsidiaries of NSE or BSE Ltd.
