India regulator likely to penalise MCX for four-hour trading halt, sources say

India’s markets regulator is likely to penalise Multi Commodity Exchange for a four-hour outage on Tuesday that was caused by a trading spike, two sources with direct knowledge of the matter told Reuters on Friday.

The disruption was a result of a "capacity breach”, with the exchange unable to handle the number of clients trading on that day, according to the sources.

They did not want to be named as they are not authorised to speak to media. The Securities and Exchange Board of India (SEBI) did not respond to an emailed query.

MCX on Friday said its systems had predefined parameters that limit the number of so-called 'unique client codes’, "which led to constraints beyond the threshold.” Its trading systems remain stable, the exchange added.

SEBI is concerned about the delay in identifying the cause for the trading halt and could direct MCX to improve its system capacity, the sources said.

"Had MCX early on Tuesday identified that it was facing a capacity breach, trading could have resumed much faster,” the first source said.

SEBI requires shifting trading to a disaster recovery site when trading halts on the main exchange. However, this option did not help the exchange, the source said.

"Since the root cause was capacity breach, it continued to persist in disaster recovery site as well due to the volume spike,” the source said.

MCX said it has taken steps to prevent similar issues in the future.

TRADERS TO APPROACH SEBI

The trading halt led to many bullion traders reporting losses, prompting them to approach the India Bullion and Jewellers Association Ltd (IBJA), a lobby body, to take up their case with the regulator.

Trading delays and halts on MCX have become increasingly frequent this year, causing losses for traders, an IBJA official, who declined to be named, said.

A Mumbai-based bullion dealer said that he was forced to book larger losses due to the delay in resuming operations.

"Gold and silver prices were correcting in the global market. Everyone, including us, who held long positions wanted to exit quickly, but we couldn’t,” he said.

Also Read: MCX explains cause of Tuesday’s trading delay, says system review is underway Read about our editorial guidelines and ethics policy