 "Understanding BSE's back-end infrastructure")
How do individual and brokers place their orders?
The exchange network is connected to over 10,000 main terminals across the country. These terminals are further connected to thousands of terminals operated by end-users. Market participants with trading software installed on their computers can access this network. All these terminals are connected to the trading engine of the BSE through a very complicated network, which is operated by service providers such as HCL and Cisco.
What exactly went wrong on Thursday?
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This network is said to have had a break-down on Thursday because the number of active main terminal went down to 2,000. Therefore, trading had to be shut for almost three hours. The exchange is conducting a root-cause analysis to understand the problem and it should take a couple of days to reach the bottom of the issue.
Who runs BSE’s trading engine?
The trading engine of BSE is based on the architecture provided by Deutsche Boerse, the biggest exchange group in Europe and second-largest in the world. Deutsche Boerse, which has five per cent stake in BSE, provides technology and is said to be the fastest in India and in the top 10 percentile in the world. This trading engine gives a response time of 200 microseconds which means that between a placement of order (which could be from any part of the country) to its booking and confirmation, the time elapsed is only 200 micro seconds. This potentially makes the BSE 10 times faster than its biggest rival NSE.
Why was this system needed?
This new system was deployed for equity segment in April this year and for derivatives in February. The reason for the migration was to increase the response time of BSE. According to an Pitush Chourasia, chief risk officer of BSE, the stock exchange was automated in 1995 but despite many internal tweaks it was slower than NSE (which was automated in 1994) even till last year. “While the response time of BSE was 10 milliseconds compared to that of NSE, which was two milliseconds,” said Chourasia. The exchange realised that it needed to revamp the entire technology to cope up. That’s when it decided to adopt the Deutsche Boerse architecture last year. While Deutsche Boerse has built the original software, BSE has tweaked it for the country with the help of service providers such as TCS.
How are the trade orders finally executed?
The critical part is the trading engine, which matches the orders punched (or keyed in) by the brokers. Software such as BOLT Plus and FOW (faster on web) are installed on computers to place orders. Once the orders are placed, they come to the exchange and the trading platform matches these orders on a price time priority basis. So, in case of multiple bids, the order with the highest price gets preference. In case the price is the same, then the order is booked on a first-come-first-served basis. After that the trades are matched and moved to the periphery system, which is called the surveillance system. This is where trades are recorded and analysed to make sure that there is no manipulation. After this it moves to the clearing corporation where it has to go through the risk management system. Indian Clearing Corporation is BSE’s clearing corporation. At the risk management centre, the system calculates the margin on a real-time basis after every trade and sends a communication to the collateral system which checks for how much collateral has been put by the brokers before booking the order. The system doesn’t accept any orders if the broker hits the trading limit, which is based on the collateral.