Hardware issue behind shutdown at SGX

Singapore

A hardware issue triggered Thursday's shutdown of the Singapore stock market, and the need to reconcile an unexpectedly large number of positions delayed attempts to reopen the bourse sooner, said official and market sources.

The Monetary Authority of Singapore (MAS) said on Friday that it took a "serious view" of the outage, and ordered the Singapore Exchange (SGX) to submit a thorough investigation report, which will guide a decision on supervisory action.

The outage began at 11:38am on Thursday after SGX found errors in its trade-confirmation systems. Despite attempts to reopen the market at 2pm and then 4pm that afternoon, the market would resume trading only on Friday, at its normal opening time. The glitch that set off the outage had been resolved by then, SGX said.

In response to queries by The Business Times on Friday, SGX chief executive Loh Boon Chye said that the trigger event had its roots in hardware. "A hardware issue triggered our trade-messaging system to generate trade-confirmation messages to our members, which were duplicated or omitted. These messages therefore needed to be reconciled before trading could resume.

"We will commence on a post-mortem after market close today and give an update with more details, including the cause, by next week."

Even after the triggering glitch was resolved on Thursday, SGX could not reopen the market because the process of ensuring that every broker had the correct set of order and position took longer than expected.

BT understands that SGX initially provided its members with files containing complete logs of actual trades by each member before Thursday's stoppage.

However, those initial files did not contain all the information the brokers felt they needed; files that contained missing trade confirmations and duplicate confirmations were then included, requiring reconciliation of additional information.

SGX said that it worked with each of its 25 members overnight to reconcile all the data.

After the market closed on Friday, MAS said: "SGX has a responsibility to ensure that its system and recovery processes are robust. We have instructed SGX to address the root cause of the problem, and to submit a thorough investigation report to MAS. MAS will review the investigation findings before deciding on the appropriate supervisory actions."

This is the second time in just over a year that MAS is looking into a possible supervisory response to an outage on SGX.

In June 2015, MAS reprimanded SGX for outages in November and December 2014; it highlighted, in particular, that SGX had failed to recover critical systems within a four-hour target in the November disruption.

MAS at that time also banned SGX from raising fees for the securities and derivatives markets until SGX had completed improvements to the satisfaction of the financial-services regulator.

SGX donated S$1 million to an investor-education fund, and said that it would spend S$20 million to speed up the improvement of its technology infrastructure.

Despite the disruption, the Singapore stock market reopened on Friday on a positive note, with the Straits Times Index ending the day up 0.63 per cent, or 18.43 points, at 2,925.35.

SGX waived the buy-in penalty to accommodate shortsellers who were unable to deliver the shares required to close their positions because of the outage.

But details about the cause of the outage remained opaque to market participants and the public for most of Friday. At a press conference in the morning, Mr Loh apologised for the disruption and pledged improvements.

But the chief executive, whose company has been urging its listed issuers not to use boilerplate responses in their disclosures, clung tightly to a script and answered numerous questions with variations of the following response.

"Our focus was to recover, minimise downtime and resume trading. Immediately upon this, which we opened the market today, we're devoting all necessary resources to review, identify our recovery process and work on any gaps to better our recovery time."

In a research note, OCBC analyst Carmen Lee said that the outage "does not reflect well on the exchange, especially since its aspiration is to be a multi-asset exchange".

Nevertheless, she maintained her "hold" rating and a S$7.40 target price for the stock, which closed at S$7.74 on Friday, down by 0.6 per cent or five Singapore cents.

She said: "The financial impact is likely to be minimal at this juncture, but internal steps need to be taken to ensure that this does not happen again and will involve more costs and investments."

Melinda Sam, chief executive of the Securities Association of Singapore, said that the trade group's members were "fully cognizant of the difficulties involved in running sophisticated exchange systems which may be vulnerable to glitches", and stressed the need to focus on solutions.

"Industry members will provide feedback to the SGX and hope that SGX will come up with fresh measures to improve and stabilise their back-up systems and processes to prevent any recurrence.

"In the event it does happen, we hope recovery times should be shortened. Suspension of the market was necessary to ensure an orderly market for investors. All of us trust that MAS will take into account all the facts and make appropriate regulatory decisions."