Let there be light when disruption strikes

THE power outage that shut down Singapore's stock and derivatives markets for half of Wednesday illuminated the need to help everyone see a little more clearly. For critics of the Singapore Exchange (SGX), the disruption needs to be viewed in perspective - one major stock market shutdown in years is no reason to start crowing about a loss of reputation or the end of the market as we know it.

For SGX, it needs to acknowledge that its communications to retail investors during the stoppage should have been better. The exchange was updating the brokers but retail investors and even many professional traders did not know when and if the market was going to reopen until late in the day. For the regulators, it may be timely to require greater accountability and transparency from market operators. For a start, it would be of great public benefit to maintain and make public statistics on downtime and other measures of operational continuity.

First, the alarmists. Some critics have been quick to slam the exchange for the outage, proclaiming that the episode calls into question SGX's status as a top-tier global exchange and damaging its reputation. Those sentiments may be hard to justify. Keep in mind that Wednesday was the longest disruption to the stock market since 2007, and even that earlier stoppage was due to glitches in an old system that SGX no longer uses. Other exchange-originated disruptions since that time were mostly annoying but not disastrous - the derivatives market had a delayed opening in 2013, and corporate announcements had what was essentially a day-long disruption earlier this year.

So one major incident in more than seven and a half years - that is about a 99.96 per cent working rate on a daily basis. Not perfect, but not terrible either. Keep in mind, too, that SGX is not the only exchange in the world to face the occasional technical problem. Deutsche Boerse, CME and NYSE Liffe have all had issues this year.

All of that context notwithstanding, it is fair to criticise SGX for its communications during the shutdown. Traders told of widespread confusion during the outage, particularly about when and if the market would reopen. One e-mail making the rounds on Wednesday afternoon was informing people that the market would reopen 45 minutes earlier than the actual plan.

What was sorely lacking in all of that was a clear continuity plan. SGX undoubtedly had one, and key people in the brokerages probably knew of that plan, but few outside of those circles were savvy. A well-thought-out explanation of the standard procedures and timings should be made easily available to the public via multiple channels so that all stakeholders know what to expect when a crisis strikes.

There have also been calls for regulators to penalise SGX. Hold the exchange up to the same kinds of operational continuity standards that other public service providers, such as the train and bus operators, and telcos, have to meet.

Whether SGX deserves a penalty for the outage is debatable, but the notion of minimum operational standards is sound. The financial market in Singapore's context, especially, is indeed a public good. But issues such as penalties and benchmarks require time and careful deliberation. In the immediate term, one solution that is relatively simple to implement and would generate great benefit is to require market operators to maintain and make public statistics on operational continuity. Keep a public log of all the times that the market is disrupted. Asked about this, SGX said that it does not normally disclose such statistics. That should change.

Knowing that the public is watching will keep the market operators on their toes. Market operators that have their ship in shape will also have a useful tool to rebut critics when a rare but major disruption occurs. So the next time a power outage knocks out our markets, well, let there be light.