Digitized processes and automation helped the Bombay Stock Exchange (BSE) to continue functioning smoothly during the forced lockdown period in India.
The pandemic has disrupted many smooth-functioning processes in many countries. At the same time, the existence of digitization has helped in keeping some processes running almost without any hiccups. The BSE, which has been automated and screen based since 1995, has fared well during the crisis. Deemed essential services, equity market trading continued in India during the lockdown.
The Tech Panda spoke to Ashish Chauhan, CEO of BSE, who says being digitized helped the multi-faceted institution remain open at a critical time.
We were automated and completely screen-based from 1995 onwards. So we are pretty much 25 years old into the automation business
“We were automated and completely screen-based from 1995 onwards. So we are pretty much 25 years old into the automation business,” he says.
Chauhan, who is one of the founders of India’s National Stock Exchange (NSE), recently spoke at the virtual Horasis India Meeting, which gathered a varied group from around India and the world to discuss a post-COVID-19 situation.
He has been instrumental in establishing India’s first fully-automated screen-based trading system and first commercial satellite communications network. He also made an array of innovative frameworks, such as Nifty index and NSE certifications in financial markets.
How Automated is the BSE?
On March 23rd this year, when Prime Minister Narendra Modi announced the lockdown nationwide, Chauhan declared in the next moment that the BSE was going to remain open. Chauhan says this was possible owing to the extent of automation at the BSE.
“People were surprised how fast the decision was taken. Everyone had decided to keep it open because, if you close the markets during panic, the asset prices go down precipitously,” he explains.
BSE day to day operations @BSEIndia will continue.
— Ashish Chauhan (@ashishchauhan) March 24, 2020
In an unpredictable situation like the sudden lockdown, desperate stockholders seeking liquidity for their money and their assets can sell at very low prices.
“Nobody wanted that to happen. And so the government and regulators decided to keep it open. And that was the right decision. Next day, the markets opened on time, without any hitch,” says the man known as the father of modern financial derivatives in India.
With several hundred thousand terminals across India, where brokers trade on a daily basis, the BSE is a behemoth of a financial institution. Traders use High Frequency Trading (HFT), which is a method of trading that uses powerful computer programs to transact a large number of orders in fractions of a second.
This means they use complex algorithms to analyze multiple markets and execute orders based on market conditions. They’re also able to trade using mobiles phones, since millions of mobile users seek stock prices in real time every minute of the day.
These millions of people have worked together despite the lockdown and despite their worries about their own health and their families’ health. They ensured that every day the trading happened for so many days without stopping for a single second. And that is what basically India is all about
The BSE’s capacity is around 500,000 orders in one session, with a string of six microseconds in one second or a million microseconds. Thus, they put in a lot of orders with computers across the world. They also provide a co-location facility for the algorithm and have providers in their own buildings, so that procession time is always fast.
“We have unbelievable capacity. That is because it’s a large country with a lot of computer savvy people,” he adds.
With such automation processes in place, the BSE is able to satisfy consumers’ desire for faster response times.
Complete Sync Between Banks and Stock Terminals
The BSE trades in high amounts of currencies every single day. While trading is computed, so are money transfers, which in high amounts aren’t always easy.
“We trade literally billions of dollars, not one or two, but tens and twenties and fifties of billions of dollars in daily transactions, and the settlements have to happen in time,” Chauhan explains.
This demands a complete sync between banks and stock terminals across the country. All the banks have to be working. All the brokers across the country with the 200,000 plus terminals and millions of people have to work in tandem with their investors.
India’s automation prowess and capabilities are amply demonstrated. It’s not that only the exchanges were capable. Because we may be capable, but if all our brokers, our depositories, or banks aren’t capable, we will not be able to work. They are all interlinked
“I have, on my exchange, almost 50 million investors registered with me. So all those investors had to put in their money in time, which had to be collected by brokers and put into our bank account. And then we had to give it back to the people who sold. So, it’s a pretty widespread activity, and it did not stop for a single second. It worked like clockwork,” he says.
So far, the market has never stopped, except for on public holidays, which were announced one year in advance, or weekends.
In Sync with the ROW
At the time of the crisis, markets in the rest of the world continued to remain open, including gravely hurt countries like Spain and Italy. Chauhan says, by remaining open, India has proved its ability to function in tandem with the world.
“India’s automation prowess and capabilities are amply demonstrated. It’s not that only the exchanges were capable. Because we may be capable, but if all our brokers, our depositories, or banks aren’t capable, we will not be able to work. They are all interlinked,” he says.
He praised the many employees who made it possible for the BSE to continue, while facing a crisis.
“These millions of people have worked together despite the lockdown and despite their worries about their own health and their families’ health. They ensured that every day the trading happened for so many days without stopping for a single second. And that is what basically India is all about,” he says.
Keeping the equity markets open during the lockdown provided a moral boost to the nation’s financial sector. Many depended on liquidating their positions to pay for hospital expenses.
This is a learning for all sectors to not just adapt digitization but also ensure that it is deployed nationwide for a complete sync in systems. Automation is most likely our best bet against chaos in situations like the pandemic induced lockdown.