SGX taking steps to prevent another glitch

THE Singapore Exchange (SGX) is taking steps to ensure there is no repeat of a glitch that clogged its computers during the sell-off panic that gripped the stock market on Wednesday.

A flood of orders triggered a massive log-jam in the SGX trading system. This led to the screen showing buyers wanting to pay more for shares than the sellers' asking prices.

The glitch occurred about an hour before market close, a traditionally busy time, especially on days when the market is in meltdown mode.

Although the SGX's trading engine was functioning normally in matching buy and sell orders, the order management system - Sesops - used by most brokerages was slow in coping with the deluge of orders.

And a related system which provides price feeds to SGX's website and data providers such as Bloomberg and Reuters also malfunctioned because of the congestion in orders.

This prevented The Straits Times and The Business Times from publishing Wednesday's closing share prices yesterday.

SGX's senior executive vice-president, Mr Gan Seow Ann, said yesterday that a combination of high volume and extreme price volatility in Wednesday's trading hit the system.

'It was different from what was experienced before,' he said.

The sell-off was a knee-jerk reaction to Wall Street's 416-point plunge.

This caused the Straits Times Index (STI) to fall by 192 points at one stage in its worst one-day drop in 20 years.

But it was the huge trading volume - 3.25 billion shares worth a record $4.03 billion - that strained the system.

'A lot of information was being pumped into the trading engines from the trading terminals,' said Mr Gan.

'Traders were putting in orders at prices way off market to bottom-fish and a few minutes later, when they were not done, they would pull them out and re-enter at another level.'

This led to a considerable slowdown in trading, with brokers having to wait longer for trade confirmation.

Bid and offer prices were also updated slowly and at different times resulting in anomalies when brokers look at the order queues.

By contrast, although higher daily volumes were traded during the boom period in late 1999, they were 'attained over a period when prices traded and volatilities were a lot more contained', added Mr Gan.

Despite the hiccups, he said there were so far 'no major incidents' involving settlements of trades.

Although information on trade settlements went out later than usual, 'brokers were all ready when the market opened this morning, knowing what their outstanding positions are', he said.

And there were also no grounds to halt trading on Wednesday.

Mr Gan said: 'We do have procedures for trading halts but those are for unique circumstances.

'The market was orderly. Brokers were able to see the top-line prices and the market was able to function. Under that kind of circumstance, it doesn't warrant a trading halt.'

But he said the SGX recognised the limitations of the existing technologies.

It is upgrading its entire trading infrastructure over the next two years and will also look into ways of ensuring the existing system copes better with high volatility.

'That is why we embarked on a technology upgrading programme - working with the brokerages to upgrade their terminals,' said Mr Gan.

But brokers are keeping their fingers crossed on the system that SGX will install to replace Sesops, which has been in use for 17 years.

An earlier replacement - SGXTrade - which was developed by an Indian software developer was so riddled with glitches that it was dumped early last year.

engyeow@sph.com.sg



DOUBLE WHAMMY

'In a nutshell, even though we experienced much higher volumes in the past, we didn't experience the kind of characteristics we saw yesterday - large volumes and extremely high volatilities that slowed down the flow of price information.'

MR GAN, OF THE SGX



WHAT HAPPENED

Large order flows jammed the Singapore Exchange computers on Wednesday when the Straits Times Index plunged 4 per cent. This created a host of problems including situations where buyers wanted to pay more for shares than sellers were asking. A related service - the provision of price feeds - to data providers such as Bloomberg and SGX's own website also malfunctioned because of the congestion. The result: There was no publication of Wednesday's closing share prices in The Straits Times and The Business Times yesterday.