BSE Committee Blames Zerodha’s Inaction For Tech Glitch, Brokerage Terms Order Blatant Mistake

Zerodha has questioned a key portion of an order issued by BSE’s Grievance Redressal Committee (GRC) which directed the brokerage firm to compensate a trader for losses due to a technical glitch on the platform on July 7 this year. 

“Adding the line “As per exchange officials’ alerts were sent to them on 70% utilisation, still no corrective actions were taken by the trading member” in the GRC order was a blatant mistake which we’d missed to spot, which we’ve now brought to the stock exchange’s notice for them to act upon,” said Zerodha’s chief operating officer (COO) Venu Madhav in a post.

The committee recently passed a major order which stated that Zerodha failed to take ‘corrective action’ despite being alerted by the exchange that the brokerage’s bandwidth utilisation levels had breached the 70% mark. 

As such, the GRC remarked that the startup, despite being incapable of handling orders, allowed the users to execute orders on its Kite platform which led to the ‘loss of hard-earned money of their customers’. It added that the brokerage failed to provide smooth services to their customers and that the claim of the complainant seeking compensation was maintainable. 

It is this contention that Zerodha’s COO has challenged publicly. In a post, Madhav claimed that the company had requested the stock exchange to increase its bandwidth capacity to eliminate any possible disruption post a previous outage on June 30. 

He also said that the day the outage took place (July 7), there was no system proactive system for members to proactively track bandwidth utilisation during the day, adding that the system was put into place a fortnight after the complainant’s ordeal. 

“I do not want to sound confrontational or indulge in mud slinging, but were we informed by the MII (market infrastructure institution) that there was a bandwidth issue on 30th June? The simple answer is ‘no’… It was only on July 21, 2023, 14 days after the bigger issue of 07th July, that the stock exchange issued a circular 27 that they would be sending reports via email to trading members notifying them of the bandwidth utilisation,” added Madhav. 

Countering the panel’s claims, the company said when the BSE began disseminating data on bandwidth usage data to trading members post July 21, Zerodha noted that the bandwidth utilisation for June 30 was lower than 2 Mbps. As such, the brokerage contended, it did not, in the first place, face bandwidth outage on June 30. 

The COO also refuted claims that the company has not refunded legitimate claims of complainants and said that the team has been given a mandate to assess and refund losses suitably.

Zerodha Engulfed In Row 

At the heart of the matter is a complaint filed by a trader that alleged that she tried to exit her short position on Sensex on July 7 but was unable to do so because of a glitch on the platform. The trader wanted to place the squaring-off order at INR 3 but the order could only be placed when the price reached INR 19 on account of the tech issue. 

Eventually, she approached the committee which directed Zerodha to pay the trader a compensation of INR 8,225 for the reduction in profit caused due to a technical glitch. The company is said to have already processed the refund. 

However, Zerodha has challenged the key portions of the order. The company said that when the original matter took place on June 30, it reached out to its technology vendor Refinitiv. 

“On the same day evening (June 30), when we reached out to our technology vendor, Refinitiv, we were informed that this disconnection happened due to a network connectivity issue in the line connected between the stock exchange and our OMS/RMS systems. There are P2P leased lines connected between the Stock Exchange & the broker OMS systems and these lines were flapping on account of which the issue had occurred,” said Zerodha COO. 

Afterwards, it reached out to the stock exchange and sought additional bandwidth to stave off any disruptions. Despite this, another outage took place on July 7 which led to the complainant forwarding the complaint. 

Meanwhile, responding to claims online that Zerodha was just using a 4 Mbps line to deliver its services, COO Madhav clarified that the brokerage uses P2P lines, rather than broadband lines. He added that these lines transmit small amounts of data which typically add up to a couple of hundred bytes. 

“A private leased line to an exchange (of which several are pulled by brokers to the same exchange) cannot be compared with a home broadband line in terms of “Mbps”. These leased lines are very contextual and only transmit compressed exchange protocol messages, which typically only come up to a couple of hundred BYTES. Typically at any given moment, only a small percentage of such a dedicated leased line is utilised,” added Madhav. 

Citing NSE data, the company asserted that ‘everything broadcast’ by the stock exchange, barring interactive data, consumes a mere 600 Kbps in the cash market segment.

The row comes at a time when Zerodha has been witnessing renewed competition from peers such as Groww, AngelOne, Upstox, among others. Groww recently even surpassed the company in terms of active investors, while CRED appears to be sharpening its tools to take on the Nithin Kamath-led brokerage. 

Despite the hiccups, Zerodha appears to be well placed to take on the incumbents. The company has been posting healthy financial numbers, reporting a total income of INR 6,875 Cr during the financial year 2022-23 (FY23) and a profit after tax (PAT) of INR 2,907 Cr.