Zerodha System Outage Causes Losses To Traders: Is Technology Reliable?

On Thursday (August 27), a technical system outage on the stockbroking website Zerodha for nearly 30-35 minutes caused lakhs of losses for its users.

The company explained that it faced technical issues with its order management system (OMS) when a single order for 10 lakh quantity, placed at around 9.40 AM, on a sub Rs 1 stock (penny stock) on BSE got executed in almost 1+ lakh individual trades.

“This is unprecedented and caused an overload in the OMS,” the company said. Even though the order placements resumed after that, clients who had open orders from before 10.00 AM and got executed at the exchanges during the affected period, faced issues with additional margin blocks until the company could reconcile the overall positions with the exchanges.

Bengaluru-based Zerodha was founded in 2010 by Nithin Kamath and Nikhil Kamath. The company uses disruptive pricing models and in-house technology to offer stockbroking services. It claims to have over 1.5 Mn clients placing millions of orders every day through its investment platforms, contributing over 15% of all Indian retail trading volumes.

During the outage, the company’s traders were unable to place orders and also faced additional margin blocks. The development assumed significance since Thursday was the expiry for the August series contracts in the futures and options market

Users posted screenshots of how much they’d lost due to the glitch and some even went on to say that Zerodha should be held responsible and must compensate for the loss. A user reported a loss of up to INR 2 Lakh because he wasn’t able to book profits due to the blackout.

Will Zerodha Compensate?

However, Zerodha is safe from responsibility for such compensations as the contract between the trader and the broker as well as SEBI says that the broker would not be liable to compensate clients for non-executed online trades due to a system failure. One of the cofounders reportedly said, “It would be impossible for us to compensate for the losses because we cannot guarantee 100% up time, especially in our country where a small dig into the road could result in loss of internet connection. Having enough backups is all we can do.”

The company is doing its part to avoid system failure and till the OMS is able to handle bulk orders, it is limiting the maximum allowed quantity per order for equity trades to 20,000.

“If a client has to enter or exit larger quantities, it would have to be done in multiple orders of 20,000 quantity. We will soon launch basket orders on Kite to ensure it is not inconvenient to create multiple orders of 20,000 for a particular stock. This limit affects less than 0.02% of our clients,” the company said.

The company is also being questioned on its discounted brokerage fee being a reason for a technical glitch due to quality of technology. “I want to reassure you that technology and quality of our products are something that we never compromise on. Our low brokerage has no bearing on the quality of our technology, which every day, scales to serve millions of our clients place millions of trades,” the company said.

However, the bigger question here is the impact of the technology glitch. It is to be noted that technology glitches have time and again caused impact on the companies such as Google, WhatsApp, Facebook, Instagram, Twitter etc. Luckily, these companies have the benefit of not adversely impacting the income of users or cause them losses.

Meanwhile, a technology failure at a stockbroking website such as Zerodha, who had such instances earlier as well, raise bigger concerns about the technology infrastructure in the country and what can be done for this.