NSDL Network Glitch Disrupts Market Settlements for Second Consecutive Day
Investors across India faced significant disruptions for a second straight day on Thursday as operations at the National Securities Depository Ltd (NSDL) remained suspended due to a persistent technical glitch. This ongoing issue has left many market participants without their shares or funds, highlighting vulnerabilities in the country's financial infrastructure.
Widespread Impact on T+1 Settlement Cycle
The network connectivity failure at India's largest depository has severely disrupted the T+1 settlement cycle, creating mismatches in broker pay-ins and delaying critical payouts of both securities and cash. Investors who executed share purchases on Tuesday found their demat accounts empty on Wednesday, while those who sold securities did not receive their sale proceeds as expected.
NSE Clearing Ltd, the clearing corporation of the National Stock Exchange, issued instructions to brokers to transfer shares and funds from their pooled accounts with depositories to client accounts. However, numerous brokers reported that these instructions were not matching properly, creating a cascade of settlement failures throughout the system.
Broker Accounts and Clearing Corporation Interventions
"There are cases where shares have not been paid out to customers because the pay-in of funds has not happened," explained one broker familiar with the situation. Broker pooled accounts serve as crucial intermediaries for transferring shares or funds to client accounts based on clearing corporation instructions.
When pay-ins of securities or funds from either party fail to materialize, the clearing corporation must step in to complete the settlement process. This additional layer of intervention has become necessary due to the ongoing NSDL technical issues.
NSDL's Response and Regulatory Framework
In a circular issued on Wednesday, NSDL informed exchanges about experiencing a network connectivity issue with the other depository, which led to temporary disruption of certain services. The depository stated that the problem was being resolved through business continuity plan options for network connectivity.
According to Securities and Exchange Board of India regulations, market infrastructure institutions must report technical glitches to regulators immediately and no later than two hours from occurrence. For incidents qualifying as disasters, immediate reporting is mandatory.
- MIIs must submit preliminary reports within 24 hours
- Comprehensive root cause analysis and corrective action details must follow within 21 days
- Continuing failures can result in fines of ₹2 lakh per working day for up to 15 days
- Penalties increase significantly beyond this period
Understanding India's Settlement Mechanism
The Indian stock market operates on a T+1 settlement cycle, meaning transactions executed on one day must be settled by the next business day. For instance, if Investor A buys shares and Investor B sells shares on Monday, A's demat account must receive the shares and B's bank account must receive the funds by Tuesday before 3 PM.
- Brokers maintain pooled accounts with either NSDL or Central Depository Services Ltd
- Client demat accounts can be with either depository
- Share transfers between client accounts occur based on clearing corporation instructions
- Clearing corporations are subsidiaries of NSE or BSE Ltd
The current NSDL disruption has exposed critical dependencies in this settlement chain, raising questions about system resilience and backup protocols. As the depository remained offline through Thursday, market participants awaited resolution while regulatory scrutiny intensified over the prolonged technical failure.
