SEBI Prescribed Measures to Prevent Repeat of Trading Halt at NSE

On 22.03.2021, SEBI, by way of a Press Release No 13/ 2021, has notified the measures to prevent repeat of trading halt at NSE. The same was in furtherance to the detailed RCA (Root Cause Analysis) presented by NSE (National Stock Exchange) to SEBI Technical Advisory Committee on 24.02.2021.

Key Decisions Made by SEBI Technical Advisory Committee

The key decisions made by SEBI Technical Advisory Committee are as follows:

1. Unannounced Live Trading Sessions will be conducted from the Disaster Recovery Site of the Market Infrastructure Institutions with a notice period of 4 hours from the SEBI prior to the start of the trading session, commencing from April 2021;
2. Unannounced Live Trading Sessions will be conducted from the Disaster Recovery Site of the Market Infrastructure Institutions with a short notice period of 45 minutes from the SEBI prior to the start of the trading session, commencing from July 2021;
3. In the event of a disturbance in the “Critical Systems” of the Market Infrastructure Institutions, the MII will declare that said event as “Disaster” within 30 minutes of the event (earlier 2 hours) and will take measures to restore the operations and functions including from Disaster Recovery Site within a period of 45 minutes (earlier 2 hours) from the declaration of “Disaster”;
4. All the Market Infrastructure Institutions will study the feasibility and viability of intra-day shifting from the Primary Site to Disaster Recovery Site with a notice period of 45 minutes from the Securities and Exchange Board of India;
5. Market Infrastructure Institutions will prepare a comprehensive testing plan and will build a sufficient redundancy in its systems to mitigate the impact of any unforeseen technical problem and to confirm the failure of any sub-system of Market Infrastructure Institutions will not impact other critical mechanisms of MIIs and the continued functioning of securities market;
6. MIIs or the Market Infrastructure Institutions will constantly monitor and supervise the health or performance of various communication links and implement corrective measures, as needed;

Key Measures to Prevent Repeat of Trading Halt

With a view to further strengthen the systems, to confirm faster restoration of functions and operations in case of any Disaster or Technical Glitch, the Securities and Exchange Board of India has issued a Circular on 22.03.2021, to implement the measures to prevent repeat of trading halt as follows:

1. All Market Infrastructure Institutions need to check switchover functionality by conducting an Unannounced Live Trading from Disaster Recovery Site of the MII that, too, with a short notice period of 45 minutes;
2. In the event of disturbance of any one or more of the “Critical Systems”, the Market Infrastructure Institution will, within a period of 30 minutes of the said incident, need to declare that incident as “Disaster” and require to take measures to restore operations and functions, including from DRS within a period 45 minutes of the declaration of the “Disaster”. Consequently, the Recovery Time Objective (RTO) – the maximum time undertaken to restore operations and functions of the “Critical Systems” from Disaster Recovery System after the declaration of Disaster will be 45 minutes. Further, the “Critical Systems” for an Exchange or Clearing Corporation will include Trading, Collateral Management, Risk Management, Clearing and Settlement, and Index Computation. Also, the “Critical Systems” for a Depository will include systems supporting settlement procedures and inter-depository transfer system;
3. Recovery Point Objective (RPO) denotes the maximum tolerable period for which the data might get lost due to a major event, has been minimised to 15 minutes from the existing 30 minutes;
4. All the Market Infrastructure Institutions have to incorporate a clear and comprehensive Communication Protocol and Procedure in BCP document for both external and internal communications, starting from the time of event till the rectification or resumption of systems or trading of MIIs;
5. All the measures to prevent repeat of trading halt need to be implemented within a period of 90 days;

Directions for National Stock Exchange

The key direction for the National Stock Exchange can be summarised as:

1. The Functionality of the updation of collaterals at the slave mechanism of NCL located at the data centre of the BSE or MSEI;
2. Connect trading system at the primary site of National Stock Exchange to the slave system of NCL located at the data centre of BSE or MSEI;

NSE/ NCL are advised to implement the said changes within a period of 90 days.

Directions for the Governing Board of National Stock Exchange

The key direction for the Governing Board of the National Stock Exchange can be summarised as:

• Determine as to why the management of the National Stock Exchange^[1] failed to shift its operations from the Primary site to Disaster Recovery Site within the prescribed time frame as specified by SEBI;
• Fix the responsibilities and duties of the individuals for the same;
• The measures mentioned above need to be completed within a time frame of 21 days;

Conclusion

In a nutshell, SEBI, through a Press Release No 13/ 2021, issued on 22.03.2021, has notified the measures to prevent repeat of trading halt at NSE in furtherance to the detailed Root Cause Analysis presented by National Stock Exchange to SEBI Technical Advisory Committee on 24.02.2021.

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