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NSE trading halt: SEBI puts out framework to deal with future market outages; Penalty to be imposed in case of failure

07:37 AM Feb 26, 2021 | FPJ Web Desk

The recent NSE trading halt has brought to light some failures in the system. To prevent such failures in the future, the market regulator SEBI put out a comprehensive framework to deal with technical glitches at market infrastructure institutions (MIIs).

The framework includes MII to submit a detailed root cause analysis to SEBI within a time bound manner after due vetting by the Technology Committee and Governing Board of the MII. “This report will be placed before the Technical Advisory Committee (TAC) of SEBI, which consists of eminent academicians and technocrats.”

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The regulator stated, “Monitoring mechanism for ensuring corrective action along with appropriate penalty wherever warranted”, will be part of the framework.

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The regulator stated that MIIs are required to carry out live trading from disaster recovery sites for two consecutive days every six months apart from having to conduct quarterly disaster recovery drills. The regulator considers this move necessary to avoid any halt in trading activity.

Even before this (February 24) NSE outage, the SEBI was considering a proposal to introduce a framework to ascertain the incidents of technical glitches whereby compensation would be given to investors. Besides, the regulator was also looking to devise a methodology and calculation of compensation. However, this was not mentioned by the regulator during the recent statement.

The failure on the side of NSE to move to disaster recovery sites was raised by the regulator yet again in the recent statement. “SEBI has already advised NSE to expeditiously carry out a detailed root cause analysis of the trading halt and also to explain the reasons for trading not migrating to the disaster recovery site, as per the prescribed norms,” SEBI stated. The regulator stated that it will take all necessary measures to ensure rectification of the underlying causes including addressing institutional deficiencies.

In addition, MIIs are required to carry out comprehensive annual systems audits. “The audit report is required to be vetted by the Technology Committee and the Governing Board of the MII,” added SEBI. This will ensure the robustness and integrity of the technology systems.

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