The market regulator Sebi has clarified that it recognises Stock Exchanges/Clearing Corporations as important Market Infrastructure Institutions(MIIs). Sebi's clarification comes after the National Stock Exchange (NSE) faced a technical glitch that resulted in the halt of the trading session for nearly 4-hours on February 24, 2021.
Sebi clarifies on Thursday by saying, "MIIs are professionally managed with an independent Governing Board and are designed to function at an arms-length relationship from the Regulator. They have the necessary experience and expertise to deal with operational aspects of the functioning of the market, albeit under a transparent framework laid down by SEBI."
On February 24, 2021, NSE informed SEBI at around 11.30 am on February 24, 2021, that it had issued a communication to the market for halting trading from 11.40 am due to “issues with the links with telecom service providers”.
Sebi said, "NSE took this decision based on its own internal assessment regarding the severity of the technical issues it was experiencing at that time."
The regulator highlighted that SEBI was in constant touch with NSE officials and continued to monitor the situation closely. NSE informed that it was continuously working on the resolution of the problem and that it would intimate the market regarding the resumption of trading once the issue gets resolved. Market participants were notified by NSE at 3:17 pm that trading will resume from 3:30 pm and trading hours were extended from 3.30 pm to 5.00 pm at NSE, BSE and MSEI.
Notably, Sebi points out that despite the trading halt, the framework of interoperability put in place by SEBI facilitated market participants to continue their transactions at other stock exchanges, thereby allowing them to seamlessly trade /square off their existing positions.
Sebi states that the same is evident from the fact that the trading turnover at BSE in the equity segment jumped to Rs40,600cr on February 24, 2021, as compared to an average daily trading turnover of approximately Rs5,200cr during the previous 30 days.
Also, Sebi said, over and above the market design of interoperability, which facilitates a market participant to trade on multiple trading platforms, the decision to extend the market timings also enabled investors to square off their existing positions.
It needs to be noted that, MIIs are required to carry out live trading from the disaster recovery site for 2 consecutive days every six months apart from having to conduct quarterly disaster recovery drills.
"With a view to ensuring the robustness and integrity of the technology systems, MIIs are required to carry out a comprehensive annual systems audit. The audit report is required to be vetted by the Technology Committee and the Governing Board of the MII," Sebi added.
That said, 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 would take all necessary measures to ensure rectification of the underlying causes including addressing institutional deficiencies.
NSE spokesperson in a statement on Thursday said, "NSE is awaiting detailed root cause analysis from telecom service providers and vendors regarding this incident," adding the exchange said, "NSE is in close contact with SEBI and keeping them updated of developments."
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