The Securities and Exchange Board of India (Sebi) on Monday issued a detailed framework for penalising market infrastructure institutions (MIIs), which include stock exchanges, clearing corporations, and depositories, for technical glitches.
“MIIs are systemically important institutions as they provide infrastructure necessary for the smooth and uninterrupted functioning of the securities market….For any downtime or unavailability of services, beyond such predefined time, there is a need to ensure that a ‘financial disincentive’ is paid by MIIs as well as their managing directors (MDs) and chief technology officers (CTOs),” the market regulator said in a circular.
Sebi said the move would encourage MIIs to constantly monitor the performance and efficiency of their systems and upgrade them. This would avoid any possibility of technical glitches, disruptions, or disasters, and help them restart their operations expeditiously in the event of any such incident, it added.
Under the new framework, MIIs will have to pay Rs 1,00,000 per day in case of a delay in submission or incomplete submission of their root cause analysis (RCA). The regulator has said a comprehensive RCA report needs to be submitted within 21 days of the incident.
Failure to timely address the technical glitch will attract Rs 200,000 per day for the first 15 working days, Rs 300,000 per day for subsequent 15 working days, and Rs 25 lakh additional beyond that.
The new rules come into effect from August 16.
Failure to declare disaster within stipulated timelines can attract a financial disincentive of 10 per cent of average standalone net profit for the previous two financial years or Rs 2 crore, whichever is higher. The MII’s MD and CTO will have to part with 10 per cent of their annual pay (both fixed and variable components) for the financial year when the disaster occurred.
Failure to restore operations within a recovery time objective may attract similar penalties both on the MII as well as the MD and CTO. In the event of a disaster, the MII has to restore its operations, including critical systems, from a disaster recovery site within 45 minutes.
There will be further penalties for failing to restore operations of critical systems, including from disaster recovery site, within three hours.
Sebi has said that in the event of any business disruption, which is not required to be declared as a “disaster”, if the MII fails to restore normalcy of operations within 75 minutes of the incident, it will attract a penalty of Rs 50 lakh, and if the same extends beyond three hours, the penalty will rise to Rs 1 crore.
Sebi has tightened the rules around technical glitches following a trading outage at the NSE in February 2020. The NSE glitch had led to a trading halt that lasted several hours and resulted in huge losses for traders. The finance ministry had taken cognisance of the issue and asked Sebi to avoid a repeat of the incident.