MUMBAI: In an unprecedented move to minimize the instances of technical glitches occurring at market infrastructure institutions like stock exchanges, the
Securities and Exchange Board of India
) on Monday released new rules that will make such institutions and their officials liable in the event of failure to provide services. “Considering the criticality of smooth functioning of systems of MIIs, specifying a pre-defined threshold for downtime of systems of MIIs becomes desirable. For any downtime or unavailability of services, beyond such pre-defined time, there is a need to ensure that 'Financial Disincentive' is paid by the MIIs as well as
and Chief Technology Officer,” Sebi said in a circular issued on Monday. Sebi’s move comes in the backdrop of the substantial failure of NSE’s systems in February when various aspects of the stock exchange’s functions failed to perform for over four hours. “This will encourage MIIs to constantly monitor the performance and efficiency of their systems and upgrade their systems etc. to avoid any possibility of technical glitches and restart their operations expeditiously in the event of glitch,” Sebi said.
Sebi said that the new rules are being issued in the interest of investors to promoting the development of the securities market in the country, and will come into effect from August 16, 2021.Sebi has mandated that market infrastructure institutions report technical glitches in their services within two hours of the occurrence of the event. However, if the technical glitch is declared a disaster by the MII, its reporting should be immediate. Further, the MII must submit a preliminary report on the technical glitch within 24 hours followed by a root cause analysis and a corrective action report within 21 days. “Such report shall be submitted to Sebi, after placing the same before the Standing Committee on Technology and the Governing Board of the MII and confirming compliance with their observations,” the regulator said. In terms of the penalties that MIIs and their officials will be required to pay in the event of a technical glitch, the market regulator has released a slab structure. In an event where an MII fails to declare a technical glitch that affects one or many critical systems as a disaster within 30 minutes, the MII will pay 10 per cent of its average standalone net profit for past two years or Rs 2 crore, whichever is higher. Further, the managing director and the CTO will pay 10 per cent each of their annual pay for the year in which disaster occurred. If the MII is unable to restore operations within the recovery time objective set by Sebi within 45 minutes of a disaster, the MII must pay 10 per cent of its average standalone net profit for past two years or Rs. 2 crore, whichever is higher. And, MD and CTO must pay 10 per cent each of their annual pay for the year. The penalty structure will also apply in the event the MII fails to restore critical operations within three hours of declaring disaster. This penalty will be over and above the two penalties stated above. Sebi said that the penalties will be paid by the MIIs and their officials to the Investor Protection Fund of the stock exchange, the core settlement guarantee fund of the clear corporation and teh Investor Protection Fund of depositories.