The Indian market regulator Sebi today approved NSE and BSE to function as alternate trading venues in the event of an outage on either exchange. Exchanges must now design and submit a SOP (Standard Operating Procedure) that includes a strategy to be activated during an outage within 60 days.
"After consulting with exchanges, it was decided that the NSE would initially serve as an alternative trading venue for the BSE, and vice versa. Both exchanges would establish a combined SOP that would contain plan to be triggered at the time of outage on one exchange, flow of activity involving the affected exchange and its alternate trading venue, and roles/responsibilities of each of them," stated Sebi.
The circular also requires exchanges to include changes (if any) in the systems of stock brokers, clearing firms, and SOPs used to implement the measures.
The circular would go into effect on April 1, 2025.
The relocation is part of the second phase of Business Continuity Planning (BCP) and Disaster Recovery Site (DRS) for Market Infrastructure Institutions (MIIs).
The circular stated that the interoperable stock exchange sectors will include cash markets, equities derivatives, currency derivatives, and interest rate derivatives, among other things.
"If identical or correlated trading products are available on another trading venue, participants may hedge their open positions by taking offsetting positions in identical or correlated indices on the other exchange. Furthermore, because these segments are interoperable, placing offsetting positions in another trading venue would net off such open positions for end clients, freeing up margin. As a result, such products do not require special treatment," according to the circular.
To ensure continuity for scrips exclusively listed on an exchange, Sebi has recommended that exchanges create reserve contracts for scrips (i.e., exclusively listed scrips on another exchange) and single stock derivatives not traded on their exchange (but available on another exchange), which can be invoked in the event of an outage on the other exchange.
The approach will allow investors to hedge positions in index derivatives products from an exchange that experienced an outage.
Furthermore, within 75 minutes of the effect, the impacted exchange must notify the alternative trading venue and SEBI that the instant business continuity mechanism has been invoked.
Meanwhile, the alternate trading venue would implement the business continuity plan in accordance with the Standard Operating Procedure (SOP) within 15 minutes of receiving such notification.
In the first phase, the Sebi circular dated December 20, 2023 specified the Software as a Service Model for Clearing Corporations' Risk Management Systems.
