MCX incident not ideal, further action will be on basis of final analysis: SEBI chief Tuhin Kanta Pandey

MCX incident not ideal, further action will be on basis of final analysis: SEBI chief Tuhin Kanta Pandey

The recent MCX incidents were not ideal and analysis is currently taking place he said. Speaking at the sidelines of the Morningstar Investment Conference, Pandey said, “There was an issue during the June–July period as well, and now another one has occurred. This is not right that such problems are happening again and again. But we can comment further only after a complete and proper analysis."

Pandey explained that MIIs have an established standard operating procedure (SOP) as per SEBI regulations. SOP outlines how incidents are to be handled, reported, including the required root cause analysis and relevant tagging. “The entire process is followed as per this SOP,” he said.

On the root cause analysis (RCA), he said that the report is expected to be submitted within the fixed time as per SOP. “The RCA process itself has multiple stages, including an initial report that must be provided within 24 hours. We will adhere fully to the SOP, which clearly defines the steps to be followed,” he said.

On October 28, a company filing had notified about the technical glitch at commodity exchange MCX that disrupted trading for more than four hours, and led to the shifting of operations from DR site after a long delay. The trading finally resumed at 1:25pm on MCX. In the filing, MCX said, “Operations were shifted to the Disaster Recovery (DR) site, and trading started at 1.25pm. All trading systems are now functioning normally.” Moneycontrol has reported that SEBI had reached out to the commodity derivatives exchange for details on the disruption.

What is the SOP?

The Standard Operating Procedure (SOP) laid out for market infrastructure institutions (MIIs) such as stock exchanges, clearing corporations and depositories mandates strict time-bound disaster declaration and restoration protocols, backed by aggressive financial disincentives.

As per SOP, within 30 minutes of disruption of any critical system, it must be declared a disaster. Failure to do so within stipulated time attracts a disincentive of 10 percent of average standalone net profit of previous two financial years, or Rs 2 crore, whichever is higher. If a disaster is triggered but the MII fails to restore critical operations from its disaster recovery site within 45 minutes of disaster declaration, the same penalty applies again. If the restoration still does not happen within three hours of the occurrence of the event, an additional penalty of 10 percent of average standalone net profit or Rs 2 crore, whichever is higher, will apply.

Post incident, preliminary report must reach SEBI within 24 hours and Root Cause Analysis (RCA) within 21 days. Delay or inadequate RCA leads to Rs 1 lakh per working day penalty.

For disruptions not classified as disaster: if issue persists between 75 minutes to 3 hours, penalty is Rs 50 lakh, beyond three hours Rs 1 crore.

All penalties go to IPF for exchanges and other MIIs and it goes to Settlement Guarantee Fund in case of clearing corporations. Initially penalty also applied on MD/CTO, but SEBI withdrew that last year.