NSE, NCL settle 2021’s tech glitch-led shutdown with Rs 72. 64 crore, community service by chiefs

The market regulator had launched an investigation into whether the failure of systems of NSE and NCL following the technical glitch

The National Stock Exchange of India (NSE) and NSE Clearing (NCL) have paid over Rs 72.64 crore to settle with the market regulator for halting trading on February 24, 2021, following a technical glitch.

Along with the monetary penalty, the market regulator has ordered that NSE’s former MD and CEO Vikram Limaye, NCL’s MD Vikram Kothari and NSE’s CTOO Shiv Kumar Bhasin will take necessary exams/courses and commit to pro bono community service of at least 14 days over the next year. The service should be towards investor education and awareness, by actively contributing to specified programmes that are conducted by and monitored under the aegis of SEBI's Office of Investor Assistance and Education ("OIAE"), the order dated June 20 said.

Also read: NSE trading interruption: What exactly is a technical glitch, how does it impact investors,

The three senior executives will need to take and pass "specific and appropriate training courses (specified by Sebi), at their own cost, within the next six months", stated the order passed by the Securities and Exchange Board of India (Sebi).

The background

On February 24, 2021, the exchange decided to halt trading in all segments from 11:40 am. The exchange informed that its telecom service providers had said that there were issues with their telecom links, because of which there was an adverse impact on NSE system. The trading resumed from 3.45 pm and the trading day was extended up to 5 pm at NSE, BSE Limited and Metropolitan Stock Exchange of India.

The market regulator had launched an investigation into whether the failure of systems of NSE and NCL following the technical glitch was in violation of provisions of the Securities Contracts (Regulation) (Stock Exchanges and Clearing Corporations) Regulations, 2018; Securities and Exchange Board of India Act, 1992; and Securities Contracts (Regulation) Act, 1956; or any other Rules/ Regulations made or directions or circulars issued by SEBI thereunder.

After the investigation, a showcase notice was issued to the five noticees/applicants and in it various failures were recorded. They included NSE and NCL's failure to monitor services of vendor in respect of Core and Critical activities of the two entities; to ensure systems preparedness and readiness to move operations to DRS; to ensure orderly execution of trades, on-line/real time risk management of trades and market integrity; to ensure “no single point of failure” and to recover operations within RTO of 4 hours.

The notice also alleged failure on the part of the crisis management team of NSE which included Limaye, Kothari and Bhasin.

"Pending the proceedings initiated vide the SCN (showcause notice), the Noticees to the SCN i.e. the Applicants, proposed to settle the instant proceedings initiated against them, without admitting or denying the findings of facts and conclusions of law," according to the order.

Also read: NSE technical glitch | A look at some of the past instances of trading glitch globally

After attending meetings with the Internal Committee of SEBI on May 04, 2022, August 24, 2022 and February 24, 2023, the applicants proposed revised settlement terms through a letter dated March 19, 2023.

These applications were placed before the High Powered Advisory Committee headed by a retired judge of the High Court, during its meeting held on April 13, 2023. After the committee invited observations from the Sebi's Internal Committee and after the applicants met with the Internal Committee, the HPAC recommended that in addition to the combined settlement amount of Rs 72,64,80,000, Sebi may consider other non-monetary settlement terms, as deemed fit.