Market regulator Sebi has sought details of the over four-hour long trading disruption on October 28 at commodity derivatives exchange MCX, Moneycontrol has learnt from people familiar with the matter.
“The priority of the regulator was restoration of the operations at exchange, now it has been restored. Rest of the details will be sought as per the standard operating procedure,” one person is aware of the development said.
When asked specifically over the time taken in shifting to disaster recovery (DR) site, the person called it a “serious concern”. As part of the standard operating procedure, Sebi was informed about the ‘technical issue’, and the preliminary report and root cause analysis will follow. "Details shared will be analysed and then the future course will be decided as per the laid down procedure," the person added.
A company filing had notified about the technical glitch at commodity exchange MCX that disrupted trading for more than four hours on October 28, 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.”
“An investigation into the issue has been initiated on priority. We are committed to identifying the cause and implementing necessary corrective measures. Updates on our findings and actions taken will be shared in due course,” MCX added.
“The four-hour shutdown of the Multi Commodity Exchange of India Ltd (MCX) today, the second one in a short period, raises serious questions about the stability of our commodity markets infrastructure. While continuous availability of trading platforms is mandatory, any issues on a volatile expiry day raises more questions". said Mrugank Paranjpe, Chairperson of the IMC Task Force on Capital Markets and former MD&CEO, MCX. Paranjpe further added that, " It is now incumbent on the Securities and Exchange Board of India (Sebi) to reassess and strengthen the continuity and resilience framework for market infrastructure institutions. A DR site only provides infrastructure backup, not software. Software systems and processes must be robust enough to withstand disruptions too.”
Due to the long delay in resumption of trades, many brokers offered clients the option to move some of the identical commodity trades to NSE’s commodity platform. One commodity broker said it was “surprising that exchange took so much time” to shift to DR site.
Another commodity broker added, “Probably it was overload on exchange systems, the back-end processing capacity needs to be expanded.” As part of the usual drill, all MIIs have to shift trading to DR site at fixed intervals.
Uttam Bagri, MD, BCB Brokerages told Moneycontrol that exchange technologies are “complex, and sometimes glitches happen,” but some market participants demanded for compensation on trading losses. However, BCB Brokerages questioned such demands.
“Such loses are notional and how can someone calculate the losses without knowing whether the prices will go up or down? Also, if exchanges are asked to pay for losses, then the transaction charges will go up to cover such cases,” Uttam Bagri said.
An email seeking comments from Sebi remain unanswered.
Read More: Trading starts at MCX after outage due to glitch
Root Cause Report to be Shared with Sebi
Sebi had issued a well-defined SOP in 2021 for reporting and taking other steps in case of technical glitch at market infrastructure institutions. After the incident, the preliminary report has to be sent to the regulator within 24 hours. Thereafter, a root cause analysis has to be sent to regulator within 21 days of the incident. In case of delay in submission or submission of incomplete or inadequate RCA by an MII, a “financial disincentive” of Rs 1 lakh per working day shall be levied on the MII for each working day.
Declaration of Disaster
As per the SOP, any disruption of a critical system should be declared as a disaster within 30 minutes, and any delay by the exchange may lead to a financial disincentive that is 10 percent of the average of the standalone net profit of previous two financial years, or Rs 2 crore, whichever is higher.
Failure to Restore Operations within Specified Time
In the event of a disaster, if an MII fails to restore its operations from the Disaster Recovery Site within 45 minutes of the declaration of a disaster, then 10 percent of the average of standalone net profit for previous two financial years or Rs 2 crore is levied as a fine, whichever is higher.
If an MII still fails to restore operations of critical systems within three hours from the occurrence of the disaster, additional “financial disincentive” of 10 percent of average of standalone net profit for previous two financial years or Rs 2 crore, whichever is higher, will apply.
Failure to Restore Normalcy Though Not Declared a Disaster
If there is disruption which is not of the nature of a disaster but is a business disruption, and if the issue persists for 75 minutes to 3 hours of the incident, then Rs 50 lakh will be charged. If the disruption exceeds beyond 3 hours of the incident then Rs 1 crore will be levied.
The amount of financial disincentive will be credited to Investor Protection Fund of exchanges, and in case of a clearing corporation, the amount will be credited with Core Settlement Guarantee Fund. For depositories, this disincentive will be credited to Investor Protection Fund of depositories.
Report Before Sebi’s Technical Advisory Committee
Regarding business disruption, the RCA and corrective action taken report submitted by the MII will be placed before Technical Advisory Committee (TAC) of Sebi. TAC or Sebi, if it so desires, may seek additional information or clarification from the MII regarding the technical glitch.
In case the TAC finds the actions taken by the MII as inadequate, then, based on the recommendations of TAC, the MII will be required to address the technical glitch by taking appropriate corrective actions within the timeline specified by TAC or Sebi. While deciding such timelines, criticality of the glitch and applications affected will also be taken into consideration.
Initially, there was financial disincentive on MII’s Managing Director and Chief Technological Officer (CTO) besides the institution, but later, these were removed. In September last year, Sebi had tweaked the regulation, resulting in the imposition of disincentive to be restricted to MIIs only.
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