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Sebi may tighten noose on exchanges for tech glitch by penalising management: Source

In the past, Sebi had imposed a disincentive amount of Rs 50 lakhs on National Stock Exchange for a techanical glitch. Though there is no fixed amount for the monetary disincentive currently, it’s clear that the regulator wants to formalise penalties at a higher amount to avoid such mishaps in future.

April 28, 2021 / 11:37 PM IST
SEBI headquarters | Representative image

SEBI headquarters | Representative image

Market regulator Sebi is planning to go tough on the MII (Market Institutions Infrastructure) like exchanges, depositories & clearing corporations by making the top management accountable for technical glitches on trading platforms by extracting a large pound of flesh. In its attempt to avoid a fiasco seen in February this year, the regulator may formalise a monetary disincentive on MII of Rs 10 crores and a 10% cut in the salary of their MD and CTO if they fail to action disaster recovery in a specified timeline.

A source close to the development told Moneycontrol “Sebi has sent a letter to MIIs seeking comments for penalising the top management in the event of mismanagement. This is part of the various steps taken by the regulator to avert another mishap like the one occurred on Feb 24 at NSE in which several investors suffered huge losses.”

Moneycontrol has access to contents of the letter sent by the regulator to MIIs last week, it says, “In case of delay in declaration of disaster beyond the said timeline specified by Sebi, a financial disincentive of Rs 10 crores will be levied on the MII. Further, a financial disincentive on Managing Director (MD) and Chief Technology Officer (CTO) of the MII equivalent to 10% each of their annual pay (both fixed and variable component) for that financial year will be levied separately. The amount of “financial disincentive” realized as per the above structure shall be credited by MII to Investor Protection and Education Fund administered by Sebi”.

In the past, Sebi had imposed a disincentive amount of Rs 50 lakhs on National Stock Exchange for a techanical glitch. Currently, there is no fixed amount for the monetary charge but now it’s clear that the regulator wants to formalise it at a higher amount to avoid such mishaps in future.

Sebi wants to incorporate these financial imposition clauses at the time of appointment of management and also requires to change provisions for currently appointed officials.

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Sebi clearly mentioned in the letter that “Imposition of aforesaid “financial disincentive” shall be irrespective of any other action(s) initiated/ taken by Sebi”.

Letter further says “Failure to declare a disaster within stipulated timelines Vide Sebi Circular dated March 22, 2021, it has been mandated that in the event of disruption of any one or more of the ‘Critical Systems’, the MII shall, within 30 minutes of the incident, declare that incident as ‘Disaster’.”

After National Stock Exchange’s technical glitch on February 24, which failed to act fast on disaster recovery causing monetary loss to several investors, Sebi had issued new guidelines on handling any such eventuality in future.

MIIs will be required to constitute an Incident and Response team (IRT)/ Crisis Management Team (CMT), which shall be chaired by the Managing Director (MD) of the MII or by the Chief Technology Officer (CTO).

Bombay Stock Exchange declined to comment. National Stock Exchange, Multi Commodity Exchange, National Commodites Derivative Exchange (NCDEX), Metropolitan Stock Exchange and Sebi did not give a response to the query sent by Moneycontrol on Tuesday.

Industry sources told Moneycontrol “MII are not in favour of such monetary penalty on individuals and Rs 10 crores is a high amount. Secondly, MII are already facing scarcity of talent and if there is a risk of losing 10 percent of salary, it will disincentivise corporates from joining an MII”.
Tarun Sharma
first published: Apr 28, 2021 10:50 pm

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