Tech glitches: SEBI tightens noose around exchanges, top honchos

Suresh P Iyengar Mumbai | Updated on July 05, 2021

To impose penalty on them to improve efficiency, beef up surveillance

Cracking down on frequent technical glitches in stock exchanges, market regulator SEBI has levied a penalty not only on the exchange but also on the Managing Director and Chief Technology officers.

10% profit or ₹2 cr as fine

With increasing dependence on technology, as the operations and functioning of exchanges are fully automated right from order entry to order matching to trade confirmation leading up to clearing and settlement of trades, the instances of technical glitches at exchanges, leading to business disruption and unavailability of services provided by MIIs, have been occurring, despite various mechanisms stipulated, said SEBI.

The exchange has to shell out a 10 per cent of average stand alone net profit for previous two financial years or ₹2 crore whichever is higher if it fails to restore trading within 45 minutes of technical problem from the disaster recovery site. This apart, Managing Director and Chief Technical Officer have to cough out 10 per cent each of their annual pay for the financial year when the disaster occurs, said SEBI.

Similar penalty will be levied if the technical glitch extends up to three hours in both the exchanges and the disaster recovery site. The exchange, Managing Director and Chief Technology Officers will have to again pay similar penalty if they fail to declare the technical disaster to investors within 30 minutes of its occurrence.

For any downtime or unavailability of services, beyond such pre-defined time, there is a need to ensure that financial disincentive is paid by the exchange, Managing Director and Chief Technology Officer as it will encourage them to constantly monitor the performance and efficiency of their systems and enhance systems to avoid technical glitches, said SEBI.

If the exchange fails to restore business disruption, which is not required to be declared as disaster, within 75 minutes, it has to pay a fine of ₹50 lakh for delay between 75 minutes to 3 hours and ₹1 crore if it extends beyond three hours.

Frequent technical glitches at exchanges and clearing corporations have been a major concern for both investors and broking firms. Trading in the country’s largest exchange NSE was suspended for the whole-day late last year, putting investors in quandary. The exchange struggled to restart trading despite having disaster recovery centres.

Penalty for each ‘glitch’ day

In order to ensure that exchanges address technical glitches within the SEBI-specified timeline limit, the regulator will levy a penalty of ₹2 lakh per working day if it persist for 15 working days and additional penalty of ₹3 lakh per working day will be collected if the glitch extends up to 30 days. If the technical glitch extends beyond a month, exchanges have to pay ₹25 lakh.

In case of delay in submission or incomplete submission of root cause analysis within 21 days of the event, the exchanges have to pay a fine of ₹1 lakh per working day for each working day of delay.

Published on July 05, 2021

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