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Informist, Thursday, Nov. 28, 2024

 

--SEBI tweaks norms on bourses' business continuity during system outage

--SEBI: Interoperable segments of bourses to be used during outage in one

--SEBI: If outage in BSE, NSE to be alternative venue, and vice versa

--SEBI: If bourse in outage, investors can hedge on another for common stocks

 

By Rajesh Gajra

 

MUMBAI – In a major move pertaining to business continuity for interoperable segments of stock exchanges during system outages, the Securities and Exchange Board of India Thursday issued a circular asking exchanges and clearing corporations to build systems and procedures allowing investors having open positions in stocks and derivatives in an affected stock exchange to take offsetting positions in identical or correlated indices on the other functioning exchanges.

 

To begin with, SEBI said the National Stock Exchange of India will act as an alternative trading venue for BSE and vice-versa, if either of them is hit by a system-wide outage.

 

SEBI has asked the two exchanges to prepare a standard operating procedure document within 60 days, which would include the plan to be invoked at the time of outage on one exchange along with flow of activity involving the affected exchange and its alternative trading venue, and role and responsibility of each of the two exchanges. The provisions of SEBI's Thursday circular would be effective Apr 1.

 

When an investor with an open position on an affected exchange squares it off on another exchange, under SEBI's new rules, it will be treated as it being squared off on the same exchange and the margin will be released. SEBI said in its circular that squaring off will be allowed only if the segments of the two exchanges are interoperable, that is, the same stock in cash market, same stock derivatives contract, and identical, correlated index derivatives contract are traded on both exchanges.

 

In equity derivatives, while stock futures and options are common to both BSE and NSE, index futures and options are not. The market regulator said in the circular that an exchange that does not have a highly correlated index derivatives product with one available on other exchange "may consider creating such an index and introducing derivatives contracts on it, in line with extant regulatory provisions," to provide an avenue for investors to hedge open positions in index derivatives.

 

The implications of this SEBI allowance for index derivatives are significant. The BSE has a Sensex 50 index, launched in December 2016, on which it offers derivatives contracts. The index, according to the exchange's website, "is designed to measure the performance of the top 50 largest and liquid stocks in the BSE LargeMidCap by float-adjusted market capitalisation."

 

Theoretically, if Sensex 50, or the main Sensex which contains 30 stocks, moves in a highly correlated manner with NSE's Nifty 50, open positions on their contacts during an outage, if any, at the BSE would be permitted to be squared off on the NSE's equity derivatives segment by taking an opposite position in Nifty 50 contracts. Likewise, if NSE is hit by a system outage, open positions in Nifty 50 contracts would be permitted to be squared off on BSE's equity derivatives segment by taking an opposite position in Sensex or Sensex 50.

 

For exclusively listed stocks on one exchange, the other exchange "may create reserve contracts... to be invoked at the time of outage" on the first exchange, SEBI said in the circular.

 

SEBI said the stock exchange, hit by an outage or technical glitch, must intimate the invocation of the business continuity mechanism to the alternative trading venue and SEBI within 75 minutes of occurrence of impact. "The alternative trading venue must invoke the business continuity plan as per the standard operating procedure within 15 minutes from such intimation," SEBI said in the circular.  End

 

Edited by Deepshikha Bhardwaj

 

 

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