SEBI Tightens Norms Even As NSE Blames Road Work For Trading Halt
Days after a trading halt at India’s largest exchange, NSE, the market regulator has issued fresh guidelines to hold bourses accountable in case of such disruptions and the measures they need to take.
The stock exchange will now be required to announce a 'disaster' within 30 minutes of disruption of critical systems, according to the Securities and Exchange Board of India. After declaring such a ‘disaster’ the exchange will have to take measures to restore operations, including from the recovery site, within 45 minutes.
Market infrastructure institutions like exchanges and clearing corporations will have to implement these guidelines within 90 days. A disaster will include disruption in trading, risk management, collateral management, clearing and settlement, and index computation.
The move follows the Feb. 24 halt in trading and clearing at the National Stock Exchange and NSE Clearing.
SEBI said market infrastructure institutions will ensure there is no data loss for more than 15 minutes, while they should work to avoid any loss.
Exchanges should ensure that the replication between the primary data centre and the near site is synchronous to ensure zero data loss. NSE’s Bandra-Kurla Complex is the primary data centre, while nearby Kurla has the near disaster recovery site. NSE’s Chennai centre is the disaster recovery site situated in a different seismic zone.
The regulator asked exchanges to deploy people with appropriate training and experience to handle operations at these sites. It also asked bourses to develop systems that should not require intermediaries such as clearing members and depository participants to reconfigure their systems in case of disasters.
NSE, in its fourth statement on the Feb. 24 disaster, said it faced instability in links from both service providers, primarily due to digging and construction activity along the path between the two sites (NSE-BKC and NSE-Kurla).
The replication to the near disaster recovery site is designed such that in the event of the links between primary and NDR getting cut, the primary continues operations without any direct effect. After the failure of link in Feb. earlier, operations continued without any interruption, it said.
Post link failure, primary storage area network (SAN) system became inaccessible to the host servers. This resulted in the risk management system of NSE Clearing, and clearing and settlement, index and surveillance systems becoming unavailable.
While there was no impact on the trading system, given that the risk management system was unavailable, allowing trading to continue posed an unacceptable risk; hence, trading had to be halted.
NSE blamed the vendor for the faulty failover system. According to the exchange, one of the features of SAN that was deployed in October 2020 was designed to provide not just zero data loss but also zero down time. Before deployment, the system was tested against various scenarios including link failures and functioned properly. However, on Feb. 24, post link failure, the SAN system at the primary data centre stopped functioning, which was completely unexpected, the exchange said.
Incident analysis showed that the problem was caused by failover logic implemented by the vendor which did not conform to NSE’s stated design requirements, coupled with issues in the configuration done by the SAN vendor that triggered the failover logic. “We note that the specific failure logic used by the vendor is not documented, was not communicated to NSE, and was not appropriate for NSE’s setup. The resultant SAN failure led to the incident on Feb. 24.”
NSE’s vendors "include Cisco, HP, Dell, Hitachi, Checkpoint, Palo Alto Networks, Oracle. and is aided by able technology service providers like TCS, Cognizant, and Wipro", the exchange said in the release.
It also stated that though trading on its platforms had halted, trading continued on BSE and MSEI. Volumes on BSE were twice the average daily volumes after excluding any block trades, the NSE statement said. And, traders were able to close out open NSE positions on BSE.
On February 24th, 97% of trades in the cash market and 87% of the trades in equity derivatives on BSE were cleared by NSE Clearing. Out of the BSE trades that were cleared by NSE Clearing, 64% of the regular cash market trades (excluding block deals) and 56% of the equity derivatives trades took place between 11:40 am and 3:30 pm when trading on NSE was closed.NSE Statement
The exchange said it has tripled its technology spend in the last three to four years, with an annual spend of Rs 900 crore on technology. NSE has a strong technology workforce of more than 1,500 people comprising employees and vendor staff.