 "Ease penal action for tech glitches, MIIs appeal to market regulator Sebi")
Market infrastructure institutions (MIIs) — which include key players in the stock-market ecosystem, such as stock exchanges, clearing corporations, and depositories — have appealed to the Securities and Exchanges Board of India (Sebi) to reconsider the financial disincentives imposed on key officials in the event of a glitch.
Sources said that MIIs believe the current rules surrounding financial disincentives are stringent and could potentially deter talent in the long run. They also argue that glitches cannot be entirely eliminated, given the growing sophistication and complexity of trading systems.
In 2021, Sebi introduced a standard operating procedure (SOP) for MIIs to address glitches that impact normal trading. Alongside reporting and handling procedures, the norms also included the imposition of financial disincentives on MIIs and some of their officials, separately.
According to the SOP, the markets regulator prescribed a penalty of 10 per cent of the annual pay of the managing director and chief technical officer for the financial year in which the technical glitch occurred. Members from stock exchanges, clearing bodies, and depositories have formally requested the removal of this penalty from the pay of the managing director and chief technical officer.
A working group, constituted to address recommendations for ease of doing business, according to the sources, has suggested that Sebi refuse to accept the submissions by MIIs. However, the working group is in favour of the removal of the mandate to publish details of such disincentives levied by Sebi on MIIs’ website, according to a draft document seen by Business Standard.
"The market regulator may take suggestions from the concerned officials before deciding the applicability of the financial penalty on them. MIIs have been requesting these reliefs for some time now, and these requests may be deliberated upon by the regulator,” a source said.
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The sources said Sebi expects MIIs to excel in ensuring system preparedness, real-time risk management, monitoring services of vendors, and IT infrastructure planning to mitigate technical glitches. “While one can argue that the financial penalties are draconian, MIIs are systemically important, and any technical event can have a cascading effect. Hence, Sebi would want to err on the side of caution,” said a former top official with an exchange.
According to the SOP, the amount collected from such penalties is allocated to either the Investor Protection Fund or the Core Settlement Guarantee Fund (SGF), depending on whether the glitch occurred in a stock exchange or a clearing corporation. The penalty is automatically triggered by such technical disasters and is imposed in cases of failure to comply with certain timelines for disclosure and restoration of systems.
Sebi implemented the SOP following a major technical issue at the National Stock Exchange (NSE) in February 2021, which resulted in a halt in trading for over four hours. In June 2023, it accepted a settlement application by the NSE and NSE Clearing (NCL), amounting to Rs 49.8 crore and Rs 22.9 crore, respectively, for the glitch.
In the settlement order, Sebi also directed the NSE’s then managing director, Vikram Limaye, to commit to community service for 14 days over the next year towards investor education. The then managing director of NSE Clearing, Vikram Kothari, and Chief Technical Officer, Kumar Bhasin, were also asked to contribute to community service.
Instances of snags
February: MCX opening delayed by four hours
March: Trading affected for more than two hours on Nasdaq*. In December last year, the bourse was hit by a system error that impacted over 50 clients
April: Suspension of trading in shares of Vodafone Idea for a few minutes at the National Stock Exchange while listing of FPO shares
*Not regulated by Sebi