SEBI Proposes Tougher Tech Resilience Rules for Exchanges and Depositories

Sebi’s New Tech Resilience Framework Aims to Fortify Market Infrastructure

The Securities and Exchange Board of India is tightening the reins on technology resilience norms for market infrastructure institutions, a move aimed at enhancing operational stability.

Revised Disaster Recovery Drill Requirements

Under the new framework, Sebi proposes that MIIs conduct disaster recovery (DR) drills on non-working days, ensuring that these exercises last at least four hours. This includes the time taken to switch operations from the primary data center (PDC) to the disaster recovery site (DRS). The rationale behind this change stems from feedback from exchanges, particularly those involved in commodity derivatives, where trading can extend late into the night. The previous requirement for drills to cover the entire market session was deemed cumbersome.

Enhanced Operational Resilience and Testing

The proposed regulations mandate that MIIs simulate real-life operational scenarios during DR drills, ensuring that they can handle actual trading loads and participation levels. This includes comprehensive stress testing of the PDC, which will now cover transaction volumes, database records, and other non-transactional components. The goal is to ensure that MIIs can withstand various operational challenges and maintain service continuity.

New Mechanisms for Data Recovery

In a significant development, Sebi has proposed a new mechanism for stock exchanges to recover lost trade data from clearing corporations in the event of a disruption that also affects data replication at the near site or DRS. This would require exchanges and clearing corporations to establish standard operating procedures for data recovery, ensuring that critical trading information is not permanently lost during operational failures.

Implications for Market Participants

These proposed changes signal Sebi’s commitment to enhancing the resilience of India’s financial market infrastructure. By streamlining DR drills and improving data recovery mechanisms, the regulator aims to minimize disruptions and ensure that market participants can operate smoothly, even in the face of technical challenges. The public has been invited to comment on these proposals until October 5, indicating that stakeholder feedback will play a crucial role in shaping the final regulations.

Key Highlights

• Proposed DR drills for MIIs to last a minimum of four hours.
• Drills to be conducted on non-working days to ease operational burdens.
• Enhanced stress testing requirements for PDCs covering various operational scenarios.
• New mechanisms for recovering lost trade data from clearing corporations.
• Public comments invited until October 5 to refine the proposals.

Investor Note: The proposed changes by Sebi are a proactive step towards ensuring the robustness of India’s financial infrastructure. Investors should monitor these developments closely, as enhanced operational resilience can lead to greater market stability and confidence in the long run.