NSE seeks to settle 2021 glitch case

Mumbai: The National Stock Exchange (NSE) has approached India's capital markets regulator requesting it to settle a probe into a technical glitch last year that halted trading for about four hours, people with direct knowledge of the matter said.

NSE has filed a consent application with the Securities and Exchange Board of India (Sebi) to resolve the issue, they said. The incident on February 24 stopped trading in equities as well as derivatives.

NSE's subsidiary - NSE Clearing Ltd (NCL) - has also filed a similar consent application with Sebi, the people said.

Consent is a way in which an entity facing investigation into alleged security market violations can settle a case with Sebi by paying a fee, without admitting or denying wrongdoing.

Representatives of NSE and NCL held a round of meetings with Sebi officials earlier this month and presented their views, the people said. "Sebi has asked NSE and NCL to file a detailed written statement on the matter along with remedial measures taken by the exchange," a lawyer with direct knowledge of the matter said.

NSE and NCL have already paid Rs 25 lakh each to the exchange's investor protection fund following the outage, the lawyer added. Sebi and NSE did not respond to ET's emails till press time Tuesday.

The markets regulator is probing the role of both the exchange as well as its top executives. ET reported in November that Sebi had issued show-cause notices to some senior staff members at both NSE and NCL in the case.

It was not immediately clear whether the NSE employees who received Sebi notices had filed consent applications.

NSE executives have apprised Sebi about the list of steps the exchange has undertaken to avoid such outages in future, people familiar with the matter said.

The exchange has conducted a root-cause analysis and submitted it to the technical advisory committee of Sebi. "The only question that remains is why the exchange had decided to keep the platform shut instead of moving to a secondary server," one of the people said.

Internal Probe
The exchange has also conducted an internal probe to fix reasons for the outage. The investigation is learnt to have concluded that there was "no negligence or misgovernance" and that the glitch happened purely on account of "operational issues".

NSE had said that road construction work around the Bandra-Kurla Complex (BKC) in Mumbai - where its headquarters is situated - on February 24, 2021, disrupted data connectivity provided by telecom service providers to the exchange.

During the outage, some of its backup servers also did not function as required, bringing the market to a standstill.

In an unprecedented move, the exchange extended the trading time by two hours that day until 5:30 pm, once it resumed operations at 3:30 pm, the normal closing time. The outage forced the regulator to tweak the standard operating procedure (SOP) to deal with such incidents.

Sebi Circular
Sebi issued a circular on March 22 last year, making it mandatory for exchanges to shift to disaster recovery sites if the primary server did not resume functioning within 45 minutes of a disruption.

It also asked market institutions to carry out more stringent testing of disaster recovery sites to ensure that these shadow platforms were ready whenever the need for such a transition arose.