Sebi Seeks Details of Four-Hour Trading Disruption at MCX
Market regulator Sebi has sought details of the over four-hour long trading disruption on October 28 at commodity derivatives exchange MCX, Moneycontrol has learnt from people familiar with the matter.
The priority of the regulator was restoration of the operations at exchange, now it has been restored. Rest of the details will be sought as per the standard operating procedure, one person aware of the development said.
Technical Glitch at MCX
A company filing had notified about the technical glitch at commodity exchange MCX that disrupted trading for more than four hours on October 28, and led to the shifting of operations from DR site after a long delay. The trading finally resumed at 1:25pm on MCX.
In the filing, MCX said, “Operations were shifted to the Disaster Recovery (DR) site, and trading started at 1.25pm. All trading systems are now functioning normally.”
An investigation into the issue has been initiated on priority. We are committed to identifying the cause and implementing necessary corrective measures. Updates on our findings and actions taken will be shared in due course, MCX added.
Concerns Over Market Infrastructure
The four-hour shutdown of the Multi Commodity Exchange of India Ltd (MCX) today, the second one in a short period, raises serious questions about the stability of our commodity markets infrastructure. While continuous availability of trading platforms is mandatory, any issues on a volatile expiry day raises more questions, said Mrugank Paranjpe, Chairperson of the IMC Task Force on Capital Markets and former MD&CEO, MCX.
Paranjpe further added that, It is now incumbent on the Securities and Exchange Board of India (Sebi) to reassess and strengthen the continuity and resilience framework for market infrastructure institutions. A DR site only provides infrastructure backup, not software. Software systems and processes must be robust enough to withstand disruptions too.
Due to the long delay in resumption of trades, many brokers offered clients the option to move some of the identical commodity trades to NSE’s commodity platform. One commodity broker said it was “surprising that exchange took so much time” to shift to DR site.
Analysis of the Disruption
Another commodity broker added, “Probably it was overload on exchange systems, the back-end processing capacity needs to be expanded.” As part of the usual drill, all MIIs have to shift trading to DR site at fixed intervals.
Uttam Bagri, MD, BCB Brokerages told Moneycontrol that exchange technologies are “complex, and sometimes glitches happen,” but some market participants demanded for compensation on trading losses. However, BCB Brokerages questioned such demands.
Such loses are notional and how can someone calculate the losses without knowing whether the prices will go up or down? Also, if exchanges are asked to pay for losses, then the transaction charges will go up to cover such cases, Uttam Bagri said.
Sebi’s Standard Operating Procedure
Sebi had issued a well-defined SOP in 2021 for reporting and taking other steps in case of technical glitch at market infrastructure institutions. After the incident, the preliminary report has to be sent to the regulator within 24 hours. Thereafter, a root cause analysis has to be sent to regulator within 21 days of the incident.
In case of delay in submission or submission of incomplete or inadequate RCA by an MII, a “financial disincentive” of Rs 1 lakh per working day shall be levied on the MII for each working day.
For more information on Sebi guidelines and MCX trading, please visit our website.
Conclusion
The trading disruption at MCX has raised concerns over the stability of the commodity markets infrastructure. Sebi has sought details of the incident and will be analyzing the report to decide the future course of action. The regulator has also issued a well-defined SOP for reporting and taking other steps in case of technical glitches at market infrastructure institutions.
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