NSE down? BSE to the rescue! SEBI announces backup plan
What's the story
The Securities and Exchange Board of India (SEBI) has directed the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE) to serve as alternative trading venues for one another.
The mandate, intended to ensure business continuity, will come into effect from April 1, 2025.
The decision comes after SEBI held discussions with both exchanges regarding their roles in this new arrangement.
Operational plan
NSE, BSE to prepare joint SOP for business continuity
The NSE and BSE will have to develop a joint Standard Operating Procedure (SOP) detailing the plan to be invoked during an exchange outage.
The SOP should detail the flow of activity between the affected exchange and its alternative trading venue, and define their respective roles and responsibilities.
SEBI has directed that this SOP should be submitted within 60 days of its circular.
Regulatory measures
SEBI issues guidelines for interoperable segments of exchanges
SEBI has also issued guidelines for the interoperable segments of the exchanges, including cash market, equity derivatives, currency derivatives, and interest rate derivatives.
For similar or correlated products such as single stock derivatives and index derivatives, participants can hedge their positions on another exchange during an outage.
The regulator has directed that margins for such positions will be netted off to ensure smooth operations.
Continuity measures
Exchanges to create 'reserve contracts' for exclusive listings
The exchanges must create "reserve contracts" for stocks or derivatives that are listed exclusively on one exchange. This is to ensure continuity during outages.
If an exchange doesn't have correlated index derivatives, it must consider creating such indices and introducing related contracts as hedging options.
These guidelines are part of SEBI's broader strategy to enhance investor protection and maintain market stability during unforeseen disruptions.