SEBI Tightens BCP & DR Guidelines For Market Infrastructure Institutions

Posted On - 28 October, 2024 • By - King Stubb & Kasiva

Introduction

The Securities and Exchange Board of India (SEBI) has issued a circular to strengthen the Business Continuity Plan (BCP) and Disaster Recovery (DR) frameworks for Market Infrastructure Institutions (MIIs).[1] The revised guidelines, outlined in the Master Circular for Stock Exchanges and Clearing Corporations[2], for Depositories[3], and the Commodity Derivatives Segment[4], aim to ensure that MIIs have robust measures in place to minimize data loss and maintain operational continuity in the event of disruptions.

Understanding the Circular

Key Modifications Based on SEBI’s Consultation with MIIs and TAC Recommendations

  • Near Site (NS) Requirement
    • Stock Exchanges: Must have a Near Site (NS) in addition to a Disaster Recovery Site (DRS) to ensure near-zero data loss.
    • Clearing Corporations and Depositories: Must also have an NS apart from DRS to ensure zero data loss.
  • Expertise in Manpower at DRS
    • The manpower deployed at DRS must have the same knowledge and expertise as those at the Primary Data Center (PDC). They must be capable of handling all technological, and procedural systems, and processes, enabling the DRS to function independently if needed.
    • MIIs must have enough trained staff at DRS to run live operations without depending on PDC personnel.
  • Recovery Point Objective (RPO)
    • MIIs must ensure that the RPO (maximum tolerable period for data loss during a major incident) is set at near zero.
    • A documented methodology for data reconciliation when switching operations from DRS or another site must be in place.
  • Solution Architecture and Data Integrity
    • Stock Exchanges: The architecture of the PDC and DRS/NS must ensure high availability, fault tolerance, no single point of failure, near-zero data loss, and data/transaction integrity.
    • Clearing Corporations and Depositories: The architecture must ensure the same features as the Stock Exchanges but with zero data loss.
  • Synchronous and Asynchronous Replication
    • Stock Exchanges: Synchronous replication (or another appropriate method) between PDC and NS is required to ensure near-zero data loss. Asynchronous replication may be used between PDC-DRS and NS-DRS.
    • Clearing Corporations and Depositories: Synchronous replication between PDC and NS is required to ensure zero data loss. Asynchronous replication may be used between PDC-DRS and NS-DRS.

Other Important Details

  • Definition of “Near Zero Data Loss”: MIIs are advised to collaborate on creating a standardized definition of “near zero data loss” and submit the definition to SEBI after approval from their respective Standing Committee on Technology (SCOT).
  • Implementation Requirements: MIIs must take the necessary steps to implement this circular, including making necessary amendments to their bylaws, rules, and regulations.
  • Effective Dates: The provision in Para 2.2 (regarding DRS staff expertise and independence) comes into effect immediately. All other provisions of this circular will come into effect two months from the date of the circular.
  • Objective: These changes aim to ensure high standards of data integrity and availability in the event of a disaster, improving the resilience of MIIs in the securities market.

Conclusion

SEBI’s revised guidelines for BCP and DR in MIIs aim to enhance their resilience and ensure continuity of operations in the face of disruptions. By requiring near-zero data loss, robust disaster recovery capabilities, and standardized definitions, SEBI has set a higher bar for MIIs. These measures are crucial to protecting investor interests and maintaining the stability of the securities market. While the implementation of these guidelines may require significant effort from MIIs, the long-term benefits in terms of risk mitigation and operational efficiency outweigh the challenges.

[1] https://www.sebi.gov.in/legal/circulars/sep-2024/modifications-in-guidelines-for-business-continuity-plan-bcp-and-disaster-recovery-dr-of-market-infrastructure-institutions-miis-_86601.html.

[2] https://www.sebi.gov.in/legal/master-circulars/oct-2023/master-circular-for-stock-exchanges-and-clearing-corporations_78047.html.

[3] https://www.sebi.gov.in/legal/master-circulars/oct-2023/master-circular-for-depositories_77789.html.

[4] https://www.sebi.gov.in/legal/master-circulars/aug-2023/master-circular-for-commodity-derivatives-segment_74974.html.