The Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE) will act as alternative trading venues to each other from April 1, 2025, in case of outages, the Securities and Exchange Board of India (SEBI) announced in a circular on Thursday.
The move aims to protect investors from price risks during trading halts, particularly when market-moving announcements are made by companies, potentially affecting stock prices, SEBI noted in its circular.
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Thus, if identical or correlated trading products are available on another exchange at that time, that would allow investors to hedge their open positions by taking offsetting positions in identical or correlated indices on the other exchange.
What procedure will the exchanges follow to act as alternatives to each other?
SEBI said the exchange affected by any technical glitches or outages must intimate the matter to the alternate trading venue and SEBI within 75 minutes of its occurrence.
The alternative exchange should invoke the business continuity plan (BCP) within 15 minutes of receiving the intimation.
This will apply to the cash market, equity derivatives, currency derivatives, interest rate derivatives, common scrips, derivatives on single stocks or correlated indices, the currency derivatives segment, and interest rate derivatives.
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To plan all this, SEBI has said it created a working group of stock exchanges, CCs, and representative qualified stock brokers (QSBs) to deliberate the matter.
The market regulator has asked the exchanges to prepare a joint standard operating procedure (SOP) for implementing this system, including the required roles and responsibilities, which must be submitted within 60 days from the date of the circular.
SEBI has also directed the stock exchanges and clearing corporations to work on the required infrastructure for implementing the system, to bring the details of this to the notice of members, publish it on their websites, and communicate to SEBI, the status of the implementation.
The market regulator has also asked exchanges to create reserve contracts for scrips exclusively listed on the other exchange as well as single stock derivatives available only on other exchange, to be invoked at the time of outage on the other exchange.
SEBI also asked the exchanges to create index derivative products only available on the other one, and also introduce derivatives contracts on it.
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