The Securities and Exchange Board of India on Thursday unveiled a set of measures to ensure seamless trading on stock exchanges during technical outages.
Under the new framework, which will take effect in April 2025, the BSE and NSE will act as alternative trading venues for each other during outages. If one exchange experiences technical issues, investors can continue trading in interoperable segments such as equities, derivatives, and currency markets on the other exchange. “This interoperability will cover cash, equity derivatives, currency derivatives, and interest rate derivatives,” SEBI said.
‘Too big’
According to NSE’s Market Pulse, the bourse is the largest derivatives exchange (No. of contracts traded, 74 per cent share in equity F&O in 2023) and the third largest equity exchange (No. of trades, 12 per cent share in 2023); and it has ten crore individual investors. Similarly, the BSE has 20 crore registered investors. The average daily turnover in F&O jumped multifold to ₹111 lakh crore in 2024-25 (till date) from ₹34.75 lakh crore in 2023-24.
These things point to one thing: they grew too big and hence cannot afford to fail.
The market regulator introduced an interoperability mechanism in June 2019. This mechanism permits trading members to clear trades through a firm of their choice instead of going through the clearing corporation owned by the bourse on which the trade was executed. This enabled investor to allocate capital efficiently, thereby saving on costs and providing better execution of trades.
Stability store
Taking a level further, SEBI aims to enhance investor protection and maintain market stability in case of unforeseen disruptions starting in April.
Accordingly, If identical or correlated trading products are available on another trading exchange, traders can hedge their open positions by taking offsetting positions in identical or correlated indices on other exchanges. “Further, as these segments are interoperable, taking offsetting positions in other trading venue would net off such open positions for end clients and release the margin. Hence, no separate treatment is required for such category of products,” it said. That means, a trader taking a position on Infosys or Reliance on the NSE can square off on the BSE and vice versa. This will be a booster for traders and investors as they need not worry about what happen to their position during an outage.
To ensure continuity, exchanges may create reserve contracts for scrips (i.e. exclusively listed scrips on other exchanges) and single stock derivatives not traded on their exchange (and available on other exchanges), to be invoked at the time of outage on the other exchange, SEBI said.
Products’ swap
An exchange that does not have a highly correlated index derivatives product with one available on another exchange may consider creating such an index and introducing derivatives contracts on it, in line with extant Regulatory provisions. The aforesaid would provide an avenue to hedge positions in index derivatives products of an exchange that suffered an outage.
Though the BSE has Sensex50 akin to Nifty 50 of the NSE and BSE Bankex aping Nifty Bank, they cannot match each other 100 per cent. With the NSE having hosted popular index products such as Nifty50, Bankex, MidcapNifty, Nifty Next50 and Nifty FinNifty, it is better for the NSE to allow its best products on rival exchanges instead of allowing the BSE to create similar products. This will not only help NSE’s products reach to a wider populace but also help investors during the case of an outage or technical glitch, as envisiaged by SEBI.
Will NSE allow its products on rival exchanges?
