Below are the edited excerpts from the interview.
Q: Your opening thoughts, because this is happening repeatedly. There is obviously a loss of opportunity and real losses as well because you cannot trade in real time. So, how do you see this progressing? And do investors or traders who trade on the exchange have recourse?Parekh: Let me start with a bit of background on technology. We have seen technology failures not just across the financial industry but across sectors; last week itself, practically the entire internet was shut down because of an Amazon failure at the back end. So, whenever you have technology, failure is bound to happen. The point really is—how prepared are you? And the backup system worked yesterday.
So, I wouldn’t be too worried about it. I think there will always be takeaways from technology failures—how to kind of make it smoother, how quickly you can move to the disaster recovery site, etc. But to say that a technology glitch will not happen, if it happens to Amazon, it can certainly happen to anybody else as well. So, I won’t be too sceptical about these failures. They have certainly had a shift in technology over the past two years, so maybe they’re a little more vulnerable. But, like I said, I won’t be too sceptical about failures which are remedied quickly.
Q: But that disaster recovery (DR), correct me if I’m wrong, isn’t it supposed to work seamlessly? Something goes down, the DR site is supposed to kick in immediately, right?
Parekh: Most DR sites do take a few minutes. I don’t know how long it took yesterday.
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Q: Four hours and 25 minutes.
Parekh: Okay. Like I said, there are always learnings from problems. Again, comparing it to last week, for 48 hours, we did not have 50% of the internet working for me, at least not completely. So, certainly, can we make that four hours into maybe one or two minutes? Certainly, yes. Is it instantaneous? Usually, no. So, there will be learnings. There can certainly be improvement. But I don’t see a case for penalties being imposed and a kind of heavy-handed approach being taken in a case like this.Q: Your first thoughts. How would you think about this?
Dadoo: I agree. There is a much higher standard that applies to an exchange. There is a lot at stake here. It is a market institution. There is price discovery at stake, and more than anything else, the confidence of all investors and the market in general is at play. So, it’s very important for the backup to come into play quickly. I know that there is a standard operating procedure which has very strict timelines that come into play. We still don’t know whether these timelines were met. Of course, there will be a preliminary report followed by a root-cause analysis report. These are detailed reports. All the processes are set out in law for MCX to submit to SEBI.
If this has happened twice, clearly, there is more there, and they need to fix the problem more quickly. So, I feel a little more strongly about this. I think this is something that needs to be taken a lot more seriously and fixed. Minor glitches come, but they can’t come this regularly.
Q: What do the regulations say about something like this? What needs to happen once the disruption occurs?
Dadoo: In brief, what it says is—within 30 minutes of the trading halt, you need to declare it as a disaster. And then within a certain timeline after that—around 45 minutes or so—you then switch over to the disaster recovery site.
Also Read: MCX explains cause of Tuesday’s trading delay, says system review is underway
Q: Thirty minutes plus 45—or from the point trading is disrupted, 45?
Dadoo: It’s 30 plus 45 – the standard operating procedures say that. But there are nuances to this—it depends on when you declare it a disaster. Now, those details we don’t have handy because those would be something available only internally and with SEBI at a certain point in time. But the idea is that there are strong financial disincentives imposed on the exchange if they don’t meet these timelines. So, from an internal perspective, the exchanges are incentivised to make sure that these processes come into place as quickly as possible. We’ll have to wait and see how SEBI and the exchanges deal with this instance, especially since it’s the second time around—the last one being as recently as July.
For the entire discussion, watch the accompanying video
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