CIRCULAR
SEBI/HO/MRD/TPD/P/CIR/2023/192 December 20, 2023
To
All Stock Exchanges
All Clearing Corporations
(Except Commodity Derivatives Exchanges and Clearing Corporations)
Sir/Madam,
Business Continuity for Clearing Corporations through Software as a Service
(SaaS) Model
1. Clause 9 of Chapter 2 of SEBI Master Circular dated October 16, 2023 for Stock
Exchanges and Clearing Corporations as well as Clause 4.31 of Section 4 of
SEBI Master Circular dated October 06, 2023 for Depositories provide
guidelines for Business Continuity Planning (BCP) and Disaster Recovery Site
(DRS) for Market Infrastructure Institutions (MIIs). While DRS is meant to
ensure Business Continuity of the MIIs in case of any disaster, it may have
limited utility for any major malfunction of software, as software deployed at
Primary Site as well as at DRS remains identical.
2. In order to strengthen the Business Continuity framework of MIIs particularly
from the perspective of handling major software malfunction, discussions were
held with MIIs and it was decided that in the first phase, systems would be
designed to provide additional tool for business continuity in case of issues with
Risk Management Systems (RMS) of CCs. The existing interoperability
arrangement between CCs, mentioned in Clause 4 of Chapter 6 of SEBI Master
Circular dated October 16, 2023 for Stock Exchanges and Clearing
Corporations and which resulted in increased standardization between CCs,
may be leveraged to achieve this objective.
3. RMS is classified as a critical system of CC and plays an important role in
ensuring smooth and uninterrupted functioning of the securities market by
carrying out online real time risk management of trades happening on stock
exchanges. Non-availability of RMS poses a major risk to the continuity of
trading on stock exchanges. In order to further manage disruptions impacting
availability of RMS, it is proposed to have another contingency measure in
place under Software as a Service (SaaS) model. The framework in the first
phase would operate for existing interoperable segments of CCs (Cash Market,
Equity Derivatives Segment, Currency Derivatives) as follows:
Outline of SaaS model for RMS:
4. Each CC shall design a system to run its RMS related operations, to risk
manage trades for its clearing members, using the RMS related software
components of another CC. This instance would be called SaaS-RMS. For
instance, when NCL designs SaaS-RMS using software of ICCL, NCL would
be considered as client CC and ICCL would be considered as service provider
CC.
5. The arrangement between Client CC and Service Provider CC, in the context
of design of SaaS-RMS shall be as below:
i. The SaaS-RMS instance would be designed to accept the trade data
from exchanges; online collateral, positions etc. from the CC(s) and
depository data as required from depositories. The client CC would carry
out all the functions related to online real time risk management at the
SaaS-RMS. This would ensure that if the SaaS-RMS is invoked by client
CC, it would be in a ready state to take over operations.
ii. Responsibility of service provider CC would be to provide the functioning
software for RMS and that for other associated processes to the client
CC. Beyond that, it would be responsibility of the client CC to operate
SaaS-RMS in normal course and on the day it is invoked. Further, client
CC would put in place systems to detect latency/performance issue of
SaaS-RMS to flag off such anomalies to the concerned MII(s).
iii. Each CC shall also make necessary arrangements for members to login
to SaaS-RMS through a portal and view/add collateral and its utilization
etc. in case SaaS-RMS is invoked by CC.
iv. As the key purpose of the exercise is to ensure ability to risk manage
trades, all the functions pertaining to risk management/collateral shall be
made available by the client CC in the SaaS-RMS i.e.:
a. Intraday risk management of trades
b. Real time computation of margins and member utilization
c. Violation intimation to Exchanges
d. Response to Exchanges for orders of members in RRM
e. Online Custodial Participant Modifications / CP confirmations
f. Collateral addition by members
g. Receipt of Margin pledge / re-pledge data
h. Sending Margin pledge / re-pledge data
i. Member interface for Margin display, Custodial confirmations and
Collateral addition/ allocation un-allocation
j. Handling of Early Pay-In (EPI) instructions
6. The following schematic diagram illustrates the functioning of SaaS-RMS
involving exchanges, CCs and CMs:
CM1
CM4
Day to
CC-A CC-B
CM2
day
CM5
running
CM3 of RMS
CM6
Exchange-1 Exchange-2
Invocation
of SaaS RMS
by CC-A Identical
SaaS RMS of CC- operations SaaS RMS of CC-
at
A with RMS B with RMS
additional
software of CC-B instance software of CC-A
CC-A: Client CC (with issues in
CMs login and operate through a separate
web interface RMS)
All online Risk management functions for
CC-B: Service Provider CC
CC-A operate through SaaS-RMS
Failover Scenario for CC-A.
Fig1: Schematic outline of SaaS Model
7. For the purpose of illustration, the aforesaid schematic diagram considers two
CCs and two exchanges wherein:
a. In normal conditions, all the RMS related activities are replicated online by
both CCs in the SaaS-RMS. CMs connect to CCs through normal web
interface for collateral, positions related query, updates etc.
b. Due to certain issues / malfunctioning, once CC-A decides to invoke SaaS-
RMS viz. designed using RMS software of CC-B, the RMS functioning to
resume by CC-A through SaaS-RMS within the timelines stipulated in the
instant circular.
c. CMs of CC-A to login and operate through a separate interface provided by
CC-A.
8. The aforesaid mechanism has been discussed with Technical Advisory
Committee of SEBI and CCs have implemented a working model of SaaS-RMS.
On the basis of test runs carried out by CCs, following timelines are stipulated:
a. A CC to take decision to shift operations to SaaS-RMS within 30 minutes
of occurrence of its inability to do online real time risk management of
trades at its site of functioning.
b. Within 30 minutes of the above, all allied activities such as sending
violation messages to exchanges, intimating details of portal to interact
with SaaS-RMS to the Clearing Members etc. to be activated through
SaaS-RMS.
c. Mock session of SaaS-RMS to be carried out at least once in a quarter
to familiarize and train members.
9. SaaS-RMS would be considered as a redundancy model for the CCs as part of
the business continuity framework. CCs and Exchanges are therefore directed
to implement the following within 30 days of the Circular:
a. To enter into an agreement laying down the roles and responsibilities of
each of the entities (i.e. exchange, CCs, depositories etc.) with regard to
functioning of SaaS-RMS as envisaged
b. To prepare Standard Operating Procedures covering various operational
issues and edge cases related to functioning of SaaS-RMS
c. To enhance existing Interoperability Agreement to clearly demarcate
roles and responsibilities of exchanges and CCs in detecting and
addressing scenarios causing delay in sending/receiving the
transactions data from exchanges to CCs in real time
10. The Stock Exchange, CCs and Depositories are also directed to:
a. Take necessary steps to put in place requisite infrastructure and systems
for implementation of the circular, including necessary amendments to the
relevant bye-laws, rules and regulations;
b. Bring the provisions of this circular to the notice of their members and also
disseminate the same on its website; and
c. Communicate to SEBI, the status of implementation of the provisions of this
circular.
11. Considering the above, Stock exchange and CCs are advised to submit their
revised Business Continuity Policy to SEBI within two months from the date of
this circular.
12. The circular would be effective immediately and is being issued in exercise of
powers conferred under Section 11 (1) of the Securities and Exchange Board
of India Act, 1992 to protect the interests of investors in securities and to
promote the development of, and to regulate the securities market.
Yours faithfully,
Ansuman Dev Pradhan
Deputy General Manager
Technology, Process Re-engineering, Data Analytics
Market Regulation Department
+91-22-26449622 Email: ansumanp@sebi.gov.in