SEBI

SEBI Mandates Stock Exchanges to Attain Near-Zero Data Loss

The Securities and Exchange Board of India (SEBI) plays a critical role in regulating and ensuring the stability of India’s securities market. Among its many initiatives aimed at promoting efficiency, transparency, and resilience, the recent directive to exchanges, depositories, and clearing corporations to establish “Near Sites (NS)” for near-zero data loss marks a significant advancement.

This move is part of SEBI’s broader effort to safeguard the operational integrity of Market Infrastructure Institutions (MIIs) during unforeseen disruptions, such as natural disasters, cyberattacks, or technical failures.

This directive, encapsulated in SEBI Circular No. SEBI/HO/MRD/TPD/P/CIR/2024/119, issued on September 12, 2024, is designed to enhance the Business Continuity Plan (BCP) and Disaster Recovery (DR) systems of MIIs, including stock exchanges, depositories, and clearing corporations.

By mandating the creation of NSs, SEBI ensures that these entities can swiftly recover data and resume operations with minimal data loss, contributing to greater market confidence and stability. This article delves into the specifics of SEBI’s directive, its implications for MIIs, and how it aligns with global best practices for disaster recovery.

Background and Rationale for the Directive

SEBI’s directive to set up Near Sites (NS) stems from an increasing recognition of the importance of robust data recovery systems in a highly interconnected and digitized financial market.

MIIs handle vast volumes of data and transactions daily, making them vulnerable to operational risks that could lead to severe disruptions in the securities market. Past incidents, such as system outages or cyberattacks, have underscored the need for effective backup mechanisms to ensure market participants can continue trading without significant interruptions.

To address these risks, SEBI has long required MIIs to implement Disaster Recovery Sites (DRS) as part of their BCP. However, the conventional DRS model, which often relies on asynchronous data replication, can result in some data loss during a disaster.

While this level of data loss might be acceptable in certain sectors, it poses a serious concern in financial markets, where even minor discrepancies can lead to financial losses and erode investor confidence. This has led SEBI to elevate its disaster recovery standards by requiring MIIs to establish NSs that employ synchronous data replication to ensure near-zero data loss.

Streamline your securities with seamless dematerialisation of shares to ensure compliance with SEBI’s latest provisions to safeguard your investments.

What Are Near Sites (NS)?

Near Sites (NS) are secondary data recovery centres that work with Primary Data Centres (PDCs) to replicate data in real-time. Unlike Disaster Recovery Sites (DRS), which may be located at a considerable distance from the PDC and rely on asynchronous replication, NSs are geographically closer and use synchronous replication to minimize data loss in case of a disruption. This means that data is mirrored between the PDC and NS in real-time, ensuring that any changes made to the data at the PDC are instantly reflected in the NS.

In the event of a failure at the PDC, the NS can immediately take over, enabling the MII to continue operations without losing any critical data. This real-time data replication is particularly important for stock exchanges, clearing corporations, and depositories, which handle high-frequency transactions and need to maintain data integrity at all times.

Outlined the Key Provisions of the SEBI Circular

SEBI’s Circular No. SEBI/HO/MRD/TPD/P/CIR/2024/119 outlines several modifications to the existing BCP and DR guidelines that MIIs must comply with. Some of the key provisions include:

· Establishment of Near Sites (NS)

MIIs must set up NSs in addition to their existing DRSs. For stock exchanges, the NS must ensure near-zero data loss, while clearing corporations and depositories must ensure zero data loss. This distinction underscores the varying levels of data recovery needs across different types of MIIs.

· Replication and Data Integrity

The PDC and NS must employ synchronous replication to achieve near-zero or zero data loss. Asynchronous replication is allowed for the DRS, which introduces a slight lag in data synchronization but is acceptable as a secondary backup measure. SEBI also mandates that the solution architecture of the PDC, NS, and DRS should ensure high availability, fault tolerance, and no single point of failure.

· Expertise and Staffing at Recovery Sites

SEBI requires that the staff deployed at the DRS have the same expertise level as those at the PDC. This ensures that the DRS can function independently and immediately without relying on personnel from the PDC. Sufficiently trained staff must also be available at the NS to handle live operations.

· Recovery Point Objective (RPO)

The objective defines the maximum tolerable period for which data might be lost and is set to “near zero” for MIIs. This means that MIIs must have a clear data reconciliation and restoration methodology when resuming operations from either the NS or DRS.

Implications for Stock Exchanges, Clearing Corporations, and Depositories

The introduction of NSs represents a significant shift in how MIIs approach data recovery and business continuity. For stock exchanges, where transactions occur incredibly rapidly, even a momentary data loss can have far-reaching consequences. By mandating synchronous replication between the PDC and NS, SEBI ensures that exchanges can recover from disruptions without compromising data integrity or losing transaction records.

For clearing corporations and depositories, which manage the clearing and settlement of trades and the safekeeping of securities, the requirement for zero data loss is even more stringent. Any discrepancy in the clearing process or the records of securities ownership could lead to financial chaos. As a result, SEBI’s directive places a greater emphasis on data accuracy and continuity for these institutions.

Ensure your compliance with SEBI’s latest directives, get expert guidance on depository participation registration, and secure India’s robust financial landscape today.

Alignment with Global Best Practices

SEBI’s directive aligns with global best practices for disaster recovery and business continuity. In the wake of significant financial disruptions, such as the 2008 financial crisis and various cyberattacks on financial institutions, regulators worldwide have tightened their data recovery and operational resilience requirements.

For example, the European Securities and Markets Authority (ESMA) and the U.S. Securities and Exchange Commission (SEC) have introduced guidelines requiring financial institutions to implement robust disaster recovery systems, including geographically dispersed backup sites and real-time data replication. SEBI’s focus on near-zero or zero data loss through NSs mirrors these international standards and reinforces India’s commitment to ensuring the safety and stability of its financial markets.

Challenges and Implementation Considerations

While SEBI’s directive sets a high standard for disaster recovery, implementing NSs across all MIIs will likely present several challenges. One of the primary hurdles is the cost associated with establishing and maintaining NSs. Synchronous replication requires advanced technology infrastructure and robust network connectivity, which can be expensive to deploy. Additionally, MIIs must invest in training staff and ensuring their recovery sites are equipped to handle live operations immediately.

Another challenge is ensuring that the NSs are located far enough from the PDC to avoid being affected by the same disaster while still being close enough to allow for real-time data replication. Striking the right balance between geographic dispersion and operational efficiency will be critical for MIIs as they work to comply with SEBI’s directive.

Conclusion

SEBI’s directive to establish Near Sites (NS) for near-zero data loss is a forward-thinking initiative that strengthens the resilience of India’s financial market infrastructure. SEBI is safeguarding investors’ interests and promoting confidence in the market by requiring exchanges, clearing corporations, and depositories to implement real-time data replication and ensure the continuity of operations during disruptions.

However, the successful implementation of NSs will depend on MIIs’ ability to overcome the technical and logistical challenges associated with synchronous replication. As India’s securities market grows in size and complexity, MIIS must remain vigilant and proactive in their disaster recovery efforts, ensuring they can withstand future disruptions without compromising data integrity or market stability.

Don’t leave your data security to chance. Visit our website https://enterslice.com/ and discover how SEBI near sites can enhance operational resilience and protect investments.

FAQ’s