Capital markets regulator Securities and Exchange Board of India (SEBI) has proposed that the exchanges NSE and BSE will act as alternative trading venues in case there's an outage on either exchange. The interoperability will be applicable from April 1, 2025, for segments including cash, derivatives, currency derivatives, and interest rate derivatives.

What's SEBI new directives to NSE and BSE:

1) SEBI says upon discussion with exchanges, it has been decided that, to begin with, NSE would act as an alternative trading venue for BSE and vice-a-versa. Both exchanges would prepare a joint SOP that would include a plan to be invoked at the time of outage on one exchange along with a flow of activity involving the affected exchange and its alternative trading venue and the roles or responsibilities of each of them. The SOP should be submitted to SEBI in 60 days.

2) The stock exchange and CCs are also directed to put in place requisite infrastructure and systems for the implementation of the circular, including necessary amendments to the relevant bye-laws, rules and regulations.

3) SEBI says any exchange, which does not have a highly correlated index derivatives product, with one available on other exchange may consider creating such an index and introducing derivatives contracts on it. It would provide an avenue to hedge positions in index derivatives products of an exchange that suffered an outage, says the regulator.

4) For scrips exclusively listed on an exchange, exchanges will create reserve contracts for scrips (i.e. exclusively listed scrips on other exchange) and single stock derivatives not traded on their exchange (and available on other exchange), would be invoked at the time of outage on the other exchange.

5) In the case of common scrips, derivatives on single stocks or correlated indices, currency derivatives segment and interest rate derivatives, participants can hedge their open positions by taking offsetting positions in identical or correlated indices on other exchanges. As these segments are interoperable, taking offsetting positions in other trading venues would net off such open positions for end clients and release the margin. Hence, no separate treatment is required.

6) SEBI says in case of the outage of a trading venue (i.e. stock exchange) during trading hours, the participants with open positions would be exposed to price risk on such open positions, as there could be material news flow during that time.

7) In such a case, the multi-exchange set-up with interoperability among clearing corporations could be leveraged to provide an alternative trading venue to end investors.