January 3, 2023

NSE Shutdown – Why Automated BCM Is Essential To Handle Such Disruptions

Technical glitches and outages in the stock market are rare, though not uncommon for global exchanges. On Thursday (February 25, 2021), the National Stock Exchange (NSE), India, faced a tra...

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Technical glitches and outages in the stock market are rare, though not uncommon for global exchanges. On Thursday (February 25, 2021), the National Stock Exchange (NSE), India, faced a trading outage where operations had to shut down from 11.40 am due to an issue at a telecom service provider. The recent NSE trading halt scenario from a BCM perspective is a reality check for the financial and trading market. It indicates why financial institutions should integrate a powerful automated BCM software with an upgraded crisis management system rather than rooting for the basic framework.       

NSE stated that “the online risk management system was unavailable, market functioning could not continue normally and hence had to be shut down.” The trading and financial market is exposed to such vulnerabilities & risks without a dynamic and functional risk management system. The crash explains why BCM professionals suggest upgrading your current BCM system for maximum effectiveness.   

Crisis Management is one of the vital elements that impacted the whole scenario extensively. While analyzing the situation, experts have pointed out that exchange is time-sensitive, and a slight delay in crisis management has a significant impact on assets. However, It’s also put forward that accessing the impact was not easy. Thereby, this lack of quick action has taken place. The untimely crisis management team activation & the lack of proper guidance on scopes and options also delayed the decision-making process. The absence of clarity of the process, adequate information, and no mechanism to initiate the CMT at the earliest stretched out the hour of inoperability.                 

Professionals are also probing another crisis management aspect in this NSE stock crash down. It’s the loophole of delayed communication in the BCM framework. Evidently, India’s one of the largest brokers, Zerodha, said, “If NSE had informed brokers of a potential reopening or extension of trading hours at least by 3 pm, we, along with many other brokers, would not have had to take risk mitigation measures and square off positions on BSE. No updates were given to the broker, unfortunately. The last-minute notification of the trading extension at 3:17 pm came a little too late.”

The lack of communication created anxiety at a greater level. Thus, to express the intensity, one broker said, “We were nervous because this halt came a day before monthly derivatives expiry. The silence was problematic. All brokers took a call to square off intra-day positions based on prices at BSE, as it was working fine.”   

The crash hit the traders who were closing out their positions during this period, and the rest of the investors, brokers and traders were also worried. Evidently, they were worried about their profit margins and potential losses. NSE will report to Sebi regarding this disruptive event. We’ve enlisted some of the SEBI’s guidelines on BCM norms & DRS to understand why exchanges & depositories should focus on it: 

SEBI’s Guidelines for Exchanges: SEBI outlines the BCP (business continuity plan) norms & disaster recovery framework for all exchanges for all unexpected events.  

The regulator will probe whether NSE complies with the regulations.   

To ensure there’s no data loss, clearing corporations & stock exchanges need to have a ‘Near Site’ along with DRS.  

Institutions should have a Recovery time objective (RTO) and recovery point objective (RPO). It should not be more than 4 hours and 30 minutes. 

Why Upgradation of Automated BCM is Necessary    

From this incident, experts have observed three core defining components of BCM. A strong risk management system for handling disruptions. A crisis communication module and a plan need to be there to effectively manage the disruption and protect dealers & brokers from potential asset losses. The manual process often takes enormous time and needs to involve resources even if you lack them. Without an automated crisis management system, a business loses its purpose of having a BCM if it doesn’t respond effectively. The last key-deciding factor is an upgraded BCP & DRS framework for succumbing to diverse disruptions. Here, we’ve discussed why financial institutions should opt for a BCM solution.      

  1. Regulatory Review: Automated BCM framework incorporates the complete regulatory review of businesses before they proceed further. It ensures that exchanges abide by the industry mandates and are compliant with current regulatory norms.      
  2. BIA to Identify Functional Areas, RPO & RTO: BCM experts design BIA (business impact analysis) for detecting gaps in the business system. The report contains all the recovery process exchanges & institutions must prioritize to minimize downtime. It gives importance to identifying critical functional areas and compiling all the necessary information, including the Recovery point objective (RPO) & Recovery time objective (RTO), in a master list. It enables you to access it when you require it during a crisis.   
  3. Detailed Risk Assessment Process: Evaluation of risks, assessing the exposure for those risks & determining plans comes under the detailed risk assessment process.
  4. Disaster Recovery: With a disaster recovery strategy in place, businesses clearly understand the activities that they should do with urgency. With DR, BCM experts reduce the chances of confusion & delayed actions. Working on DR sites & backups helps an organization strengthen security & protect from negative impacts. 

NSE is well aware of these above-mentioned features, though things have gone in the wrong direction from a specialist point of view due to the below-mentioned components that they should have in their system.   

The framework to Manage Crisis Effectively  

The automated BCM solution has an upgraded crisis management framework that entails all the critical processes, contacts, stakeholders’ details, and critical activities that should prioritize. Exchange operations are time-sensitive & critical in nature. The automated process saves time & makes your CM plan executed without spending hours.  It’s also necessary to get things accessible & ready before stalling or crashing of operation. Having a CM framework & team enables you to get prepared for various scenarios.     

Effective Crisis Communication Plan  

Crisis communication is one of the critical aspects of BCM. Professionals put their focus on this for external & internal communication. An automated system expedites the communication process & clears out chances of exaggeration, confusion, or anxiety. Having a crisis communication plan ready after discussing with stakeholders to minimize the impacts can save you cost, time & effort. To ensure timely communication, Emergency notification triggers messages. It protects your brand reputation & cuts down the chances of potential asset losses.      

Strong Response Mechanism  

A strong incident response mechanism is a game-changer for crisis management. Therefore, If we look into the scenario, it’s evident that a proper response mechanism is what NSE needed at that time. Accessibility of a dedicated crisis management module, including mobile apps, helps structure what kind of responsiveness you must show to handle such disruptive events.     

Please reach out to us via the contact page if you would like to know more about automated bcm – Autoresilience.