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. 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. 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. Unfortunately, because no updates were given to brokers, we had no other choice. 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. To express the intensity of this situation, one of the brokers 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 impacted those traders who squared off positions during this period, and the rest of the investors, brokers, and dealers are worried about their margins & 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 make you 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 that there’s no data loss, clearing corporations & stock exchanges need to have a ‘Near Site’ along with DRS. It is to ensure that both the sites are not affected by the same disaster.
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 need 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.
Automated BCM framework incorporate the complete regulatory review of business before they proceed further. It ensures that exchanges abide by the industry mandates and compliant with current regulatory norms.
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 identify critical functional areas and compile 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.
Detailed Risk Assessment Process
Evaluation of risks, assessing the exposure for those risks & determining plans comes under the detailed risk assessment process. People and business office locations are reviewed to identify different outages, staffing shortages & IT risks from technology.
With a disaster recovery strategy in place, businesses clearly understand their 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 to strengthen security & protects from negative impacts.
NSE is well aware of these above-mentioned features, though things have gone in the wrong directions from a specialist point of view due to these 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 of 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 crash of operation. Having your 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 its 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 your cost, time & effort. Emergency notification, timely communication ensures that you are communicating well with those who need to be informed. It protects your brand reputation & cuts down chances of potential asset losses.
Strong Response Mechanism
A strong incident response mechanism is a game-changer for crisis management. 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.
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