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Sebi asks exchanges to frame new outsourcing policy

Sebi directed market infrastructure institutions to not outsource core and critical operations

BS Reporter  |  Mumbai 


The (Sebi) has asked and clearing to prepare a framework for appointing of third-party The market regulator has directed the so-called market institutions to not outsource core and critical operations such as trading information, and surveillance.

Industry players say the move will help in better risk management and safeguard the and from unforeseen risks.

There have been instances in the past where the promoter of an exchange has also acted as a service provider, potentially creating a conflict of interest situation.

Although the regulator has allowed the exchanges and clearing to outsource activities to associate or group companies, it has asked for a clear demarcation of such dealings and an arm's-length relationship.

has also allowed of certain core activities to specialist who are experts in their field. However, in all such cases, the responsibility and control shall wholly vest with the exchanges and clearing

Further, if the trading or clearing software is purchased from a vendor, then there must be an arrangement to keep the source code in escrow. The move will help the exchanges get access to the software code and go on with the business in an event of an issue the vendor.

On the contractual terms with the concerned vendors, said that the agreement should mention all the potential conflicts and obligations of the contracting parties.

"Each agreement should allow for renegotiation and renewal to enable the exchange to retain an appropriate level of control over the and the right to intervene with appropriate measures to meet its legal and regulatory obligations," it noted.

Besides, the exchanges and the clearing will have to ensure third-party entities have proven high-delivery standards and expertise in the respective field. Also, has directed exchanges to follow proper due-diligence process, which includes checking parameters like track record, delivery standard, unique selling proposition and service standards.

has also prescribed strict termination procedure. According to the regulator, the agreement should provide regulatory authority to access the records of the service provider. Further, wants new guidelines to also give a clear mention of audit of the outsourced activities.

"The market intermediaries need to ensure proper audit of the implementation of risk assessment and mitigation measures listed in the policy document, the agreement and the service-level agreements pertaining to IT systems, among other measures," said.

First Published: Wed, September 13 2017. 23:11 IST