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Capital market regulator Securities and Exchange Board of India (Sebi) has asked big broking houses to reduce dependence on single software vendor to avoid trade disruptions.
“In case of large stock brokers, consider reducing dependence on a single software vendor for trading and risk management systems, by engaging more than one software vendor,” Sebi said in a circular today.
The regulator's advise to market players comes at a time when concerns are being raised over use of Financial Technologies India's (FTIL) widely-popular ODIN software following the over Rs 5,500 crore settlement crisis at its subsidiary National Spot Exchange (NSEL).
Sebi also advised brokers to explore the possibility of setting up a 'software escrow arrangement' with their existing software vendors.
Sebi hasn't gone into detail on how the arrangement 'software escrow arrangement' would work. Market experts said that it may mean that the source code of the trading application will have to be placed in an escrow to be managed by a third-party. This will ensure that the trading software code can be accessed or modified in case of any inability on the part of the vendor.
The regulator has also recommended that stock brokers incorporate new clauses in their contracts with the software vendors. These include 'access to documents related to design and development specifications in the event software vendor fails to provide continuous and timely services to the stock broker'. It has also suggested including 'penalty clauses' in the contracts, which will be imposed in case of disruptions to the trading system.
These safeguards were discussed by Sebi's technical advisory committee (TAC) to ensure that trading isn't disrupted in case of failure of software vendor.
Besides ODIN, the other popular stock trading softwares used by the Indian market participants include NOW, NEAT, TradeAnywhere (TAW) and (BOLT). Several brokers also use applications that are developed in-house.
