National Clearing Ltd

March 28, 2022
Posted by: OptimizeIAS Team
Category: DPN Topics

National Clearing Ltd

Subject: Economy

Section: Monetary Policy

Context:

A probe by market regulator SEBI into the four-hour-long trading disruption witnessed by the National Stock Exchange (NSE) on February 24, 2021, has revealed that the exchange’s critical trading infrastructure suffered a massive breakdown due to faulty design and lower than required capacity to handle the peak load.

NSE told SEBI that its service provider Hitachi had made unknown changes to its storage area network (SAN) and the exchange was unaware of its faulty ‘failover logic,’ which caused the tech glitch.

Failover logic is an automated process of switching to a standby computer server, system, hardware component or network upon the failure or abnormal termination of the previously active system or network. It is a system critical to the market functioning.

SEBI rules say that critical trading technology should not be outsourced and even when done for the need of a specialist, its responsibility and control vests with the exchange management.

Peak load capacity

SEBI prescribes that exchanges have leased the telecom line capacity to the tune of 1.5 times their projected peak load. NSE was supposed to calculate the projected peak load for 60 days ahead based on the per second peak load of the past 180 days. All the systems involving trading, clearing, settlement were required to be considered in this process. Further, the technical components like network, hardware, software etc too were required to adequately meet such capacity requirements.

SEBI has specified that once the load exceeds 75 percent of the installed capacity, immediate measures should follow.

Concept:

The National Stock Exchange was founded in 1992. It was recognized as a stock exchange by SEBI under the Securities Contracts (Regulation) Act, 1956 and the operation commenced in 1994. It was the first exchange in India to provide fully computerized electronic trading. NSE is one of the pioneers in technology and innovation which ensured the high-end performance of its systems. The exchange supports more than 3,000 VSAT terminals, making the NSE the largest private wide-area network in the country. NSE is the largest stock market, in terms of volume in India.

The NIFTY 50 is the flagship index on the National Stock Exchange of India Ltd. (NSE). The Index tracks the behavior of a portfolio of blue chip companies, the largest and most liquid Indian securities. It includes 50 of the approximately 1600 companies listed on the NSE.

Add on-The Bombay Stock Exchange was founded on July 9, 1875. It is Asia’s first stock exchange. It is also the world’s fastest exchange with a median trade speed of six microseconds.

National Clearing Ltd:

NSE is a trading platform but NCL does risk management and settlement of trades.

NSE Clearing Limited (NSE Clearing) (formerly known as National Securities Clearing Corporation Limited, NSCCL), a wholly owned subsidiary of NSE is responsible for clearing and settlement of all trades executed on NSE and deposit and collateral management and risk management functions. NSE CLEARING was the first clearing corporation to be established in India and we introduced a settlement guarantee before it became a regulatory requirement. NSE Clearing has maintained a credit rating of “AAA” from CRISIL since 2008.

Its vision is to provide robust and well-governed multi-asset class Central Counterparty (CCP) infrastructure with global presence for safe and efficient value added services through robust strong risk management systems and processes, setting global benchmarks.

Objectives

to bring and sustain confidence in clearing and settlement of securities;
to promote and maintain, short and consistent settlement cycles;
to provide counterparty risk guarantee, and
to operate a tight risk containment system.