CIRCULAR, CIR/MRD/DP/24/2013,
dated 19.08.2013
To,
All
Stock Exchanges
SEBI
vide circular SEBI/MRD/Policy/SE/15864/2003 dated August 21, 2003 advised stock
exchanges to obtain an undertaking in the form of an affidavit from the members
of the stock exchange stating that the members as well as their sub-brokers are
using only authorized software. In this regard, stock exchanges have provided
testing facilities to their stock brokers / trading members to facilitate
testing of the software.
2. Further, vide various circulars
issued by SEBI on Internet Based Trading (IBT), Direct Market Access (DMA),
Securities Trading using Wireless Technology (STWT), Smart Order Routing (SOR)
and Algorithmic Trading (AT), stock exchanges have been directed to ensure that
various requirements specified in such circulars, including requirements
related to systems, operations, testing, etc., are implemented and the systems
of stock broker / trading member facilitate orderly trading and integrity of
the securities market.
3. Various incidents of
malfunctioning of software used by market participants have been observed in
Indian as well as foreign securities market in the recent past. Such incidents
have emphasized the need for a stringent and thorough testing of software
before its introduction in the securities market. This applies equally to any
subsequent changes to the software used by the stock brokers / trading members.
4. SEBI has engaged in a consultative
process with the stock exchanges, software vendors, system auditors and the
Technical Advisory Committee (TAC) to streamline and strengthen the process of
testing of software. Based on the recommendations of TAC, it has been decided
that market participants shall follow the testing procedure specified
hereinafter before deployment of the software.
5. For the purpose of the circular,
the term ‘software’ shall mean electronic systems or applications used by stock
brokers / trading members for connecting to the stock exchanges and for the
purposes of trading and real-time risk management, including software used for
IBT, DMA, STWT, SOR, AT, etc.
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