The Chennai Financial Markets and Accountability (CFMA), a registered society and investor group, has urged SEBI to proactively intervene and mandate a full-year ‘parallel run’ of Multi Commodity Exchange of India’s (MCX) old and new trading platforms.
This year-long parallel run is needed to enhance market safety and ensuring investor security, CFMA has conveyed to SEBI in its new representation aimed to prevent MCX’s alleged rushed system change without proper testing.
The act of MCX to go in for a technology change over in a hurried manner (without a parallel run) is in contradiction to the counter affidavit filed by SEBI in the CFMA-initiated public interest litigation before the Madras High Court in December last year, Manoj K Sheth, President, CFMA said in the new representation sent to SEBI on September 27.
PIL in Madras HC
The CFMA’s latest demand to SEBI for a parallel run for a year is in sync with the investor group’s similar demand made in the PIL filed with the Madras High Court.
In the PIL, CFMA had also highlighted that the country’s top exchanges I.e NSE and BSE, before their transitioning of new technology, had gone in for parallel run of the new software for at least a year before switching to the new technology.
The writ petition filed in Madras High Court had sought the issuance of a mandamus to SEBI to take requisite steps to ensure that MCX conducts a parallel run for a period of one year of the new technology proposed to be deployed by them for running its trading, clearing and settlement platform.
The CFMA representation to SEBI came a day after MCX Managing Director had reportedly said at the company’s AGM on September 26 that the commodity derivative exchange is determined to change the system and the new system would be made available from October 3.
Market regulator SEBI has since put a temporary suspension on the planned launch of new tech platform from October 3.
“The regulator has informed that since the matter involves technical issues, the same would be discussed in the SEBI Technical Advisory Committee meeting, which would be held shortly. Meanwhile, SEBI has advised the exchange to keep the proposed go-live of CDP (commodity derivatives platform) in abeyance,” said a MCX filing with stock exchanges on Friday.
MCX will continue to conduct mock tests on the platform till it gets further directions from SEBI, it added.
Mock vs parallel run
A mock run is about the use of a system with its flow to observe the functionality and sustainability with no seriousness of its data and its repercussions, while a parallel run is where the same data is injected in the system which is going into the existing production system.
The outcome of the processing and derived data is then verified in the new system with the output of the existing production system. This exercise is done without break continuously over a period without disturbing the system with fixes/updates, said the CFMA letter, seen by businessline, explaining the difference between the two.
‘’For such a large transition, where per day turnover has clocked ₹ 1,80,000 crores, it is essential to give at least a period of one year, so that the system is allowed to undergo all cases that may come up at different points of time. This is generally accepted practice and followed by exchanges all over,’’ stated the CFMA.
Globally also, similar practices are adopted. Hence, it would be apposite to state that this stage is extremely important to ensure that the market is not put to severe financial risk which may crop up due to any technical snag, said the CFMA petition.