Singapore — The Singapore Exchange (SGX) will set aside S$1.5 million to co-fund the recommendations put forward by the Industry Working Group (IWG), set up to study and make recommendations on processes to enhance the operational resilience of the securities market.
The Monetary Authority of Singapore (MAS) has directed SGX to implement the measures proposed by the IWG to enhance its recovery processes, following supervisory investigations into the trading disruption to the securities market on July 14 last year.
SGX has taken steps since the incident to address the hardware and software errors which led to the trading disruption, and has 24 months to implement the recommendations of the IWG, which include improvements to the market closure and resumption of timelines and trade assumption.
As a general principle, SGX should endeavour to keep its markets open, said the IWG.
Intermediate measures, such as selective suspension of trading in specific counters, or suspension of trading rights of affected members, may be taken, where necessary.
A closure of the market may be warranted in order to contain a significant impact or technical disruption that impedes the operation of a fair, orderly and transparent marketplace.
SGX has adopted all six recommendations put forward by the IWG, and implemented three with immediate effect.
The recommendations that SGX has implemented include establishing a Master Record as the authoritative source of data in the event of complex malfunctions; providing more clarity on the timing and principles for market closure and resumption during a market-wide incident; and establishing a clear protocol for trade assumption.
Following the July 14 incident, when SGX elected to assume responsibility for ambiguous trades and gave trade certainty to members before all trades were fully reconciled, the IWG recommended that SGX should cancel all trades should the risk impact be significant in an event that affects a large number of trades.
In such an event, trade cancellations would be acceptable and members should inform their clients accordingly.
In a statement released yesterday, MAS noted that while SGX has met its primary obligations as an exchange to maintain fair, orderly and transparent markets, it did not restore the proper functioning of its critical system within four hours, as required by MAS.
Mr Loh Boon Chye, SGX chief executive officer, said: “Operating a market infrastructure is a perpetual process of adjustments and learning. The formation of IWG by SGX is one of several initiatives to bolster the resilience of our market infrastructure.”
Following the Nov 5 and Dec 3 trading outages in 2014, MAS had imposed a moratorium on fee increases for the SGX’s securities and derivatives markets until improvements were made to address the lapses related to those outages.
MAS has since accepted independent experts’ reports that SGX has completed the remedial measures, and the fee moratorium that was imposed will be lifted with immediate effect, said MAS.
The IWG comprised representatives from SGX, local and international members of SGX, the investment community, independent experts and a software vendor, and was assisted by an external consultant.