Madhabi Puri Buch, chairman of the Securities & Exchange Board of India (Sebi), claimed that the organization was developing a strategy to reduce the likelihood of cyber assaults on stock exchanges.
“We are all worried about cyber security. We ensure that all our exchanges have a good disaster recovery plan in place. But nothing accounts for software breakdown,” Buch said at an event organized by Indian Institute of Management (IIM) Bangalore. “In a cyber security attack, it’s your software that gets attacked. Through a transmission, your disaster recovery site will also get contaminated.”
All customer trade data for one trade will be housed in the data center of the second exchange under the proposed system. That way, the market will continue to operate normally even if there is a cyber attack.
“If exchange A were to go down and if Sebi determines this is on account of a cyber attack and it is not going to be possible for the exchange’s disaster recovery site to come up on time, Sebi will press the button for that data to be uploaded on exchange B’s systems so that every participant in the market will be able to participate as if it was operating on exchange A,” Buch said.
The head of Sebi has predicted that the new system will launch sometime in March of 2019. “This has never been done anywhere in the world and we will be the first to do this,” Buch said.
Brokers are prohibited from advertising their prior success to regular clients, according to rules the SEC has imposed on algorithmic trading, Buch said.
It’s because neither Sebi nor the stock exchanges have seen proof of the reliability of algorithm service providers’ claims about their performance.
“Unlike a mutual fund, where past performance is audited and proved and there is disclosure to back up that performance, in the case of algorithms there is no such thing,” Buch said.
“We have told the industry that we are open, the day you come up with a mechanism, we are ready to support you. But until then you cannot show any kind of performance.“
The head of Sebi also indicated that algorithms are being developed to help the regulator spot mutual fund infractions of the “spirit” of the law.
More than eighty algorithms reflecting Sebi’s law are now in place, allowing them to uncover any mutual fund that is breaking the rules.
“How do you catch mis-selling? There is no formula to catch mis-selling by a mutual fund. So how do you develop an algorithm which will help us catch the violation of the spirit of the law, not just the letter of the law? This is what we are engaged with at the moment and in a few months we will have something to show for it,” Buch said.