INTRODUCTION
IT system infrastructure involves the technological systems and architecture which allows electronic trading in financial markets. Its reliability and effectiveness can make a considerable difference in the smooth functioning of trading operations, directly impacting a company's profitability and reputation in the market. In this fast-moving world, even downtime for a few minutes can cause major financial losses. One of the key advantages of maintaining a robust IT system infrastructure is Scalability which means a system's capability can be upgraded and expanded to provide for the increased data volume or workload as exchange grows.1 As stock exchanges grow, the demand on their IT systems increase significantly . A scalable IT infrastructure assures that exchanges can accommodate increase in market participants, trading volumes, and increased data throughout without affecting its speed or stability.2 By designing a system with scalability in mind, it makes it possible for it to handle increased load by including more resources or improving existing resources.3 A stock exchange must be able to constantly adapt to fluctuating trading volumes which can dramatically vary amid a day, a week or during high-impact market events. To ensure this, the exchange must have a robust IT system capacity. IT system capacity means the maximum volume or load that a system can manage while maintaining specific performance criteria. Peak load, on the other hand, refers to the highest level of demand a system experience during a high-intensity market period.4
This article examines SEBI's inconsistent approach to the IT system capacity of stock exchanges, understanding its rationale behind it while exploring global exchange outages and comparing India's regulations with those of the US.
BACKGROUND
The principal regulator of the securities market in India is the Securities and Exchange Board of India or SEBI. It is entrusted with fostering investor confidence, maintaining market integrity, and promoting the development and growth of capital and security markets. On December 10th 2024, SEBI issued comprehensive guidelines which aimed at optimizing capacity planning and real-time monitoring of clearing corporations, stock exchanges and depositories. It mandates that all critical IT systems must have an installed capacity of at least 1.5 times the projected peak load which would be based on the 180 days' data. It also mandated for Market Infrastructure Institutions to design and deploy automated system and a methodology which evaluates capacity needs using historical data transactions, trends and business changes. It implemented real-time monitoring by taking immediate action if any component of the Stock exchanges or clearing corporations operates at more than 75% of its total installed capacity.5
However, for commodity derivative segment, the circular dated September 27th 2016 on 'Broad Guidelines on Algorithmic trading for Commodity Derivatives exchanges' ordered their IT system capacity to be at least 4 times the peak load. It also lacked guidelines for capacity planning and real-time performance monitoring for clearing corporations with commodity derivatives.6 In June 2025, these norms were revised by SEBI based on data analysis which indicated underutilization and industry feedback. The norms are now revised to 2 times the projected peak load and also extended the guidelines prescribed for equity exchanges for capacity planning and real-time performance monitoring to commodity derivative exchanges.
WAS SEBI RESTRICTIVE?
Regulations for IT system capacity differ between equity and commodity derivative exchanges: commodity exchanges require four times peak load, compared to 1.5 times for equities. Despite this higher capacity, commodity exchanges lack real-time monitoring and alert requirements for utilization over 75%, leading to inconsistent enforcement. Several notable IT failures have caused major trading disruptions in commodity derivative exchanges, including the following cases:
2017 - In September, Multi Commodity Exchange Ltd or MCX experienced a technical glitch hit their trading system which halted trading for 45 mins. This glitch was experienced in a recently upgraded technology.7
2018 - In July, there were technical glitches experienced by MCX twice in one day which was caused due to technical anomalies that triggered SEBI led investigations and system audits. 8
2024 - In July, MCX yet again experienced a substantial delay in its trading session which was caused due to technical issues. MCX announced on their website stating, "The End-of -day processes for yesterday's trade date have been delayed due to some technical issues and hence the special session will start at 09:45 am and the market will start at 10:00 am today."
This delay affected multiple traders and market participants who rely on timely data and trading opportunities.9
All these incidents that were caused in MCX underscores the importance for a robust technological infrastructure even in commodity derivative exchanges. Even though SEBI did have a "restrictive" regulation in 2016 for the IT system capacity to be 4 times the peak load, there is a need for a critical need for real-time monitoring, robust infrastructure and quick remediation.10
Instead, the regulations laid down in December 2024 for the equity stock exchanges may be seen as restrictive as they were strictly enforced with audit trails and SEBI oversight. Their infrastructures were continuously evaluated and scaled. They also added capacity alerts and quarterly stress tests. Despite the 1.5 times regulation being numerically "lighter", it is far more enforceable, active and technical driven which makes it a real restrictive benchmark. This may be shaped due to certain high profile system failures which exposed significant vulnerabilities. One of the biggest episode being the NSE Outage on 20th February 2021. A complete halt occurred in trading across all market segments which was caused due to a major technical glitch where the critical trading infrastructure of the exchange broke down due to a fault in the design as well as lower than required capacity to handle the peak load. This disruption caused significant financial losses and extensive panic among market participants, especially those brokers that engaged in panic selling. Subsequent to this incident, SEBI commenced an investigation into the system failures at both NSE and its clearing arm, NSE Clearing Ltd. It found delays in monitoring third-party vendors and insufficiencies in backup infrastructure and disaster recovery. A case was initiated by SEBI against NSE in August 2021 which was later settled by the acceptance of ₹49.76 crore from NSE and ₹22.88 crore from NSE Clearing Ltd. NSE had overutilized all its four lines leaving no room for the backup which must have 1.5 time peak load capacity.11 "It means NSE, NCL did not have any backup capacity. To manage the load between PDC and DR site, the capacity requirement of NSE and NCL should have been much higher than 16gbps. The band width available on February 24 was not sufficient to manage the load. NSE and NCL did not account for the normal lead time delivery of additional link capacity. Therefore, the load exceeded the capacity of the links," the SEBI notice said
Thus, to ensure exchanges can absorb sudden spikes without any disruption, to align India's infrastructure with robustness and to ensure governability and accountability, SEBI introduced the circular dated 10th December 2024.
GLOBAL STOCK EXCHANGES OUTAGES
In today's age of high-speed, electronic trading, the backbone of any stock or commodity exchange is its IT system infrastructure. Every step in the process of trading depends upon the reliability, speed and resilience of technology. Exchanges operate in real-time where even a millisecond matters, thus, a robust IT system is necessary to ensure the exchange is operating smoothly, the markets stay live and the orders are processed without any lag or delay. A failure in a single component can cause disastrous effects across the market, a resilient IT system would prevent such systematic breakdowns. Modern markets are driven by high frequency traders and algorithms who rely on microsecond-level latency, an efficient exchange must offer low-latency environments and without proper infrastructure trades can be delayed, rejected or even executed at a wrong price. This would impact traders and market credibility. There have been a series of incidents which demonstrate the importance of robust IT system regulations.
The Tokyo Stock Exchange (TSE) experienced a full-day shutdown due to a technical malfunction, resulting in the suspension of equities trading across the world's third largest economy. This incident represented one of the most significant disruptions in the exchange's history, with trading halted for an entire day. According to the Japan Exchange Group, which operates the TSE, the issue originated from a hardware failure affecting the core systems powering the exchange. The outage impacted a considerable number of investors who were unable to execute orders on one of the world's leading stock trading platforms.12
Robinhood - Robinhood is a free stock-trading app in the US. It experienced a major system-wide outage. It was an important day for the US stock market as Dow Jones recorded its biggest point increase ever and S&P 500 added $1.1 trillion in market value, however, due to this outage the customers couldn't participate and were left frustrated. Robinhood suffered a 17-hour long system-wide failure due to an infrastructure issue as stated by the company. There were repeated failures as the service suffered another outage the following morning, which further intensified user criticism and concerns about the platform's reliability during periods of high trading activity. There were multiple reasons for the system outage which included historic and highly volatile market conditions, record-high trading volumes and a surge in new user registrations which all overloaded the platforms infrastructure.13
Nasdaq - Nasdaq is US' second largest stock exchange which suffered a flash freeze where in trading stopped for three hours. Public listed companies including high profile firms such as Microsoft, Apple and Facebook were affected by the trading disruption. As per the exchange's website, all activity for the 3000 shares that are listed on the stock exchange came to a halt. The Nasdaq OMX group admitted responsibility but also partly blamed it on its competitor NYSE Arca. It was stated in a preliminary report that the shutdown was caused when NYSE Arca sent an unusually high number of messages, 26 times more than the usual volume for that month, to Nasdaq's Security Information Processor (SIP). SIP handles the high-speed transmission and data processing forming a core part of the IT infrastructure. This revealed a flaw in the software that Nasdaq has which failed to activate a backup system as it should have.14
These episodes have illustrated how a robust IT system infrastructure is necessary for a functioning and efficient exchange.
US & INDIA COMPARISON
The US stock exchanges such as the New York Stock Exchange and Nasdaq run highly advanced and high-capacity trading infrastructures which are capable of handling immense volumes of trade at rapid speeds. These platforms can handle millions of orders per second and are built with low-latency networks and redundancy protocols to maintain smooth functioning. After Nasdaq "flash freeze" in August 2013 and the NYSE outage in July 2015, US Securities and Exchange Commission (SEC) responded by implementing Regulation SCI (Systems Compliance and Integrity) which required exchanges to maintain resilient infrastructures, create disaster recovery protocols, and conduct regular stress testing. Furthermore, exchanges have adopted cloud-based technologies, microservice architecture and geographically redundant data centres to boost their capacity and reliability.15
Meanwhile, Indian stock exchanges like the NSE and BSE have also achieved high speed performance, with BSE operating at around six microseconds per order. While US markets are governed by a robust framework known as Regulation SCI that mandates proactive stress testing, SEBI's regulatory framework has been more reactive. India's more rigid multiplier-based standard reflects a more rule-based regulatory culture while the US uses a more principle-based model. US focuses on flexibility and evolving standards, maintaining a lead in regulatory oversight, interconnectivity and IT resilience.
SEBI'S 4x REGULATIONS
Earlier, SEBI applied a 4 times multiplier to commodity exchanges which was ingrained in risk aversion. It created huge cost and scalability issues, especially for small or single-product commodity exchanges who have limited revenue streams. Even the US, which have highly liquid and complex markets, have no regulator that mandates a hard-capacity multiplier. Instead, US exchanges follow a more dynamic and audit based-system under Regulation SCI. The rule assumes that by building bigger, the resilience will be enhanced. However, as mentioned above, most system crashes from Nasdaq to Robinhood were caused due to architectural failure, poor real time performance and software bugs which are not only caused due to insufficient server capacity. The application of the 4x peak load rule to commodity exchanges fractures the goal of an Indian market which is harmonized under SEBI's unified exchange framework.
Thus, the decision made by SEBI to shift the installed capacity of the critical IT systems of commodity exchanges to be kept as 2 times the projected peak load was well appreciated. They have also extended the guidelines for capacity planning and real time performance monitoring under December 2024 circular to commodity derivative exchanges. This decision was made based on the analysis of date submitted by Commodity Stock Exchange in which it was discovered that the IT system capacity of commodity stock exchanges remain underutilized.16
CONCLUSION
In a world where a system failure can turn a trading boom into a financial crisis, regulators must balance fostering innovation with ensuring market stability. The earlier 4x rule made by SEBI was rooted in caution with no clear strategy for implementation. However, its updated new 2x rule introduces uniform guidelines, focusing on cost efficiency, preparedness, and consistency across India's capital markets. This uniform guideline represents a strategic shift towards smart regulation where it prioritizes cost-efficient infrastructure, realistic preparedness and consistent standards across the capital markets in India.
Co-authored with Aarefa Bootwala, Student at Bits Law School
Footnotes
1. Microsoft ISE, 'Capacity - Engineering Fundamentals Playbook' (GitHub, 22 August 2024) https://microsoft.github.io/code-with-engineering-playbook/non-functional-requirements/capacity/ accessed 15 July 2025
2. Kevin Garvey, 'The importance of robust trading IT infrastructure' (Speakerbus Group Plc, 23 April 2024) https://www.speakerbus.com/blog/importance-of-robust-it-infrastructure-trading accessed 15 July 2025
3. Microsoft ISE, 'Capacity - Engineering Fundamentals Playbook' (GitHub, 22 August 2024) https://microsoft.github.io/code-with-engineering-playbook/non-functional-requirements/capacity/ accessed 15 July 2025
4. Microsoft ISE, 'Capacity - Engineering Fundamentals Playbook' (GitHub, 22 August 2024) https://microsoft.github.io/code-with-engineering-playbook/non-functional-requirements/capacity/ accessed 15 July 2025
5. SEBI, "Revised Guidelines for Capacity Planning and Real Time Performance Monitoring Framework of Market Infrastructure Institutions(MIIs)" (2024) https://www.sebi.gov.in/legal/circulars/dec-2024/revised-guidelines-for-capacity-planning-and-real-time-performance-monitoring-framework-of-market-infrastructure-institutions-miis-_89433.html
6. Taxguru_In, "SEBI Proposes Revised Capacity Norms for Commodity Derivative MIIs" (TaxGuru, July 2, 2025) https://taxguru.in/sebi/revised-guidelines-capacity-planning-real-time-performance-monitoringaframework-market-infrastructure-institutions-commodity.html
7. "Trading Halts on MCX for over 45 Mins Due to an Upgraded Technology, SEBI Seeks Report" (Moneycontrol, September 4, 2017) https://www.moneycontrol.com/news/business/markets/trading-halts-on-mcx-for-over-45-mins-due-to-an-upgraded-technology-sebi-seeks-report-2378543.html
8. Press Trust of India and Business Standard, "Trading on MCX Halts Twice Due to Technical Glitch" www.business-standard.com (July 12, 2018) https://www.business-standard.com/amp/article/pti-stories/trading-on-mcx-halts-briefly-due-to-technical-glitch-118071100588_1.html
9. "Technical Glitch in MCX Delays Trading Session" Angel One (July 16, 2024) https://www.angelone.in/news/technical-glitch-in-mcx-delays-trading-session
10. Ibid 7.
11. "SEBI Puts Onus on NSE, NCL MDs for Feb' 21 System Crash, 4-Hour Trading Halt" (BusinessLine, March 27, 2022) https://www.thehindubusinessline.com/markets/stock-markets/sebi-puts-onus-on-nse-ncl-mds-for-feb-21-system-crash-4-hour-trading-halt/article65264623.ece
12. Afp, "Glitch Halts All Trade on Tokyo Stock Exchange"The Economic Times(October 1, 2020) https://economictimes.indiatimes.com/markets/stocks/news/glitch-halts-all-trade-on-tokyo-stock-exchange/articleshow/78418489.cms?from=mdr
13. Carey TW, "Robinhood Suffers Major Outages as Markets Swing"Investopedia(March 3, 2020) https://www.investopedia.com/bad-day-for-robinhood-4798335#:~:text=The%20markets%20had%20been%20closed,handle%20the%20%22unprecedented%20load.%22
14. Schaefer S, "Nasdaq Details Cause of Flash Freeze, Says Data Flood Forced Shutdown" (Forbes, August 29, 2013) https://www.forbes.com/sites/steveschaefer/2013/08/29/nasdaq-details-flash-freeze-failure-it-was-our-fault-but-not-entirely/
15. Stevevi, "SEC Regulation SCI (US) - Azure Compliance" (Microsoft Learn) https://learn.microsoft.com/en-us/azure/compliance/offerings/offering-sec-reg-sci-us
16. Taxguru_In, "SEBI Proposes Revised Capacity Norms for Commodity Derivative MIIs" (TaxGuru, July 2, 2025) https://taxguru.in/sebi/revised-guidelines-capacity-planning-real-time-performance-monitoringaframework-market-infrastructure-institutions-commodity.html
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