**Executive Summary:**
This circular issued by the Securities and Exchange Board of India (SEBI) on November 24, 2020, addresses the testing of software used in trading and risk management. It modifies earlier guidelines by making mandatory mock trading sessions optional, provided stock exchanges offer a suitable simulated test environment. Stock exchanges are directed to implement these changes, amend relevant bylaws, and inform members.
**Key Points / Main Content:**
* **Optional Mock Trading Sessions:** Mandatory mock trading sessions for testing new or modified software are now optional if a stock exchange provides a suitable simulated test environment.
* **Simulated Test Environment Requirements:**
* The test environment must be available to all members.
* It must be available for at least two hours after market hours on at least two trading days per week.
* Stock Exchanges must make available data from at least one trading day in all segments that is no older than one month for testing.
* All trading members, except those using only Exchange-provided front-end and/or ASP services with approved Algorithms, must participate in the simulated environment at least once each calendar month at all exchanges where they are members. Participation shall be audited and reported in the System Auditors report.
* The Exchange will provide a daily log of member participation in the Simulated Environment, including Algos used, to all participating members.
* The Exchange shall provide a summary report of the activity to SEBI in the monthly development report (MDR).
* **Unchanged Conditions:** All other conditions prescribed in SEBI Circulars dated August 19, 2013, and February 7, 2014, remain in effect.
* **Stock Exchange Directives:**
* Implement necessary systems for the above changes.
* Amend relevant bylaws, rules, and regulations.
* Notify stock brokers and trading members.
* Disseminate the circular on their websites.
**Impact Analysis**
* **Stock Exchanges**
* *Impact:* Stock exchanges need to set up and maintain a suitable simulated test environment if they want to make mock trading sessions optional. They are also responsible for monitoring member participation and reporting to SEBI.
* *Action Required:* Implement the required test environment, amend bylaws, notify members, and disseminate the circular.
* **Stock Brokers / Trading Members**
* *Impact:* Trading members, with specific exceptions, must participate in the simulated environment monthly.
* *Action Required:* Ensure participation in the simulated environment as required and comply with reporting requirements.
* **SEBI**
* *Impact:* SEBI will receive monthly development reports from stock exchanges regarding simulated environment activity.
* *Action Required:* Monitor the implementation and effectiveness of the circular.
Key Entities Referenced
Securities and Exchange Board of India: Regulatory body for securities market in India; issuer of the circular.
SEBI Act, 1992: The act under which the Securities and Exchange Board of India exercises its powers.
Stock Exchanges: Recognized entities for trading securities, directed to implement the circular.
Circular CIR/MRD/DP/24/2013 dated August 19, 2013: SEBI circular providing guidelines on software testing related to trading and risk management.
Circular CIR/MRD/DP/06/2014 February 7, 2014: SEBI circular providing guidelines on software testing related to trading and risk management.
Trading and Risk Management: The subject area to which the software testing guidelines apply.
Market Regulation Department: The department within SEBI responsible for this circular.
Amit Kapoor: General Manager of Market Regulation Department at SEBI; signatory of the circular.
भारतीय (cid:7079)ितभिू त और िविनमय बोड(cid:6981)
Securities and Exchange Board of India
CIRCULAR
SEBI/HO/MRD1/DSAP/CIR/P/2020/234 November 24, 2020
All Recognised Stock Exchanges
Dear Sir / Madam,
Subject: Testing of software used in or related to Trading and Risk Management
1. SEBI vide Circulars CIR/MRD/DP/24/2013 dated August 19, 2013 and
CIR/MRD/DP/06/2014 February 7, 2014 came out with guidelines on ‘Testing of
software used in or related to Trading and Risk management’. Subsequent to the
above, SEBI has received various suggestions/ representation from stakeholders
seeking relaxation from the requirement of software testing, prescribed in the
aforementioned circulars.
2. After due examination and consultation with stakeholders, it has been decided that
requirement of mandatory mock trading sessions to facilitate testing of new
software or existing software that has undergone any change of functionality shall
be optional if a Stock Exchange provides suitable simulated test environment to
test new software or existing software that has undergone any change of
functionality and ensures the following:
i) The test environment shall be made available to all the members.
ii) The test environment shall be made available for at least two hours after
market hours and at least on two trading days in a week.
iii) For the purpose of testing, Stock Exchange shall make available data from
at least one trading day in all segments and the same shall not be older than
one month from the day of the testing environment.
iv) All trading members (excluding those who use only Exchange provided front
end and/or ASP services) having approved Algorithms available with the
member, irrespective of the algorithm having undergone change or not, shall
participate in the Simulated Environment at least on one trading day during
each calendar month at all the exchanges where they are members. This
shall be audited and reported in the System Auditors report.
v) Exchange shall provide a daily log, including Algos used, of members
participation in Simulated Environment to all participating members. The
Exchange shall provide summary report of such activity to SEBI in the
monthly development report (MDR).भारतीय (cid:7079)ितभिू त और िविनमय बोड(cid:6981)
Securities and Exchange Board of India
3. Other conditions prescribed in SEBI Circulars dated August 19, 2013 and February
07, 2014 shall remain unchanged.
4. Stock exchanges are directed to:
4.1. take necessary steps and put in place necessary systems for implementation
of the above.
4.2. make necessary amendments to the relevant bye-laws, rules and regulations
for the implementation of the above decision.
4.3. bring the provisions of this circular to the notice of the stock brokers/ trading
members of the stock exchanges and also disseminate the same on its
websites.
5. This circular is being issued in exercise of powers conferred under Section 11 (1)
of the Securities and Exchange Board of India Act, 1992, to protect the interests of
investors in securities and to promote the development of, and to regulate the
securities market.
6. This circular is available on SEBI website at www.sebi.gov.in under the categories
“Legal Framework” “Circulars”
Yours faithfully,
Amit Kapoor
General Manager
Market Regulation Department
+91-22-2644 9374
Email: amitk@sebi.gov.in