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MAS raps SGX for market outage lapses

It slaps fee freeze on exchange; exchange says it will fully comply with remedial actions and spend S$20 million on speeding up tech infrastructure improvement

The Singapore Exchange (SGX) failed to meet standards for service recovery and needs to buck up, the Monetary Authority of Singapore (MAS) said in a stinging reprimand on Wednesday.


THE Singapore Exchange (SGX) failed to meet standards for service recovery in its massive three-hour market meltdown last November and needs to buck up, the Monetary Authority of Singapore (MAS) said in a stinging reprimand on Wednesday as it slapped a fee freeze on the exchange and spelled out a series of remedial actions.

To this, the exchange said at a press briefing at its office that it would fully comply with MAS's directives and, in line with that, would spend S$20 million on speeding up its tech infrastructure improvement.

The penalties imposed on SGX stopped short of an explicit fine, which some market watchers said was good enough. However, others questioned whether a fine ought to have been imposed given the severity of the trading disruption.

The regulator's formal rebuke to the exchange, believed to be the first in a long time, came in the wake of an SGX board committee of inquiry report on the Nov 5 trading glitch - the most severe and widespread market outage here since 2007.

Noting that SGX had taken a full 52 minutes to discover that there had been a complete power outage at its primary data centre in November, the committee said that the exchange needed "clearer and more comprehensive business continuity and incident management procedures".

The SGX's standard operating procedures also had not included intra-day service recovery at its primary data centre, which led to decisions "having to be made on an ad hoc basis" on the day of the breakdown, the panel also said, adding that poor communications procedures meant that information about the market outage was delayed and then disseminated at different times on various channels, generating confusion among the public.

It found that the root cause of the trading outage was a combination of a faulty device and a flawed power supply design. Specifically, one backup power generator malfunctioned and when the data centre's power system switched to an alternative backup, that triggered a power trip and total power outage.

However, committee chairman Quah Wee Ghee told the briefing on Wednesday that the SGX has already fixed the root cause of the November meltdown and generally has "sound practices" in technology design.

Another SGX trading outage in December, unrelated to the November one, involved a delayed market opening due to a software problem.

The MAS took both the November and December outages into account in its reprimand, saying that the SGX had not recovered some of its critical systems within a "four-hour recovery time objective" and that the exchange's monitoring systems had not been able to spot problems quickly.

"While SGX has met its primary obligation as an exchange to maintain fair, orderly and transparent markets, it has fallen below service recovery standards on both incidents," the MAS said.

MAS added that it has told the exchange to improve its monitoring systems and recovery capabilities, its business continuity management and how it communicates during a crisis. It also said that the SGX will not raise fees for the securities and derivatives markets until it has completed its improvements to the regulator's satisfaction, and the exchange will also donate S$1 million to the investor education fund.

In probably his last press conference as SGX head honcho, outgoing chief executive Magnus Bocker told the briefing on Wednesday that the SGX had had no plans to raise its traditional fees but had originally intended to "restructure" its post-trade fees in the second half of this year.

It would shelve those plans until the fee moratorium was lifted, he said, adding that redirecting S$20 million of capex towards strengthening the bourse's tech infrastructure also meant that most other non-tech investments would now have to proceed at a slower pace.

"We are reprioritising," Mr Bocker said, noting that the exchange expects to spend about S$70-75 million of capex on tech and tech-related investments this year and the next. He added that in previous years, the annual tech-related capex had been around S$40-45 million.

As part of improving its systems, he said that the exchange was designing an enterprise command centre with real-time tools to improve its monitoring, and would have the plans for the centre ready by the end of September this year.

The SGX also said in a statement that it has started to carry out more realistic and complex drills as part of its business continuity management, and has shifted oversight for business continuity from its tech division to its risk management division.

The exchange aims to finish implementing its various measures by the end of the year, Mr Bocker said. Incoming chief executive Loh Boon Chye was not at the briefing.

SGX board chairman Chew Choon Seng, who was also on the inquiry committee, said that the board would monitor the progress of the improvements and report it to MAS every quarter.

Dealers said on Wednesday that MAS's reprimand was good enough, especially since the exchange had not suffered major outages since December 2014.

"It's more a slap on the wrist, but if the slap works, then good for them. We don't need to use a hammer," one broker said. However, he added that if another major disruption happens again, the regulator ought to explicitly fine the SGX.

Corporate governance specialist Mak Yuen Teen, an associate professor at NUS Business School, asked whether the MAS had a "proper framework" of publicly known sanctions and penalties for the exchange, similar to what is in place for service providers such as telcos and transport operators.

"For telcos, transport providers, casinos, it's very clear what range of penalties can be imposed. There is only one SGX, but in a sense that make it even more critical - they effectively have a monopoly so it's even more important that they do their job properly."

Apart from Mr Quah and Mr Chew, the other two members of the panel were Kevin Kwok and Lee Hsien Yang. All four men are SGX board directors.