Outsourcing of activities by Stock Exchanges and Clearing Corporations
Summary
This circular mandates Stock Exchanges and Clearing Corporations to formulate a Board-approved outsourcing policy based on the provided guidelines. It prohibits the outsourcing of core and critical activities while allowing specific exceptions for associate entities or specialist vendors under strict conditions. The document outlines detailed requirements for due diligence, contractual obligations, monitoring, and regulatory access regarding outsourced services.
Text
stock exchanges and clearing corporations are advised to formulate and document an outsourcing policy duly approved by their Board based on the guidelines placed at Annexure I.
Stock Exchanges and clearing corporations are also directed to take necessary steps to put in place systems for implementation of the circular... within six months from the date of the circular. Stock exchanges and clearing corporations are also advised to disseminate the provisions of this circular on their website.
Outsourcing is an arrangement whereby an entity engages a third party (the service provider / outsourced agency) to provide a service that may already or may conceivably be performed by the entity itself.
The stock exchanges and clearing corporations shall develop a process for determining the materiality of outsourcing arrangements with emphasis on the potential impact on the market, including where the service provider / outsourced agency fails to perform.
The Core and critical activities of stock exchanges and clearing corporations shall not be outsourced. However, stock exchanges and clearing corporations may outsource activities to associate or group companies / entities of the exchange, provided there is a clear demarcation of activities with clear arms-length relationship.
The core and Critical activities of the stock exchanges shall include but may not be limited to the following: (a) Provision and daily operation of trading facilities; ... (k) Compliance functions.
The core and critical activities of the clearing corporations shall include but may not be limited to the following: (a) Post trade activities and services such as clearing and settlement and risk management... (h) Core and Critical IT support infrastructure...
Certain Core activities may be outsourced to specialist vendors who are experts in their field (eg. IT services / Network services / IT Security etc.). However, in all such cases, the responsibility and control shall wholly vests with the exchanges and clearing corporations.
The service provider / Outsourcing agency shall be subjected to appropriate due diligence to assess its capability to employ a high standard of care in performing the service and comply with its obligations under the outsourcing agreement.
Stock Exchange and clearing corporations shall ensure that there is a legally binding written contract with the service provider / Outsourcing agency
Stock Exchange and clearing corporation shall ensure that the outsourcing arrangement does not in any way diminish its obligations and those of its board and senior management, to comply with relevant laws and regulations, guidelines and other directions.
Stock exchanges and clearing corporations shall ensure that outsourced activities are further outsourced downstream only with the prior consent of the exchange and clearing corporation and with appropriate safeguards including proper legal documentation/ agreement.
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Source: SecMarx — Outsourcing of activities by Stock Exchanges and Clearing Corporations. Verbatim text is public record; SecMarx structuring (linkage to applying orders) is cited to us.