THE Singapore Exchange (SGX) is paying a heavy price for two major glitches that threw trading into chaos late last year.
Apart from a strong reprimand from the Monetary Authority of Singapore (MAS) yesterday over its failure to cope with the disruptions, it also faces a financial hit.
This comes in the form of an immediate moratorium on any fee increases for the securities and derivatives markets until system improvements demanded by the MAS are made.
The SGX said yesterday it will direct $20 million of its capital expenditure budget to the upgrade. Also, it will make a $1 million contribution to the SGX's Investor Education Fund, which runs educational programmes.
"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," said the MAS in its report on the incidents.
The first occurred on Nov 5, when trading was halted for three hours following a technical glitch. This was the bourse's worst disruption in seven years, which sparked complaints from market players on lost earnings.
More trouble came on Dec 3 when the opening of the securities market was delayed by more than three hours owing to an unrelated software defect.
The MAS said the SGX's service recovery needs to be improved as it "did not have sufficient monitoring capabilities to meet contingencies".
During the November trading breakdown, for instance, the SGX failed to recover some of its critical systems within the four-hour recovery time objective laid out in MAS guidelines. The bourse's monitoring systems were also unable to identify problems quickly in order for prompt remedial actions to be taken, said the regulator.
The SGX has been told to strengthen its systems and processes in three areas: In monitoring so it can identify problems quickly and accurately; to improve procedures for crisis management; and to enhance its communication processes so all stakeholders can be better informed.
"Financial institutions have the responsibility to ensure the resilience of their technological systems," said Mr Ong Chong Tee, deputy managing director of financial supervision at MAS. "They should effectively manage their technology risks and ensure prompt recovery when incidents arise, so as to minimise service disruption to customers."
SGX chairman Chew Choon Seng told a briefing yesterday that the exchange has "recognised the seriousness and severity of the incident.... We've taken measures to minimise the risk of recurrence as well as to better manage such crises."