New Delhi: Market regulator Securities and Exchange Board of India (SEBI) on Friday revised its framework to address technical glitches in stock brokers’ electronic trading systems, streamlining compliance requirements and rationalising penalties, while retaining safeguards for investors.
The revised framework, which comes into force immediately, supersedes SEBI’s November 2022 circular and follows extensive stakeholder consultations and analysis of glitch-related data, the regulator said in a circular issued on January 9.
A key change is the narrowing of applicability. The framework will now apply only to brokers offering internet-based or software-based trading platforms and having more than 10,000 registered clients as on March 31 of the previous financial year. Smaller brokers will be excluded, significantly reducing compliance costs for low-volume players.
SEBI has also expanded exemptions by excluding several categories of technology issues from the definition of “technical glitches”. These include disruptions caused by global cloud service providers, issues at market infrastructure institutions (MIIs), back-office problems that do not affect trading or settlement, KYC-related system issues, and failures at banks or payment gateways. Glitches in decision-support tools such as charts or profit-and-loss statements have also been kept outside the framework.
To simplify reporting, the regulator has extended the reporting timeline for glitches from one hour to two hours and moved towards a single, common reporting platform—‘Samuhik Prativedan Manch’. Brokers will also be allowed to factor in trading holidays while submitting reports. Exchanges will disseminate information on reported glitches on their websites.
Under the revised norms, brokers must submit a preliminary incident report within one trading day of the glitch and a detailed root cause analysis within 14 working days. They are also required to promptly inform clients through websites, apps, SMS or email when such incidents occur.
SEBI has rationalised technology-related obligations such as capacity planning, software testing, disaster recovery (DR) drills and business continuity planning (BCP), linking them to the size of brokers and their dependence on technology. Small brokers will be exempt from BCP and DR requirements, while norms on DR site location, drill frequency and recovery objectives will be simplified.
The financial disincentive structure for glitches has also been recalibrated. Penalties will not apply to minor glitches or incidents where one trading mode—mobile or web—continues to function normally. Exchanges will further refine penalty guidelines based on the severity and frequency of glitches.
The move comes amid a sharp rise in retail participation and digital trading activity, which has increased pressure on brokers’ technology systems. SEBI said the revised framework seeks to ensure seamless trading for investors while adopting a proportionate and cost-effective regulatory approach.