SEBI Eases Technical Glitch Framework For Stock Brokers

Markets regulator SEBI on Friday overhauled the framework for dealing with technical glitches in stock brokers' electronic trading systems, easing compliance norms, rationalising financial disincentives and excluding smaller brokers from the ambit of the rules. Under the revised framework, glitches occurring beyond a broker’s control will no longer be covered.

The move is aimed at improving ease of compliance and facilitating ease of doing business for market intermediaries.

In its statement, SEBI said it has streamlined the eligibility criteria to exempt smaller brokers with limited business scale and lower dependence on technology.

The framework will now apply only to brokers with more than 10,000 registered clients, a change that will take around 60% of brokers out of the regime and significantly reduce their compliance burden.

Further, glitches that originate outside a broker's trading architecture, do not directly affect trading functionality or have negligible impact, have been exempted.

'This results into immunity to the stock broker from the glitches which are out of control of the stock brokers and which do not affect the ability of the stock broker to provide seamless services,' Sebi said.

The regulator has also eased reporting requirements by extending the time for reporting glitches from one hour to two hours, factoring in trading holidays, and shifting from exchange-wise reporting to a single Common Reporting Platform.

To improve transparency, SEBI said brokers will be required to inform exchanges and clients within two hours of any incident. Exchanges will disseminate such information on their websites, while brokers will have to notify clients through their own websites, SMS, email or pop-up alerts on trading applications.

A preliminary incident report would be submitted to the exchange within T+1 day of the occurrence, with extensions permitted if the following day is a trading holiday.

In addition, a detailed root cause analysis report will have to be filed within 14 calendar days of the incident through the common portal -- Samuhik Prativedan Manch.

The financial disincentive structure has also been rationalised, taking into account applicable exemptions, the nature of glitches -- major or minor --and the frequency of such incidents.

Technology compliance requirements, including capacity planning and disaster recovery drills, have been recalibrated based on the size of brokers and their dependence on technology.

The revised framework comes into effect immediately, the Securities and Exchange Board of India said.

The markets regulator had first introduced the technical glitch framework in November 2022, followed by detailed exchange guidelines a month later. However, concerns raised by industry bodies over the scope and rigidity of the rules prompted Sebi to undertake a review.