Description

SEBI revises the technical glitch framework for stock brokers based on stakeholder feedback, introducing exemptions, streamlined reporting, and rationalized compliance requirements.

Summary

SEBI has reviewed and modified the framework for addressing technical glitches in stock brokers’ electronic trading systems, originally established via Circular SEBI/HO/MIRSD/TPD-1/P/CIR/2022/160 dated November 25, 2022. The revised framework, based on stakeholder consultations and public feedback, introduces key changes including streamlined eligibility criteria excluding smaller brokers, exemptions for certain types of glitches, extended reporting timelines (from one to two hours), and rationalized technology requirements and financial disincentives.

Key Points

  • Technical glitch redefined as malfunction in broker’s electronic system (hardware, software, networks, processes) affecting trading and risk management for five minutes or more during trading sessions
  • Smaller stock brokers excluded from framework through revised eligibility criteria to ease compliance burden
  • Global technology disruptions (cloud service providers, widespread issues) exempted from technical glitch classification
  • Reporting timeline extended from one hour to two hours after glitch occurrence
  • Common Reporting Platform introduced to replace multiple exchange reporting requirements
  • Trading holidays now considered when calculating reporting deadlines
  • Technology requirements for capacity planning, software testing, and DR drills rationalized based on broker size and technology dependency
  • Financial disincentive structure revised considering exemptions, glitch severity (major/minor), and occurrence frequency
  • Glitches outside broker’s trading architecture or with negligible impact exempted from framework

Regulatory Changes

The framework modifications are based on five broad principles:

  1. Ease of Compliance: Streamlined eligibility criteria exclude smaller brokers from technical glitch framework requirements

  2. Exemptions from Applicability: Technical glitches outside broker’s trading architecture, those not directly affecting trading functionality, and those with negligible impact are exempted

  3. Simplified Reporting:

    • Reporting time extended from 1 hour to 2 hours
    • Trading holidays considered in reporting timelines
    • Single Common Reporting Platform replaces multiple exchange reporting

  4. Rationalized Technology Requirements: Capacity planning, software testing, and disaster recovery drill requirements adjusted based on broker size and technology dependency

  5. Revised Disincentive Structure: Financial penalties rationalized based on exemptions, glitch type (major/minor), and frequency

Compliance Requirements

Applicability: All registered stock brokers through recognized stock exchanges (subject to revised eligibility criteria)

Definition of Technical Glitch: Malfunction in electronic systems (hardware, software, networks/bandwidth, processes, products, services) directly or indirectly related to trading and risk management during trading sessions, causing:

  • Stoppage, slowing down, or variance in trading and risk management functions
  • Issues with log-in, order placement/modification/cancellation/execution/confirmation/status
  • Problems viewing margin/collateral/funds
  • Duration: Five minutes or more (contiguous period)

Exempted Technical Issues (not requiring reporting):

  • Global issues: Malfunction at cloud service providers or global technology providers causing widespread disruption
  • Technical issues outside broker’s trading architecture (content appears truncated in source)

Reporting Requirements:

  • Report technical glitches within 2 hours of occurrence
  • Use Common Reporting Platform for single submission
  • Trading holidays considered in deadline calculations

Important Dates

  • Original Framework: November 25, 2022 (SEBI Circular SEBI/HO/MIRSD/TPD-1/P/CIR/2022/160)
  • Exchange Guidelines: December 16, 2022
  • Current Circular: January 09, 2026
  • Effective Date: To be specified by exchanges in implementation circulars

Impact Assessment

Market Impact: High - affects operational framework for entire stock broking industry

Operational Impact:

  • Reduced compliance burden for smaller brokers through revised eligibility
  • Extended reporting timeline provides brokers more time for accurate assessment
  • Centralized reporting through Common Platform reduces administrative overhead
  • Exemptions for global technology issues recognize broker limitations
  • Rationalized technology requirements may reduce costs for smaller firms

Risk Management Impact:

  • Maintains focus on broker-controlled systems while exempting external factors
  • Five-minute threshold ensures material glitches are captured
  • Revised disincentive structure balances accountability with practical considerations

Compliance Impact:

  • Streamlined reporting reduces operational complexity
  • Clear exemptions prevent unnecessary reporting
  • Size-based requirements ensure proportionate compliance expectations

Industry Impact: Positive response expected from smaller brokers benefiting from exemptions and simplified requirements, while maintaining robust framework for larger brokers with significant technology dependencies.

Impact Justification

Significantly modifies the technical glitch framework affecting all stock brokers, with changes to eligibility criteria, reporting requirements, exemptions, and disincentive structures. This impacts operational compliance and risk management systems across the industry.