Description

SEBI revises the technical glitch framework for stock brokers to ease compliance, streamline reporting, and rationalize technology requirements and disincentive structures.

Summary

SEBI has revised the comprehensive framework for addressing technical glitches in stock brokers’ electronic trading systems, originally introduced in November 2022. The modifications are based on stakeholder feedback and public consultation, focusing on easing compliance for smaller brokers, exempting certain types of glitches, simplifying reporting requirements, rationalizing technology requirements, and updating the financial disincentive structure.

Key Points

  • Technical glitch framework initially established via Circular No. SEBI/HO/MIRSD/TPD-1/P/CIR/2022/160 dated November 25, 2022
  • Revisions made after receiving representations from stakeholders and analyzing technical glitch data
  • Public consultation paper issued to obtain views from all stakeholders
  • Framework modified based on five broad principles: ease of compliance, exemptions from applicability, simplified reporting, rationalized technology requirements, and updated disincentive structure
  • Smaller size stock brokers excluded from technical glitch framework eligibility criteria
  • Global issues (cloud service provider malfunctions, widespread disruptions) exempted from technical glitch definition

Regulatory Changes

Definition of Technical Glitch

Technical glitch means any malfunction in the electronic system of stock broker (hardware, software, networks/bandwidth, processes, products or services) directly or indirectly related to trading and risk management during trading sessions. This includes malfunctions in broker systems or outsourced third-party systems leading to stoppage, slowing down, or variance in trading and risk management functions (log-in, order placement, modification, cancellation, execution, confirmation, status, allocation, viewing of margin/collateral/funds) for a contiguous period of five minutes or more.

Exemptions from Technical Glitch Reporting

The following are NOT considered technical glitches and need not be reported:

  • Technical glitches due to global issues (cloud service provider malfunctions, global technology provider disruptions, widespread technical disruptions)
  • Technology issues outside the stock broker’s trading architecture
  • Glitches not directly affecting trading functionality
  • Issues with negligible impact

Reporting Requirements Simplified

  • Extension of reporting time from one hour to two hours
  • Trading holidays considered when submitting reports
  • Single reporting platform (Common Reporting Platform) instead of reporting to all exchanges

Technology Requirements Rationalized

  • Capacity planning requirements based on broker size and technology dependency
  • Software testing requirements adjusted for broker size
  • Disaster Recovery (DR) drill requirements rationalized based on broker size and technology dependency

Disincentive Structure

  • Financial disincentives rationalized considering exemptions, type of glitches (major or minor), and frequency of occurrences

Compliance Requirements

For Stock Brokers

  • Comply with revised technical glitch definition and reporting framework
  • Report technical glitches within two hours (extended from one hour)
  • Use Common Reporting Platform for single-point reporting
  • Exclude exempted glitch types from reporting
  • Ensure compliance with rationalized technology requirements based on broker size
  • Maintain trading and risk management system standards to avoid penalties under revised disincentive structure

For Stock Exchanges

  • Implement revised framework guidelines
  • Provide Common Reporting Platform for broker reporting
  • Apply rationalized financial disincentives based on glitch type and frequency

Important Dates

  • January 09, 2026: Circular issued (Circular No. HO/38/44/12(1)2026-MIRSD-TPD1)
  • November 25, 2022: Original technical glitch framework established (reference circular)
  • December 16, 2022: Stock Exchanges issued detailed guidelines for original framework

Impact Assessment

Positive Impacts

  • Reduced compliance burden: Smaller brokers excluded from framework, reducing operational costs
  • Operational efficiency: Extended reporting time (two hours vs. one hour) provides more flexibility
  • Streamlined processes: Single reporting platform reduces administrative overhead
  • Cost-effective technology requirements: Rationalized requirements based on broker size reduce infrastructure costs
  • Fair penalties: Disincentive structure considers glitch severity and frequency

Operational Changes

  • Brokers need to update internal processes to align with new five-minute threshold for technical glitch definition
  • Reporting systems must be configured for Common Reporting Platform
  • Technology infrastructure planning adjusted based on rationalized requirements
  • Risk management protocols updated to reflect exempted glitch categories

Market Impact

  • Improved trading system reliability through focused framework on material glitches
  • Better resource allocation by brokers focusing on critical system components
  • Enhanced investor confidence through maintained system integrity standards while reducing unnecessary compliance costs

Impact Justification

Modifies existing framework to reduce compliance burden on smaller brokers while maintaining system integrity; affects operational procedures rather than market structure