The Securities and Exchange Board of India (SEBI) has announced a comprehensive overhaul of its technical glitch framework for stock brokers, introducing significant relaxations designed to improve compliance ease and facilitate better business operations for market intermediaries. The revised framework comes into effect immediately and addresses longstanding industry concerns about the original rules.

Major Exemptions and Scope Reduction

The most significant change involves a substantial reduction in the framework's scope. SEBI has streamlined eligibility criteria to focus only on larger brokers, with the new rules applying exclusively to brokers with more than 10,000 registered clients. This strategic revision will exempt approximately 60% of brokers from the compliance regime, significantly reducing their regulatory burden.

Enhanced Glitch Classification and Exemptions

SEBI has introduced clearer distinctions regarding which technical glitches fall under the regulatory framework. The revised rules now exclude several categories of glitches that previously triggered compliance requirements:

• Glitches originating outside a broker's trading architecture
• Issues that do not directly affect trading functionality
• Incidents with negligible impact on operations
• Glitches occurring beyond a broker's control

As SEBI stated, this approach provides "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."

Relaxed Reporting Requirements

The regulator has significantly eased reporting obligations for brokers. The time limit for reporting glitches has been extended from one hour to two hours, with additional considerations for trading holidays. SEBI has also simplified the reporting process by shifting from exchange-wise reporting to a unified Common Reporting Platform.

Improved Transparency and Communication

To enhance market transparency, SEBI has mandated that brokers inform both exchanges and clients within two hours of any qualifying incident. Exchanges will be required to disseminate this information on their websites, while brokers must notify clients through multiple channels including their websites, SMS, email, or pop-up alerts on trading applications.

Rationalized Financial Structure

The financial disincentive structure has been comprehensively rationalized, taking into account applicable exemptions, the nature of glitches (classified as major or minor), and the frequency of such incidents. Additionally, technology compliance requirements, including capacity planning and disaster recovery drills, have been recalibrated based on broker size and technology dependence.

Background and Industry Response

SEBI originally introduced the technical glitch framework in November 2022, followed by detailed exchange guidelines in December 2022. However, industry bodies raised significant concerns about the scope and rigidity of the initial rules, prompting the regulator to undertake this comprehensive review. The revised framework addresses these concerns while maintaining necessary oversight for larger market participants with greater systemic importance.

The Securities and Exchange Board of India (Sebi) has announced a significant overhaul of its framework for handling technical glitches in stock brokers' electronic trading systems. This comprehensive revision aims to improve ease of compliance and reduce regulatory burden, particularly benefiting smaller brokers in the securities market.

Streamlined Eligibility Criteria

The most significant change involves the streamlining of eligibility criteria for the technical glitch framework. Under the revised rules, the framework will now apply exclusively to stock brokers with more than 10,000 registered clients. This modification effectively excludes smaller brokers with limited business scale and lower technology dependence from the stringent requirements.

Enhanced Exemptions and Operational Flexibility

Sebi has introduced specific exemptions from the technical glitch norms to provide brokers immunity from events beyond their control. The framework now excludes glitches that occur outside a broker's trading architecture, those that do not directly impact trading functionality, and incidents with negligible impact on trading services.

The regulator has also extended the timeline for reporting technical glitches from one hour to two hours, offering brokers greater operational flexibility. Additionally, the revised framework accounts for trading holidays in report submissions and replaces multiple exchange reporting requirements with a single mechanism through a Common Reporting Platform.

Rationalized Compliance Requirements

Technology-related compliance requirements have been made more proportionate to broker size and technology dependence. Areas such as capacity planning and disaster recovery drills have been restructured to be more cost-effective, particularly easing the burden on smaller and mid-sized firms.

Restructured Penalty Framework

The financial disincentive structure for technical glitches has been comprehensively rationalized. Penalties will now be calibrated based on applicable exemptions, the nature of the glitch classified as major or minor, and the frequency of such incidents. Stock exchanges will issue the detailed disincentive framework guidelines.

Market Impact and Industry Relief

The updated norms are expected to provide immediate relief to a large section of the broking industry, especially smaller firms, while ensuring that brokers with significant client bases and higher systemic impact maintain robust technology and risk management standards. The regulator emphasized that this balanced approach maintains market integrity while recognizing operational realities faced by brokers, ensuring effective oversight without being overly burdensome.