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.

The Securities and Exchange Board of India (Sebi) has announced significant revisions to its technical glitch framework for stockbrokers, marking a substantial shift toward easing compliance burdens for smaller market participants. The changes, outlined in a circular issued on Friday, represent part of Sebi's broader "ease of compliance" initiative and follow extensive consultation with market participants.

Scope Reduction Exempts Majority of Brokers

The most significant change involves narrowing the framework's applicability to stockbrokers with more than 10,000 registered clients. This revision fundamentally alters the compliance landscape for the brokerage industry.

Sebi estimates this change will remove nearly 60% of brokers from the framework, effectively exempting a large number of small and mid-sized firms that have limited scale and lower dependence on complex trading technology. Until now, the framework applied uniformly across all brokers, regardless of their size or technological complexity.

Refined Definition of Reportable Glitches

Sebi has introduced important clarifications regarding what constitutes a reportable technical glitch. The revised framework excludes several categories of system-related issues from mandatory reporting requirements:

• Glitches originating outside a broker's own trading architecture
• Issues that do not directly affect trading functionality
• Problems with negligible impact on operations

This refinement provides brokers immunity from penalties for problems beyond their control or issues that do not impair their ability to provide trading services to clients. The change addresses long-standing industry concerns about being penalized for external system failures or minor technical hiccups.

Streamlined Reporting Requirements

The regulator has simplified several aspects of the reporting process to reduce administrative burden on brokers:

Brokers now have two hours instead of one to report technical glitches, and the revised framework takes trading holidays into account when calculating reporting timelines. Additionally, reporting has been streamlined through a single common platform, replacing the earlier requirement to report separately to multiple stock exchanges.

Technology Compliance Calibration

Sebi has rationalized technology-related compliance obligations, including requirements around capacity planning and disaster recovery drills. These obligations will now be calibrated based on two key factors:

• The size of the broker
• The extent of reliance on technology

This risk-based approach ensures that compliance requirements are proportionate to the broker's operations and technological complexity, reducing unnecessary regulatory burden on smaller firms with simpler technology infrastructures.

Revised Penalty Structure

The financial disincentive structure linked to technical glitches has been comprehensively reworked. The new penalty framework incorporates several factors to ensure proportionate enforcement:

• Exemptions for qualifying circumstances
• Severity classification (major or minor glitches)
• Frequency of occurrences

Detailed disincentive norms will be issued by individual stock exchanges, allowing for market-specific implementation while maintaining consistency in approach. This revision moves away from the previous one-size-fits-all penalty structure toward a more nuanced system that considers the specific circumstances of each incident.