The Securities and Exchange Board of India (Sebi) has implemented comprehensive changes to its technical glitch framework for stock brokers, marking a significant shift towards easing compliance burdens while maintaining market integrity. The revised framework, which comes into effect immediately, introduces substantial relief measures aimed at improving ease of doing business for market intermediaries.

Major Exemptions and Scope Reduction

The most significant change involves exempting smaller brokers from the framework's ambit. Under the new rules, only brokers with more than 10,000 registered clients will be subject to the technical glitch compliance requirements.

This change represents a major relief for the majority of stock brokers who previously faced stringent compliance requirements despite their limited business scale and lower dependence on technology.

Refined Glitch Coverage

Sebi has narrowed the scope of what constitutes a reportable technical glitch. The framework now excludes several categories of incidents that were previously covered:

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

This refinement provides immunity to stock brokers from glitches outside their control and those that do not affect their ability to provide seamless services to clients.

Streamlined Reporting Requirements

The regulator has introduced several changes to make reporting more practical and efficient:

Brokers must now inform both exchanges and clients within two hours of any incident through multiple channels including websites, SMS, email, or pop-up alerts on trading applications. The shift from exchange-wise reporting to a single Common Reporting Platform further simplifies the process.

Enhanced Transparency Measures

To improve market transparency, Sebi has mandated that exchanges disseminate information about technical glitches on their websites. Brokers are required to submit preliminary incident reports within T+1 day of occurrence, with extensions permitted if the following day is a trading holiday. A comprehensive root cause analysis report must be filed within 14 calendar days through the Samuhik Prativedan Manch portal.

Rationalized Financial Structure

The revised framework includes a more balanced financial disincentive structure that considers multiple factors:

• Applicable exemptions based on broker size
• Nature of glitches classified as major or minor
• Frequency of incidents
• Technology compliance requirements calibrated to broker size and technology dependence

The framework evolution reflects Sebi's response to industry concerns raised since the original rules were introduced in November 2022, with detailed exchange guidelines following in December 2022. Industry bodies had expressed concerns over the scope and rigidity of the initial framework, prompting this comprehensive review and revision.

The Securities and Exchange Board of India (SEBI) has announced a comprehensive overhaul of its technical glitch framework for stock brokers, introducing significant changes that will ease compliance burdens and improve operational flexibility for market intermediaries. The revised framework, which comes into effect immediately, represents a major shift from the original rules introduced in November 2022.

Major Scope Reduction for Smaller Brokers

The most significant change involves a substantial reduction in the framework's scope. SEBI has streamlined eligibility criteria to exempt smaller brokers with limited business scale and lower technology dependence. The new framework will apply only to brokers with more than 10,000 registered clients, effectively removing approximately 60% of brokers from the regulatory regime.

Expanded Exemptions and Reduced Liability

SEBI has introduced comprehensive exemptions for various types of technical disruptions. Glitches occurring beyond a broker's control will no longer be covered under the framework, providing immunity from incidents outside their direct influence. The regulator has specifically exempted:

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

This approach ensures that brokers are only held accountable for technical issues within their control and that materially affect their service delivery capabilities.

Enhanced Reporting and Communication Requirements

The revised framework introduces improved transparency measures while easing operational burdens. SEBI has extended the initial reporting timeline from one hour to two hours, factoring in trading holidays and operational realities. The regulator has also shifted from exchange-wise reporting to a centralized Common Reporting Platform, streamlining the submission process.

Brokers must inform both exchanges and clients within two hours of any qualifying incident. Exchanges will disseminate this information on their websites, while brokers must notify clients through multiple channels including websites, SMS, email, or pop-up alerts on trading applications.

Rationalized Financial Structure and Compliance

SEBI has recalibrated the financial disincentive structure, 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 adjusted based on broker size and technology dependence.

The framework revision follows concerns raised by industry bodies regarding the scope and rigidity of the original rules implemented in November 2022. The regulator had introduced detailed exchange guidelines in December 2022, but subsequent industry feedback prompted this comprehensive review and restructuring of the regulatory approach.