The Securities and Exchange Board of India (SEBI) has initiated a comprehensive review of compliance measures aimed at resolving technical issues within brokers' trading systems. This regulatory examination represents the market regulator's ongoing efforts to ensure smooth functioning of trading platforms across the Indian financial markets.

Regulatory Focus on Trading System Integrity

The review encompasses various aspects of broker compliance initiatives that have been implemented to address technical challenges. SEBI's examination targets operational issues that may affect the reliability and efficiency of trading systems used by market intermediaries.

Compliance Framework Assessment

The regulatory body is evaluating existing compliance mechanisms designed to identify and rectify technical problems in brokers' trading infrastructure. This assessment forms part of SEBI's broader mandate to maintain market integrity and ensure seamless trading operations for market participants.

Market Infrastructure Oversight

SEBI's review underscores the regulator's commitment to maintaining robust market infrastructure standards. The initiative reflects the importance of addressing technical challenges that could potentially impact trading activities and market participants' ability to execute transactions efficiently.

The regulatory examination is expected to provide insights into the effectiveness of current compliance measures and identify areas for potential improvement in brokers' trading system operations.

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.