The Securities and Exchange Board of India (SEBI) announced on Friday a comprehensive revision of its regulatory framework addressing technical glitches in stock brokers' electronic trading systems. The updated framework introduces significant changes aimed at streamlining compliance requirements while maintaining market stability.

Key Framework Changes

The revised regulatory structure encompasses three primary areas of reform. SEBI has implemented eased compliance norms that reduce the regulatory burden on stock brokers when dealing with technical system issues. The regulator has also rationalised financial disincentives, suggesting a more balanced approach to penalties and financial consequences for technical failures.

Scope and Coverage

A notable aspect of the updated framework is the exclusion of smaller brokers from certain regulatory requirements. This differentiated approach recognises the varying operational capacities and technical infrastructure capabilities across different categories of stock brokers in the Indian financial market.

Regulatory Impact

The framework overhaul represents SEBI's ongoing efforts to balance regulatory oversight with operational flexibility for market participants. By addressing technical glitches in electronic trading systems, the regulator aims to enhance market efficiency while ensuring appropriate safeguards remain in place for investor protection and market integrity.

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.