Sebi proposes revamp of glitch rules, exemptions for small brokers

Sebi has issued a consultation paper to narrow the definition of technical glitches, ease compliance for small brokers, and strengthen oversight for larger players

The Securities and Exchange Board of India (Sebi) on Monday issued a consultation paper to review and streamline the framework for handling technical glitches in brokers’ electronic trading systems.

 

The markets regulator has proposed narrowing the definition of a “technical glitch” to exclude disruptions beyond a broker’s control, such as failures at cloud providers, market infrastructure institutions (which includes exchanges, clearing corporations), payment gateways, or back-office systems.

 

The new framework will apply only to brokers offering internet-based trading (IBT) or securities trading using wireless technology (STWT) platforms with more than 10,000 registered clients as of March 31 of the preceding financial year. About 457 smaller brokers will be exempt, easing compliance costs for less tech-intensive players.

 

Further, Sebi has proposed a common reporting platform. A broker has to notify clients and exchanges within two hours of a glitch, file a preliminary incident report by T+1 day, and a root-cause analysis within 14 days. 

 

Sebi has also mandated brokers to periodically assess server and network load against peak trading volumes. Exchanges will issue guidelines for load testing, software change management, and monitoring. The exchange-run monitoring mechanism Logging and Monitoring API (LAMA) will continue to track real-time glitches.

 

Larger brokers will need to maintain disaster recovery sites in different seismic zones, conduct regular drills, and define recovery parameters. Small brokers will be exempt.

 

Sebi has asked exchanges to rationalise the penalty framework, exempting minor incidents, or those affecting only one trading channel (mobile or web).

 

Industry players said the proposed relaxation for smaller brokers is expected to reduce compliance burden for mid- and small intermediaries, while larger players who dominate retail digital broking will face tighter oversight on resilience, governance, and client transparency.

 

Sebi has sought feedback on the proposals till October 12. The revised framework is scheduled to come into effect from November 1.

 

The review comes nearly three years after the regulator put in place its first comprehensive set of guidelines in November 2022, followed by exchange-level implementation in December 2022.