Sebi Reviews Stock Broker Technical Glitch Framework

New Delhi, Sep 22 (PTI) Markets regulator Sebi on Monday proposed modifying the definition of technical glitches at stock brokers' systems, rationalising the financial disincentive structure, and streamlining eligibility criteria to exclude smaller brokers.

The proposals, if implemented, are aimed at making compliance easier for market intermediaries.

In its consultation paper, Sebi suggested modifying the definition of technical glitch to exclude malfunctions occurring after trading hours and those beyond the broker's control.

It also suggested that financial disincentives not apply to glitches that do not affect a broker's ability to provide seamless client services.

The proposed framework would cover only those brokers providing IBT/STWT trading platforms and having more than 10,000 registered clients as on March 31 of the previous financial year. As a result, around 457 smaller stock brokers would move out of this framework.

"This will result in ease of compliance for such stock brokers, considering their low clientele base and relatively less of technology dominance in their trading services," Sebi said.

To strengthen transparency, Sebi has also proposed rationalising the reporting of glitches. Reporting would shift to a common platform to avoid duplication, while brokers would be required to inform exchanges and their clients within two hours of any incident. Exchanges, in turn, would disseminate the information on their websites.

Further, brokers should notify clients about glitches through their own websites and other modes such as SMS, email, or pop-up alerts in mobile and web-based trading applications.

They would also need to submit a preliminary incident report to the exchange within T+1 day of the occurrence. If the following day is a trading holiday, the submission may be made on the next trading day, Sebi suggested.

Additionally, a detailed Root Cause Analysis Report would have to be filed within 14 calendar days of the incident. This reporting, too, would be routed through the common portal -- 'Samuhik Prativedan Manch' -- designed for stock broker submissions.

The regulator noted that the earlier framework for addressing technical glitches was put in place in November 2022, followed by detailed guidelines from stock exchanges in December that year. However, industry bodies and market participants later raised concerns about the scope and rigidity of the rules, prompting Sebi to undertake a review.

After examining feedback from stakeholders and analysing data on past glitches, Sebi said revisions to the framework were necessary. Accordingly, it has sought public comments on the proposals until October 12.