SEBI's Framework to Address Technical Glitches at Stockbrokers | Espresso


SEBI issues framework to address technical glitches at stockbrokers

December 29, 2022
SEBI issues framework to address technical glitches at stockbrokers

All about SEBI’s framework to address technical glitches on stockbroking platforms

Technology has brought a monumental change in the way trading is managed in financial markets. Electronic or online trading has made it easier for us to buy and sell a share with just a click on our smartphones. The rapid changes in the stock market trading landscape can be better understood by looking at the spike in the number of demat accounts. Over the past 3 years, the total number of demat accounts in India has more than tripled to over 10 crore.

However, technical glitches have proven to be a significant risk in the financial markets. To address this issue, the capital market regulator Securities & Exchange Board of India (SEBI) constituted a working group to recommend suitable measures. The regulator has put in place a framework to curb such technical glitches that occur in the trading systems of stockbrokers. The new SEBI framework is based on the recommendations of the working group and views obtained from stakeholders and industry experts.

What SEBI defines as ‘technical glitches’

In a circular issued on November 25, SEBI said, “Technical glitch shall mean any malfunction in the systems of stockbroker including malfunction in its hardware, software, networks, processes or any products or services provided by the stockbroker in the electronic form.”

The regulator noted that the malfunction could be on account of inadequate infrastructure, cyber-attacks, procedural errors or process failures in the broker’s own systems or the one outsourced from any third parties. This malfunction may lead to either stoppage, slowing down, or variance in the normal operations of systems of the stockbroker for a contiguous period of five minutes or more.

Under the framework that will come into effect from April 1, 2023, SEBI has put forward some reporting requirements for the brokers:

  1. Stockbrokers shall inform the stock exchanges about any such technical glitch within an hour of its occurrence.
  2. They must submit a Preliminary Incident Report to the Exchange within T+1 day of the incident and a Root Cause Analysis (RCA) Report of the technical glitch to the stock exchange within 14 days from the date of the incident.

SEBI’s additional guidelines for smooth trading

SEBI has also prescribed some capacity planning measures to prevent overburdening the system. They include monitoring peak load in trading applications, servers, and network architecture, making installed capacity at least 1.5 times the observed peak load, and deploying adequate monitoring mechanisms within their networks and systems to get timely alerts on current utilization of capacity going beyond the permissible limit of 70% of its installed capacity, among others. These measures allow stockbrokers to keep up with an increasing number of investors.

Additionally, SEBI also developed guidelines for stockbrokers to keep up with software updates and has directed brokers to build API based Logging and Monitoring Mechanism (LAMA). These will be operated between stock exchanges and specified stockbrokers’ trading systems and establish Business Continuity Planning (BCP) and Disaster Recovery Site (DRS). The details of these rules can be found in the SEBI Circular dated November 25, 2022.

Such measures are critical for a seamless trading experience from an investor’s perspective. Technology has led to a drastic rise in online and mobile trading in the past couple of years. With this, stockbrokers have also developed new-age trading systems. SEBI’s new framework will provide a roadmap to deal with the tech glitches and allow for a more seamless experience for both stockbrokers and investors.

Disclaimer: Investment in securities market are subject to market risks. Read all the related documents carefully before investing. Please refer the Risk Disclosure Document issued by SEBI and go through the Rights and Obligations and Do’s and Dont’s issued by Stock Exchanges and Depositories before trading on the Stock Exchanges. Brokerage will not exceed the Exchange prescribed limit.

R. Kalyanaraman
by R. Kalyanaraman

Chief Executive Officer

I am a sales guy at heart with utmost willingness to listen to people – customers, employees, competitors et al. Nothing gets me a bigger adrenaline rush than an interesting conversation with my customer!