There have been more than 400 reports of technical interruptions since November 2022, which has prompted demands for a fair regulatory framework that maintains responsibility without placing a burden on small brokers.
With the exponential rise of demat accounts, traders are experiencing more and more technical issues. These problems usually reach their height during erratic trading sessions.
In reality, because to the frequent interruptions, market regulator SEBI released a comprehensive framework on technical issues and brokerages’ reporting of them in November 2022. Since then, the framework has undergone further changes.
The Securities and Exchange Board of India published a consultation paper on technical issues in September, suggesting some much-needed brokerage relaxations.
Therefore, it is suggested that the definition of a technical glitch be changed to exclude glitches that happen outside of trading hours and glitches that are not within a stock broker’s control.
What is a glitch?
A “technical glitch” is defined as any issue that arises during a stock exchange trading session that affects the stock broker’s electronic system, including issues with its hardware, software, networks/bandwidth, processes, products, or services that are either directly or indirectly related to trading and risk management.
According to SEBI’s updated framework for technical glitches, “any malfunction in stock brokers’ or third-party systems that may cause a halt, slowdown, or variation in trading and risk management functions, such as log-in, order placement (including modification, cancellation, execution, confirmation, status), allocation, and viewing of margin/collateral/funds, etc., for a continuous period of five minutes or more.”
However, the definition will not include technical issues in decision-support tools, back-office problems that do not impact trades, payment gateway failures, glitches resulting from global issues, or disruptions at MII (as reported to SEBI by stock exchanges, clearing corporations, and depositories).
The framework would be applicable to stock brokers who have more than 10,000 registered customers as of March 31 of the preceding fiscal year and who provide Internet-based trading and securities trading using wireless technology (IBT/STWT) trading platforms.
Approximately 457 smaller brokers will therefore be excluded, making compliance easier for those with smaller clientele and less technologically complex businesses.
The proposal is to rationalize the process of reporting technical glitches to the stock exchange, taking into account trade holidays and the appropriate time required to notify them. In order to prevent stock brokers from filing numerous reports, it is also suggested that reporting be done via the Common Reporting platform.
In a similar vein, SEBI has loosened its punishment requirements. There will not be any consequences if a brokerage has an outage at one vertical (such as its mobile app) but leaves the other (web app) operational. There will not be any fines if the problem is small and does not affect the majority of customers.
The National Stock Exchange reports that during FY23-24 and FY24-25, brokerages reported 163 and 159 instances of technical issues, respectively. The exchanges recorded 87 similar cases during the current fiscal year, which ended in September.
Small dealers are relieved
These actions provide tiny brokerages with a great deal of relief. But in the event that a broker causes losses, there need to be a way for consumers to voice legitimate complaints. The updated definition of technological difficulties is still too broad, however. Additionally, the new penalizing structure’s removal of certain technical faults and the inclusion of upper limits on some monetary penalties are positive modifications that promote a more equal regulatory framework.
To the interest of the whole value chain, brokerages that report issues more frequently—for example, more than once a month—and that cause the same sort of disruption should be subject to greater scrutiny. This will assist both the brokerages and traders get beyond the obstacle.