Why SEBI’s New Rules On Technical Glitches May Bring Relief To Smaller Brokerages
With the sharp rise in demat accounts and trading volumes, technical glitches at brokerages have become increasingly common during volatile market sessions. Recognizing this growing concern, the Securities and Exchange Board of India (SEBI) has proposed a refined framework to define, classify, and manage such disruptions while offering operational relief to smaller brokerage firms.
SEBI’s latest consultation paper, released in September, builds upon the original November 2022 circular that established reporting norms for brokerage system malfunctions. The regulator’s goal is to streamline definitions, rationalize penalties, and bring consistency in reporting timelines while balancing compliance ease for smaller brokers.
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As per SEBI’s revised draft, a “technical glitch” is defined as any malfunction occurring within a stock broker’s system or its third-party vendors’ infrastructure during active market hours. This includes issues with hardware, software, network bandwidth, order placement, execution, margin allocation, or any process directly linked to trading and risk management.
However, the definition excludes glitches beyond broker control — such as exchange outages, depository disruptions, or global system failures. This distinction helps ensure brokers are not penalized for market-wide issues beyond their technical reach.
| Fiscal Year | Reported Glitch Instances | Notes |
|---|---|---|
| 2023–24 | 163 | As per NSE data; multiple reporting instances |
| 2024–25 | 159 | Reflects minor reduction post-framework update |
| 2025–26* | 87 (till September) | On track for lower annual total |
Source: NSE | *Provisional data till September 30
According to SEBI, the malfunction of critical trading functions — such as order placement, modification, or margin allocation — for five minutes or more during trading hours will be classified as a reportable event. However, backend delays or minor latency not affecting execution will not qualify as technical glitches.
Brokerages using Internet-Based Trading (IBT) and Securities Trading Using Wireless Technology (STWT) with over 10,000 clients must comply with these new norms. Smaller brokers with limited client bases or less complex systems will be exempted, a move aimed at easing compliance burdens and improving regulatory efficiency.
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The reporting mechanism has also been simplified. SEBI plans to centralize submissions through a Common Reporting Platform to avoid duplication across exchanges. Rationalized timelines will now consider trading holidays and allow brokers reasonable time to verify and report legitimate outages.
Penalty norms have also been relaxed. If one digital trading platform (say, the mobile app) faces downtime but another (such as the web version) continues functioning normally, no penalty will be imposed. Similarly, if the issue does not materially impact client trades, it won’t trigger enforcement.
However, repeated disruptions — more than once per month or recurring in nature — will attract greater regulatory scrutiny. Brokers facing consistent issues will need to demonstrate corrective steps to avoid reputational risk and potential suspension of operations in extreme cases.
For traders, this revised framework offers transparency and accountability. It ensures smoother communication channels and distinguishes between genuine market-wide issues and internal technical lapses. Clients also benefit from improved grievance handling, as SEBI encourages brokers to maintain mechanisms for compensation in cases of proven losses due to broker-side faults.
Investor Takeaway
Indian-Share-Tips.com Nifty Expert Gulshan Khera, CFP®, who is also a SEBI Regd Investment Adviser, notes that SEBI’s rationalization of technical glitch reporting strikes a fair balance between investor protection and broker efficiency. While smaller brokers gain compliance relief, larger platforms must continue investing in resilient trading systems. The outcome is likely to enhance transparency, reliability, and client confidence in India’s digital trading ecosystem.
Explore more analytical insights and market compliance updates at Indian-Share-Tips.com, which is a SEBI Registered Advisory Services.
Related Queries On SEBI’s Brokerage Framework
- What qualifies as a reportable technical glitch under SEBI’s new framework?
- Which brokers are exempt from strict glitch-reporting norms?
- How do SEBI’s relaxed penalties impact brokerage competitiveness?
SEBI Disclaimer: The information provided in this post is for informational purposes only and should not be construed as investment advice. Readers must perform their own due diligence and consult a registered investment advisor before making any investment decisions. The views expressed are general in nature and may not suit individual investment objectives or financial situations.
