SEBI proposes new rules to handle stock broker tech glitches, rationalises penalties

Markets regulator SEBI has proposed an overhaul of its framework to deal with technical glitches in stock brokers’ electronic trading systems.

In a consultation paper released on Monday, the Securities and Exchange Board of India (SEBI) said the revised norms aim to ease compliance by streamlining eligibility criteria, simplifying reporting requirements, bringing clarity in the definition of technical glitches, and rationalising penalties to ensure smoother trading operations.

Under the proposal, the framework will apply only to brokers offering internet-based trading (IBT) or securities trading through wireless technology (STWT) platforms with more than 10,000 registered clients as of March 31 of the previous financial year.

This will exempt around 457 smaller brokers with limited technological exposure.

The definition of a “technical glitch” will be tightened to cover only malfunctions during trading hours and within the broker’s control.

SEBI has listed several categories of disruptions that will not require reporting to exchanges, even if they affect operations. These include:

• Malfunctions caused by global technology providers or cloud service disruptions.

• Technical issues arising at market infrastructure institutions (MIIs) such as stock exchanges or depositories.

• KYC-related problems during new account processing that do not impact live trading.

• Back-office software failures that do not affect order placement, execution or settlement.

• Payment gateway breakdowns stemming from banks or payment aggregators.

• Glitches in decision-support tools such as technical charts, profit and loss statements or back-office reports.

SEBI has also proposed a common reporting platform, allowing brokers to file preliminary incident reports within one trading day and a root-cause analysis within 14 days.

However, if the T+1 day falls on a trading holiday, the incident reports may be submitted on the next trading day, according to the draft circular.

Brokers must additionally alert clients within two hours of any glitch.

SEBI has recommended stronger capacity planning, rigorous software testing and disaster recovery measures, while stock exchanges will revise financial disincentives and publicly disclose instances of reported glitches.

The circular, once finalised, is proposed to take effect on November 1, 2025.