Of late, technical glitches have become increasingly common among traders, given the exponential growth in demat accounts. Such issues tend to peak during volatile trading sessions.
In fact, with the frequent occurrences of disruptions, market regulator SEBI came out with a detailed framework in November 2022 on technical glitches and their reporting by brokerages. The framework has since seen several revisions.
In September, the Securities and Exchange Board of India released a consultation paper on technical glitches, proposing some much-needed relaxations to brokerages.
Accordingly, the definition of technical glitch is proposed to be modified to exclude the glitches occurring after trading hours and technical glitches which are not under the control of stock broker.
What is a glitch?
“Technical glitch shall mean any malfunction in the electronic system of stock broker, including malfunction in its hardware, software, networks/bandwidth, processes or products or services, directly or indirectly related to trading and risk management, occurred during trading session of stock exchange. The malfunction in the systems of stock brokers or the one outsourced from any third parties, which may lead to either stoppage, slowing down or variance in the 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 contiguous period of five minutes or more,” according to SEBI’s revised framework for technical glitch.
However, glitches arising from global issues, disruption at MII (glitches reported by stock exchanges, clearing corporations, and depositories to SEBI), back-office issues not affecting trades, payment gateway failures, and technical faults in decision-support tools will be excluded from the definition.
The framework would be made applicable to the stock brokers providing Internet Based Trading and securities trading using wireless technology (IBT/STWT) trading platforms and having more than 10,000 registered clients as on March 31 of previous financial year.
As a result, around 457 smaller brokers will be exempt, easing compliance for those with limited client bases and less tech-heavy operations.
Rationalisation of reporting of technical glitch to stock exchange is proposed to be eased considering reasonable time require to report and considering trading holidays etc. Further, reporting is proposed to be done at the Common Reporting platform to avoid the multiple reporting by stock brokers.
Similarly, SEBI has relaxed on penalty criteria, too. If a brokerage faces outage at its one vertical (say mobile app) but the other (web app) is functioning normally, no penalties will be imposed. If the issue is minor and doesn’t impact most clients, there won’t be any penalties.
According to the National Stock Exchange, brokerages had reported 163 instances of technical glitches during FY23-24 and 159 during FY24-25. In the current fiscal year till September, 87 such instances were reported by the exchanges.
Relief to small brokers
These measures offer significant relief to small brokerages. But there should be a mechanism for clients to air genuine grievances in case of losses due to broker’s fault. However, the revised definition of technical glitches still remains overly broad. Besides, the introduction of upper limitations on specific monetary penalties and the exclusion of some technical errors from the updated penalising structure, are constructive changes that support a more equitable regulatory framework.
However, brokerages that report glitches frequently, say more than one in a month, and same kind of disruption, should face higher scrutiny that should help both the brokerages (to overcome the impediment) and traders, for benefit of the entire value chain.