SEBI Proposes New Rules to Address Tech Glitches and Streamline Penalties

The Securities and Exchange Board of India (SEBI) has issued a consultation paper to update the rules for handling technical glitches in brokers’ electronic trading systems. Reports indicate that the changes are intended to bring clarity, ease compliance for small brokers, and strengthen oversight of larger players.

Narrow Scope for Glitches

SEBI has proposed narrowing the definition of a “technical glitch.” Only failures that occur during trading hours and are under a broker’s control will be covered. Disruptions at cloud providers, stock exchanges, clearing corporations, payment gateways, or back-office systems will not fall under this definition.

Applicability Criteria

The framework will apply to brokers offering internet-based trading (IBT) or securities trading using wireless technology (STWT) who have more than 10,000 registered clients as of March 31 of the preceding financial year. About 457 smaller brokers will be exempt.

Reporting Requirements

Brokers will need to inform clients and exchanges within two hours of any glitch. A preliminary report must be filed by the next trading day (T+1), followed by a root-cause analysis within 14 days. A common reporting platform is being proposed. The exchange-run Logging and Monitoring API (LAMA) will continue to track glitches in real time.

Disaster Recovery and Load Testing

Large brokers must maintain disaster recovery sites in different seismic zones, carry out regular drills, and set recovery timelines. Brokers are also required to review server and network load against peak trading volumes. Exchanges will issue guidelines for load testing and software change management. Smaller brokers are exempt from these requirements.

Exchanges have been asked to rationalise penalties. Minor incidents or disruptions affecting only one trading channel, such as mobile or web, may be exempted.

Read more: SEBI Approves Key Reforms to Boost Investor Protection and Inclusion in Mutual Funds!

Conclusion

SEBI has sought public feedback on the draft till October 12, 2025. The final framework is expected to come into effect on November 1, 2025.

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