Sebi issues framework to address technical glitches on stock brokers' platforms
2 min read 25 Nov 2022, 08:08 PM ISTThe circular that will come into effect from 1 April 2023, addresses number of factors including new reporting requirements, financial disincentives for stock brokers facing technical glitches, capacity planning, and software testing
PremiumThe Securities and Exchange Board of India (Sebi) on Friday issued framework to address the ‘technical glitches’ in Stock Brokers’ Electronic Trading Systems.
The circular that will come into effect from 1 April 2023, addresses number of factors including new reporting requirements, financial disincentives for stock brokers facing technical glitches, capacity planning, and software testing.
“In the wake of growing number of such incidents, SEBI constituted a working group to recommend suitable measures to address the issue. Based on the recommendations of working group and views obtained from stakeholders & industry experts, it has been decided to put in place the following framework to deal with technical glitches", Sebi said in a 8-page circular.
In fact, Stock brokers frequently experience technical glitches with the trading terminals they provide to their clients, which frequently results in financial losses for clients. Certain brokers in the recent past have faced investor ire due to technical snags and halts.
Essentially, ‘Technical glitch’ refers to any malfunction in the systems of stock broker including malfunction in its hardware, software, networks, processes or any products or services provided by the stock broker in the electronic form. The malfunction can be on account of inadequate Infrastructure / systems, cyber attacks / incidents, procedural errors and omissions, or process failures.
In terms of the reporting requirements, the market regulator said that Stock brokers shall inform about the technical glitch to the stock exchanges immediately but not later than 1 hour from the time of occurrence of the glitch. Additionally, the stock brokers will have to submit a Preliminary Incident Report to the Exchange within T+1 day of the incident (T being the date of the incident). The report shall include the date and time of the incident, the details of the incident, effect of the incident and the immediate action taken to rectify the problem, the regulator said.
More important the stock brokers will have to make a Root Cause Analysis and submit the same to the exchanges within 14 days.
Increasing number of investors may create additional burden on the trading system of the stock broker and hence, adequate capacity planning is prerequisite for stock brokers to provide continuity of services to their clients.
Stock brokers have been instructed by the regulator to conduct a capacity planning exercise for every aspect of their trading infrastructure, including increasing their capacity to 1.5 times the stockbroker's peak load capacity.
Moreover, “Software applications are prone to updates/changes and hence, it is imperative for the stock brokers to ensure that all software changes that are taking place in their applications are rigorously tested before they are used in production systems"., the market regulator said.
