SEBI circular on framework to address the ‘technical glitches’ in Stock Brokers’ Electronic Trading Systems – November 25, 2022

SEBI, vide its circular dated November 25, 2022 came out with framework to address the ‘technical glitches’ in Stock Brokers’ Electronic Trading Systems.

Rapid technological developments have increased the ease of electronic trading in securities markets. Technology related interruptions and glitches (technical glitches) and their impact on the investors’ opportunity to trade constitutes major technology related risk. Considering the 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 occurring in the trading systems of stock brokers.

2. Definition of Technical Glitch: 2.1 Technical glitch shall mean 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 or otherwise, in their own systems or the one outsourced from any third parties, which may lead to either stoppage, slowing down or variance in the normal functions / operations / services of systems of the stock broker for a contiguous period of five minutes or more.

3. Reporting Requirements: 3.1 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. 3.2 Stock brokers shall 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. 3.3 Stock brokers shall submit a Root Cause Analysis (RCA) Report (as per Annexure I) of the technical glitch to stock exchange, within 14 days from the date of the incident. 3.4 RCA report submitted by the stock brokers shall, inter-alia, include time of incident, cause of the technical glitch (including root cause from vendor(s), if applicable), duration, chronology of events, impact analysis and details of corrective/ preventive measures taken (or to be taken), restoratio