sebi
Published on 10 July 2025
Revised Technical Glitch Regulations: What Brokers Need to Know for 2023
SEBI’s Updated Technical Glitch Norms: Relief for Brokers, Clarity for Investors
Introduction Starting FY2025–26, India’s brokerage community is seeing meaningful regulatory relief on how technical glitches are handled. After prolonged consultations between market participants, exchanges, and the Securities and Exchange Board of India (SEBI), a new framework has been introduced—easing penalties, clarifying definitions, and promoting transparency without compromising investor protection.
What’s Changed and Why It Matters
Financial Relief and Defined Penalty Caps
In a significant shift, brokers will no longer face financial penalties for glitches beyond their control. For instances where reporting lapses do occur, penalties have been rationalised:
- Large brokers: Maximum penalty capped at ₹5 lakh
- Small brokers: Penalty capped at ₹1 lakh
This replaces the previous system where fines could escalate without a ceiling, sometimes disproportionate to the incident's scale.
When Brokers Are Not Penalised
SEBI has clarified that brokers will not be penalised for technical issues arising from external or non-trading-related sources. These include:
- Exchange, clearing corporation, or depository failures
- KYC onboarding issues not impacting trading
- Glitches during non-trading hours
- Global outages in cloud service providers
- Bank-related payment gateway failures
- Minor UI or accessibility problems in platforms
Important caveat: These events must still be reported. Failure to report could lead to penalties and operational restrictions.
Definition of a Technical Glitch: Still Broad
Despite broker requests, SEBI has not narrowed the definition. A "technical glitch" continues to cover any malfunction in a broker’s systems—including software, hardware, network, or operations—that lasts five minutes or more.
Even slowdowns or deviations from expected performance fall within this definition.
While some in the industry wanted the focus narrowed to trading-impacting issues only, SEBI’s current stance underscores the regulator’s emphasis on system-wide stability and investor experience.
Reporting Obligations: Streamlined but Mandatory
SEBI aims to encourage brokers to report early and honestly. The revised process allows for flexibility, while still holding brokers accountable.
Standard Reporting Protocol
| Step | Requirement | Timeline |
|---|---|---|
| 1 | Notify Exchange | Within 1 hour of glitch detection |
| 2 | Preliminary Report | Within 1 working day |
| 3 | Root Cause Analysis (RCA) | Within 14 calendar days |
The focus is on corrective action and transparency, not immediate punishment.
New Penalty Structure: Fairer and Tiered
The revised rules bring structure and predictability to how brokers are penalised for repeated incidents.
| Incident Count (FY) | Large Broker Penalty | Small Broker Penalty | SEBI Action |
|---|---|---|---|
| 1st & 2nd | None | None | Warning/Observation Letter |
| 3rd | ₹50,000 | ₹20,000 | Penalty imposed |
| 4th+ | +₹25,000/incident | +₹5,000/incident | Escalating fines |
Exchanges will also assess severity before deciding penalties. For instance, a back-office login delay won’t be equated with a full system outage.
Client Onboarding: No Blanket Ban After 5 Incidents
Earlier versions of the rule suggested that brokers with more than five glitches a year might face restrictions on onboarding new clients.
The revised norms relax this stance: as long as fewer than 5% of active users are affected, brokers may continue to onboard clients. This change acknowledges that not all incidents are systemic or investor-facing.
Industry Perspectives and What Lies Ahead
Some brokers are calling for higher thresholds, suggesting that only glitches affecting 10% or more of users should trigger reporting. SEBI has taken note but, for now, no further changes are planned.
Others believe the reporting obligations remain stringent, especially for smaller firms. However, most agree the new framework is a step forward in balancing compliance with practicality.
Regulatory Context and IRRA Safeguard
These revisions build on the 2022 framework, which first introduced formal glitch-reporting requirements after a series of high-profile failures.
To further protect investors, exchanges have rolled out the Investor Risk Reduction Access (IRRA) platform. This allows clients to square off or close positions directly via the exchange if a broker’s system is unavailable.
Conclusion: Relief with Responsibility
SEBI’s revised glitch regulations reflect a mature and balanced approach. By capping penalties, defining exemptions, and supporting transparent reporting, the regulator is promoting a more resilient, investor-friendly ecosystem without overburdening brokers.
For brokers, this is a call to stay proactive on compliance, ensure robust internal processes, and report glitches openly—even when they aren't at fault. The focus is no longer on punitive action, but on shared accountability and market integrity.