Technical Glitch to Result Financial Disincentives for Stockbrokers under SEBI’s New Framework

Interruptions and glitches in technology have impacted investors and are a major source of concern for market operations. Historically, the number of retail investors has been increasing. The growing number of investors has placed additional strain on the stock broker’s trading system; therefore, adequate capacity planning is required for stock brokers to provide continuity of services to their clients.

Keeping this in mind, SEBI has developed a framework  to address technical flaws in stockbrokers’ electronic trading systems.

The framework requires the stock exchange to develop an API-based Logging and Monitoring Mechanism (LAMA) to be used between stock exchanges and specific stock broker trading systems. This mechanism requires specified stock brokers to monitor key systems and functional parameters to ensure that their trading systems run smoothly.

Stockbrokers will be required under the new rule to notify stock exchanges of a technical glitch within one hour of the occurrence of the glitch and to submit a preliminary incident report to the exchange within T+1 day of the incident.

Within 14 days of the incident, this will be accompanied by a Root Cause Analysis (RCA) Report, which must include information such as impact analysis, corrective and preventive measures, and so on.

Stock brokers must plan for the entire trading infrastructure, including server capacity, network, and so on. Stock brokers will need to ensure that all software changes made to their applications are thoroughly tested before they are used in production systems.

 Technical flaws may result in financial disincentives for stock brokers under the framework that will be implemented by the Stock Exchange.

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