A substantial rise in technical glitches, both at the end of stock exchanges and stock brokers, has forced SEBI to look at framing new rules.

“SEBI is actively considering a proposal to introduce a framework for ascertaining the incidents of technical glitches where compensation needs to be paid to the investors and to devise a methodology and calculation of compensation,” SEBI has said in its annual report.

Series of glitches

NSE has seen a series of tech glitches over the past five years. NSE’s former chairman Ashok Chawla had written a strong letter to the management and staff as to how the recurring tech glitches could become a ‘Black Swan’ event for the bourse.

Although, tech glitch has been a recurring phenomena for domestic stock exchanges for the past few years, SEBI has not made public any of its analysis of it. NSE Clearing suffered a tech glitch last time in September 2020 after SEBI introduced new margin norms. Also, pay-in and pay-out was disrupted for three days then.

Last year, brokers association ANMI had even shot off a letter to NSE alleging severe loss to its members due to tech glitch. In December NSE Clearing, the trade clearing and settlement arm of NSE, was hit by a technical glitch that affected several stock brokers. Before the Nifty index witnessed its worst single day fall in nearly seven months of over 3 per cent, or 432 points, many brokers saw their trade orders being automatically deleted and some even had their terminals disabled.

The BSE had suffered a major tech glitch nearly 10 years ago on Diwali trading day and had annulled all the trades. Recently, the trading platform of Zerodha too has been hit by tech glitch multiple times. Upstoxx too suffered one just a few days ago. Bank-backed brokers such as HDFC Securities and ICICI Direct too have had their platforms hit by tech glitch.

Optimum usage of IPF

SEBI is also considering a proposal to ascertain the optimum corpus for the Investor Protection Fund (IPF) of the stock exchanges on the basis of rigorous stress testing to ensure that the legitimate claims of the clients of the defaulting members or brokers even in extreme times are met.

The regulator would also review the quantum of Settlement Guarantee Fund (SGF) of the Clearing Corporations based on the stress test to increase the resilience of the markets to possible risks posed by extreme volatility.

Further, a well-documented framework at the depository level for orderly winding down of the depositories operations is being developed in accordance with guidelines specified by Sebi. Concerning market infrastructure institutions (MIIs), Sebi said such institutions rely heavily on technology for their various activities related to trading, clearing and settlement etc. Thus, it is pertinent to give more focus on systems or technology during the inspection of MIIs.

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