SEBI's revised framework on technical glitches aims for efficiency but risks leaving millions of retail investors dangerously unprotected.

India’s capital markets are a global success story - deep, liquid, and increasingly digital. As of March 2025, India accounted for 3.85% of global equity capitalisation (USD 4.81 trillion), with trading volumes reaching unprecedented scale. Yet, this technological sophistication brings new vulnerabilities.

In recent years, a spate of disruptions in brokers’ electronic trading systems has tested both regulatory readiness and investor confidence. Recognising these risks, the Securities and Exchange Board of India (SEBI) first introduced a framework in 2022 to manage technical glitches. In September 2025, it released a consultation paper proposing revisions to the framework to address ‘technical glitches’ in stockbrokers’ electronic trading systems.

While the reform aims to enhance proportionality and regulatory efficiency, a closer review reveals that several provisions may inadvertently dilute investor protection and systemic vigilance.

1. Exempting Small Brokers: A Case of Regulatory Overcorrection

The revised consultation paper limits the framework to brokers with more than 10,000 clients, effectively excluding over 450  smaller intermediaries - about 23% of India’s brokerage ecosystem in Equity Segment & Equity Derivatives Segment. SEBI justifies this on “ease of compliance” grounds for smaller brokers, citing their low technology sophistication.

However, this exemption raises critical concerns. Smaller brokers predominantly serve retail investors in semi-urban and rural areas, where financial literacy  is limited. Ironically, SEBI itself notes that these brokers have “less of technology dominance” - making them more, not less, prone to disruptions.

By excluding them from compliance obligations such as capacity planning and disaster recovery, SEBI risks creating a two-tier market, effectively widening the urban-rural divide in investor protection and leaving the most vulnerable investors unprotected.

A more balanced approach would involve tiered compliance: simplified reporting and reduced documentation for smaller brokers but uniform minimum protection standards, including:

• Mandatory client notification during outages;

• Basic capacity and disaster recovery planning;

• Shared technology infrastructure and training via stock exchanges.

Investor protection cannot be proportional only to broker size; it must be universal.

2. The Ambiguity of “Minor Technical Glitches”

The consultation paper proposes that “minor glitches” will not attract financial disincentives. Yet, it does not define what qualifies as “minor". This regulatory ambiguity risks inconsistent classification and potential non-compliance.

Between FY2023–24 and August 2025, 108 brokers reported 363 technical glitches at NSE. Tellingly, 52.6% of these were concentrated among the top 25 brokers, including major players like Zerodha, HDFC Securities, and ICICI Securities. Many of these disruptions, though short in duration, were symptomatic of deeper capacity or software weaknesses.

Without objective parameters - such as downtime thresholds, number of clients affected, or order rejection ratios - SEBI risks overlooking early warning signals that could pre-empt larger outages.

A more robust approach would:

• Mandate reporting of all glitches, regardless of severity;

• Apply tiered penalties only for significant incidents;

• Define “minor” quantitatively (e.g. duration <5-10 minutes, <0.50% clients affected).

Such a framework would strengthen SupTech-based risk analytics, closing information gaps while preserving regulatory flexibility.

3. Overlooking Mobile and Internet-Based Trading Disruptions

SEBI’s proposal exempts brokers from financial disincentives if one trading mode - say, mobile - is disrupted while another (web) remains operational. The assumption is continuity of service. But this does not reflect current market realities.

This does not reflect current market realities. In July 2025 alone, 250 million trades on the NSE were executed via mobile and internet platforms, accounting for over 30% of total trades. These are the dominant modes for retail investors in smaller cities. For these investors, a mobile glitch effectively means market exclusion, even if a web platform is functional.

By exempting these incidents from penalties, SEBI risks underestimating vulnerabilities in retail-facing digital infrastructure, the very backbone of India’s capital market inclusion story.

Policy recalibration is essential:

• Mandate reporting of all mobile and IBT glitches;

• Impose impact-based disincentives when disruptions affect a threshold like >15% of active clients or order flow;

• Require immediate investor notifications and alternate access mechanisms during outages.

Ignoring these disruptions not only undermines investor trust but also weakens SEBI’s credibility as a retail-centric regulator.

4. The Policy Imperative: From Exemption to Inclusion

SEBI’s revised framework has a commendable intent - streamlining compliance and reducing regulatory burden - but its execution must not come at the cost of grassroots investor confidence.

To align with its core mandate under Section 11 of the SEBI Act, 1992, SEBI should adopt a tiered, inclusive, and data-driven regulatory architecture that:

• Mandates universal glitch reporting to ensure comprehensive risk data;

• Defines severity thresholds transparently;

• Integrates SupTech monitoring to detect early stress signals;

• Recognises mobile and IBT platforms as critical infrastructure;

• Ensures investor protection standards apply to all brokers, not just large ones.

Such recalibration would reinforce both resilience and inclusivity, ensuring that India’s market modernisation remains anchored in investor trust.

Conclusion

As India’s markets become increasingly digital, technological resilience is regulatory resilience. SEBI’s next iteration of the framework must close protection gaps, particularly for retail investors and smaller brokers who form the foundation of India’s market participation base.

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By Saurabh Maheshwari, a finance and policy research professional with previous roles at India's Ministry of Finance (DEA-AJNIFM Research Programme) and NSE IFSC Limited, GIFT- IFSC, Gandhinagar, Gujarat. He is also a Research Scholar at Indian Institute of Foreign Trade, New Delhi.