The Securities Exchange Board of India (Sebi) on Friday issued a framework to deal with technical glitches occurring in the trading systems of stock brokers.
The market regulator said as rapid technological developments have increased the ease of electronic trading in securities markets, technology related interruptions and glitches and their impact on the investors’ opportunity to trade have become a major technology related risk.
Under the new framework, which will come into effect from April 1, 2023, stock brokers will have to inform about any malfunction in their system or the one outsourced from any third parties, leading to stoppage, slow down of operations for five minutes or more, to the stock exchanges within one 1 hour from the time of occurrence of the glitch.
They will have to submit a root cause analysis (RCA) report of the technical glitch to stock exchange, within 14 days from the date of the incident, Sebi said.
The regulator said as increasing number of investors may create additional burden on the trading system, stock broker will need adequate capacity planning to provide continuity of services to their clients.
Stock brokers will have to monitor peak load in their trading applications, servers and network architecture and the installed capacity will be at least 1.5 times of the observed peak load.
As per the framework, stock brokers will have to ensure that all software changes that are taking place in their applications are rigorously tested before they are used in the production system.
Stock brokers will create test driven environments for all types of software developed by them or their vendors.
The regulator said stock brokers with a minimum client base across the exchanges, will mandatorily have to establish business continuity/ disaster recovery (DR) set up.
They will put in place a comprehensive business continuity planning (BCP)-DR policy document outlining standard operating procedures to be followed in the event of any disaster.
Stock exchanges in consultation with stock brokers will have to decide upon Recovery Time Objective (RTO), the maximum time taken to restore operations from Disaster Recovery Site (DRS) after declaration of disaster and, Recovery Point Objective (RPO), which is the maximum tolerable period for which data might be lost due to a major incident, the framework said.
Stock exchanges will have to put in place a structure of financial disincentives applicable to stock brokers for technical glitches occurring in their trading systems and non-compliance of the provisions made in this regard, it said.
