SEBI Eases Glitch Rules for Small Brokers in Compliance Overhaul

In an effort to streamline compliance for technical glitches, SEBI granted an exemption from penalties and reporting to stockbrokers who had fewer than 10,000 registered clients. Therefore, about 60% of stockbrokers in India will qualify for the exemption from the framework, indicating that SEBI is trying to reduce the burden of regulation on smaller intermediaries.

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Narrowed Scope of Regulations

A glitch that does not impede actual trading activity will also not require compliance with the framework. The changes to the glitch framework, which were made based on stakeholder consultations with all interested parties, create a balance between maintaining the integrity of the market and operating pragmatically for discount brokers that support Retail investors located in Tier 2 and 3 cities in India. 

Strategic Ease of Doing Business

The reforms support the overall long-term plan of SEBI to deregulate key areas (True to Label Norms, Futures and Options Curbs, and Index Derivative Consultation) to remove the costs of compliance, the 30% compliance costs of small intermediaries with turnover under ₹50 Crores, as they try to compete with zero-brokerage pricing competition. 

Precedents and Global Context

In a move to increase the access of smaller brokerages to capital, the U.S. SEC's Regulation SCI allows small firms registered with FINRA not have to report important cyber events; however, they may still have to meet certain requirements of their Association. On the other hand, SEBI has developed a proportional regulatory approach similar to that adopted by the UK's FCA, which has set client-based thresholds for testing resilience.

Implementation Roadmap

During the current financial year, brokers will begin reclassifying themselves within their own classifications; SEBI is actively monitoring for the generation of systemic risk metrics. Larger brokers will now face much more rigorous reporting requirements, including real-time reporting of data and the need for dedicated Chief Information Security Officers. The Budget for 2026 will likely continue to provide tax incentives for investing in technology upgrades.

Long-Term Vision

Overall, the recent changes will support SEBI's long-term objective of creating 100 crores worth of demat accounts by 2030, as well as nurturing local intermediary growth in the face of increased global exchange competition. Additionally, the T+0 settlement readiness will be expedited for all large compliant brokers.