SEBI eases penalties for technical glitches, shifts focus to Market Infrastructure Institutions

The Securities and Exchange Board of India ( SEBI ) announced on Friday that financial penalties for technical glitches will now be imposed solely on Market Infrastructure Institutions (MIIs), such as stock exchanges, clearing corporations, and depositories, instead of their Managing Directors (MDs) or Chief Technology Officers (CTOs). The new framework aims to ease penal actions for these entities while promoting better operational practices.

Previously, both MIIs and their top executives, including MDs and CTOs, faced automatic financial penalties or disincentives for technical failures if certain operational criteria were not met. However, under the updated rules, MIIs will be granted the opportunity to explain the cause of any technical disruptions before penalties are imposed.

This regulatory shift follows recommendations from various committees and MIIs that urged SEBI to reassess the imposition of penalties on individuals, as part of broader efforts to improve the ease of doing business for market infrastructure institutions.

SEBI acknowledged that the operations of MIIs have become increasingly system-driven, with complex IT systems relying on various vendors and service providers. The regulator highlighted the difficulty of determining individual responsibility for technical issues, stating that such a determination would require an in-depth assessment of whether an MD or CTO had exercised adequate oversight and implemented reasonable checks to prevent such glitches.

“It has been decided to restrict the imposition of existing financial disincentives to MIIs only,” SEBI noted in its circular.

MIIs will now be required to submit detailed reports within 90 days of any disruption, including information on the financial penalties paid. These details must also be disclosed on their websites, annual reports, and communicated to investors if the institution is publicly listed.

While the focus of penalties has shifted to the institutions, MIIs are still obligated to investigate the cause of any technical glitch to determine whether any individual is responsible. SEBI retains the right to take further action against individuals if deemed necessary.

The new framework is effective immediately, offering MIIs a more structured and transparent approach to handling technical disruptions while holding them accountable for maintaining operational integrity.

(With PTI inputs.)