SEBI Watch: Zerodha glitch — need to revise system audit framework

Friday, Aug 30


By Chiranjivi Chakraborty


MUMBAI – August has seen two major technical glitches at two different market institutions, something that has derailed the smooth functioning of the capital market.


First, discount broking major Zerodha's online trading platform faced a major technical breakdown on Thursday, the second in six months. This meant many of its users could not complete transactions, with some of them posting losses.


The event throws up questions about the sustenance of discount broking as a business model. After all, one needs money to invest in upgrading technology and scaling up infrastructure for the increasing user base.


Traders who regularly use Zerodha's online trading application 'Kite' have complained of technical glitches on most "event-heavy days" because of the system's inability to handle high volume of traffic.


The broker has in the past blamed external factors such as stock exchanges for the technical glitches and indicated that it is developing in-house systems to minimise these errors.


According to a clarification issued by Zerodha on Thursday, its order management system broke down for 40 minutes from 1000 IST because of multiple large orders executed in a penny stock, a situation Zerodha termed "unprecedented".


The broker may not be liable to compensate clients if they face losses because of technical glitches, as is mentioned in the model client-broker agreement drafted by the Securities and Exchange Board of India.


Zerodha isn't the only one facing the ire of market participants due to technological errors. The National Stock Exchange is also grappling with challenges posed by the new inter-operability mechanism.


NSE has been unable to upload end-of-day data on futures and options contracts on its website for over a month now. Earlier this month, the exchange told CNBC-TV18 that its systems were facing issues because of the new inter-operability systems going online from Aug 1.


NSE's issues with technology aren't new, but the country's largest stock exchange failing to upload basic end-of-day data is not good optics for a company that attained prominence for its cutting-edge technology.


Technology is never perfect and is built on the process of test and revision. And that is what all market intermediaries must ensure – a robust process to review and revise technology.


Technical failures in the Indian stock market need to be minimised, as these interfere with fair and efficient functioning and sometimes lead to actual losses for participants.


It may be time that the regulator revisits its system audit framework. Though the framework remains comprehensive, it needs to factor in new technological systems and upgrade existing ones.


At a time when technology is changing rapidly, possibly even faster than the time mentioned in Moore's law, a robust review process will be needed not just for brokers and exchanges, but also for banks, custodians, depositories, share transfer agents and related stakeholders.



* SEBI norms for portfolio management, advisory services at GIFT City soon 

* SEBI panel invites expression of interest for 28,974 properties belonging to PACL Group (PTI)

* SEBI OKs reward of up to 10 mln rupees for reporting insider trading

* SEBI to ease norms for FPIs, divide in 2 categories from 3 earlier


* SEBI exonerates 3 former executives, seeks action against 2 in NSE co-location case (Moneycontrol)

* SEBI fines five entities 3.4 mln rupees for fraud trade (PTI)

* SEBI imposes fine of 1.2 mln rupees on 2 entities for manipulative trade (PTI)

* JM Financial former vice-president, other settle insider trading case with SEBI (PTI)


REGULATIONS (Announced in the past three months)

* SEBI mandates cos to share details of bank loans with rating agencies

* SEBI tweaks share buyback norms for cos with financial subsidiaries

* SEBI issues norms to list Innovators Growth Platform cos on bourses

* SEBI allows MFs to invest 10% of schemes' debt AUM in unlisted NCDs



 Date UnitLatestPrevious
FII/FPI net equity investment   Aug 28US$ mln(-)176.35(-)147.62
FII/FPI net debt investmentAug 28US$ mln15.83358.38
DIIs net equity investmentAug 28bln rupees1.062.03
DIIs net debt investmentAug 28bln rupees(-)11.2929.32



* IRCTC files draft prospectus for 20-mln-share issue

* TATA MF launches Tata Private Bank Exchange Traded Fund on Aug 16

* Baroda MF seeks SEBI's nod for Baroda Banking & PSU Bond Fund

* ITI Mutual Fund launches ITI Arbitrage Fund 



* RBL Bank CEO clarifies on insider trading charge, says SEBI did not contact them (ET)

* SEBI bars Transgene Biotek, 6 others from securities market in GDR case (PTI)

* SEBI inquiry clears Sun Pharma, finds no merit in allegations of fraud (BS)

* SEBI Tyagi calls for prudent investment strategies by mutual funds 


Sources – Television, Print, or Web Editions of: PTI–Press Trust of India, BS–Business Standard, ET–The Economic Times, Moneycontrol, CNBC TV-18, Mint, BL–The Hindu Business Line, TH–The Hindu, RTR—Reuters, Mint, BT–Business Today


Internet links:




Compiled by Vijay Malkar

Edited by Avishek Dutta


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This copy was first published on the Cogencis WorkStation

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