Have you ever wondered who will be held responsible if a group of investors are unable to buy or redeem securities because of a technical glitch faced in the software or IT system of a stock market or a depository? As per the current Securities and Exchange Board of India (Sebi) rules, these institutions are to be held responsible, and they will also be made to pay what is known as a ‘financial disincentive’.
However, the Sebi has released a circular on Friday, under which, only these institutions will be held liable to pay financial disincentives — and not the individuals who lead them.
For the unversed, Sebi had released a master circular on Oct 16 last year for stock exchanges and clearing corporation and on Oct 6 the same year, regulator released a similar circular for the depositories.
In those circulars, there was a provision of payment of ‘financial disincentives’ in case of technical glitches faced by these institutions, causing inconvenience or loss to investors. The payment of financial disincentives is supposed to be made by the institutions as well by the individuals such as managing director and chief technology officer (CTO).
No disincentive to individuals
However, a number of recommendations were made to the Sebi to review imposition of financial disincentives on the individuals.
So, the capital markets regulator reviewed its decision and has now decided that these financial disincentives will be restricted only to these institutions and will not be extended to the individuals.
While giving rationale for its review, Sebi stated that the operations of MIIs are increasingly becoming system-driven with IT systems depending on a number of vendors and service providers.
“Further, thetest for ascertainingany individual responsibility fora technical glitch would entail ascertaining if there have been any act of omission/commission, including if anMD/CTO did ordid not ensureadequateoversight/resources/checks and balances to prevent such glitch reasonably and by definition such a test would require application of mind and assessment,” reads the Sebi circular dated Sept 20, 2024.
For any downtime or unavailability of services, there is a need to ensure that ‘financialdisincentive’ is paidby the MIIs.
This will encourage MIIs to constantly monitor the performance and efficiency of their systems and upgrade/ enhance their systems etc. to avoid any possibility of technical glitches/disruption/disaster, says the circular
