Capital market regulator, Securities and Exchange Board of India (SEBI) is planning to introduce a framework to tackle the incidents of technical glitches whereby compensation would be given to investors.
Besides, SEBI is also looking to contrive a methodology and calculation of compensation. According to the regulator’s annual report 2019-20, “SEBI is actively planning a proposal to introduce a framework regarding controlling and detecting technical glitches where compensation to the investors needs to be given and to devise a methodology and calculation of compensation.”
The regulator is also looking to design a proposal to ascertain the optimum corpus for the Investor Protection Fund (IPF) of the stock exchange on the basis of rigorous stress testing, to ensure that the legitimate claims of the clients of the defaulting members or brokers even in extreme times are met.
Providing a safe place to investors is the responsibility of regulators and only by reviewing its existing framework, the regulator can detect fraudulent activity in the stock market.
The regulator would also review the quantum of Settlement Guarantee Fund (SGF) of the clearing corporations based on the stress test, to increase the resilience of the market to possible risks posed by the extreme volatility.
Further, to strengthen the efficacy of liquidity enhancement measures such as market making, Liquidity Enhancement Scheme (LES) and Call Auction Mechanisms (CAM) for illiquid securities, SEBI would revise the existed framework.
“Over the technical concern, SEBI states that Concerning Market Infrastructure Institutions MIIs rely completely on technology for their various activities related to trading, auction, clearing and settlement, etc. thus, it is required to give more attention on the system or technology during the inspection of MIIs.”
SEBI added, “it is a proposal to build an inspection manual that can be used as a single source of reference for conducting the inspections of MIIs. It is also important to build such kind inspectional framework in order to solve the disputes between investors and brokers. It is also proposed to set processes that can be automated and assist in a thorough inspection of the MIIs.”
All the frameworks regarding controlling technical glitches whereby providing compensation to investors are being developed in accordance with SEBI’s guidelines that will further winding down depositories operations.
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