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Zerodha, despite holding a significant 19% share in the stock market, has experienced almost 10 glitches in the past two years alone with its app.
These issues have varied, including problems during Share sell transactions where Sell Authorization posed challenges. Instances of the app freezing occurred, preventing the execution of new orders and hindering the visibility of positions. Zerodha's Kite platform even faced a complete shutdown, resulting in substantial financial losses to traders.
One notable incident involved a technical glitch in the Zerodha Kite app, preventing traders from executing sell orders in BSE Sensex options, and leading to financial setbacks.
When questioned about these issues, Zerodha attributed them to no fault in their app but blamed that their Internet Service Provider’s line was not working properly. This led to orders not being processed on their servers, with traders unable to view their executed positions and order books.
These tech glitches in the Zerodha app are getting frequent. If we look at complaints filed with the exchange by clients we see that 446 complaints were filed against Zerodha between 2022-2023 which includes 198 Type V Complaints, which comprise 44% of the total complaints against Zerodha. Type V are those complaints which are linked to any tech issue with the broker.
If we look at data for 2023-2024, there have been 316 complaints against Zerodha, out of which were 177 Type V, making up 56% of the total complaints against Zerodha.
Stock exchanges, which handle trading, depositories storing securities, and clearing corporations ensuring smooth transactions, will now face consequences for technical problems. The Securities and Exchange Board of India (SEBI) introduced new penalties and procedures to hold them accountable.
SEBI defines a technical glitch as any hardware or software malfunction or issues with services provided by these entities, causing disruptions or abnormal operations.
Such glitches aren't new worldwide, but a recent one in the National Stock Exchange (NSE) on February 24 caused prolonged shutdowns, leading to panic, losses for investors, and exposed weaknesses in our trading systems.
To strengthen the system, SEBI outlined penalties: failure to declare disasters by an Exchange on time can lead to a fine of 10% of the average net profit of the past two years or ₹2 crore, whichever is higher. Additionally, the managing director and chief technology officer might have to pay 10% of their annual pay for the year of the disaster.
Under these new rules, entities will face fines for delays or incomplete submissions in their analysis of glitches. They'll be penalised ₹1 lakh per day for submission delays. If they fail to fix the issue promptly, fines escalate to ₹2 lahks per day for the initial 15 working days, ₹3 lakh for the following 15 days, and an additional ₹25 lahks beyond that.
SEBI's steps are positive. Exchanges and intermediaries must now proactively monitor their systems, conduct thorough audits, and invest in infrastructure to handle the increasing trade volumes in India. They also need to enhance interoperability between different systems.
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00:00 Intro
01:03 Tech Issue in Zerodha App In the Last 2 Years
02:37 Demat Account Terms and Conditions on Tech Glitch
03:50 SEBI Circular on Broking App Tech Glitch
04:19 SEBI's Circular on Exchange Glitches
04:45 Fine on Exchanges in Case of Tech Glitch
05:38 What is The Way Forward