Policy of Annual Inspection of Members by Stock Exchanges/Clearing Corporations
Summary
This circular mandates stock exchanges and clearing corporations to implement a policy for the annual inspection of their members. It outlines specific criteria for selecting members for inspection, including those with frequent fund shortages or high compliance risks. The document further directs entities to amend bye-laws and establish information-sharing mechanisms to enhance supervisory effectiveness.
Text
stock exchanges are required to formulate a policy for annual inspection of their members in consultation with SEBI.
Make amendments to the relevant bye-laws, rules and regulations for the implementation of the above directions.
Communicate the implementation thereof to SEBI within 15 days from the date of the circular.
Stock brokers servicing investors, getting disabled on account of funds shortages on more than 3 times in a month shall be inspected irrespective of the fact of when they were last inspected.
Stock brokers servicing investors, having overnight disablement on account of margin shortage for more than 2 days shall be inspected irrespective of the fact of when they were last inspected.
Top 25 stock brokers paying high and recurring penalties for non-reporting or short reporting of margin/Client Code modification/CTCL mismatch fines or any other similar high risk compliance issue shall be inspected irrespective of when they were last inspected.
Top 25 stock brokers in terms of investor complaints and arbitration cases filed by investors shall be inspected irrespective of the fact of when they were last inspected.
Stock brokers having adverse observations in the internal audit report on high risk issues like wrong reporting of margins, transfer of trades, pledging of client securities, dealing with unregistered intermediaries etc., shall be inspected irrespective of the fact of when they were last inspected.
Subsidiaries of Regional Stock Exchanges shall be inspected every year.
Stock Exchange shall frame internal policy for selection of stock brokers for inspection based on inputs/alerts from Risk Based Supervision.
special purpose/limited inspections shall be carried out based on any triggers like patterns found during investor complaint resolution/Arbitration, complaints on specific malpractices of a broker or references from various authorities.
Apart from the above few stock brokers shall be selected by the Stock Exchanges on a random basis for inspection.
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Source: SecMarx — Policy of Annual Inspection of Members by Stock Exchanges/Clearing Corporations. Verbatim text is public record; SecMarx structuring (linkage to applying orders) is cited to us.