Ease of doing business (EODB) - Policy for joint annual inspection by MIIs – information sharing mechanism– action by Lead MII
Summary
This circular establishes a policy for joint annual inspections of stock brokers and depository participants by Market Infrastructure Institutions (MIIs) to ease the burden on intermediaries. It mandates an information-sharing mechanism among MIIs and revises the criteria for selecting entities for inspection based on risk factors and compliance history. The directive requires MIIs to frame a joint Standard Operating Procedure by November 01, 2025, designating a Lead MII for enforcement actions.
Text
Entities selected for annual inspections shall be inspected for all segments jointly by all exchanges along with their depository participant (DP) operations (if broker is also registered as DP) and clearing activity (if the broker is undertaking clearing for other brokers). DP operations and clearing activity undertaken by entities shall be inspected by Depositories and Clearing Corporations, respectively.
In order to improve the effectiveness of supervision, MIIs shall establish an information sharing mechanism with one another for sharing of inspection observations of entities who hold multiple registrations with MIIs.
Top 25 entities 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 entities in terms of investor complaints and arbitration cases filed by investors, as percentage of number of active clients shall be inspected irrespective of the fact of when they were last inspected.
Top 25 entities based on ‘High risk score’ under Risk Based Supervision.
Entities that do not fall under any of the above categories shall be inspected by the MIIs at least once in three years.
However, entities inspected in preceding two years by any of the MII’s/SEBI and/or entities that have not executed a single trade during last two financial years may not be considered for inspection under the above criteria.
Irrespective of the above, inspections of Professional Clearing Members shall be conducted jointly by Clearing Corporations once in two years.
Notwithstanding the above, MIIs shall have the prerogative to carry out special purpose/limited inspections based on any triggers like patterns found during investor complaint resolution/Arbitration, complaints on specific malpractices of a broker or references from various authorities.
MIIs are advised to frame a joint Standard Operating Procedure (SOP) by November 01, 2025 for detailed specifications of inspection criteria, information sharing mechanism and designating one MII as a ‘Lead MII’, which will initiate enforcement action for such inspections.
MIIs are advised to continuously review the policy of annual inspection and revise, as and when required, in consultation with SEBI.
Qualified Stock Brokers (QSBs) shall continue to be governed by SEBI circular on ‘Enhanced obligations and responsibilities on QSBs’ dated February 06, 2023 and any changes issued from time to time by SEBI/exchanges.
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Source: SecMarx — Ease of doing business (EODB) - Policy for joint annual inspection by MIIs – information sharing mechanism– action by Lead MII. Verbatim text is public record; SecMarx structuring (linkage to applying orders) is cited to us.