Master Circular on Oversight of Members (Stock Brokers/Trading Members/Clearing Members)
Summary
This master circular consolidates requirements for the oversight of stock exchange and clearing corporation members, including inspection, internal audit, and default management. It mandates annual inspections by exchanges or clearing corporations to ensure compliance with regulations and investor protection standards. The document also establishes procedures for handling defaults across multiple segments and outlines common irregularities observed in member operations.
Text
This master circular consolidates and updates the requirements/obligations with regard to oversight of members (Inspection by Stock Exchanges/Clearing Corporations, Internal Audit and Default) prescribed by the following circulars...
The Stock Exchange or the Clearing Corporation, as the case may be, shall, in consultation with SEBI, formulate a policy for inspection of members and follow up action thereon.
The Stock Exchange or the Clearing Corporation, as the case may be, shall inspect all active members in various segments every year.
The inspection shall cover: a. Compliance with the relevant provisions of the Act, Rules and Regulations... b. Efficacy of the investor grievance redressal mechanism and discharge of various obligations towards clients...
An illustrative list of common violations/deficiencies observed by SEBI in its inspections of members is enclosed as Annexure. The Stock Exchanges and Clearing Corporations are advised to bring this list to the notice of members...
The Stock Exchange or the Clearing Corporation, as the case may be, shall initiate all the follow up action – remedial, penal and disciplinary - required on inspection findings, within 6 months from the conclusion of the inspection.
The member shall carry out complete internal audit on a half yearly basis by an independent qualified Chartered Accountant, Company Secretary or Cost and Management Accountant who is in practice and does not have any conflict of interest.
The audit shall cover, inter alia, a. the existence, scope and efficiency of the internal control system, b. compliance with the provisions of the SEBI Act, 1992... c. data security and insurance... d. efficacy of the investor grievance redressal mechanism...
The internal auditor shall submit the audit report to the member, who shall place it before its Board of Directors/Proprietor/Partners and shall forward the same along with para-wise comments to the respective stock exchange/clearing corporation within three months from the end of the half year period.
The Stock Exchange/Clearing Corporation shall analyze the audit reports so received and take appropriate follow up action.
The Stock Exchange/Clearing Corporation shall initiate appropriate actions – remedial, penal or disciplinary - against the members where deficiencies are noticed in audit reports or where audit report has not been received, and inform the details of action taken to SEBI, within six months from the end of the half year period.
Whenever a member of any segment is declared defaulter, the concerned Stock Exchange/Clearing Corporation shall immediately declare it a defaulter in all its segments. It shall also immediately inform all other Stock Exchanges/Clearing Corporations the details of the defaulter member...
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Source: SecMarx — Master Circular on Oversight of Members (Stock Brokers/Trading Members/Clearing Members). Verbatim text is public record; SecMarx structuring (linkage to applying orders) is cited to us.