Securities and Exchange Board of India (Sebi) has asked all stock exchanges (SEs) to direct their member-brokers to carry out complete internal audits by independent qualified chartered accountants on a half-yearly basis. The Sebi directive, in line with the practice of regulators the world over, has to be implemented with immediate effect.
Communicating this to all SEs, Sebi said in a circular, ?The scope of such audit, besides other things, will cover the existence, scope and efficiency of the internal control system; compliance with the provisions of the Sebi Act 1992, Securities Contracts (Regulation) Act 1956, Sebi (Stock Brokers and Sub-Brokers) Regulations, 1992; circulars issued by Sebi; agreements; KYC requirements; by-laws of exchanges; data security and insurance in respect of operations of stock brokers/ clearing members.? The first such audit period should be from October 1, 2008 to March 31, 2009, the circular issued by Sebi said. According to informed Sebi sources, the practice of half-year audit is already prevailing for depositories. SEs have been now brought under its ambit. The motive behind the move is to make brokers more responsible and accountable, something that more and more regulators are opting for. This makes compliance with laid down regulations simpler and the regulator?s job comparatively easier.
Though the sources admitted that such moves make compliance more complex and costlier, they also said that brokers who want to remain in business will anyway comply with it as there is no other option.
Explaining another motive behind introducing the practice, sources said that the recent expose of auction rate securities scandal in the US markets could be unearthed by the US Securities Exchange Commission (SEC) since it had mandated brokers to carry out internal audit of information and data of brokerage houses.
Presently, broking firms are mandated to complete internal audits annually in accordance with provisions of the Companies Act 1956. Commenting on Sebi?s new norms, Hitesh Agarwal, head of research and compliance, Angel Broking said that asking broking firms to have a half yearly audit is a positive decision.
Another senior official from a domestic broking firm said that Sebi?s new decision will keep the broking fraternity on their toes.