Sebi on Thursday mandated a unified annual inspection for stock brokers and depository participants to be conducted jointly by all relevant market infrastructure institutions (MIIs), replacing the existing practice of separate assessments by each entity.
At present, annual inspections of stock brokers and depository participants are conducted separately by each of the MIIs – stock exchanges, depositories, and clearing corporations.
“Such an exercise unwarrantedly taxes intermediaries due to frequent visits for inspections by different MIIs which result in disproportionate diversion of resources leading to disruption in the routine operations of the entities,” said Sebi.
Entities selected by MIIs for their annual inspection shall be inspected jointly by all MIIs at one time. To improve effectiveness of supervision, MIIs shall establish an information sharing mechanism.
“It has been decided to revise the criteria for annual inspection. Top 25 entities paying high and recurring penalties for non-reporting or short reporting of margin or client code modification/CTCL mismatch fines or any other similar high-risk compliance issue shall be inspected irrespective of when they were last inspected,” the Sebi circular said.
Revised Criteria: Prioritizing High-Risk Entities
Also, top 25 entities on the basis of investor complaints and arbitration cases filed by investors shall be inspected irrespective of when they were last inspected. Sebi also suggested a ‘high risk score’ for risk-based-supervision of top 25 entities.
Inspection Frequency for All Entities and Key Exemptions
Entities that do not fall under any of these categories shall be inspected by the MIIs at least once in three years. However, entities inspected in preceding two years by any of the MIIs or Sebi, and entities that have not executed a single trade during last two financial years may not be considered for inspection under the above criteria.