SEBI has issued a circular outlining the requirement for Professional Clearing Members (PCMs) to conduct system audits. This new mandate, based on consultations with Clearing Corporations (CCs) and the Technical Advisory Committee (TAC), specifies that PCMs must follow the provided framework and terms of reference for system audits, as detailed in Annexures 1 and 2. Additionally, PCMs are required to maintain a list of relevant SEBI and CCs circulars and comply with technology-related guidelines, as per the format in Annexure 3. They must also report on exceptional major and minor non-compliances observed during the audit, using the format in Annexure 4, and include any unresolved observations from current and previous audits.
The audit report, including compliance with SEBI/CCs guidelines and exceptional observations, must be presented to the PCM’s Governing Board and then submitted to the CCs with management’s comments within one month of completion. All CCs are advised to establish a uniform penalty structure to ensure timely submission and resolution of audit observations. These provisions are effective immediately, with the first audit to be conducted for FY 2023-24. This circular aims to protect investors’ interests, promote the development of, and regulate the securities market, and is available on the SEBI website.
Securities and Exchange Board of India
Circular No. SEBI/HO/MRD/TPD/P/CIR/2024/84 Dated: June 20, 2024
To,
All Clearing Corporations,
All Professional Clearing Members
Dear Sir / Madam,
System Audit of Professional Clearing Members (PCMs)
1. SEBI vide Master Circular No. SEBI/HO/MRD2/PoD-2/CIR/P/2023/171 dated October 16, 2023 at Clause 8.2 of Chapter 2 has specified the comprehensive framework for System Audit of Stock Brokers(SBs)/Trading Members(TMs).
2. Based on the discussions with Clearing Corporations (CCs) and Technical Advisory Committee (TAC) of SEBI, it has been decided to devise the framework for system audit of Professional Clearing Members (PCMs).
3. In view of the same, PCMs are required to conduct System Audit as per the framework enclosed as Annexure 1 and Terms of Reference (TOR) enclosed as Annexure 2. PCMs are also required to maintain a list of all the relevant SEBI and CCs circulars/ directions/ advices, etc. pertaining to technology and compliance thereof, as per format enclosed as Annexure 3 and the same shall be included under the scope of System Audit.
4. PCMs are also required to submit information with regard to exceptional major Non-Compliances (NCs)/ minor NCs observed in the System Audit as per format enclosed as Annexure 4 and are required to categorically highlight those observations/NCs/suggestions pointed out in the System Audit (current and previous) which remain open.
5. The Systems Audit report including compliance with SEBI/CCs circulars/guidelines Page 1 of 19 and exceptional observation format along with compliance status of previous year observations shall be placed before the Governing Board of the PCM and then the report along with the comments of the Management of the PCM shall be communicated to CCs within one month of completion of audit.
6. All CCs are jointly advised to devise the appropriate uniform penalty structure for PCMs to ensure that system audit reports are submitted to them within defined timelines as well as audit observations are closed within defined timelines.
7. The provisions of the Circular shall come into force with immediate effect. The first audit shall be conducted for FY 2023-24.
8. The circular is issued with the approval of the competent authority.
9. This circular is being issued in exercise of the powers conferred by Section 11(1) of Securities and Exchange Board of India Act, 1992 to protect the interest of investors in securities market and to promote the development of, and to regulate the securities market.
10. This circular is available on SEBI website atsebi.gov.in at “Legal Framework –Circulars”.
Yours faithfully,
Ansuman Dev Pradhan Deputy General Manager Market Regulation Department Email: ansumanp@sebi.gov.in
Encl.:
| Annexure 1 | System Audit Framework |
| Annexure 2 | Terms of Reference (TOR) for System Audit Program |
| Annexure 3 | Format for monitoring compliance with SEBI/CCs circulars/guidelines/advisories related to Technology |
| Annexure 4 | Exception Observation Reporting Format |
