February 07, 2014
Dear Sir / Madam,
Subject: Guidelines for inspection of Depository Participants (DPs) by Depositories
1 Depository System Review Committee (DSRC) was constituted by SEBI to undertake a comprehensive review of the depository system of Indian Securities market.
2.As a first measure, DSRC has reviewed framework adopted by the depositories with regard to the inspection of depository participants (DPs). Considering the recommendations of the committee, it has been decided that depositories shall ensure the following while inspecting their DPs.
Inspection Areas and Sample Size
3. For conducting inspection of DPs, depositories shall inspect the areas as mentioned in Annexure – I. During inspection, depositories shall cover implementation of circulars / guidelines issued by SEBI and guidelines / operating instructions / directions by depositories in respect of these areas. In addition, Depositories may include such other areas as felt appropriate.
4.For the purpose of determining the size of sample, depositories shall be guided by ‘Adaptive Sample Size determination methodology’ as mentioned at Annexure – II.
Categorization / Risk Rating of DPs
5. For the purpose of computing total risk score of DPs, depositories shall be guided by “DP Rating Model / Categorization” as mentioned at Annexure – III.
6.Depositories should periodically undertake risk – impact analysis for each of the inspection areas, assign appropriate risk weightage, calculate risk scores for each DPs in the lines mentioned below.
a) Risk Weightage: Depositories shall assign risk weights for each of inspection areas after taking into consideration following factors: