Description

BSE mandates system audit requirements and Terms of Reference (TOR) for stockbrokers and trading members covering API-based terminals, order tracking, and system controls for the half year ended September 30, 2025.

Summary

BSE has issued detailed Terms of Reference (TOR) for mandatory system audits of stockbrokers and trading members for the half year ended September 30, 2025. The audit framework (Annexure C) covers comprehensive evaluation of system controls, capabilities, and parameters for API-based terminals including CTCL, SOR, IBT, STWT, ALGO, and DMA systems. System auditors must verify order tracking mechanisms, client ID verification, order rejection capabilities, trade confirmation processes, and compliance with Exchange-prescribed system parameters.

Key Points

  • System auditors must verify order tracking processes at API-based terminals (CTCL/SOR/IBT/STWT/ALGO/DMA)
  • Mandatory verification of order entry controls, IP address capturing, and modification/deletion processes
  • System capability requirements for order ID generation, time stamping, order type, scrip details, action, quantity, price and validity
  • Order rejection mechanisms must be validated at both broker level and Exchange server level
  • Client ID verification systems must recognize only authorized client orders
  • Mapping requirements for specific user IDs to predefined locations for proprietary orders
  • System settings must restrict/allow facility to place orders in pro account from CTCL terminals
  • Order type distinguishing capability required with unique flag/tag as specified by Exchange
  • 15-digit CTCL field must be populated in order structure for every order
  • CTCL/IBT/STWT/ALGO/DMA/SOR system parameters must comply with Exchange norms
  • Verification of approved software names, version numbers, strategy names, order gateway versions, and risk administration versions
  • Server location documentation required for CTCL/IBT/DMA/SOR/STWT/ALGO systems

Regulatory Changes

No new regulatory changes introduced. This circular reinforces existing system audit requirements with detailed TOR specifications for the half-yearly audit cycle ending September 30, 2025.

Compliance Requirements

  • Stockbrokers and Trading Members: Must undergo comprehensive system audit covering all API-based trading terminals and order management systems
  • System Auditors: Must verify compliance with all TOR clauses covering system controls, capabilities, order processing, client verification, and Exchange-prescribed parameters
  • Order Management Systems: Must demonstrate capability for price broadcast receipt, order processing (entry, modification, cancellation), trade confirmation, and trade history maintenance
  • System Parameters: Gateway parameters including Trader ID, Market Segment (CM), CTCL ID, and IP Address must be verified
  • Documentation: Maintain records of software versions, strategy names, server locations, and system configurations
  • Order Controls: Implement system-based controls that allow only orders matching system parameters to be placed
  • Trade Communication: Systems must have capability to communicate order acceptance/rejection and trade confirmations to clients via email and trade log viewing facilities

Important Dates

  • Audit Period: Half year ended September 30, 2025
  • Circular Issue Date: October 17, 2025

Impact Assessment

Operational Impact: High - All stockbrokers and trading members must ensure their technology infrastructure and order management systems comply with comprehensive audit requirements. Non-compliance may result in regulatory action and potential trading restrictions.

Technology Infrastructure: Significant impact on firms requiring validation of multiple system components including CTCL, IBT, SOR, STWT, ALGO, and DMA terminals with proper order tracking, client verification, and risk management capabilities.

Audit and Compliance Costs: Medium to high - Firms must engage qualified system auditors to conduct detailed reviews of technology systems and submit audit reports to BSE.

Market Integrity: High positive impact - Comprehensive system audits enhance market integrity by ensuring robust order management controls, client protection mechanisms, and compliance with Exchange norms across all API-based trading platforms.

Impact Justification

Mandatory system audit requirements affecting all stockbrokers and trading members with comprehensive compliance obligations for technology infrastructure and order management systems