Description
BSE mandates clearing members to submit half-yearly internal audit reports covering margin collection, client fund segregation, and compliance verification for the period ended September 30, 2025.
Summary
BSE requires clearing members to submit their half-yearly internal audit reports for the period ended September 30, 2025. The audit must cover critical areas including margin collection procedures, client fund and securities segregation, and compliance with fund-based activity restrictions. The report format includes detailed verification of margin collection in prescribed forms, segregation of client funds from proprietary funds, prohibition of cash dealings with trading members/custodial participants, and restrictions on pledging client securities.
Key Points
- Half-yearly internal audit report submission required for clearing members
- Audit period: Half year ended September 30, 2025
- Covers both F&O and Currency segments
- Auditor must verify margin collection compliance per circular 20200710-45
- Sample-based verification required with detailed documentation
- Auditor observations must categorize findings as Complied (C), Non-Complied (NC), or Not Applicable (N.A.)
- Management comments on findings must indicate acceptance (Y/N)
Regulatory Changes
No new regulatory changes introduced. This circular reinforces existing compliance requirements for clearing members to conduct and submit internal audits on a half-yearly basis.
Compliance Requirements
A. Margins
- Consolidated Crystallized Obligation Margins: Verify that clearing members collected margins from Trading Members-Proprietary/Custodial Participants only in cash form (not FDRs/BGs) for F&O and Currency segments, except physical settlement components
- Adequate Margin Collection: Confirm collection of appropriate EOD margins and peak margins in prescribed forms from trading members/custodial participants
- Margin Reporting Accuracy: Ensure margins reported to Clearing Corporation match actual collections from trading members/custodial participants
B. Client Funds and Securities Management
- Segregation: Client (TM/CP) funds and securities/commodities must be segregated from proprietary funds and securities
- No Cash Dealings: Prohibition on cash dealings with trading members/custodial participants
- Pledging Prohibition: Members cannot pledge client securities to banks/NBFCs for raising funds, even with client authorization
- Activity Restrictions: Members must not engage in activities involving personal financial liability unconnected to securities/commodities business
- Loan Facility Restrictions: Verify whether members have availed loan facilities based on Client Bank Account/Upstreaming Account
- Borrowing/Lending Records: Maintain records of monies borrowed or loaned per circulars 20220107-45 and 20220922-49
- Account Statements: Statement of accounts must be sent to trading members/custodial participants
- Daily Margin Statements (DMS): Issue DMS to clients with specified details and maintain proof of delivery/dispatch
Reporting Format
- Sample size verified
- Number of non-compliance instances
- Percentage of non-compliance
- Amount/value involved in non-compliance
- Management comments and acceptance status
- Applicability assessment
Important Dates
- Audit Period: Half year ended September 30, 2025
- Submission Deadline: Not specified in the provided content (typically follows regulatory timeline)
Impact Assessment
Operational Impact: High - Clearing members must allocate resources for comprehensive internal audit covering multiple verification areas. Sample-based testing requires significant documentation and management review.
Compliance Impact: High - Mandatory submission with detailed verification requirements. Non-compliance in any area (margin collection, fund segregation, prohibited activities) could trigger regulatory scrutiny and potential penalties.
Market Impact: Medium - Ensures integrity of clearing and settlement system by verifying proper margin collection and client fund protection mechanisms. Strengthens investor confidence in market infrastructure.
Risk Mitigation: The audit framework identifies key risk areas including unauthorized use of client funds, inadequate margin collection, and fund-based activities that could compromise clearing member financial stability.
Impact Justification
Mandatory compliance requirement for all clearing members with specific audit verification areas including margin collection, client fund segregation, and regulatory adherence. Non-compliance could result in regulatory action.