Inspection of brokers & depository participants falls in FY23, BSE more vigilant than NSE

Stock brokers are also required to carry out internal audit on a half-yearly basis by independent auditors

Market regulator Securities Exchange Board of India (Sebi) conducted 87 inspections of stock brokers and 28 inspections of depository participants (DPs) in FY23, lower by 5.4 percent and 45 percent respectively, on a year-on-year basis.

The inspections of stock brokers and DPs were carried out at a group level which implies that activities of entities having equity segment, commodity derivative segment and depository participant were inspected simultaneously.

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Moreover, the inspections were conducted jointly with respective stock exchanges and depositories to ensure all aspects of the functioning are looked into concurrently.

"This initiative of joint inspections has minimized multiple inspections of the same entity by Sebi...during the year," said the market regulator in its annual report on August 7.

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BSE more vigilant than NSE

In addition to the joint inspections, stock exchanges are also required to carry out individual inspections as per the policy adopted by them in consultation with Sebi.

Here, BSE (Bombay Stock Exchange) took the lead with 833 inspections in FY23, up 116 percent from the previous year. Meanwhile, NSE conducted 431 checks, down 21 percent YoY.

In FY22, NSE had conducted more checks than BSE, but in FY23, the latter has overtaken with a huge margin.

This comes hand-in-hand with BSE ramping up its derivatives segment. Earlier in 2023, BSE relaunched Sensex and Bankex F&O contracts with smaller lot size and Friday expiry.

BSE's F&O contracts are slowly and steadily seeing an uptick in volumes. On August 4, Sensex derivatives touched a new record turnover of Rs 44.2 lakh crore. Meanwhile, inspections conducted by MCX went up to 291 from 247 a year-ago and those done by NCDEX fell to 89 from 122.

Additionally, stock brokers are required to carry out internal audit on a half-yearly basis by independent auditors. Stock exchanges levy penalties for delay in filing the internal audit reports by stock brokers, said Sebi.