Annual System Audit of Stock Brokers / Trading Members

This is further to SEBI circular no. CIR/MRD/DMS/34/2013 dated November 6, 2013 and Exchange notice no. 20131107-6 dated November 7, 2013 on the Annual System Audit of Stock Brokers / Trading members.

The Stock Brokers are required to note the following:


System Audit of stock brokers should be conducted with the following periodicity:

a. Annual system audit is prescribed for stock brokers who satisfy any of the following criteria:

i. Stock Brokers who use Intermediate Messaging Layer (IML)] / Internet Based Trading (IBT)/ Direct Market Access (DMA)/ Securities Trading using Wireless Technology (STWT) / Smart Order Routing (SOR) and have presence in more than 10 locations or number of terminals are more than 50.
ii. Stock Brokers who are depository participants or are involved in offering any other financial services.

b. Half yearly system audit has been prescribed for stock brokers who use Algorithmic Trading or provide their clients with the facility of Algorithmic Trading as per SEBI Circular CIR/MRD/16/2013 dated May 21, 2013.

c. Trading software provided by the Exchange (BOLT/BOLT PLUS) and software provided by Application Service Provider (ASP) shall not be covered in the system audit.


The audit shall be conducted in accordance with the Norms, Terms of Reference (ToR) and Guidelines issued by SEBI and BSE Ltd. Separate ToRs are specified for the following categories of brokers:

a. Type II Broker: Brokers who trade through API based trading terminals like [IML] or IBT/DMA/STWT or SOR facility and who may also be TYPE I Brokers. (format of ToR attached as Annexure II )

b. Type III Broker: Brokers who use Algorithmic Trading facility to trade and who may also be TYPE II Brokers. (format of ToR attached as Annexure III).

The broker type, terms of reference and periodicity of submission is given below in tabular form for easy reference of members and for members to determine their broker type and periodicity of submission of report which is required:

Sr nO. Particulars Broker Type Terms of Reference (ToR)

Presence of broker

Periodicity of submission of report

IML / IBT / DMA / STWT / SOR users                                      .. and who may also be type I brokers.




Annexure II


Presence in not more than 10 locations and number of terminals are not more than 50.

Once in two years. *


Presence in more than 10 locations or number of terminals are more than 50. Annual

Algo users.                                      .. and who may also be type II brokers


Annexure III

NA Half yearly

* Annual, if depository participant or is involved in offering any other financial services

Exchange will identify the broker type based on available data / information and display the same to members in the BEFS. In case of any discrepancy, members are requested to immediately contact the officials of the Broker Supervision department (contact details given below).


The System Audit should be carried out by auditor as per the norms prescribed below:

i. The Auditor shall have minimum 3 years of experience in IT audit of securities market participants e.g. stock exchanges, clearing corporations, depositories, stock brokers, depository participants etc. The audit experience should cover all the major areas mentioned under Terms of Reference (ToR) of the system audit specified by SEBI / stock exchange.

ii. It is recommended that resources employed shall have relevant industry recognized certifications e.g. D.I.S.A. (ICAI) Qualification , CISA (Certified Information System Auditor) from ISACA, CISM (Certified Information Securities Manager) from ISACA, CISSP (Certified Information Systems Security Professional) from International Information Systems Security Certification Consortium, commonly known as (ISC).

iii. The Auditor should have experience of IT audit/governance frameworks and processes conforming to industry leading practices like CobiT.

iv. The Auditor shall not have any conflict of interest in conducting fair, objective and independent audit of the Stock Broker. Further, the directors / partners of Auditor firm shall not be related to any stock broker including its directors or promoters either directly or indirectly.

v. The Auditor shall not have any cases pending against its previous audited companies/firms, which fall under SEBI’s jurisdiction, which point to its incompetence and/or unsuitability to perform the audit task.

vi. A declaration stating that the auditor is in compliance with the requirements prescribed by SEBI vide its circular no. CIR/MRD/DMS/34/2013 dated November 6, 2013 and clarifications / guidelines issued by SEBI / BSE must be included in all the audit reports.

vii.The Auditor may perform a maximum of 3 successive audits of the stock broker .Follow-on audits conducted by the auditor shall not be considered in the successive audits. In this regard, it is clarified that the count of such audits will commence from audits conducted for period ended March 31, 2014.



i) Preliminary audit will be conducted as per the Terms of reference specified. The System audit report must contain the management comments of the stock broker in case of findings during audit.

ii) The auditor shall also take into consideration the observations / issues mentioned in the previous audit reports and cover open items in the report.

iii) Management of the stock broker must provide their comment about the non-compliance / non-conformities (NCs) and observations mentioned in the report.

iv) In case of findings / observations during the preliminary audit, the auditor must also report such findings in ‘EXECUTIVE SUMMARY REPORT’ with the status, risk ratings, TOR clause, root clause analysis, impact analysis etc. (format attached as Annexure IV)to highlight the major findings of the preliminary audit.

v) Auditor must also specify whether a Follow on report is required to review the status of NCs.


For each non conformance, specific time bound (within 3 months from last date of submission of preliminary audit allowed by Exchange) corrective action must be taken and submitted to the Exchange (format attached as Annexure V).


In order to ensure that the corrective actions are taken by the stock broker, follow-on audit, if any, shall be scheduled by the stock broker within 6 months from last date of submission of preliminary audit allowed by Exchange and submitted immediately thereafter (format attached as Annexure VI).

All pages of the Preliminary audit report, Executive summary report and Follow on report should be stamped and signed by the auditor.

V. Timeline for submission of above said reports for the period ended March 31, 2018 is given below:

Sr No. Particulars Due Date for submission to the Exchange
1. Preliminary Audit report June 30, 2018
2. Executive Summary Report
3. Corrective Action Report September 30, 2018
4. Follow on Report December 31, 2018


1. Follow-on audit may be clubbed along with the half yearly system audit in case of Type III stock brokers.

Stock brokers may note that the reports are required to be submitted only in electronic form through web based application named, BEFS (BSE Electronic Filing System) – Further availability of Submission of System Audit Report through BEFS for the period ended March 31, 2018 will be intimated to the stock brokers shortly.

Please note that in case of non/late submission of System audit report for period ended March 31, 2018 beyond June 30, 2018, disciplinary action/charges are as follows:

1. Charges of Rs 100/- per day will be levied for the month of July 2018.

2. Further, from August 1, 2018 Exchange will withdraw BOLT /BOLTPLUS/ IML facility for non-submission of System audit report.

In case of any further clarification, the stock brokers may contact the following officials.

Sr. No. Name of Official Tel No.
1. Ms. Jyoti Thukral 022-22728214
2. Ms. Priya Pillai 022-22728598


Estelle Solution Private Limited ,59 Bentick street First Floor Kolkata 700069



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