internal audit of stock brokers

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Pooja Chopda (Querist)
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21 October 2008 Helli sir,

I have an assignment to conduct internal audit of a stock broker. The scope of audit will include following
1. the existence, scope and efficiency of the internal control system,
2. compliance with the provisions of the SEBI Act, 1992,
3. Securities Contracts (Regulation) Act 1956,
4. SEBI (Stock Brokers and Sub-Brokers) Regulations, 1992,
5. circulars issued by SEBI,
6. agreements,
7. KYC requirements,
8. Bye Laws of the Exchanges,
9. data security and insurance in respect of the operations of stock brokers/clearing members.

Can you pls provide some guidance as to how can I proceed or where can I get a literature on requirements of above laws for stock brokers.

Thanks in anticpation.
Pooja

Pooja Chopda

Pooja Chopda (Querist)
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22 October 2008 hello...anyone..pls help me.

CA CS CIMA Prakash Somani

CA CS CIMA Prakash Somani (Expert)
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23 October 2008 1. Check Demat Account, Registration, Movement of shares from common pool to client. It has to be done within 48 hours. 2. Also see the movement of funds.
3. Check the clients credentials in case of material transactions.
4. Also keep in mind the related parties within client and brokers.
5. check compliance with SEBI (Stock Broker and Sub Brokers) Regulations, 1992 That will serve the purpose . there are a lot of provisions contained in that regulations. esp rule 17
6. KYC Norms - Proofs,Date of trading, bank a/c compliance etc.
7. Margin with NSE wit turnover of the Member(ie Buy + Sell) are within the limts 8. Whether the Securities in the Cash market are deliverd out of pool a/c on time(ie 24 hrs).
9. Whether the member has kept in abeyance the delivery of stocks to his client (ie movement to ben/ac due to debit balance in the particular settlment).
10. Derivatives Market :- margin as stipulated by exhange is availabe with the client as at the end of the day (note : this is a very funny rule because by the end of the day the exchange requires a particular amount of credit in the clients a/c whereas the client gives a cheque whcih clears only on the next day.
11. Most importantly on OWN trading transactions and Positions (ie cash and derivatives market) whether the funds and securities and kept seperately and not mixed with the clients a/c. Service tax - on own trading transactions - reasonable value.

Pooja Chopda

Pooja Chopda (Querist)
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11 November 2008 thanx

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