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TMI BlogGuidelines for inspection of Depository Participants (DPs) by DepositoriesX X X X Extracts X X X X X X X X Extracts X X X X ..... s felt appropriate. 4. For the purpose of determining the size of sample, depositories shall be guided by 'Adaptive Sample Size determination methodology' as mentioned at Annexure - II . Categorization / Risk Rating of DPs 5. For the purpose of computing total risk score of DPs, depositories shall be guided by DP Rating Model / Categorization as mentioned at Annexure III. 6. Depositories should periodically undertake risk - impact analysis for each of the inspection areas, assign appropriate risk weightage, calculate risk scores for each DPs in the lines mentioned below. a) Risk Weightage: Depositories shall assign risk weights for each of inspection areas after taking into consideration following factors: 1. Operational risks in each of the inspection areas. 2. Category of DPs (such as stock broker DPs, bank DP, etc) 3. Size of Operation 4. Repetitive violations 5. IT Security and BCP 6. Complaints received and redressed b) Quantitative Score Calculation: Depositories shall arrive at a Quantitative Risk Score for each inspection area by multiplying percentage of non-compliance to the sample size with the corresponding assigned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d also disseminate the same on their website. 12. This circular is being issued in exercise of powers conferred under Section 11 (1) of the Securities and Exchange Board of India Act, 1992 read with Section 19 of the Depositories Act, 1996 to protect the interests of investors in securities and to promote the development of, and to regulate the securities market. Yours faithfully, DILIP B. J. Deputy General Manager email: [email protected] Enclosures: (i) Annexure I : List of inspection areas (ii) Annexure II: Adaptive sample size determination methodology (iii) Annexure III: DP Rating / Categorization Model Annexure I List of Inspection Areas 1. Depositories shall inspect the areas mentioned at para 2 below during inspection of DPs with regards to any 1.1. Circulars / Guidelines issued by SEBI on the areas mentioned below. 1.2. Guidelines / Operating Instructions / Directions from depositories on the areas mentioned below. 2. In case there are built in system checks at the depository that ensure compliance of any of the inspection areas / sub areas with regard to point 1.1 and 1.2 above, the depository may dec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st Instruction Slip Booklet E.4. Requisition Slip E.5. Procedure for Loose DIS E.6. Depository specific areas E.7. Verification of DIS E.8. Procedure for accepting DIS E.9. Time Stamping and related Areas E.10. Accepting DIS by Fax E.11. Accepting DIS in form of Annexure E.12. Completeness of DIS E.13. Accepting DIS in electronic form E.14. Procedure for Verification of DIS E.15. Signature Verification E.16. Corrections / Cancellations to DIS E.17. Blocking of used / executed / lost / misplaced / Stolen DIS E.18. Procedure for processing of DIS E.19. Any other area as may be specified by the depository F. Transaction F.1. Checks pertaining to setting up / processing of transactions F.2. Future dated transactions F.3. Transfer of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tration of BO for SMS Alert facility for POA L.5. Any other area as may be specified by the depository M. Inter Depository Transfers (IDT) M.1. Processing of IDT M.2. Checks pertaining to IDT M.3. Any other area as may be specified by the depository N. Account Transfer N.1. Procedure followed for account transfer N.2. Checks pertaining to Account transfer N.3. Waiver claimed for inter depository transfer N.4. Any other area as may be specified by the depository O. Transmission O.1. Procedure followed for transmission O.2. Checks pertaining to Transmission O.3. Waiver Claimed for inter depository transfer O.4. Any other area as may be specified by the depository P. Pledge / Unpledge P.1. Procedure followed for Pledge / Unpledge P.2. Checks pertaining to Pledge / Unpled ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pection. In case the total number of instances / cases is less than the final sample size, then 100% of the samples shall be verified. DP Rating / Categorization Multiplier High risk 3 Medium High risk 2 Medium risk 1.5 Low risk 1 The selected sample shall maintain the proportion of new accounts opened in each category, except for Account Opening Forms (AOF) relating to FIIs where it shall be checked on a 100% basis. 2. Sample Size for inspection area relating to DIS Base sample size: 10% of total DIS processed or 200 processed DIS whichever is higher, with a maximum cap of 1000 DIS. Final Sample Size: The sample size shall also be dependent on rating / categorization of DP. The following multipliers shall be used to determine the final sample size for the current inspection. In case the total number of instances / cases is less than the final sample size, then 100% of the samples shall be verified. DP Rating / Categorization ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of all other activities. In case the total number of samples is less than 100, then 100% of the samples shall be verified. Annexure-III DP Rating / Categorization Model I. Quantitative Score Calculation: Specific weights shall be assigned to each area as decided by each depository. The Total Quantitative Score shall be the summation of all individual inspection scores. Table: Indicative Table for calculation of Quantitative Score Sr No Inspection Areas Weight (A) B = No of Instances divided by Sample size Inspection Score IS = A*B A. Inspection Area 1 A.1. Inspection Sub Area A 1 A.2. Inspection Sub Area 2 Total Score for Inspection Area 1 B. Inspection Area 2 B.1. Inspection Sub Area B 1 B.2. Inspection ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sitories on DP operations 8 Complaints redressal 9 Adverse findings of other activities (eg. Broking / custodian / banks etc) Total Qualitative Score = (Area Scores) Following indicative factors shall be taken into account for arriving at above mentioned qualitative score: (a) Ownership and Governance Constitution of Board of DP Number of promoter directors, Independent Directors etc. Role of non-executive directors / Independent directors. (b) Quality of Management Experience, Fit and Proper and Qualification of Key Personnel. Existence of Succession planning for top management especially in control functions. Chinese walls between the activities in terms of manpower, resources etc. Training and development of employees. Adequacy of staff strength. Compliance level of previous inspection observations/ directions ..... X X X X Extracts X X X X X X X X Extracts X X X X
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