NEW DELHI : As stock market authorities prepare a new framework for risk-based supervision of various market entities, top exchanges BSE and NSE have extended the deadline for brokers to submit necessary details for putting in place this new model.
The two exchanges had earlier asked their members to provide necessary details by December 24 for this risk-based supervision module.
In a new circular, BSE has now said that the timeline to submit the necessary data and details by its brokers has been extended to January 9, following requests made by them.
Further, BSE has said that the information relating to ‘Associate/group companies along with details of registration and whether active in any sector of the financial market’ will not be required to be submitted as of now, in case no loans are given to such entities by the members.
The BSE has also provided detailed clarifications on queries raised by its members in this regard.
Separately, NSE said in a circular that it has also extended the due date for submission of necessary data/details for the risk assessment template framed by Sebi to January 2.
Earlier this month, the exchanges had initiated a process of putting in place a new risk-based model for supervision of market entities including brokers, taking forward a new model proposed by regulator Sebi in this regard.
The Securities and Exchange Board of India (Sebi) has decided to adopt this new supervision model, based on level of risks posed by a market entity, to help it better regulate the marketplace and strengthen its surveillance system.
“The system would comprise data generated by the Exchange as well as those provided by the members,” the BSE had said earlier this month, while adding that it will provide an electronic interface to the members to enable them submit the data, which will be collated and analysed by the exchange system.
The new model, derived from the global best practices, would follow four distinct steps — assessing the risk posed by a market entity, assigning ‘risk and impact rating’ to it, determining supervisory risk rating score and then adopting a suitable supervisory approach.
Various market entities would be divided broadly into four groups — very low risk, low risk, medium risk and high risk — and the quantum of surveillance and number of inspections would increase as per the risk level.
Risk and impact ratings would be assigned to each entity on a scale of 0-4, with zero rating being for those with completed absence of any risk parameters, and a score of four would indicate “very high risk or very low compliance”.
The move would help the existing surveillance system take care of most of the smaller offences, so that the investigation resources are utilised more effectively to tackle serious violations in the market place.
The new model would follow four distinct steps —
assessing the risk posed by a market entity, assigning ‘risk and impact rating’ to it, determining the supervisory risk rating score and then adopting a suitable supervisory approach.
The overall risk profile of an entity would be decided by two factors — business or activity specific risk and the impact risk arising out of default or failure.
The risk-based supervisory approach is being implemented in a phased manner.
While the new model provides for a combination of onsite and offsite monitoring of the intermediaries by Sebi and its front-line regulators, the entities falling in the high-risk group will be subject to stricter monitoring (offsite) and comprehensive inspection.
Thematic inspections, as a supervisory tool, will be utilised for specific purposes such as verifying compliance with recently issued regulatory requirements on references received from departments within Sebi and other regulatory bodies or where a focused review of assessing compliance in a particular area of operations is needed.
The new guidelines also provides a procedure for determining the supervisory risk rating score for conglomerates and group companies that carry out multiple lines of regulated businesses.
The overall risk score for them would take into account factors like significance of their businesses in capital markets and the sub-score for each type of business activity carried out by the entity.
The system would identify specific risks posed by different business of an entity, such as credit, market and operational. These ‘risk parameters’ will be accompanied by the corresponding risk mitigating measures, termed as ‘control parameters’, which are mainly systems or procedures put in place to minimise the risk.
Similarly, the impact parameters will be identified to reflect risks associated with impact of default or failure of an intermediary on the basis of size of operations, number of active clients, turnover, market share, etc.
The credit risk would take into account loans to group entities or related parties, debt levels, margins-related defaults and other issues.
The risk assessment templates have been developed for various market intermediaries, such as stock brokers, depository participants, mutual funds, custodians, merchant bankers, portfolio managers, registrars and transfer agents, credit rating agencies and investment advisers. (AGENCIES)
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