SEBI Allows Joint Inspection by MIIs

The Securities and Exchange Board of India (SEBI) has issued a circular permitting joint annual inspections of stockbrokers and depository participants by Market Infrastructure Institutions (MIIs) namely, stock exchanges, depositories, and clearing corporations. The initiative is aimed at improving ease of doing business, enabling a holistic assessment of an entity’s operations across all MIIs, and ensuring optimal use of resources.

Previously, separate inspections by each MII placed an undue burden on intermediaries, with frequent visits causing disproportionate diversion of resources and disruption to regular operations. Under the new framework, MIIs must establish an information-sharing mechanism for entities holding multiple registrations and develop a joint standard operating procedure (SOP), with a designated Lead MII, by November 1, 2025.

Selection criteria for joint inspections have been simplified and quantified, focusing on the top 25 entities in specific risk categories:

• Entities with high or repeated compliance penalties (e.g., margin misreporting, client code changes, CTCL mismatches).
• Entities with the highest rate of investor complaints or arbitration cases relative to their client base.
• Entities with the highest overall risk score under the risk-based supervision model.

Entities outside this list will be inspected once every three years. Certain exclusions apply—entities inspected within the past two years or with no trading activity for two consecutive financial years may be exempt from that year’s inspection.

Professional Clearing Members will undergo joint inspections by clearing corporations once every two years. MIIs retain the discretion to conduct special-purpose or limited inspections in response to triggers such as patterns of activity, complaints, or specific references.

These provisions take effect from December 1, 2025.

In a related development, in June SEBI directed stock exchanges to ensure that trading members implement corrective actions following regulatory inspections and to obtain compliance status reports within prescribed timelines.