In a significant move aimed at enhancing regulatory efficiency and reducing compliance burden, the Securities and Exchange Board of India (SEBI) has introduced a new policy to streamline the inspection process for market intermediaries. Issued via circular on August 7, 2025, this initiative focuses on joint annual inspections by Market Infrastructure Institutions (MIIs), comprising Stock Exchanges, Depositories, and Clearing Corporations.
This policy is aligned with SEBI’s ongoing Ease of Doing Business (EODB) reforms and intends to provide a more coordinated and less disruptive supervisory approach for brokers and depository participants.
What Prompted the Change?
Under the previous framework, each MII conducted separate annual inspections of brokers and depository participants (DPs). This meant that a single entity—particularly those registered across multiple MIIs—could face multiple inspections throughout the year, leading to an unnecessary drain on resources and disruptions in regular business operations. SEBI recognized that this fragmented approach needed a more cohesive and less intrusive structure.
Key Highlights of the New Policy
- Joint Annual Inspections
Going forward, entities selected for annual inspection will undergo a single, joint inspection covering:
- Stock exchange operations
- Depository participant functions (if applicable)
- Clearing activity (if the broker is also a clearing member)
Each relevant MII (Stock Exchange, Depository, Clearing Corporation) will participate in this unified process, ensuring that all operational aspects of the entity are reviewed in one consolidated visit. This significantly reduces the frequency and redundancy of inspections.
- Information Sharing Among MIIs
To further improve regulatory oversight, the policy mandates the establishment of an information-sharing mechanism among MIIs. This system will enable better collaboration and cross-referencing of inspection findings, especially for entities holding multiple registrations. It’s a critical step towards a more holistic view of intermediary performance and compliance behavior.
- Revised Inspection Selection Criteria
To ensure a risk-based and data-driven selection process, SEBI has revised the criteria for annual inspections:
- Top 25 entities with recurring and high penalties (e.g., for client code modifications or margin mismatches)
- Top 25 entities with high investor complaint ratios
- Top 25 entities based on ‘High Risk Score’ under SEBI’s Risk-Based Supervision module
Entities outside these categories will still be inspected at least once every three years. Meanwhile, those that have been inspected in the last two years or inactive for the past two financial years may be excluded.
Furthermore, Professional Clearing Members will undergo joint inspections once every two years, regardless of their activity level.