SEBI revises annual system audit rules for market participants

Revising the rules for the annual system audit of stock exchanges and depositories, market regulator SEBI on Tuesday said an auditor can perform a maximum of three successive audits only

Mumbai: Revising the rules for the annual system audit of stock exchanges and depositories, market regulator Securities and Exchange Board of India (SEBI) on Tuesday said an auditor can perform a maximum of three successive audits only, reports PTI.

“Based on discussions with the stock exchanges and depositories and recommendations of Technical Advisory Committee, the present system audit framework has been reviewed encompassing the system audit process, auditor selection norms, terms of reference and audit report guidelines,” it said in a circular.

SEBI had in 2008 mandated that exchanges and depositories have to conduct an annual system audit by a reputed independent auditor.

“Stock exchange/depository may negotiate and the board of the stock exchange/depository shall appoint the auditors...

The auditors can perform a maximum of three successive audits,” it said, adding that the proposal from auditor must be submitted to SEBI for records.

“Audit schedule shall be submitted to SEBI at least two months in advance, along with scope of current audit and previous audit. The scope of the audit may be extended by SEBI, considering the changes which have taken place during last year or post previous audit report,” it said.

The audit report should have specific compliance and non-compliance issues, observations for minor deviations as well as qualitative comments for scope for improvement.

Besides, the report should also take previous audit reports in consideration.

“Follow-on audit, if any, has to be scheduled within three months of the audit to ensure that the corrective actions have been taken. If follow-on audit is not required, the auditee management has to submit a report of actions taken and evidence of corrections to the auditors and SEBI within three months,” it said.

An auditor must have minimum three years of experience in IT audit of securities industry participants like stock exchanges, clearing houses and depositories.

“The systems audit reports and compliance status should be placed before the governing board of the stock exchanges/ depositories and the system audit report along with comments of stock exchanges/depositories should be communicated to SEBI,” it said.

SEBI further added: “Along with the audit report, stock exchanges/depositories are advised to submit a declaration from the managing director/chief executive officer certifying the security and integrity of their IT Systems.”

As per the revised guidelines, an auditor undertaking a systems audit must not have any conflict of interest in conducting fair, objective and independent audit of the concerned exchange or depository and should not have engaged in any consulting engagement with any departments or units of the entity being audited during the previous three years.

The regulator further said that the audit report should have explicit coverage of each major area mentioned in the terms of reference indicating any nonconformity or observations.

“For each section auditors should also provide qualitative input about ways to improve the process, based upon the best practices observed,” SEBI said.

With regard to terms of reference, besides details of application, maintenance and physical access of the system, the audit has to also include change in the software control like user awareness, processing of new feature and reporting of fault.

“In case the exchanges/depositories have commenced their annual system audit, they may follow existing annual system audit framework of SEBI Circular issued in 2008.

“The exchanges/depositories who are yet to commence annual system audit would carry out their annual system audit as per the framework given in this circular.

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Govt launches 10-year NSC; to give 8.7% interest per annum

The decision to raise the maturity period of NSC has been taken on the basis of the recommendations of the Committee for Comprehensive Review of National Small Savings Fund, headed by Shyamala Gopinath, the then deputy governor of Reserve Bank of India

New Delhi: The government on Tuesday introduced a 10-year National Savings Certificate (NSC) which will earn an interest rate of 8.7% per annum, reports PTI.

The notification for the launch of new savings instrument, 10-Year National Savings Certificate (IX-Issue), 2011, has been issued, an official statement said.

The scheme will come into effect from 1 December 2011, it added.

Investments in NSC will earn interest at the rate of 8.7% compounded semi-annually, it said, adding that on an investment of Rs100, the depositor will get Rs234.35 on maturity of the NSC.

“There is no upper limit for investment in the Certificate,” it added.

The new scheme will give better returns along with tax benefit to savers.

At present, the maturity period of NSC is six years and it qualifies for tax relief for investment up to Rs1 lakh under Section 80C.

The decision to raise the maturity period of NSC has been taken on the basis of the recommendations of the Committee for Comprehensive Review of National Small Savings Fund (NSSF), headed by Shyamala Gopinath, the then deputy governor of Reserve Bank of India.

Under the new scheme, the certificate can be transferred from the post office where it is registered, to any other post office and can be pledged as a security.

This certificate will be available in the denominations of Rs100, Rs500, Rs1,000, Rs5,000 and Rs10,000.

The spread on 10-year NSC (new instrument) will be 50 percentage points higher than the 10-year government security.

The interest rates for every financial year will be notified before 1st April of that year.

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Alternate investment options must for corporate debt market growth

“Unless there are alternate investment opportunities available for the bond-holders, corporate debt market will not develop here,” L&T Finance Holdings president and whole-time director N Sivaraman opined

Mumbai: The government should allow alternate investment opportunities for the bond-holders to enable deeper penetration of the nascent corporate debt market in the country, reports PTI.

“Unless there are alternate investment opportunities available for the bond-holders, corporate debt market will not develop here,” L&T Finance Holdings president and whole-time director N Sivaraman told a meeting on the capital markets organised here by CII on Tuesday.

At present, majority of investors in the corporate bond market hold their investment to maturity due to lack of buyers, Mr Sivaraman and other experts opined.

“Larger participation can be ensured if active trading in the bond market is facilitated through regulations which will help in better price discovery,” Mr Sivaraman argued.

Corporate bond market holds significance in the wake of higher infrastructure spending proposed by the government in the next Plan, which can’t be funded alone by banks and domestic sources.

The government has targeted $1 trillion in infra spending during the 12th Plan period and there is a 30% funding gap already identified in this. And the government feels that an active corporate bond market can help meet this gap.

“Given the higher infrastructure spending proposal, we have to attract foreign investment to corporate debt market for infra financing,” Kotak Mahindra Bank executive-chairman and managing director Uday Kotak said.

Mr Kotak also said that participation from retail investors should be encouraged for deeper penetration.

Referring to foreign institutional investors’ (FII) participation in the corporate debt market, industry experts said FIIs are holding back their investment in corporate bond market due to unpredictability of returns.

“Infrastructure sector comprises of many sub-sectors, which are regulated by many independent regulators. So, global funds are reluctant to invest as there are frequent policy changes in these various segments of the infrastructure sectors,” KKR India Advisors director BV Krishnan said.

He further said factors like currency fluctuation, inflationary environment and higher forward premium are some of the issues which need to be addressed to attract FIIs into the domestic corporate debt market.

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