The first observation put forth by SEBI was in the context of the base minimum capital (BMC) deposited by the members with the exchange. The SEBI inspection report highlighted those instances where the brokers were allowed to trade despite their BMC not upto the mark in terms of composition and the minimum required "haircut". The exchange has thereby rectified its stand and collected the BMC of Rs 10 lakh unlike the earlier Rs 5 lakh and has also adhered to the norms laid down by SEBI.

SEBI has defined the composition of the BMC in terms of 25 per cent in cash, 25 per cent in FDR's and rest 50 per cent in securities, of a market value not less than Rs 10.

SEBI's investigation also brought to light that the broker's contributionof 5 per cent to the building fund upto Rs 45,000 was considered as a part of the capital adequacy requirement. Besides, the brokers also enjoyed the benefits of interest on this money.

The exchange has now decided to do away with this practise from October 1. Now, brokers will be allowed to either use the benefit of interest or use these funds for their capital requirements and not both.

The recent payment crisis and the problems at the clearing house of the bourse, BoI shareholding, was on account of the lack of reconciliation between the scrips held as BMC as per the custodian records and the exchange. The exchange has commenced the reconciliation of records with the custodian and the exercise according to the report submitted to the governing board is likely to be completed by the end of October.

SEBI's study also brought to light the instances where broker's terminals were not disabled despite their positions surpassing the permissible carry forward limits. In order to overcome such cases in theabsence of an online surveillance system, the exchange has decided to manually monitor the carry forward limits of the brokers. Moreover, brokers who violate these limits are imposed monetary penalty and are also forced to bring down their position within the prescribed limits.

The SEBI's inspection report also cited the instances where brokers net-off their position at the end of the day and do not pay margins on a gross basis. The BSE has kicked off a periodical inspection drive within the exchange, and the amount evaded is impounded and retained with the exchange for a minimum period of 15 days and a late fee of 2 per cent is also imposed.

Moreover for Type-I brokers (members who opt for carry forward business) they are now required to furnish a monthly declaration to the exchange along with a half yearly certificate from a chartered accountant certifying the breakups reported on the exchange. The exchange has also initiated steps to carry out system audit of the brokers' back office software programmeto ensure that the brokers do not make wrong declarations.

While SEBI has hinted at various loopholes in the modified carry forward system implemented on the exchange, they also pin-pointed the absence of in- built checks to weed out any carry forward transactions in the specified group which is carried forward beyond 90 days. As per SEBI guidelines, brokers are allowed to ensure that no transactions are outstanding beyond 75 days.

The BSE has now asked all its members to submit a monthly certificate in this regard and an annual certificate from a chartered accountant.

On the margin front, SEBI realised that the exchange had been collecting margins on a T+2 basis. The exchange has now started the practise of collecting margins on T+1 basis by directly debiting the bank accounts of members maintained with the stock exchange branch of Bank of India.

In the absence of online surveillance system the exchange has no means to verify that the bulk deals result in deliveries. In order to plug this loophole,the exchange is devising a system whereby the brokers would be required to report on BOLT that the bulk deals have been settled by them. However, the unsettled deals will be directly monitored by the exchange.