The first observation put forth by Sebi was in the context of the base minimum capital deposited by the members with the exchange. Sebi's inspection report highlighted those instances where the brokers were allowed to trade despite their base minimum capital not being up to the mark in terms of composition and the minimum required "haircut". The exchange had thereby rectified its stand and collected the base minimum capital 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 base minimum capital 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 alsorevealed that the broker's contribution of 5 per cent to the building fund up to Rs 45,000 was considered a part of the capital adequacy need. Besides, the brokers also enjoyed the benefits of interest on the money.

The exchange has now decided to do away with this practice from October 1. Now, brokers will be allowed to either use the benefit of interest or 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 the base minimum capital as per the custodian records and the exchange. The exchange has commenced reconciliation of records with the custodian and the exercise, according to the report submitted to the governing board, is likely to be completed by October-end.

Sebi's study also brought to light instances where brokers' terminals were not disabled despite their positions surpassing the permissible carryforward limits. In orderto overcome such cases, in the absence of an online surveillance system, the exchange has decided to manually monitor the carryforward 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.

Sebi's inspection report also cited instances where brokers net-off their position at the end of the day and do not pay margins on a gross basis. 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, Type-I brokers (members who opt for carryforward business) are now required to furnish a monthly declaration to the exchange along with a half-yearly certificate from a chartered accountant certifying the break-ups reported on the exchange. The exchange has also initiated steps to carry out system audit of the brokers' back office softwareprogramme to ensure that brokers do not make wrong declarations.

While Sebi has hinted at various loopholes in the modified carryforward system implemented on the exchange, it also pinpointed the absence of in-built checks to weed out any carryforward 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.

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