1) Carry out System audit of their trading facility as per applicability criteria as given in Annexure A.

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1 NATIONAL COMMODITY & DERIVATIVES EXCHANGE LIMITED Circular to all trading and clearing members of the Exchange Circular No. : NCDEX/COMPLIANCE-009/2016/184 Date : August 04, 2016 Subject : System Audit by the members of the Exchange Further to the Exchange circular no. NCDEX/TECHNOLOGY-015/2016/125 dated May 31, 2016 on Testing of software used in or related to Trading and Risk Management and in modification of circular no. NCDEX/TECHNOLOGY-021/2013/279 dated September 6, 2013 on System Audit of Algorithmic Trading Facility the members using trading software shall be required to do the following: - 1) Carry out System audit of their trading facility as per applicability criteria as given in Annexure A. 2) Such system audit of trading system shall be undertaken by a system auditor who fulfills the eligibility norms as given in Annexure B. 3) Preliminary audit will be conducted as per the Terms of reference (ToR) specified for Type I, Type II and Type III Broker as given in Annexure C. The same is available in the downloads section on the Exchange website. ( For findings / observations during the preliminary audit, the auditor must also report such findings in EXECUTIVE SUMMARY REPORT as per format given in Annexure - D highlighting the major findings of the preliminary audit. The auditor should indicate if a follow-on audit is required to review the status of Non- Compliance / Non-conformities (NCs). 4) The audit report should be submitted to the Exchange with management comments on noncompliance / non-conformities (NCs) and observations mentioned in the report, within 1 month of submission of report by the auditor. 5) Take corrective action for the observations made by the system auditor on each non-compliance / non-conformities (NCs) and submit Action Taken Report (ATR). 6) If the Follow-on audit has been recommended by the auditor in System audit report, then schedule the same after taking necessary corrective actions and submit the Follow-on Audit Report as per Annexure - E to the Exchange. 7) The time lines (on or before) for submission of Systems audit report, Action Taken Report (ATR) and Follow-on audit report are as given below: Registered Office: 1st Floor, Akruti Corporate Park, Near G.E. Garden, LBS Road, Phone: , Fax , Website: 1 / 8

2 Audit Period Preliminary Audit & Executive Summary Report (Annexure C & D) Action taken Report (ATR) (if applicable) Follow-on Audit Report (if applicable) (Annexure - E) Half Yearly (April-September) December 31 January 31 February 28 Half Yearly (October-March) June 30 July 31 August 31 Annual (April-March) June 30 July 31 August 31 Once in 2 years (April-March for 24 Months) June 30 July 31 August 31 The first such audit report shall be submitted for all category of brokers for the period April 1, 2016 to March 31, 2017 as per timelines mentioned above. For members falling under the category of Type I, first such audit period shall be for the period April 1, 2016 to March 31, 2017 to be submitted by June 30, ) Non/late submission of System audit report shall attract penal charges of Rs. 500/- per day for the period of non-submission. For and on behalf of National Commodity & Derivatives Exchange Limited Jayant Nalawade Chief Regulatory Officer For further information / clarifications, please contact 1. Customer Service Group on toll free number: Customer Service Group by to : askus@ncdex.com Registered Office: 1st Floor, Ackruti Corporate Park, Near G.E. Garden, LBS Road, Phone: , Fax , Website: 2 / 8

3 Annexure - A Members using the trading software S. No. Category of Member Only TRADEX/NEXTRA Both TRADEX/NEXTRA and CTCL/IBT/STWT and presence in < 10 locations and have < 50 terminals Both TRADEX/NEXTRA and CTCL/IBT/STWT and presence in > 10 locations or have > 50 terminals TRADEX/NEXTRA/ CTCL/IBT/STWT and ALGO (irrespective of location and terminals) Terms of Reference (ToR) Frequency of audit Terms of Reference (ToR) Frequency of audit Terms of Reference (ToR) Frequency of audit Terms of Reference (ToR) Frequency of audit 1 Members Type - I Once in 2 years Type - II Once in 2 years Type - II Annual Type - III Half yearly 2 Members who are also Comtrack participants or are involved in offering any other financial services. Type - I Annual Type - II Annual Type - II Annual Type - III Half yearly Registered Office: 1st Floor, Akruti Corporate Park, Near G.E. Garden, LBS Road, Phone: , Fax , Website: 3 / 8

4 Annexure - B Auditor Selection Norms 1. The Auditor shall have minimum 3 years of experience in IT audit of securities market participants e.g. stock exchanges, clearing corporations, depositories, stock brokers, depository participants etc. The audit experience should cover all the major areas mentioned under Terms of Reference (ToR) of the system audit specified by SEBI / stock exchange. 2. Resources employed for the purpose of system audit shall have relevant industry recognized certifications e.g. D.I.S.A. (ICAI) Qualification, CISA (Certified Information System Auditor) from ISACA, CISM (Certified Information Securities Manager) from ISACA, CISSP (Certified Information Systems Security Professional) from International Information Systems Security Certification Consortium, commonly known as (ISC). 3. The Auditor should have experience of IT audit/governance frameworks and processes conforming to industry leading practices like CobiT. 4. The Auditor shall not have any conflict of interest in conducting fair, objective and independent audit of the Stock Broker. Further, the directors / partners of Auditor firm shall not be related to any stock broker including its directors or promoters either directly or indirectly. 5. The Auditor shall not have any cases pending against its previous audited companies/firms, which fall under SEBI s jurisdiction, which point to its incompetence and/or unsuitability to perform the audit task. 6. Auditor has not conducted more than 3 successive audits of the member. Follow-on audits conducted by the auditor shall not be considered in the successive audits. Registered Office: 1st Floor, Ackruti Corporate Park, Near G.E. Garden, LBS Road, Phone: , Fax , Website: 4 / 8

5 Annexure - D Executive Summary Reporting (To be on the letterhead of the system auditor) System Audit Report for the period to ) I/We, M/s. (Name of the system auditor / system audit firm) have conducted the system audit of Trading system facility/ies of the below mentioned trading member of National Commodity & Derivatives Exchange Limited in accordance with the provisions and scope laid down by the Exchange in Annexure- C. The detailed audit report has been submitted to the trading member. The summary of findings are grouped under the broad categories as below and classified as High Risk, Medium Risk or Low Risk. NCDEX Trading Member Code: NCDEX Trading Member Name: Audit Date Obser vation No Descript ion of Finding / Observa tions Dept. Status / Nature of Findings Risk Rating of Findings Audit TOR Clause Audit ed By Root Cause Analy sis Impact Analysis Suggest ed Correcti ve Action Deadline for the Corrective Action Followon Audit required (Yes / No) Verifi ed By Closing Date Trading Member Management Comments Declaration: All the branches/locations trading software facility is provided have been audited. There is no conflict of interest with respect to the member being audited. If any such instance arises, it shall be brought to the notice of the Exchange immediately before undertaking the audit. With regard to the areas mentioned in the Terms of Reference (ToR), compliance / non-compliance status has been specified. Observations on minor / major deviations as well as qualitative comments for scope for improvement also have been specified in the report. Signature Countersigned by Member (Name of the Auditor & Auditing firm) CISA / DISA / CISM / CISSP Reg. No. : Authorized signatory Date: Registered Office: 1st Floor, Akruti Corporate Park, Near G.E. Garden, LBS Road, Phone: , Fax , Website: 5 / 8

6 Place: Stamp / Seal Description of relevant Table heads: 1. Audit Date This indicates the date of conducting the audit. 2. Description of Findings/ Observations Description of the findings in sufficient detail, referencing any accompanying evidence (e.g. copies of procedures, interview notes, screen shots etc.) 3. Status and Nature of findings The category can be specified as (a) Non-Compliant (b) Work In Progress (c) Observation (d) Suggestions. 4. Risk Rating of Findings A rating has to been given for each of the observations based on their impact and severity to reflect the risk exposure, as well as the suggested priority for action. Rating HIGH RISK MEDIUM RISK LOW RISK Description Weakness in control those represent exposure to the organization or risks that could lead to instances of noncompliance with the requirements of TORs. These risks need to be addressed with utmost priority. Potential weakness in controls, which could develop into an exposure or issues that represent areas of concern and may impact internal controls. These should be addressed reasonably promptly. Potential weaknesses in controls, which in combination with other weakness can develop into an exposure. Suggested improvements for situations not immediately/directly affecting controls. 5. Audit TOR Clause The TOR clause corresponding to this observation. 6. Root cause Analysis A detailed analysis on the cause of the nonconformity. 7. Impact Analysis An analysis of the likely impact on the operations/ activity of the organization. 8. Suggested Corrective Action The action to be taken by the broker to correct the nonconformity. Registered Office: 1st Floor, Ackruti Corporate Park, Near G.E. Garden, LBS Road, Phone: , Fax , Website: 6 / 8

7 Annexure - E Follow on System Audit Report (To be on the letterhead of the system auditor) System Audit Report for the period to ) I/We, M/s. (Name of the system auditor / system audit firm) have conducted the follow-on system audit of Trading system facility/ies of the below mentioned trading member of National Commodity & Derivatives Exchange Limited for the observations about the non-compliance / nonconformities (NCs) made in the preliminary audit report. The summary of findings is reproduced below: NCDEX Trading Member Code: NCDEX Trading Member Name: Preliminary Audit Date S No. Preliminary Observation Number Preliminary Status Preliminary Corrective Action Current Finding Current Status Revised Corrective Action Deadline for the Revised Corrective Action Verified By Closing Date Declaration: All the branches/locations where the trading software facility is provided have been audited. There is no conflict of interest with respect to the member being audited. If any such instance arises, it shall be brought to the notice of the Exchange immediately before undertaking the audit. With regard to the areas mentioned in the preliminary audit all observations specified as not-compliant have been complied and met the requirement as specified in the Terms of Reference (TOR). Signature (Name of the Auditor & Auditing firm) CISA / DISA / CISM / CISSP Reg. No. : Date: Place: Stamp / Seal Registered Office: 1st Floor, Akruti Corporate Park, Near G.E. Garden, LBS Road, Phone: , Fax , Website: 7 / 8

8 Description of relevant Table heads: 1. Preliminary Status The original findings as per the preliminary system audit report 2. Preliminary Corrective Action The original corrective action as prescribed in the preliminary system audit report 3. Current findings The current findings w.r.t. the issue 4. Current status Current status of the issue viz. (a) Non-Compliant (b) Complaint (c) Work In Progress 5. Revised Corrective Action The revised corrective action prescribed w.r.t. the Non Compliance / WIP issues Registered Office: 1st Floor, Ackruti Corporate Park, Near G.E. Garden, LBS Road, Phone: , Fax , Website: 8 / 8