SEBI - ROLE AND REGULATIONS

Introduction: The Securities and Exchange Board of India (SEBI) is the apex regulator of the securities market, responsible for its orderly growth and protection of investor interests.
Role of SEBI: SEBI's objective is to facilitate the growth and development of the capital markets, ensuring the protection of investors in the securities market.

Key Concepts

Securities and Exchange Board of India Act, 1992: Established SEBI to protect the interests of investors in securities and promote the development of the securities market.
SEBI Regulations: Aimed at investor protection, including:
- SEBI (Prohibition of Insider Trading) Regulations, 2015: Prevents insider trading by persons connected with a company having unpublished price-sensitive information.
- SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003: Prohibits fraudulent and unfair trade practices in the securities market.
Investor Protection: SEBI's primary function is to protect investor interests through regulations, inspections, investigations, and enforcement of securities market activities.
Market Intermediaries: SEBI regulates market intermediaries, such as brokers, registrars, and transfer agents, through registration and supervision.

SEBI Regulations for Investor Protection

SEBI (Prohibition of Insider Trading) Regulations, 2015: Requires companies to have a comprehensive code of conduct to prevent insider trading, including:
- Appointing a compliance officer
- Ensuring periodic disclosure of holdings by insiders
- Maintaining data confidentiality
SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003: Prohibits fraudulent and unfair trade practices, including:
- Manipulation of security prices
- Artificial volume creation
- Insider trading
- Violation of the takeover code

Regulatory Framework

SEBI's Powers: SEBI has the power to inspect, investigate, and enforce securities market activities, including the power to call for information, summon persons, and conduct searches.
Penalties: SEBI can impose penalties, including monetary penalties, suspension, and cancellation of registration, for non-compliance with regulations.

SEBI - ROLE AND REGULATIONS (Part 2)

Prohibition of Fraudulent and Unfair Trade Practices

Definition: SEBI prohibits fraudulent and unfair trade practices relating to securities markets through the SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to the Securities Market) Regulations, 2003.
Details: These regulations define fraud as any act, expression, omission, or concealment committed to induce another person or their agent to deal in securities, regardless of whether there is a wrongful gain or avoidance of loss.

Investor Education and Protection Fund (IEPF) Authority

Purpose: The IEPF Authority is a fund created by the Ministry of Corporate Affairs to promote investors' awareness and protect their interests.
Key Features:
- The fund is utilized for refund of unclaimed and unpaid amounts, promotion of investors' awareness, and protection of the interests of investors.
- The fund is created out of contributions from the central government, state government, companies, and institutions, as well as unpaid/unclaimed dividends, matured debentures, and deposits.
- The IEPF Authority conducts investor education programs, media campaigns, and seminars, and funds investor education projects of institutions and organizations.

IEPF Authority (Accounting, Audit, Transfer and Refund) Rules, 2016

Key Highlights:
- The IEPF shall be credited with all resultant benefits arising out of shares held by the IEPF Authority, grants, fees, and charges received by the IEPF Authority, and all income earned by the Authority.
- In case of term deposits and debentures, due unpaid or unclaimed interest shall be transferred to the Fund along with the transfer of the matured amount.
- The IEPF Authority shall maintain proper accounts and other relevant records and prepare an annual statement of accounts in a specified format.
- The accounts of the IEPF Authority shall be audited annually by the Internal Audit Party of the Office of Chief Controller of Accounts and Comptroller and Auditor-General of India.

SEBI Regulations for Registrars and Transfer Agents

Primary Regulations: The primary regulations that govern the functioning of Registrars and Transfer (R&T) Agents are:
- SEBI (Registrars to an Issue and Share Transfer Agents) Regulations, 1993
- SEBI (Intermediaries) Regulations, 2008
- SEBI (Depositories and Participants) Regulations, 2018
SEBI (Registrars to an Issue and Share Transfer Agents) Regulations, 1993: These regulations govern the constitution, capital adequacy, obligations, and responsibilities of R&T Agents, and define the roles of Registrar to an Issue and Share Transfer Agent.

SEBI - ROLE AND REGULATIONS (Part 3)

Key Concepts

Definition: The SEBI (RTA) Regulations, 1993, outline the roles and responsibilities of Registrar to an Issue and Share Transfer Agent (R&T Agent), which includes activities related to the transfer and redemption of securities.
Details: The regulations apply to a department or division of a body corporate performing these activities if the total number of security holders exceeds one lakh.

Obligations and Responsibilities

The regulations require an R&T Agent to:

Abide by the code of conduct.
Not act as R&T Agent for an associate company.
Maintain proper books of accounts and records for a minimum period of 8 years.
Appoint a Compliance Officer to ensure compliance with regulations.
Establish a dispute resolution mechanism for claims/disputes with clients.
Redress investor grievances within 21 calendar days.

Code of Conduct for RTAs

The code of conduct, as per Schedule III of SEBI (RTA) Regulations, 1993, includes:

Maintaining high standards of integrity in business conduct.
Fulfilling obligations in a prompt, ethical, and professional manner.
Exercising due diligence and independent professional judgment.
Ensuring adequate care and caution in dematerialization of securities.
Providing reasonable efforts to avoid misrepresentation and ensuring non-misleading information to investors.

Inspection of R&T Agent’s Operations

SEBI may appoint an inspecting authority to inspect R&T Agent operations.
The R&T Agent must provide all information and cooperation for the inspection.
The inspecting authority submits an inspection report to SEBI, which may lead to appropriate action.

Cancellation/Suspension of Certificate

SEBI may suspend or cancel an R&T Agent's registration for non-compliance with regulations.
Such penalties are imposed after an enquiry and issuance of a show cause notice.

Exemption from Strict Enforcement of Regulations

SEBI may grant exemptions from enforcing SEBI (RTA) Regulations for promoting innovation in the securities market.
Exemptions may be given for a period not exceeding 12 months, subject to specified eligibility conditions.

SEBI Guidelines for Strengthening RTA Operations

SEBI provides guidelines to strengthen R&T Agent operations, ensuring compliance with regulations and maintaining investor trust.

SEBI - ROLE AND REGULATIONS (Part 4)

Key Concepts

SEBI Circular: SEBI has issued a circular to raise industry standards for RTA, Issuer Companies, and Banker to an Issue.
Guidelines: The circular provides detailed guidelines for handling and maintenance of records, transfer of securities, and payment of dividend and redemptions by registrar and share transfer agents.

Provisions for Payment of Dividend/ Interest/ Redemption

The issuer company, RTA, and dividend/ redemption processing bank must ensure that the master file includes company name, folio number, client id, name of first securities holder, dividend/interest/redemption payment date & amount, payee details, bank details, etc.
RTAs must obtain bank account details of securities holders and make payments following the prescribed process.
The processing bank must cancel any dividend, interest, and redemption instruments lying unpaid beyond the validity period.

Provisions for Transfer/ Transmission/ Correction of Errors

RTAs and issuer companies must ensure that a folio once allotted to a person is never re-allotted to another person.
RTAs must follow the "Maker-Checker" concept to ensure accuracy of data and prevent unauthorized transactions.
All updates in folio records must be enabled only through front-end modules, with no back-end entry/updation/correction permitted.

Compulsory Internal Audit of RTAs

All RTAs must carry out an internal audit on an annual basis by independent qualified auditors.
The audit must cover all aspects of RTA operations, including investor grievance redressal and compliance with SEBI requirements.
The RTA must submit a copy of the internal audit report to the issuer company within three months from the end of the financial year.

Enhanced Monitoring Guidelines for Qualified RTAs

Qualified RTAs (serving more than 2 crore folios) must comply with enhanced monitoring requirements.
They must adopt and implement an internal policy framework and provide periodic reports on key risk areas, data security measures, business continuity, governance structures, and measures for enhanced investor services.

SEBI (Intermediaries) Regulations, 2008

The regulations consolidate common requirements for all intermediaries, including grant of registration, general obligations, code of conduct, and procedure for action in case of default.
Intermediaries must file an application for registration in the prescribed format, along with the requisite fees.
Existing intermediaries must file disclosures in the specified form, which will be made public by uploading the information on the SEBI website.

SEBI (Depositories and Participants) Regulations, 2018

R&T Agents can be participants of a depository under these regulations.
They must abide by the regulations for their activities as participants and apply for a certificate, which will be granted if the depository and SEBI are satisfied with their eligibility and competence.

SEBI - ROLE AND REGULATIONS (Part 5)

Undertakings by Participants

Fees and Records: Undertakes to pay the fees, maintain records, address investor complaints within the specified time and comply with all requirements subject to which the certificate was granted.
Code of Conduct: Undertakes to abide by the code of conduct for participants which require them to:
- Protect investors' interests in all activities.
- Redress investor complaints within 21 calendar days of the date of receipt of any complaint.
- Co-operate with the regulator in case of any enquiry or inspection.
- Have mechanisms in place, such as the maker-checker concept, to ensure there are checks and balances in all the transactions.
- Maintain records and data carefully.
- Have good corporate governance policies in place.

Agreements and Requirements

Participant Agreements: The participant shall agree to:
- Enter into agreements with the beneficiary owners according to the bye-laws of the Depository.
- Open separate accounts for each beneficial owner and manage the accounts separately.
- Have continuous electronic connectivity with the Depository.
- Maintain good accounting systems and procedures in place, with records maintained as required and periodic reports sent to SEBI.
- Keep records of all transactions between the investors and the participants, including dematerialisation, rematerialisation, records of instructions and approvals.
- Ensure integrity of data, protect it from damage, loss or misuse, and maintain records depository-wise if the participant is associated with more than one Depository.

Sample Questions

The Apex regulator of the securities markets in India is Securities and Exchange Board of India (SEBI).
SEBI controls insider trading through prescribed regulations.
The Investor Education and Protection Fund (IEPF) is funded by unpaid dividends remaining unclaimed for at least seven years.
The protection of investors' interests is a primary objective of SEBI, making the statement False.
SEBI has the power to enforce penalties, making the statement True.
RTAs are required to redress investor grievances within 21 calendar days.
The minimum period for which RTAs must maintain proper books and records is eight years.