SEBI (Intermediaries) Regulations, 2008
SEBI (Intermediaries) Regulations, 2008 (Part 1)
- Introduction: The SEBI (Intermediaries) Regulations, 2008 were notified in the official gazette on 26th May 2008. These regulations define Intermediaries as a person mentioned in sub-section 2 clauses (b) and (ba) of section 11, sub-section (1) and (1A) of section 12 of the SEBI Act, 1992.
- Key Concepts:
- Obligations of Intermediaries: Intermediaries must provide a certificate of compliance, display the certificate and compliance officer's contact details, maintain books and records, and redress investor grievances.
- Inspection and Disciplinary Proceedings: Intermediaries must cooperate with inspecting authorities, produce required documents, and allow access to premises.
- Code of Conduct: Intermediaries and their directors, officers, employees, and key management personnel must abide by the code of conduct specified in Schedule III of the SEBI (Intermediaries) Regulations.
- Fit and Proper Criteria: Intermediaries must meet the fit and proper criteria to operate.
- ODR Framework: SEBI has introduced an ODR (Online Dispute Resolution) framework for intermediaries.
- Compliance relating to Cyber Security Framework: Intermediaries must comply with the cyber security framework to protect investor data.
- Compliance relating to Artificial Intelligence and Machine Learning: Intermediaries using Artificial Intelligence and Machine Learning tools are responsible for the privacy, security, and integrity of investor data and must comply with applicable laws.
- General Obligations of Intermediaries:
- Intermediaries must provide a certificate of compliance to SEBI on April 1st of each year.
- Intermediaries must display the certificate and compliance officer's contact details prominently.
- Intermediaries must maintain books, accounts, and records as specified in the regulations.
- Intermediaries must redress investor grievances promptly and maintain records of grievances.
- Appointment of Compliance Officer:
- Intermediaries must appoint a compliance officer to monitor compliance with SEBI regulations.
- The compliance officer must report material non-compliance to the intermediary or its board of directors.
- Action in Case of Default:
- SEBI may take action against intermediaries that fail to comply with regulations or contravene securities laws.
- The designated authority may recommend measures such as cancellation or suspension of registration, prohibition from taking up new assignments, or debarment of officers or branches.
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SEBI (Intermediaries) Regulations, 2008 (Part 2)
- Definition: The SEBI (Intermediaries) Regulations, 2008, outline the procedures for granting, suspending, or canceling the registration of intermediaries in the securities market.
- Details: The regulations provide a framework for the competent authority to take action against intermediaries that violate securities laws or fail to comply with regulatory requirements.
Key Concepts
- Personal Hearing: The competent authority may grant an opportunity of personal hearing to an intermediary before canceling its registration.
- Common Order: The competent authority may pass a common order in respect of multiple noticees where the subject matter is substantially the same or similar in nature.
- Special Procedure: A special procedure is outlined for action on expulsion from membership of a stock exchange or clearing corporation, or termination of depository participant agreements.
- Notice and Submission: The competent authority shall issue a notice to the intermediary, requiring it to make submissions within 21 calendar days, and may permit an additional 15 calendar days for submission.
- Order: The competent authority shall pass an order within 21 calendar days from the date of receipt of the written submissions or the expiry of the time period granted for submission.
Special Procedure for Action
- Expulsion from Membership: The procedure applies to stock brokers or clearing members expelled from a stock exchange or clearing corporation.
- Termination of Depository Participant Agreements: The procedure applies to depository participants whose agreements have been terminated by a depository.
- Claim(s) of Return or Performance: The procedure applies to persons who have made claims of return or performance related to a security or securities.
- Failure to Pay Fees: The procedure applies to persons who fail to pay fees to SEBI or a specified body.
- Untraceable at Physical Address: The procedure applies to persons who are not traceable at their physical address or email address.
- Failure to Submit Periodic Reports: The procedure applies to persons who fail to submit periodic reports to SEBI for three consecutive periods or as specified.
Surrender of Certificate of Registration
- Request to SEBI: An intermediary may surrender its certificate of registration by making a request to SEBI.
- Conditions: SEBI may require the intermediary to satisfy certain conditions, including arrangements for maintenance and preservation of records, redressal of investor grievances, and transfer of records, funds, or securities.
- Imposition of Conditions: SEBI may impose conditions on the intermediary for the protection of investors or the securities market.
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Effect of Debarment, Suspension, Cancellation, or Surrender
- Debarment or Suspension: The intermediary shall not undertake new assignments or launch new schemes and shall cease to carry on activities for which the certificate was granted.
- Cancellation or Surrender: The intermediary shall return the certificate, cease to carry on activities, transfer activities to another registered intermediary, and make provisions for liability incurred or assumed.
- Action Relating to Records and Documents: The intermediary shall take action relating to records, documents, securities, or money of investors within the time period and manner required by regulations or directed by SEBI.
Regulation 34: Manner of Service of Notice and Order Publication
- Service of Notice: Notice may be served by hand delivery, registered post, speed post, courier service, electronic mail, or other means of transmission.
- Order Publication: Every order passed shall be put on SEBI's website.
Directions
- SEBI's Power: SEBI may issue directions in the interest of the securities market, investors, or for proper management of intermediaries.
- Refund of Money or Securities: SEBI may direct intermediaries to refund money or securities collected from investors.
- Access to Capital Market: SEBI may direct intermediaries not to access the capital market or deal in securities for a particular period.
- Suspension of Trading: SEBI may direct recognized stock exchanges to suspend trading in securities or units issued by a mutual fund or collective investment scheme.
SEBI (Intermediaries) Regulations, 2008 (Part 3)
- Introduction: The SEBI (Intermediaries) Regulations, 2008, outline the guidelines for intermediaries in the Indian securities market.
- Code of Conduct: Intermediaries must abide by a code of conduct that includes:
- Protecting the interests of investors and providing the best possible advice
- Maintaining high standards of integrity, dignity, ethics, and professionalism
- Avoiding conflicts of interest and making adequate disclosures
- Ensuring good corporate governance and compliance with regulations
- Fit and Proper Criteria: Intermediaries and their associated persons must meet the 'fit and proper' criteria, which includes:
- Competence and capability in terms of infrastructure and manpower
- Financial soundness, including meeting net worth requirements
- Integrity, honesty, ethical behavior, reputation, fairness, and character
- Disqualifications: Certain disqualifications, such as criminal complaints, charge sheets, or orders of restraint, can render a person unfit to be an intermediary or associated person.
- Usage of Artificial Intelligence: Intermediaries are responsible for the use of artificial intelligence and machine learning tools, including data privacy, security, and integrity, as well as compliance with applicable laws.
- Verification of Past Risk and Return Metrics: Investment Advisers, Research Analysts, and Algo Providers must verify their risk-return metrics through a credit rating agency recognized by SEBI.
- Online Resolution of Disputes, Cyber Security & Resilience Framework: The Indian securities market has a system for online resolution of disputes, and intermediaries must ensure cyber security and resilience in their operations.
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SEBI (Intermediaries) Regulations, 2008 (Part 4)
- Grievance Redressal Process: The Securities and Exchange Board of India (SEBI) has established a robust and time-bound grievance redressal process for disputes between stock brokers and their clients, which can be approached through the stock exchange or the SCORES (SEBI Complaints Redress System).
- Arbitration Mechanism: If the complainant is not satisfied with the resolution, they may opt for the arbitration mechanism of the exchanges.
- Market Infrastructure Institutions (MIIs): MIIs, including stock exchanges and depositories, have a grievance redressal process in place, which has been strengthened by SEBI to resolve disputes between investors/clients and listed companies or intermediaries.
- Online Dispute Resolution (ODR) Portal: SEBI has directed MIIs to establish a common ODR portal for online conciliation and arbitration of disputes arising in the securities markets.
- Cyber Security and Cyber Resilience Framework: SEBI has introduced new guidelines to strengthen the cyber security and cyber resilience framework of MIIs, including:
- Maintaining offline, encrypted backups of data
- Conducting regular business continuity drills
- Implementing Multi Factor Authentication (MFA) for all services
- Conducting regular vulnerability scanning and implementing a cybersecurity user awareness and training programme
- Compliance relating to Artificial Intelligence and Machine Learning (AI & ML): SEBI has directed market intermediaries to meet prescribed reporting and disclosure requirements regarding AI & ML applications and systems.
- Case Study: SEBI v/s Vrise Securities Pvt Ltd: The case highlights the importance of compliance with SEBI regulations and circulars, and the consequences of non-compliance, including prohibition from registering new clients.
- Review Questions: The section includes review questions to test understanding of the regulations, including the power of SEBI to direct intermediaries to refund money or securities, the requirement for applicants to be 'fit and proper persons', and the adherence to the Code of Conduct by employees and directors of intermediaries.