SEBI INTERMEDIARIES

[Mr. M. GOVINDARAJAN]

Intermediary

The general definition for the term ‘intermediary’ is a person or organization who acts as a link between people in order to try and bring about an agreement.   Intermediaries are third parties and fill a function that is needed by two other parties to make a deal or to execute a given task.   The intermediary assists on a deal that otherwise would be too complex to close.

SEBI intermediaries

The functions of SEBI are to regulate the business in stock exchanges and other securities market.  There are intermediaries in stock market who are associated with the stock market.  SEBI intermediaries are Stockbrokers, sub-brokers, portfolio managers, depositories, investment advisers, share transfer agents, merchant bankers, underwriters, registrars to an issue, foreign institutional investors, custodians of securities, venture capital funds, mutual funds, asset management companies, credit rating agencies etc. who associate with the stock markets.  These intermediaries link the investors, SEBI and stock exchanges.

SEBI to regulate the intermediaries made the SEBI (Intermediaries) Regulations, 2008, dated 26.05.2008.

Regulation 2(1)(g) defines the term ‘intermediary’ as a person mentioned in clauses (b) and (ba) of sub-section (2) of section 11 and sub-section (1) and (1A) of section 12 of the Act and includes an asset management company in relation to the Securities and Exchange Board of India (Mutual Funds) Regulations, 1996, a clearing member of a clearing corporation or clearing house, foreign portfolio investors] and a trading member of a derivative segment or currency derivatives segment] of a stock exchange but does not include foreign venture capital investor, mutual fund, collective investment scheme and venture capital fund.

Regulation 2(1)(b) defines the term ‘associate’ as any person controlled, directly or indirectly, by the intermediary, or any person who controls, directly or indirectly, the intermediary, or any entity or person under common control with such intermediary, and where such intermediary is a natural person will include any relative of such intermediary and where such intermediary is a body corporate will include its group companies.\

Registration

Section 12 of the SEBI Act provides for registration of intermediaries.  Section 12(1) provides that no stock broker, sub-broker, share transfer agent, banker to an issue, trustee of trust deed, registrar to an issue, merchant banker, underwriter, portfolio manager, investment adviser and such other intermediary who may be associated with securities market shall buy, sell or deal in securities except under, and in accordance with, the conditions of a certificate of registration obtained from the Board in accordance with the regulations made under this Act.      

Section 12(1A) of the Act provides that no depository, participant, custodian of securities, foreign institutional investor, credit rating agency, or any other intermediary associated with the securities market as the Board may by notification in this behalf specify, shall buy or sell or deal in securities except under and in accordance with the conditions of a certificate of registration obtained from the Board in accordance with the regulations made under this Act.

Section 12(1B) of the Act provides that no person shall sponsor or cause to be sponsored or carry on or caused to be carried on any venture capital funds or collective investment schemes including mutual funds, unless he obtains a certificate of registration from the Board in accordance with the regulations.

Regulations

SEBI made regulations for the intermediaries as detailed below-

• SEBI (Merchant Bankers) Regulation, 1992;
• SEBI (Stock Brokers and Sub Brokers) Regulation 1992;
• SEBI (Underwriters) Regulations, 1993;
• SEBI (Bankers to the Issue) Regulations, 1994;
• SEBI (Debenture Trustees) Regulations, 1993;
• SEBI (Registrar to the Issue and Share Transfer Agent) Rules and Regulations, 1993;
• SEBI (Custodian) Regulations, 1996;
• SEBI (Mutual Funds) Regulations, 1996;
• SEBI (Credit Rating Agency) Regulations, 1999;
• SEBI (Collective Investment Scheme) Regulations, 1999;
• SEBI (Foreign Venture Capital Investors) Regulations, 2000;
• SEBI (Alternate Investment Funds) Regulations, 2012;
• SEBI (Investment Advisors) Regulations, 2013;
• SEBI (Real Estate Investment Trusts) Regulations, 2014;
• SEBI (Research Analysts) Regulations, 2014;
• SEBI (Infrastructure Investment Trusts) Regulations, 2014;
• SEBI (Depositories and Participants) Regulations, 2018;
• SEBI (Portfolio Managers) Regulations, 2020.

Procedure for registration

• An application, for grant of a certificate to act as an intermediary, shall be made to the Board in Form A with such additional information as required to be provided under the relevant regulations, and the application fee, as specified in the relevant regulations.
• The information contained in Part I of Form A shall be disclosed to the public by uploading such information on the website as specified by the Board.   The other relevant information furnished by the intermediary in Part II of Form A which relates to commercial confidence and private information of the intermediary, may be treated as confidential by the Board.   Any material change in the information furnished or uploaded under these regulations shall be updated by the intermediary promptly but not later than fifteen days of the occurrence of such change.
• The specified regulatory authority  shall examine the eligibility of the applicant in terms of these regulations, relevant regulations and the rules, regulations or bye-laws of the concerned stock exchange, clearing corporation, depository or the self regulatory organization and forward the application with the application fees to the Board along with its recommendation as early as possible but not later than thirty days of receipt of the complete application with the specified application fees.
• The Board may require the applicant to furnish further information or clarifications, regarding matters relevant to the activity of such an intermediary or which may otherwise be considered necessary by the Board, to consider and dispose of the application.
• The applicant shall furnish such information and clarification to the satisfaction of the Board, within the time specified in this regard by the Board.
• While considering the application, the information furnished by the applicant and its eligibility, the Board may, if it so desires, verify the information by physical verification of documents, office space, and inspect the availability of office space, infrastructure, and technological support which the applicant is required to have.
• The Board shall take into the following while considering the application for registration-

• whether the applicant or any of its associates have in the past been refused certificate by the Board and if so, the ground for such refusal;
• whether the applicant, its directors or partners, or trustees, as the case may be or its principal officer is involved in any pending litigation connected with the securities market which has an adverse bearing on the business of the applicant or on development or functioning of the securities markets;
• whether the applicant satisfies the eligibility criteria and other requirements as specified in these regulations and the relevant regulations;
• whether the grant of a certificate to the applicant is in the interest of the investors and the development of the securities market.

• Registration granted shall be subject to the following conditions-

• where the intermediary proposes to change its status or constitution, it shall obtain prior approval of the Board for continuing to act as an intermediary after such change in status or constitution;
• it shall pay the applicable fees in accordance with the relevant regulations;
• it shall abide by the provisions of the securities laws and the directions, guidelines and circulars as may be issued there under;
• it shall continuously comply with the requirements of regulation 4 (disclosure of information);
• it shall meet the eligibility criteria and other requirements specified in these regulations and the relevant regulations.

The Board may impose other conditions as it may deem fit in the interest of investors or orderly development of the securities market or for regulation of the working of the intermediary and the intermediary shall comply with such conditions.

Prior approval

A request for prior approval which is complete in all respects shall be disposed off by the Board within a period of sixty days from the date of receipt of such request and where the decision of the Board has not been communicated to the intermediary within the said period of sixty days, the prior approval shall be deemed to have been granted.   The request for prior approval shall contain the information in Form A in respect of the intermediary after the proposed change in status or constitution and the information under Part I of Form A shall be uploaded in the website specified by the Board.

Rejection of registration

• The Board may reject the application-

• which is not complete in all respects and does not conform to the requirements in Form A and the requirements specified in the relevant regulation;
• which does not contain such additional information as required by the Board;
• which is incorrect, false or misleading in nature;
• where the applicant is not in compliance with the eligibility requirements as set out under these regulations or the relevant regulations;
• where the applicant is not a ‘fit and proper person' as stated in Schedule II;
• where the principal officer does not have the requisite qualification or experience as required under the relevant regulations;

for  the reasons to be recorded by the Board.

• Before rejecting an application, the applicant shall be given an opportunity in writing to make good the deficiencies within the time specified by the Board, for the purpose.
• Where an application is rejected for the reason that it contains false or misleading information, no such opportunity may be given and the applicant shall not make any application for grant of certificate under these regulations or any other regulations for a period of one year from the date of such rejection.

Validity of certificate

The certificate granted to an intermediary shall be permanent unless surrendered by the intermediary or suspended or cancelled in accordance with these regulations.

SEBI Intermediary Portal

SEBI Intermediary Portal is therefore the purpose of registration of intermediaries.  Self registration can be done by intermediary.  Self registration query menu, lawyer bill payment menu, penalty payment menu are provided in the portal.   There is a form for informant’s Voluntary disclosure to be submitted to the Board.  User manual and refund policy for payment gateway manual are there for reference to the intermediaries.

Registered Intermediaries as on 27.08.2021

• Alternative Investment Fund – 785;
• Stock brokers in equity segment – 4623;
• Stock brokers in equity derivative segment – 3654;
• Stock brokers in currency derivative segment – 2891;
• Stock brokers in interest rate derivative segment – 1870;
• Stock brokers in debt segment – 446;
• Stock brokers in commodity derivative segment – 2175;
• Bankers to an issue – 64;
• Credit Rating Agency – 7;
• Collective Investment Company – 1;
• Custodian of securities – 20;
• Debenture trustees  - 27;
• Designated depository participants – 17;
• Qualified depository participants – 62;
• Depository participants – CSDL – 624;
• Depository participants – NSDL – 271;
• FPIs/Deemed FPIs – 10202;
• Foreign Venture Capital Investors – 266;
• Investment advisor – 1329;
• Infrastructure investment trusts -  15;
• KYC Registered Agency – 5;
• Merchant Bankers – 216;
• Mutual Funds – 51;
• Portfolio Managers – 363;
• Registrar to an Issue and Share Transfer Agents – 80;
• Research Analysts – 770;
• Self Certified Syndicate Banks under the Syndicate Bank ASBA facility for other than Retail category (equity issuances) – 60;
• Self certified Syndicate Banks under the direct ASBA facility (equal issuances) – 62;
• Underwriters – 1;
• Venture Capital Funds – 188;
• Self certified syndicate banks eligible as issuer banks for UPI – 50;
• Self certified syndicate banks eligible for sponsor banks for UPI – 5;
• Real Estate Investment Trust – 5;
• List of mobile applications for using UPI in public issues – 22;
• Self certified syndicate banks under the direct ASBA facility (debt issuances) – 38;
• Self certified syndicate banks under the Syndicate ASBA facility (debt issuances) – 44.

Cancellation of registration

Where any person who has been granted a certificate of registration-

• fails to comply with any conditions subject to which a certificate of registration has been granted to him;
• contravenes any of the provisions of the securities laws or directions, instructions or circulars issued there under,

the Board may cancel the registration or suspend the registration after holding an inquiry against such person by such officers.

The Board may, without prejudice to any action under the securities laws or directions, instructions or circulars issued there under, by order take such action in the manner provided under these regulations.

Surrender of certificate of registration

Any person, who has been granted a certificate of registration desirous of giving up its activity and surrender the certificate, may make a request for such surrender to the Board.   While disposing a request under this regulation, the Board may require the concerned person to satisfy the Board the factors as it deems fit, including but not limited to the following-

• the arrangements made by the person for maintenance and preservation of records and other documents required to be maintained under the relevant regulations;
• redressal of investor grievances;
• transfer of records, funds or securities of its clients;
• the arrangements made by it for ensuring continuity of service to the clients;
• defaults or pending action, if any.

While accepting surrender, the Board may impose such conditions upon the person as it deems fit for protection of the investors or its clients or the securities market and such person shall comply with such conditions.

Effect of suspension or cancellation of certificate

On and from the date of suspension of the certificate, the concerned person shall-

• not undertake any new assignment or contract or launch any new scheme and during the period of such debarment or suspension it shall cease to carry on any activity in respect of which certificate had been granted;
• allow its clients or investors to withdraw or transfer their securities or funds held in its custody or withdraw any assignment given to it, without any additional cost to such client or investor;
• make provisions as regards liability incurred or assumed by it;
• take such other action including the action relating to any records or documents and securities or money of the investors that may be in custody or control of such person, within the time period and in the manner, as may be required under the relevant regulations or as may be directed by the Board while passing order under this Chapter or otherwise.

On and from the date of surrender or cancellation of the certificate, the concerned person shall-

• return the certificate of registration so cancelled to the Board and shall not represent itself to be a holder of certificate for carrying out the activity for which such certificate had been granted;
• cease to carry on any activity in respect of which the certificate had been granted;
• transfer its activities to another person holding a valid certificate of registration to carry on such activity and allow its clients or investors to withdraw or transfer their securities or funds held in its custody or to withdraw any assignment given to it, without any additional cost to such client or investor;
• make provisions as regards liability incurred or assumed by it;
• take such other action including the action relating to any records or documents and securities or money of the investors that may be in custody or control of such person, within the time period and in the manner, as may be required under the relevant regulations or as may be directed by the Board while passing order under this Chapter or otherwise.

Appeal

The person aggrieved by an order under these regulations may prefer an appeal to the Securities Appellate Tribunal against such order in accordance with the provisions of section 15T of the Act and Rules prescribed in this regards.