TMI BlogSECURITIES AND EXCHANGE BOARD OF INDIA (PORTFOLIO MANAGERS) REGULATIONS, 2020X X X X Extracts X X X X X X X X Extracts X X X X ..... e Securities and Exchange Board of India Act, 1992 (15 of 1992); ii. body corporate shall have the meaning assigned to it under sub-section (11) of Section 2 of the Companies Act, 2013 (18 of 2013) as amended from time to time; (c) certificate means a certificate of registration issued by the Board; (d) change of status or constitution in relation to a portfolio manager─ (i) means any change in its status or constitution of whatsoever nature; and (ii) without prejudice to generality of sub-clause (i), includes (a) amalgamation, demerger, consolidation or any other kind of corporate restructuring falling within the scope of section 230 of the Companies Act, 2013 (18 of 2013) or the corresponding provision of any other law for the time being in force; and (b) any change in control over the body corporate; (c) change in control , in relation to a portfolio manager being a body corporate, shall be construed with reference to : ─ (i) the definition of control in terms of Regulation 2(1)(e) of SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 as amended from time to time, if its shares are listed on any r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... designated as such by the portfolio manager and is responsible for: - (i) the decisions made by the portfolio manager for the management or administration of portfolio of securities or the funds of the client, as the case may be; and (ii) all other operations of the portfolio manager. (6) securities lending means securities lending as per the Securities Lending Scheme, 1997 specified by the Board. (2) Words and expressions used and not defined in these regulations but defined in the Act shall have the meanings respectively assigned to them in the Act. CHAPTER II REGISTRATION OF PORTFOLIO MANAGERS Registration as portfolio manager. 3. No person shall act as a portfolio manager unless it has obtained a certificate of registration from the Board under these regulations. Application for grant of certificate. 4. (1) An application by a person for the grant of a certificate shall be made to the Board in Form A of Schedule I and shall be accompanied by a non-refundable application fee, as specified in para (1) of Schedule II. (2) Notwithstanding anything contained in sub-regulation (1), any application made by a person prior to coming into f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y services or in the areas related to fund management. Provided further that a portfolio manager, who was granted a certificate of registration prior to the commencement of the Securities and Exchange Board of India (Portfolio Managers) Regulations, 2020, shall comply with sub clauses (i) and (ii) of clause (d) of sub-regulation (2) of regulation 7 within thirty-six months from such commencement. (e) In addition to the Principal Officer and Compliance Officer, the applicant has in its employment at least one person with the following qualifications :- i. graduation from a university or an institution recognized by the Central Government or any State Government or a foreign university; and ii. an experience of at least two years in related activities in the securities market including in a portfolio manager, stock broker, investment advisor or as a fund manager: Provided that any employee of the Portfolio Manager who has decision making authority related to fund management shall have the same minimum qualifications and experience as specified for the Principal Officer in clause (d) of sub-regulation (2) of regulation 7: Provided further that a portfolio manager, wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cy requirements, if any, for each activity undertaken by it under the relevant regulations. Explanation . ─ For the purposes of this regulation, net worth means the aggregate value of paid up equity capital plus free reserves (excluding reserves created out of revaluation) reduced by the aggregate value of accumulated losses and deferred expenditure not written off, including miscellaneous expenses not written off. Procedure for registration. 10. (1) The Board on being satisfied that the applicant fulfils the requirements specified in regulation 7 shall send an intimation to the applicant and on receipt of the payment of registration fees as specified in paragraph (2) of Schedule II grant a certificate in Form B of Schedule I. (2) The portfolio manager who has already been granted a certificate of registration by the Board, prior to the commencement of the Securities and Exchange Board of India (Portfolio Managers) Regulations, 2020 shall be deemed to have been granted a certificate of registration, in terms of sub- regulation (1). Conditions of registration. 11. The certificate of registration granted under regulation 10 shall, inter alia, be s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he certificate, whereupon the portfolio manager shall forthwith cease to carry on the activity as a portfolio manager for the period during which the suspension subsists. CHAPTER III ELIGIBLE FUND MANAGERS Applicability . 16. (1) The provisions of this Chapter shall apply to eligible fund managers exclusively, pertaining to their activities as portfolio managers to eligible investment funds. (2) All other provisions of these regulations and the guidelines and circulars issued thereunder, unless the context otherwise requires or is repugnant to the provisions of this chapter, shall apply to eligible fund managers in relation to their activities as portfolio managers to eligible investment funds. Procedure to be followed by an existing Portfolio Manager. 17. An existing portfolio manager may act as a portfolio manager to an eligible investment fund if: (a) it fulfills all the conditions specified in sub section (4) of Section 9A of the Income-tax Act, 1961; and (b) it intimates the Board prior to undertaking such activity and submit declarations as specified in clause (1) of Schedule VI. Procedure to be followed by an applicant for fresh re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eligible fund managers shall be exempted from the following provisions pertaining to their activities as portfolio managers to eligible investment funds notwithstanding anything contained in these regulations, Schedules thereto or circulars issued thereunder: (i) sub-regulation (1), (2), (3) and (4) of Regulation 22; (ii) sub-regulation (2), (3), (4), (8) and (9) of Regulation 23; (iii) clause (b) of sub-regulation (1) of Regulation 24; (iv) clause (a) of sub-regulation (2) of Regulation 24; (v) sub-regulation (7) of Regulation 24; (vi) sub-regulation (11) of Regulation 24; (vii) Regulation 26; (viii) sub-regulation (3) of Regulation 30; (ix) sub-regulation (1), (2), and (3) of Regulation 31; (x) Form C in Schedule I; and (xi) Schedules IV and V. CHAPTER IV GENERAL OBLIGATIONS AND RESPONSIBILITIES Code of Conduct. 21. Every portfolio manager shall abide by the Code of Conduct as specified in Schedule III. Contract with clients and disclosures. 22. (1) The portfolio manager shall, before taking up an assignment of management of funds and portfolio on behalf of a client, enter into an agreement in writing with such client th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... manager directly or indirectly (where such service is out sourced); (b) portfolio risks including risk specific to each investment approach offered by the portfolio manager; (c) complete disclosures of transactions with related parties as per the accounting standards specified by the Institute of Chartered Accountants of India; (d) details of conflicts of interest related to services offered by group companies or associates of the portfolio manager; (e) the performance of the portfolio manager: Provided that the performance of a discretionary portfolio manager shall be calculated using Time Weighted Rate of Return for the immediately preceding three years and in such cases performance indicators shall also be disclosed: Provided further that the portfolio manager may be allowed to disclose performance segregated on the basis of investment approach; (f) the audited financial statements of the portfolio manager for the immediately preceding three years. (5) The contents of the Disclosure Document shall be certified by an independent chartered accountant. (6) The portfolio manager shall ensure that a copy of Disclosure Document is available on the website ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll act in a fiduciary capacity with regard to the client's funds. (4) The portfolio manager shall segregate each client s holding in securities in separate accounts. (5) The portfolio manager shall keep the funds of all clients in a separate account to be maintained by it in a Scheduled Commercial Bank. Explanation . ─ For the purposes of this sub-regulation, the expression Scheduled Commercial Bank means any bank included in the Second Schedule to the Reserve Bank of India Act, 1934 (2 of 1934). (6) The portfolio manager shall transact in securities within the limitation placed by the client himself with regard to dealing in securities under the provisions of the Reserve Bank of India Act, 1934 (2 of 1934). (7) The portfolio manager shall not derive any direct or indirect benefit out of the client's funds or securities. (8) The portfolio manager shall not borrow funds or securities on behalf of the client. (9) The portfolio manager shall not lend securities held on behalf of the clients to a third person except as provided under these regulations. (10) The portfolio manager shall ensure proper and timely handling of complaints from his cl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g or for the purpose of lending or placement with corporate or non-corporate bodies. (9) The portfolio manager shall not invest the clients funds in the portfolio managed or administered by another portfolio manager. (10) The portfolio manager shall not invest client s fund based on the advice of any other entity. (11) The portfolio manager shall not while dealing with clients funds indulge in speculative transactions i.e, it shall not enter into any transaction for purchase or sale of any security which is periodically or ultimately settled otherwise than by actual delivery or transfer of security except the transactions in derivatives. (12) The portfolio manager shall, ordinarily purchase or sell securities separately for each client. However, in the event of aggregation of purchases or sales for economy of scale, inter se allocation shall be done on a pro rata basis and at weighted average price of the day's transactions. The portfolio manager shall not keep any open position in respect of allocation of sales or purchases effected in a day. (13) The portfolio manager shall not execute off market transfers in client s account except: (a) for settlement of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... equired by the Board. Submission of net worth certificate. 28. Every portfolio manager shall furnish to the Board a net worth certificate issued by a chartered accountant as and when required by the Board. Maintenance of books of accounts, records and other documents. 29. The portfolio manager shall preserve the books of account and other records and documents mentioned under this chapter for a minimum period of five years. Accounts and audit. 30. (1) (a) The portfolio manager shall maintain separate client-wise accounts. (b) The funds received from the clients, investments or disinvestments, all the credits to the account of the client like interest, dividend, bonus, or any other beneficial interest received on the investment and debits for expenses, if any, shall be properly accounted for and details thereof shall be properly reflected in the client's account. (c) The tax deducted at source as required under the provisions of the Income-Tax Act, 1961, (43 of 1961) shall be recorded in the portfolio account. (2) The books of account will be audited yearly by qualified auditor to ensure that the portfolio manager has followed proper accoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n details of his portfolio from the portfolio managers. Report on steps taken on Auditor's report. 32. The portfolio manager shall take steps to rectify the deficiencies made out in the auditor s report within two months from the date of the auditor s report as specified in sub-regulation (2) of Regulation 30. Disclosures to the Board. 33. The Board may ask portfolio manager to disclose any information as and when required including the following: - (a) particulars regarding the management of a portfolio; (b) any change in the information or particulars previously furnished, which have a bearing on the certificate granted to him; (c) the names of the clients whose portfolio it has managed; (d) particulars relating to the net worth requirement as specified in regulation 9. Appointment of compliance officer. 34. (1) Every portfolio manager shall appoint a compliance officer who shall be responsible for monitoring the compliance of the Act, rules and regulations, notifications, guidelines, instructions etc., issued by the Board or the Central Government and for redressal of investors' grievances: Provided that the role of compliance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... manager shall allow the inspecting authority to have a reasonable access to the premises occupied by such portfolio manager or by any other person, on his behalf and also extend reasonable facility for examining any books, records, documents and computer data in the possession of the portfolio manager or any such other person and also provide copies of documents or other material which in the opinion of the inspecting authority are relevant for the purposes of the inspection. (3) The inspecting authority shall in the course of inspection, be entitled to examine or record statements of any principal officer, director, partner and employee of the portfolio manager. (4) It shall be the duty of every director, partner, officer or employee of the portfolio manager to give to the inspecting authority all assistance in connection with the inspection which the portfolio manager may reasonably be expected to give. Submission of report to the Board. 38. The inspecting authority shall, as soon as possible, submit an inspection report to the Board. Action on inspection or investigation report. 39. The Board or the Chairman shall after consideration of inspection or in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... espect of any violation committed against the repealed regulations, or any investigation, legal proceeding or remedy in respect of any such right, privilege, obligation, liability, penalty as aforesaid, shall remain unaffected as if the repealed regulations has never been repealed; (3) After the repeal of Securities and Exchange Board of India (Portfolio Managers) Regulations, 1993, any reference thereto in any other regulations made, guidelines or circulars issued thereunder by the Board shall be deemed to be a reference to the corresponding provisions of these regulations. CHAPTER VII MISCELLANEOUS Power of the Board to issue clarifications. 43. In order to remove any difficulties in respect of the application or interpretation of these regulations, the Board may issue clarifications or guidelines in the form of circulars. SCHEDULE I FORMS FORM A Securities and Exchange Board of India (Portfolio Managers) Regulations, 2020 Application for grant of certificate of registration Name of Applicant: ___________________________ Name of Contact Person: ___________________________ (Note: Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... zed stock exchanges to be given.) 2.4 Organization Chart: [separately showing functional responsibilities (names and designations) of portfolio management activities to be enclosed] 2.5 Particulars of all Directors/ Partners: [Name; Address; Qualification; Date of Appointment; DIN; PAN (Copy of PAN Card); Telephone No.; Mobile; Email] Experience: Entity Name Designation Area of Work Nature of Work Experience (In yrs) (Separate sheet may be attached for information on work experience) Other Directorships/Partnerships; (Name and Date of Appointment); Entity Name Date of Appointment No. of Shares Percentage of Shareholding 2.6 Particulars of Key Management Personnel [Name; Address; Qualification; Designation; Date of Appointment; PAN no. (Certified PAN Copy); Telephone No.; Mobile; Email] Experience: Entity Name Designation Area of Work Na ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Registration End Registration Status Applied : Application No. Role Company Name Stock Exchange Application Date Application Status 2.11 Number of employees (Total number of employees and number of employees for Portfolio Management services) 2.12 Name and activities of associate companies/ entities Name of company/entity Address/ phone numbers Type of activity handled Nature / Quantum of financial dealing Nature of interest of promoter/director Nature of interest of applicant company/ entity Ownership details: Name of the Shareholder No. of Shares Percentage of Shareholding ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment of Resources (Rs. in Crore) Year prior to the preceding year of current year Preceding year Current year (a) Fixed Assets (b) Plant and Machinery and office equipment (c) Investments (Details should be given separately) (d) Others 5.4 Major Sources of Income: (Rs. in Crore) Year prior to the preceding year of current year Preceding year Current Year 5.5 Net Profit (Rs. in Crore) Year prior to the preceding year of current year Preceding year Current Year 5.6 Particulars of Principal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with Client to be provided 9.2 Copy of Draft Disclosure Document to be provided 9.3. Details of Custodian: (Name, Address, SEBI Registration No., Date of Appointment) 9.4. Details of Registration with other Regulatory bodies. (10) DECLARATIONS 10.1 Declaration of compliance with Regulation 7 (2) signed by at least Two Directors or designated partners 10.2 Declaration for Fit and Proper Person as specified in SEBI (Intermediaries) Regulations, 2008 10.3 Declaration of Compliance with clause 12 (b) of Schedule III of these Regulations. 10.4 Declaration of Compliance with SEBI circular on fees and charges. 10.5 Declaration of type and frequency of reports sent/ proposed to be sent to clients. 10.6 Declaration of time taken for transfer of securities into client accounts. 10.7 Declaration of submission of periodic reports and Disclosure Document to SEBI. 10.8 Declaration of compliance with clause (e) of sub-regulation (1) of Regulation 27 - regarding maintenance of records for Investment rationale. 10.9 Declaration of availability of Disclosure document on website of Portfolio Manager. DECLARATION This declarat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt are true, fair and adequate to enable the investors to make a well informed decision regarding entrusting the management of the portfolio to us / investment through the Portfolio Manager. (iii) the Disclosure Document has been duly certified by an independent chartered accountant (Indicate name, address, phone number and registration number of the chartered accountant) on (date). (Enclose a copy of the chartered accountant s certificate to the effect that the disclosures made in the document are true, fair and adequate to enable the investors to make a well informed decision) Date: Place: Signature of the Principal Officer [Name and address of the Principal Officer] SCHEDULE II Securities and Exchange Board of India (Portfolio Managers) Regulations, 2020 [Regulation 15] FEES 1. Every portfolio manager shall pay a non-refundable fee of one lakh rupees along with the application for grant of certificate of registration. 2. Every portfolio manager shall pay a sum of ten lakh rupees as registration fees at the time of the grant of certificate by the Board. 3. A portfolio manager who has been granted a certificate of registration, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of his clients. 4. A portfolio manager shall not execute any trade against the interest of the clients in its proprietary account. 5. A portfolio manager shall not make any statement or indulge in any act, practice or unfair competition, which is likely to be harmful to the interests of other portfolio managers or is likely to place such other portfolio managers in a disadvantageous position in relation to the portfolio manager himself, while competing for or executing any assignment. 6. A portfolio manager shall not make any exaggerated statement, whether oral or written, to the client either about the qualification or the capability to render certain services or his achievements in regard to services rendered to other clients. 7. At the time of entering into a contract, the portfolio manager shall obtain in writing from the client, his interest in various corporate bodies which enables him to obtain unpublished price-sensitive information of the body corporate. 8. A portfolio manager shall not disclose to any clients, or press any confidential information about his client, which has come to his knowledge. 9. The portfolio manager shall where necessary and in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rohibition of Insider Trading) Regulations, 2015. (c) The portfolio manager shall not use his status as any other registered intermediary to unduly influence the investment decision of the clients while rendering portfolio management services. SCHEDULE IV CONTENTS OF AGREEMENT BETWEEN THE PORTFOLIO MANAGER AND HIS CLIENTS [Regulation 22] The following shall be mentioned in the agreement - 1. Appointment of portfolio manager. 2. Scope of services to be provided by the portfolio manager subject to the activities permitted under SEBI (Portfolio Managers) Regulations, 2020, viz, advisory, investment management, custody of securities, keeping track of corporate benefits associated with the securities. The Portfolio Manager shall act in a fiduciary capacity and as a trustee and agent of the clients' account. 3. Functions, obligations, duties and responsibilities (as discretionary and non-discretionary to be given separately) with specific provisions regarding instructions for non-discretionary portfolio manager which, inter alia, includes - (i) terms in compliance with the Act, SEBI (Portfolio Managers) Regulations,2020, rules, regulations, guidelin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a chartered accountant appointed by him and permitting the client an access to relevant and material documents of portfolio manager, provisions listing the documents for inspection along with timings for such inspection, furnishing of reports to the client subject to furnishing at least once in three months and the reports to be made available on the web site of the portfolio manager with restricted access to each client and other rights of clients etc. The provision that the statements / documents / report furnished by the portfolio manager to the client present a true and fair picture of the transactions. 11. Terms of Fees- The quantum and manner of payment of fees and charges for each activity for which services are rendered by the portfolio manager directly or indirectly (where such service is outsourced) such as investment management, advisory and transfer, and transaction costs with specific references to brokerage costs, custody charges, cost related to furnishing regular communication, account statement, miscellaneous expenses (individual expenses in excess of 5% to be indicated separately) etc. The provision that the portfolio manager shall take prior permission from t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t is required to be included under the model disclosure document The model Disclosure Document specifies only the nature of the disclosures that should be contained under various heads in the disclosure document and is not intended to describe the layout or language to be contained therein. MODEL DISCLOSURE DOCUMENT FOR PORTFOLIO MANAGEMENT The minimum disclosures to be given in the Disclosure Document shall be as under and due care shall be taken to present the information in simple language and in a clear, concise and easily understandable manner (11) Front page (i) The Document has been filed with the Board along with the certificate in the specified format in terms of Regulation 22 of the SEBI (Portfolio Managers) Regulations, 2020. (ii) The purpose of the Document is to provide essential information about the portfolio services in a manner to assist and enable the investors in making informed decision for engaging a portfolio manager. (iii) The necessary information about the portfolio manager required by an investor before investing, and the investor may also be advised to retain the document for future reference. (iv) The name, phone number, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... policies including the types of securities in which it generally invests shall be clearly and concisely stated in the document for easy understanding of the potential investor. (ii) Investment Approaches of the Portfolio Manager (iii) The policies for investments in associates/group companies of the portfolio manager and the maximum percentage of such investments therein subject to the applicable laws/regulations/ guidelines. 6. Risk factors (i) Statement to the effect that securities investments are subject to market risks and there is no assurance or guarantee that the objective of the investments will be achieved. (ii) Statement to the effect that past performance of the portfolio manager does not indicate its future performance. (iii) Risk arising from the investment approach, investment objective, investment strategy and asset allocation. (iv) Risk arising out of non-diversification, if any. (v) If the portfolio manager has no previous experience/ track record a disclosure to that effect shall be made. (vi) All transactions of purchase and sale of securities by portfolio manager and its employees who are directly involved in investment operations s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ile accounting for the portfolio investments of the clients. 14. Investors services (i) Name, address and telephone number of the investor relation officer who shall attend to the investor queries and complaints. (ii) Grievance redressal and dispute settlement mechanism. Date: Place: Name and signature of at least two Directors/ Designated Partners of Portfolio Manager FORMAT I (Account Opening Form) Information about the Client 5. General information about the client a. Name, primary mailing address, secondary (back up) mailing address, identity information such as photograph, Permanent Account Number (PAN), driving license etc. b. Occupation______ c. Introduced by____(name and full address) d. Annual incomes for the last 3 financial years and the net worth as on the last date of the respective years. (optional) 2. Investment profile of the client (a) Investment experience regarding securities. (b) Indicative percentage of total investment portfolio proposed to be invested with the portfolio manager (optional). (c) Overall investment goals such as capital appreciation or capital appreciation and regular income or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Name in Block Letters Place: Place: Date: Date: 2. Declaration by an applicant who intends to act as a portfolio manager to eligible investment funds (shall be signed by two directors or designated partners, as the case may be) We hereby declare that we are applying to SEBI for being registered as a portfolio manager. We intend to provide our services to eligible investment funds. In this regards, we declare that: (a) We are compliant with subsection 4(a) of section 9A of Income-tax Act, 1961 (We are not an employee of the eligible investment fund or a connected person of the fund); (b) We are compliant with subsection 4(c) of section 9A of Income-tax Act, 1961 (We are acting in the ordinary course of our business as portfolio manager); (c) We are compliant with subsection 4(d) of section 9A of Income-tax Act, 1961 (We along with our connected persons sh ..... X X X X Extracts X X X X X X X X Extracts X X X X
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