Executive Summary:
SEBI issued this circular to recognize stock exchange subsidiaries for administering and supervising Investment Advisers (IAs). This decision comes in light of the growing number of registered IAs and existing regulations. Stock exchanges meeting specific criteria must submit detailed proposals to SEBI within 30 days of the circular's issuance.
Key Points / Main Content:
* **Recognition of Stock Exchange Subsidiary:** SEBI will recognize a wholly-owned subsidiary of a stock exchange to administer and supervise registered IAs.
* **Eligibility Criteria for Stock Exchanges:** To be eligible for recognition, stock exchanges must meet the following criteria:
* Minimum 15 years of existence
* Minimum net worth of INR 200 crores
* Nationwide terminals
* Investor grievance redressal mechanism (including Arbitration)
* Investor Service Centers (ISCs) in at least 20 cities
* **System Requirements for Stock Exchanges:** Stock exchanges must either form a subsidiary or designate an existing one, ensuring it:
* Includes provisions in its MoA, AoA, and byelaws to fulfill responsibilities.
* Establishes systems for grievance redressal, administrative actions, IA governance, data maintenance, and information sharing with SEBI.
* Possesses adequate infrastructure (office space, equipment, manpower), potentially shared with other group entities.
* **Responsibilities of Stock Exchange Subsidiary:** The subsidiary must:
* Supervise IAs (onsite and offsite)
* Handle grievance redressal for clients and IAs
* Take administrative actions, including warnings and referrals to SEBI
* Monitor IA activities via periodic reports
* Submit periodic reports to SEBI
* Maintain a database of IAs
Impact Analysis:
* **Stock Exchanges:**
* *Impact:* Eligible stock exchanges can have a subsidiary recognized for IA administration and supervision.
* *Action Required:* Stock exchanges meeting the criteria must submit a detailed proposal to SEBI within 30 days, incorporating the requisite systems and mechanisms.
* **Investment Advisers (IAs):**
* *Impact:* IAs will be supervised by the recognized stock exchange subsidiary.
* *Action Required:* IAs may be subject to new reporting requirements and supervisory actions from the stock exchange subsidiary.
* **Investors:**
* *Impact:* Enhanced supervision of IAs aims to protect investor interests.
* *Action Required:* Investors will have access to the grievance redressal mechanism established by the stock exchange subsidiary.
* **SEBI:**
* *Impact:* SEBI delegates administration and supervision of IAs to recognized stock exchange subsidiaries.
* *Action Required:* SEBI will receive periodic reports from the subsidiaries and retain enforcement authority.
Key Entities Referenced
SEBI: Securities and Exchange Board of India, the regulatory body overseeing securities markets in India.
Investment Advisers (IAs): Entities registered with SEBI to provide investment advice.
SEBI Investment Advisers Regulations 2013: Regulations governing the registration and conduct of Investment Advisers in India.
Securities Contracts Regulation Stock Exchanges and Clearing Corporations Regulations, 2018: Regulations pertaining to the functioning and operations of stock exchanges and clearing corporations.
Stock Exchanges: Recognised stock exchanges in India.
Asset Management Companies: Companies that manage pooled investment funds.
Investor Service Centers (ISCs): Centers established by stock exchanges to provide investor services.
Securities and Exchange Board of India Act, 1992: The legislation that established SEBI and defines its powers and functions.
CIRCULAR
SEBI/HO/IMD/DF1/CIR/P/2020/148 August 06, 2020
All Recognised Stock Exchanges
Sir / Madam
Subject: Administration and Supervision of Investment Advisers
1. SEBI, vide Circular SEBI/HO/MRD/DSA/CIR/P/2016/113 dated October 19, 2016, allowed
registered Investment Advisers (IAs) to use infrastructure of the stock exchanges to
purchase and redeem MF units directly from Asset Management Companies on behalf of
their clients.
2. As per Regulation 14 of the SEBI (Investment Advisers) Regulations 2013 (hereinafter
referred to as “IA Regulations”), SEBI can recognize any body/body corporate for the
purpose of regulating IAs. It further provides that SEBI may, at the time of recognition of
such body or body corporate, delegate administration and supervision of IAs to such body
or body corporate on such terms and conditions as may be specified.
3. Further, the second proviso to Regulation 38 (2) of the Securities Contracts (Regulation)
(Stock Exchanges and Clearing Corporations) Regulations, 2018 states, inter alia, that a
recognized stock exchange may engage in activities, whether involving deployment of
funds or otherwise that are unrelated or not incidental to its activity as a stock exchange,
through a separate legal entity and subject to approval of the Board.
4. Considering the growing number of registered investment advisers and the above
mentioned provisions, it is decided to recognize a wholly-owned subsidiary of the stock
exchange (stock exchange subsidiary) to administer and supervise IAs registered with
SEBI.
A. Criteria for grant of recognition- The recognition of stock exchange subsidiary, in
terms of the aforesaid Regulation 14, shall be based on the eligibility of the parent
entity, i.e. the stock exchange, for which the following eligibility criteria is laid down:
i. Number of years of existence: Minimum 15 years
ii. Stock exchanges having a minimum networth of INR 200 crores
iii. Stock exchanges having nation-wide terminals
iv. Investor grievance redressal mechanism including Arbitration
v. Capacity for investor service management gauged through reach of Investor
Service Centers (ISCs)- Stock exchanges having ISCs in at least 20 cities
Page 1 of 2B. Setting up of requisite systems by stock exchanges for the purpose-
i. The stock exchange shall either form a subsidiary or designate an existing
subsidiary for the purpose of regulating IAs.
ii. The subsidiary shall include in its MoA, AoA and bye-laws, requisite provisions to
fulfil the below mentioned responsibilities.
iii. The subsidiary shall put in place systems/process for grievance redressal,
administrative action against IAs, governing IAs, maintaining data, sharing of
information with SEBI etc.
iv. The subsidiary shall have the necessary infrastructure like adequate office space,
equipment and manpower to effectively discharge the below mentioned activities.
Infrastructure may be shared with other group entities where required.
C. Responsibilities of subsidiary of a stock exchange- The subsidiary of a stock
exchange shall have following responsibilities:
i. Supervision of IAs including both on-site and offsite
ii. Grievance redressal of clients and IAs
iii. Administrative action including issuing warning and referring to SEBI for
enforcement action
iv. Monitoring activities of IAs by obtaining periodical reports
v. Submission of periodical reports to SEBI
vi. Maintenance of database of IAs
5. The stock exchanges, fulfilling the criteria stated at para 4 (A) above, may submit the
detailed proposal incorporating requisite systems stated at para 4 (B) and mechanism
to discharge responsibilities, to SEBI within 30 days from the date of this circular.
6. This circular is issued in exercise of powers conferred under Section 11(1) of the Securities
and Exchange Board of India Act, 1992 read with Regulation 14(2) of IA Regulations to
protect the interests of investors in securities and to promote the development of, and to
regulate the securities market.
7. The circular is available on SEBI website at www.sebi.gov.in under the categories “Info for
– Investment Advisers” and "Legal framework - Circulars".
Yours faithfully,
Naveen Sharma
General Manager
Investment Management Department
Ph: 022-26449709
Email: naveens@sebi.gov.in
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