Executive Summary:
This circular, issued by the Securities and Exchange Board of India (SEBI) on October 22, 2024, outlines regulations regarding the association of SEBI-regulated entities and their agents with persons providing securities advice or making performance claims. It prohibits such associations unless the person is registered with or permitted by SEBI. Regulated entities must terminate existing contracts with non-compliant persons within three months of the circular's issuance.
Key Points / Main Content:
* **Prohibition of Association:**
* SEBI-regulated entities (including stock exchanges, clearing corporations, and depositories) and their agents are prohibited from associating with persons who:
* Provide advice or recommendations on securities without SEBI registration or permission.
* Make claims about returns or performance of securities without SEBI permission.
* This prohibition does not apply to associations through specified digital platforms.
* **Specified Digital Platform Definition:**
* A specified digital platform is defined as one specified by SEBI that has preventive and curative mechanisms to ensure it is not used for activities related to unauthorized advice or performance claims.
* **Clarification on Investor Education:**
* The term "another person" does not include individuals engaged in investor education, provided they do not provide securities advice or make performance claims without permission.
* **Action Required:**
* Regulated entities and their agents must terminate existing contracts with persons engaged in unauthorized advice or performance claims activities within three months of the circular's issuance (by January 22, 2025).
Impact Analysis:
Registered Intermediaries, Recognized Stock Exchanges, Recognized Clearing Corporations, Registered Depositories:
* Impact: Must ensure compliance with the regulations regarding association with persons providing securities advice or making performance claims. They need to review existing relationships and terminate contracts with non-compliant entities.
* Action Required: Review current associations, terminate non-compliant contracts within three months (by January 22, 2025), and establish processes to prevent future non-compliant associations.
Investment Advisers and Research Analysts (and their Administration and Supervisory Body - IAASBRAASB):
* Impact: Need to be aware of the restrictions on regulated entities associating with unregistered advisors or those making unauthorized performance claims.
* Action Required: Ensure compliance with SEBI regulations if associated with regulated entities.
Persons Providing Securities Advice or Making Performance Claims:
* Impact: Those not registered with or permitted by SEBI may face termination of contracts with regulated entities.
* Action Required: Seek registration/permission from SEBI or cease providing advice/making performance claims to entities regulated by SEBI.
Investors:
* Impact: Intended to protect investors by ensuring that securities advice and performance claims come from registered or authorized sources.
* Action Required: Be aware that regulated entities are restricted in whom they can be associated with regarding advice.
Key Entities Referenced
Securities and Exchange Board of India (SEBI): The regulatory body issuing the circular and responsible for regulating the securities market in India.
Securities and Exchange Board of India Intermediaries Amendment Regulations, 2024: A set of regulations amended by SEBI, pertaining to intermediaries in the securities market.
Securities Contracts Regulation Stock Exchanges and Clearing Corporations Fourth Amendment Regulations, 2024: Regulations related to stock exchanges and clearing corporations, amended by SEBI.
Securities and Exchange Board of India Depositories and Participants Second Amendment Regulations, 2024: Regulations pertaining to depositories and participants in the securities market, amended by SEBI.
BSE Limited: Mentioned as one of the entities to whom the circular is addressed; presumably a recognized stock exchange in India.
Investment Advisers and Research Analysts (IAASBRAASB): Administration and supervisory body for Investment Advisers and Research Analysts
Securities and Exchange Board of India Act, 1992: The act under which SEBI derives its powers.
Securities and Exchange Board of India Intermediaries Regulations, 2008: Regulations related to intermediaries
भारतीय (cid:366)ितभूित और िविनमय बोड(cid:330)
Securities and Exchange Board of India
CIRCULAR
SEBI/HO/MIRSD/ MIRSD-PoD-1/P/CIR/2024/143 October 22, 2024
To,
All registered Intermediaries
All recognized Stock Exchanges
All recognized Clearing Corporations
All registered Depositories
BSE Limited (Administration and supervisory body for Investment Advisers and
Research Analysts- IAASB/RAASB)
Sir / Madam,
Sub: Association of persons regulated by the Board and their agents with certain
persons
1. Securities and Exchange Board of India (Intermediaries) (Amendment) Regulations,
2024, Securities Contracts (Regulation) (Stock Exchanges and Clearing
Corporations) (Fourth Amendment) Regulations, 2024 and Securities and Exchange
Board of India (Depositories and Participants) (Second Amendment) Regulations,
2024 have been notified by SEBI on August 26, 2024.
2. These regulations inter alia provide that persons regulated by the Board (including
recognised stock exchanges, clearing corporations and depositories), and agents of
such persons shall not have any direct or indirect association with another person
who-
(i) provides advice or any recommendation, directly or indirectly, in respect of or
related to a security or securities, unless the person is registered with or
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Securities and Exchange Board of India
otherwise permitted by the Board to provide such advice or recommendation;
or
(ii) makes any claim, of returns or performance expressly or impliedly, in respect
of or related to a security or securities, unless the person has been permitted
by the Board to make such a claim.
The aforesaid provisions are not applicable in respect of an association through a
“specified digital platform”.
The person regulated by the Board (including recognised stock exchanges, clearing
corporations and depositories) is required to ensure that any person associated with
it or its agent does not engage in the activities mentioned in clauses (i) or (ii) above
without the necessary permission.
3. In terms of these regulations, a “specified digital platform” shall mean digital platform
as specified by the Board, which has a mechanism in place to take preventive as
well as curative action, to the satisfaction of the Board, to ensure that such a
platform is not used for indulging in any activity as referred to in clauses (i) or (ii) of
paragraph 2 of this circular.
4. It has been clarified that the term “another person” shall not include a person who is
engaged in investor education, provided that such a person does not, directly or
indirectly, indulge in any activity as referred to in clauses (i) or (ii) of paragraph 2 of
this circular.
5. While the guidelines on the preventive and curative measures for the digital
platforms for their recognition as specified digital platform are being specified
separately, the persons regulated by the Board (including recognised stock
exchanges, clearing corporations and depositories), and their agents are advised to
terminate their existing contracts, if any, with persons engaged in the activities
mentioned in clauses (i) or (ii) of paragraph 2 of this circular, within three months
from the date of issuance 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 16A of
Securities and Exchange Board of India (Intermediaries) Regulations, 2008,
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Securities and Exchange Board of India
Regulations 44B of Securities Contracts (Regulation) (Stock Exchanges and
Clearing Corporations) Regulations, 2018 and Regulation 82B of Securities and
Exchange Board of India (Depositories and Participants) Regulations, 2018, to
protect the interests of investors in securities market and to promote the
development of, and to regulate the securities market.
7. This circular is available on the SEBI website at www.sebi.gov.in under the
category "Legal Circulars".
Yours faithfully,
Aradhana Verma
General Manager
Tel. No. 022-26449633
aradhanad@sebi.gov.in
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