Category Archives: securities laws

broker dealers

https://ifsca.gov.in/Viewer/Index/249

IFSCA has allowed vide its circular dated 25th November, 2021 global access to its broker dealers registered with itself. For more details read on.

  1. Reference is drawn to the International Financial Services Centres Authority (Capital Market Intermediaries) Regulations, 2021 (CMI Regulations) published in the Official Gazette on October 20, 2021.
  2. This circular is applicable on the broker dealers incorporated in the International Financial Services Centre (IFSC) and does not apply to foreign broker dealers operating in the form of branch in the IFSC.
  3. It has been decided that registered broker dealers incorporated in IFSC shall be permitted to access exchanges in jurisdictions outside IFSC, subject to compliance with Chapter V of the CMI Regulations and the conditions laid out in this circular.
  4. The broker dealer shall be permitted to access exchanges outside IFSC through any of the following manners:
    a) Cross-border arrangement with an entity providing access to an exchange outside IFSC, provided that such entity is a regulated entity in the other jurisdiction; or
    b) Registering itself as a trading member of an exchange outside IFSC: Provided that the broker dealer is trading on its proprietary account and does not have any client dealing.
  5. The broker dealer shall seek a no-objection from the recognised stock exchange(s) in IFSC before availing global access. The recognised stock exchange(s) in IFSC may refuse to grant NOC if there are any regulatory concerns particularly with respect to risk management arising out of the activities of the broker dealer in the recognised stock exchange(s) in the IFSC.
  6. Further, the recognised stock exchange(s) may either facilitate or restrict global access to any broker dealer based on their risk assessment emerging out of such access.
  7. The broker dealer shall have adequate resources commensurate with its operations (including global access) within the IFSC.
  8. The broker dealer providing global access shall comply with Chapter V of the CMI Regulations, including the following:
    a) The broker dealer shall ring fence its IFSC related capital market activities with its cross-border operations. The broker dealer shall ensure that the funds and securities of the clients for trading on the IFSC exchanges shall be segregated from the global access.
    b) The broker dealer shall ensure that true, correct and adequate disclosures (including risks) are made to its clients regarding its cross-border business. In this regard, the broker dealer shall ensure that the roles and responsibilities of all the entities involved in the global access, risks associated with such trades, the applicable dispute resolution mechanisms and investor grievance
    redressal mechanisms relating to global access shall be adequately disclosed to the clients.
  9. The broker dealer providing global access shall ensure to categorically disclose to its clients that the following resources of the recognised stock exchanges in the IFSC shall not be available to the clients for their global access:
    i. Rights of investors or investor protection;
    ii. Dispute resolution mechanism; and
    iii. Investor grievance redressal mechanism.
  10. The broker dealer having global access shall submit the following additional report to the recognised stock exchange(s) in accordance with the prescribed format, on an annual basis, within 30 days from the end of financial year:
    a) Information regarding global access:
     Details of no-objection received from recognised stock exchanges;
     Details of commencement of operations of global access (date, names of entities through which arrangement has been done for providing global access and their regulatory status, list of exchanges, types of securities, role and responsibilities of broker dealer).
    b) Information on size of business:
     Number of clients and trading volumes for each exchange (with breakup for each type of securities);
     Number of clients and trading volumes on the recognised stock exchanges in the IFSC (with break-up for each type of securities).
    c) Other material information:
     Details of any incidence of default on any exchange;
     Assessment and declaration of conflicts of interest arising out of the global access;
     Declaration that the broker dealer is not aware of any material adverse information relating to the global access that would impact the broker dealer.

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complaints against stock exchanges

SEBI has vide its circular dated 23rd November, 2021 mandated that all stock exchanges (excluding commodity derivates exchanges) and depositories and clearing corporations should display on their respective website, data on the complaints received against them and their redressal thereof, by 7th of the succeeding month. There is a format given for that purpose. This requirement will come into effect from the 1st of January, 2022 onwards.

https://www.sebi.gov.in/legal/circulars/nov-2021/disclosure-of-complaints-against-the-stock-exchanges-excluding-commodity-derivatives-exchanges-depositories-clearing-corporations_54165.html

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investor charter

https://www.sebi.gov.in/legal/circulars/nov-2021/publishing-investor-charter-and-disclosure-of-complaints-by-merchant-bankers-on-their-websites_54147.html

SEBI has vide its circular dated 23rd November, 2021 mandated merchant bankers to publish on their websites investors’ charter for various items such as IPOs, buyback, delisting, QIP, preferential issues, takeovers etc. This is slated for compliance from 1st January, 2022 onwards.

The operative part of their circular is given below:

With a view to provide investors an idea about the various activities pertaining to primary market issuances as well as exit options like Takeovers, Buybacks or Delistings, an Investor Charter has been developed in consultation with the Merchant Bankers.

  1. This charter is a brief document in an easy to understand language and contains different
    services to the investors at one single place for ease of reference.
  2. All the registered Merchant Bankers are hereby advised to disclose on their website, Investor
    Charter for each of the following categories, as provided at Annexure-‘A’ to this circular, –
    3.1. Initial Public Offer (IPO) and Further Public Offer (FPO) including Offer for Sale (OFS);
    3.2. Rights Issue;
    3.3. Qualified Institutions Placement (QIP);
    3.4. Preferential Issue;
    3.5. SME IPO and FPO including OFS;
    3.6. Buyback of Securities;
    3.7. Delisting of Equity Shares;
    3.8. Substantial Acquisitions of Shares and Takeovers.
  3. Additionally, in order to bring about transparency in the Investor Grievance Redressal Mechanism, it has also been decided that all the registered Merchant Bankers shall disclose on their respective websites, the data on complaints received against them or against issues dealt by them and redressal thereof, on each of the aforesaid categories separately as well as collectively, latest by 7th of succeeding month, as per the format enclosed at Annexure-‘B’ to this circular.
  4. These disclosure requirements are in addition to those already mandated by SEBI.
  5. The provisions of this circular shall come into effect from January 01, 2022

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current accounts of stock brokers

SEBI has vide its circular dated 28th October, 2021 allowed stock stock brokers to maintain multiple current accounts in various banks/ branches in various cities for various purposes such as client accounts, settlement accounts, exchange dues accounts as they may require. This has been necessitated due to the RBI circular dated 6th August, 2020 clamping down on current accounts being maintained where the account holder also has a borrowing account with the same bank. But considering the hue and cry raised by the industry, RBI later on 14th December, 2020 gave some relief by way of regulatory intervention. IRDAI had issued a similar such circular to its insurance intermediaries.

You can access the copy of the above circular here i.e .https://www.sebi.gov.in/legal/circulars/oct-2021/maintenance-of-current-accounts-in-multiple-banks-by-stock-brokers_53576.html

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benchmarks of mutual funds

SEBI has laid down guiding principles for benchmarking of mutual funds by introducing a two tier structure in the case of income/ debt oriented schemes and growth/ equity oriented schemes, single tier in case of hybrid/ solution oriented schemes, thematic/ sectoral schemes, exhange funds/ ETFs, and Fund of Funds schemes. Please read on for details

https://www.sebi.gov.in/legal/circulars/oct-2021/guiding-principles-for-bringing-uniformity-in-benchmarks-of-mutual-fund-schemes_53539.html

  1. In order to standardize and bring uniformity in the Benchmarks of Mutual Fund Schemes and taking into account the recommendations of Mutual Fund Advisory Committee (MFAC), it has been decided that there would be twotiered structure for benchmarking of schemes for certain categories of schemes. The first tier benchmark shall be reflective of the category of the scheme, and the second tier benchmark should be demonstrative of the investment style / strategy of the Fund Manager within the category. All the benchmarks followed should necessarily be Total Return Indices.
  2. The following are the guiding principles for first tier benchmarks:
    i. For Income / Debt Oriented Schemes
    First Tier: One Broad Market Index per Index Provider for each category e.g.: NIFTY Ultra Short Duration Debt Index or CRISIL Ultra Short Term Debt Index for Ultra Short Duration Fund Category
    Second Tier: Bespoke according to Investment Style/Strategy of the Index e.g.: AAA Bond Index
    ii. For Growth / Equity Oriented Schemes
    First Tier: One Broad Market Index per Index Provider for each category e.g.: S&P BSE 100 Index or NSE 100 Index for Large Cap Fund Category
    Second Tier: Bespoke according to Investment Style/Strategy of the Index e.g.: Nifty 50 Index
    iii. For Hybrid and Solution Oriented Schemes:
    There would be a single benchmark, i.e., Broad Market Benchmark wherever available or bespoke to be created for schemes, which would then be applicable across industry.
    iv. For Thematic / Sectoral schemes:
    There would be a single benchmark as characteristics of the schemes are already tapered according to the theme/sector.
    v. For Index Funds and Exchange Traded Funds (ETFs):
    There would be a single benchmark as these schemes replicate an underlying index.
    vi. For Fund of Funds Schemes (FoFs):
    Similar to Index Fund and ETFs, if a FoF scheme is investing in a single fund, then benchmark of the underlying scheme shall be used for corresponding FoF. However, in case a FoF scheme invests in multiple schemes, then Broad
    Market Index shall be applied.
    vii. For Other Schemes:
    Depending on underlying asset allocation, Broad Market benchmark may be arrived at.
  3. AMFI is advised to publish:
    (a) Benchmarks intended to be used by AMCs as first tier benchmarks within a period of one month from the date of issuance of this circular.
    (b) Benchmarks intended to be used as first tier benchmark by AMCs for open ended debt schemes as per the Potential Risk Class Matrix on or before December 1, 2021.
  4. The second tier Benchmark is optional and shall be decided by the AMCs according to Investment Style/Strategy of the Index.
    Applicability of the circular
  5. The framework specified by AMFI as referred at para 3(a) above shall come into force with effect from December 1, 2021 and the framework specified by AMFI as referred at para 3(b) above shall come into force with effect from January 1, 2022.

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investment advisors

SEBI mandate to the registered investment advisors that they should not deal in unregulated products including digital gold.

It is surprising that SEBI has not mentioned crypto currencies like bitcoins because i see advertisements being openly showed on the OTT platform for trading in bitcoins even though there is no regulation currently in place for bitcoins. So if the bitcoins are not officially allowed and it is not a legal tender or a security or a negotiable instrument or currency, then how come advertisements are allowed. There is one advertisement which asks people to deposit as low as Rs.100 in bitcoins and to do SIP in bitcoins. Frankly how many people know the real meaning of bitcoins. Its a dangerous territory and sooner that regulators wake up the better.

Copy of SEBI press release regarding digital gold given below.

https://www.sebi.gov.in/media/press-releases/oct-2021/dealing-in-unregulated-products-by-sebi-registered-investment-advisers_53370.html

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SCORES platform

SEBI has vide its circular dated 14th October, 2021 opened up the SCORES platform for companies intending to list its securities on the main board as well as on the SME/ Debt platform of the exchanges.

In case of listing on main board, the Draft red herring prospectus (DRHP) should have been filed with SEBI and in case of SME/ Debt platform, either an application to list its securities has been submitted or in-principle approval has been obtained from the stock exhanges. Only after these events has taken place, can an intending company get the SCORES registration done. The compliance officer of the company should submit a declaration signed by him and attach it with the online application.

You can read the circular here.

https://www.sebi.gov.in/legal/circulars/oct-2021/streamlining-of-issuance-of-scores-authentication_53291.html

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transmission of securities

SEBI has mandated vide its circular dated 18th April, 2021 that all case of transmission of shares where the shares are held jointly, are to be transmitted to the surviving joint shareholder under the provisions of section 56(2) and 56(4)(c) of the Companies Act, 2013.

Section 56(2) says “nothing in sub-section (1) shall prejudice the power of the company to register, on receipt of an intimation of transmission of any right to securities by operation of law from any person to whom such right has been transmitted.”

Section 56(4)(c) specifies a time limit of one month from the date of receipt of the documents, within which the certificates have to be delivered post transmission.

The SEBI circular can be found here

https://www.sebi.gov.in/legal/circulars/oct-2021/transmission-of-securities-to-joint-holder-s-_53313.html

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complaints against SE and clearing corpn

SEBI has vide its circular dated 4th October, 2021 mandated that stock exchanges and clearing corporation will have to disclose on their websites, complaints received against them and redressed each month by the 7th of next month. This will come into effect from 1st January, 2022.

Read on

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related party transactions

SEBI has in its board meeting held on 28th September, 2021 review the provisions relating to related party transactions (RPT) and made the following changes in the Listing Obligations and Disclosure Requirements Regulations. The amendment in the LODR will of course come later in due course of time.

It seeks enhanced disclosure and approval process for RPTs. The gist of the changes are given below.

The Board considered and approved the amendments to SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, in relation to regulatory provisions on related party transactions (RPTs). Key amendments are as follows:
I. The definition of related party shall include:
a. all persons or entities forming part of promoter or promoter group irrespective of their shareholding;
b. any person/entity holding equity shares in the listed entity, as below, either directly or on a beneficial interest basis at any time during the immediately preceding financial year:
i. to the extent of 20 % or more
ii. to the extent of 10% or more w.e.f. April 1, 2023.
II. The definition of RPT shall include transactions between:
a. the listed entity or any of its subsidiaries on one hand and a related party of the listed entity or any of its subsidiaries on the other hand;
b. the listed entity or any of its subsidiaries on one hand, and any other person or entity on the other hand, the purpose and effect of which is to benefit a related party of the listed entity or any of
its subsidiaries w.e.f. April 1, 2023.
III.Prior approval of the shareholders of the listed entity shall be required for material RPTs having a threshold of lower of Rs. 1000 crore or 10% of the consolidated annual turnover of the listed entity.
IV. Approval of the Audit committee shall be required for
a. All RPTs and subsequent material modifications as defined by the Audit committee;
b. RPTs where subsidiary is a party but listed entity is not a party subject to threshold of
i. 10% of the consolidated turnover of the listed entity,
ii. 10% of the standalone turnover of the subsidiary w.e.f. April 1, 2023.
V. Enhanced disclosure of information related to RPTs to be:
a. placed before the audit committee,
b. provided in the notice to shareholders for material RPTs, and
c. provided to the stock exchanges every six months in the format specified by the Board with the following timelines:
i. within 15 days from the date of publication of financials;
ii. simultaneously with the financials w.e.f. April 1, 2023.
The amendments shall come into force with effect from April 1, 2022 unless otherwise specified above.

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superior voting rights

SEBI has in its Board meeting held on 28th September, 2021 tweaked some of the provisions of superior voting rights to make it more amenable and less bureacratic to techno centric promoters in start ups etc.

Read on.

The Board decided to relax the eligibility requirements related to Superior Voting Rights (SR) Shares framework as follows:
Earlier, in 2019, SEBI had introduced superior voting rights (SR) framework specifically for issuer companies intensive in use of technology. The framework allows issuance of SR shares to promoters/ founders holding executive position in the company desirous of listing on the Main Board. The framework also has checks and balances such as coat tail provisions –i.e. matters in which SR shares shall have the same rights as that of ordinary shares and sunset clause i.e. time period until which such an SR shareholder shall enjoy superior voting rights.
i. As per the existing provisions, an SR shareholder should not be part of promoter group having net worth more than INR 500 crs. This has been changed to require that the SR shareholder, as an individual, should not have net-worth of more than INR 1000 crs.
ii. The minimum gap between issuance of SR shares and filing of Red Herring Prospectus is reduced to 3 months from the existing requirement of 6 months.

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delisting pursuant to open offer

SEBI has in its Board meeting held on 28th September, 2021 sought to simplify the procedures especially when the acquirer seeks to delist the company along with the open offer being made under the Takeover regulations. The existing procedure was a complicated three step process which was cumbersome and time consuming. Now the acquirer can make a delisting offer along with the open offer itself and if he crosses the 90% threshold, then all shareholders will get the delisting prices, otherwise it will be the takeover price which will come into effect.

The detailed note on this is given below as per SEBI press release:

The Board approved the proposal to amend the existing regulatory framework for delisting of equity shares pursuant to open offer as provided under the extant Regulation 5A of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 (Takeover Regulations).

Under the existing framework, if an open offer is triggered, compliance with Takeover Regulations could take the incoming acquirer’s holding to above 75% or perhaps even 90%, however, to ensure compliance with Securities Contract (Regulation) Rules, 1957 (SCRR) the acquirer would be forced to first bring his
stake down to 75% as the SEBI (Delisting of Equity Shares) Regulations, 2021 (Delisting Regulations) would not let the acquirer even to attempt at delisting unless the holding is first brought down to 75%. Such directionally contradictory transactions in a sequence pose complexity in the takeover of listed companies especially where the acquirer desires to get the company delisted pursuant to his take over.


The revised framework aims to make M&A transactions for listed companies a more rational and convenient exercise, balancing the interest of all investors in the process. The key features of revised framework for delisting pursuant to an open offer are as under: –

  1. The framework shall be made available in the case of open offers under the Takeover Regulations for an incoming acquirer who is seeking to acquire control under Regulation 3(1) or Regulation 4 or Regulation 5.
  2. If the acquirer is desirous of delisting the target company, the acquirer must propose a higher price for delisting with suitable premium over open offer price.
  3. If the response to the open offer leads to the delisting threshold of 90% being met, all shareholders who tender their shares shall be paid the same delisting price and if the response to the offer leads to the delisting threshold of 90% not being met, all shareholders who tender their shares shall be paid the same takeover price.
  4. If a company does not get delisted pursuant to the open offer under this framework, and the acquirer crosses 75% due to the open offer, a period of 12 months from the date of completion of the open offer will be provided to the acquirer to make further attempts to delist the company under the Delisting Regulations using the reverse book building mechanism. If delisting during this extended 12-month period is not successful, the acquirer then must comply with the minimum public shareholding norm within a period of 12 months from the end of such period.
  5. If the acquirer at the time of open offer, states upfront that it would opt for remaining listed, and the total stake at the end of the tendering period reaches above 75%, then the acquirer may opt for either proportionately scaling down of purchases made under both, i.e. the underlying share purchase agreement and the shares tendered under open offer, in such a manner that the 75% threshold is never crossed or alternatively, the acquirer shall have to become compliant with minimum public shareholding within the time stipulated under SCRR.
  6. While undertaking delisting under this framework, all the provisions of the Delisting Regulations shall be applicable mutatis-mutandis, save otherwise provided in this framework.

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social stock exchange

SEBI has in its Board meeting held on 28th September, 2021 approved a concept of social stock exchange for the fund raising by social enterprises i.e. NGOs established as Trusts or societies or section 8 companies. The regulatory architecture will be formed by SEBI in this regard. It will obviously be under the ambit of SEBI with audit, reporting mechanism in place.

Moot point to consider what will happen to the CSR funds that companies have to spend on as part of their CSR obligations under section 135 of the companies act, 2013. If NGOs are able to tap funds directly from the public via a listing route, then would they go to corporates to seek the CSR funds. Food for thought.

The salient features of social stock exchange are given below:

The Board approved the creation of the Social Stock Exchange (SSE), under the regulatory ambit of SEBI, for fund raising by social enterprises (SE). The framework for the SSE has been developed on the basis of the recommendations of a working group and a technical group constituted by SEBI. The salient features of the framework approved by the Board are as follows:
i. SSE shall be a separate segment of the existing stock exchanges
ii. Social Enterprises eligible to participate in SSE, shall be entities (NonProfit Organization – NPO and For-Profit Social Enterprise – FPE) having social intent and impact as their primary goals. Social Enterprises will have to engage in a social activity out of the list of 15 broad eligible social activities approved by the Board.
iii. Eligible NPOs may raise funds through equity, Zero Coupon Zero Principal (ZCZP) bonds, Mutual Funds, Social Impact Funds, and Development Impact Bonds. NPOs desirous of raising funds on SSE shall be required to be registered with SSE.
iv. Social Venture Funds under SEBI (Alternative Investment Funds) Regulations will be rechristened as Social Impact Funds (SIFs). The corpus requirements for such funds shall be reduced from Rs. 20 crs. to
Rs. 5 crs. Further, the reference to “muted returns” shall be removed.
v. SEBI shall make suitable amendments to its regulatory framework, towards mandating initial and continuous disclosures for Social Enterprises, covering aspects relating to governance, financial and social
impact.
vi. Audit of social impact, i.e. social audit shall be mandated for SEs raising funds/ registered on SSE. To begin with only reputed firms/institutions having expertise in the area of social audit shall be allowed to carry out social audits employing social auditors who have qualified the certification course conducted by NISM. A separate sustainability directorate under ICAI shall function as an SRO for Social Auditors.
vii. SEBI shall engage with NABARD, SIDBI and stock exchanges towards institution of a capacity building fund, with a corpus of Rs 100 Crores.

Operationalization of the above framework will require amendments to applicable regulations such as ICDR Regulations, LODR Regulations, AIF Regulations, Mutual Fund Regulations etc. which will be taken up by SEBI.

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fee structure for DP in IFSC

IFSCA circular dated 27th July, 2021 laying down fee structure for setting up a Depository Participant in the IFSC GIFT City.

  1. The depository participants have been permitted to operate in GIFT-IFSC in terms of the applicable provisions under SEBI (International Financial Services Centres) Guidelines, 2015, as amended from time to time.
  2. The fee structure for Depository Participants in GIFT-IFSC shall be as follows:
    i. Application fee of USD 500 at the time of application for registration;
    ii. Registration fee of USD 2,500;
    iii. Fee of USD 2,500 every five years post registration.
  3. The fees shall be remitted to the following account of IFSCA:
    Account Name: International Financial Services Centres Authority
    Account Number: 970105000174
    Type of Account: USD Current Account
    SWIFT Code: ICICINBBIBU
    NOSTRO Details: BOFAUS3N, Bank of America, N.A., New York Branch, A/c no: 6550491848

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schemes filed by AMCs – timelines

SEBI circular dated 23rd July, 2021 wherein they have specified that if SEBI does not suggest modification or review in any scheme documents filed by mutual funds, within 21 days, then it will be deemed as approved. Read on .

In order to promote ease of doing business and bring uniformity in the timelines for processing of scheme related applications filed by AMCs, the following has been decided:

  1. The application filed by AMCs for the following matters may be deemed to be taken on record in case no modifications are suggested or no queries are raised by SEBI within 21 working days:
     Change in the Fundamental Attributes of a scheme
     Merger/Consolidation of Schemes
     Rollover of Close-ended schemes
     Conversion of Close-ended scheme to Open ended scheme
  2. In respect of applications filed by AMCs under Regulation 24 (b) of SEBI (Mutual Funds) Regulations, 1996, no objection will have been deemed to be communicated in case no modifications are suggested or no queries are raised by SEBI within 21 working days.
  3. The timelines mentioned at para 1 and 2 above shall generally be adhered to (a) provided the application is complete in all respects and in compliance with all the relevant Regulations and circulars issued by SEBI. (b) except in cases where subject matter of approval requires a policy view to be taken or presents a unique situation which requires wider
    consultation and deliberation.
  4. The circular shall be applicable for all the applications received on or after September 01, 2021.

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