Summary: SEBI issued a circular on October 22, 2024, outlining restrictions on associations between regulated entities (such as stock exchanges, clearing corporations, depositories, and intermediaries) and third parties who provide advice or make claims related to securities without SEBI authorization. Under this circular, such entities and their agents are prohibited from directly or indirectly associating with persons offering securities advice or making performance claims unless those persons are registered with or permitted by SEBI. The restrictions, however, do not apply when the association occurs through a “specified digital platform,” which SEBI will define separately. Regulated entities must ensure their agents and associated persons comply with these restrictions and terminate any non-compliant associations within three months. SEBI’s intent is to protect investors and regulate the securities market by ensuring that only authorized individuals or entities provide advice and claims regarding securities. The circular is backed by the authority granted under SEBI regulations and aims to enforce stricter compliance across the securities market. The guidelines for “specified digital platforms” will be issued separately, and the term “another person” does not include those engaged purely in investor education, provided they do not engage in advisory activities without proper authorization.
Circular No.: SEBI/HO/MIRSD/MIRSD-PoD-1/P/CIR/2024/143 dt 22nd Oct 2024
This circular is addressed 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)
Key highlights of the Circular:
- 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.
- 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–
1. 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 otherwise permitted by the Board to provide such advice or recommendation; or
2. 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.
- 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.
- 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.
- 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.
- 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, 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.
section 11(1) of the Securities and Exchange Board of India Act, 1992
Functions of Board.
11.(1) Subject to the provisions of this Act, it shall be the duty of the Board to protect the interests of investors in securities and to promote the development of, and to regulate the securities market, by such measures as it thinks fit.
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