Securities and Exchange Board of India

Notice inviting comments on the recommendation made by High Level Committee under the Chairmanship of Justice A. R. Dave, Retired Judge, Supreme Court of India, on the Measures for Strengthening the Enforcement Mechanism of the Board and Incidental Issues.

Dated the 16th June, 2020

1. The High Level Committee under the Chairmanship of Justice A. R. Dave, Retired Judge, Supreme Court of India has submitted the Report on the Measures for Strengthening the Enforcement Mechanism of the Board and Incidental Issues.

2. Suggestions/comments if any, on the following recommendations of the High-level Committee, are invited:

2.1 Amendment to the Securities and Exchange Board of India (Intermediaries) Regulations, 2008;

2.2 Comprehensive Regulations for Recovery, to clarify issues relating to recovery in the context of the securities laws;

2.3 Use of financial economics by the Board, as used in similar disclosure based market regimes and proposal for a method of quantification of profit(s) made by the defaulter and loss(s) caused to the investors;

3. Details of the recommendations are in the Annexure.

4. Suggestions/comments if any, on the said recommendations along with justification in brief may be sent, latest by July 07, 2020 through email at publiccommentsdop1@sebi.gov.in. The name, telephone number and address of the sender should be clearly indicated at the time of sending suggestions/comments.

Name, Address, Contact No. of Stakeholder__________________________

SL. No. Para No. Suggestion Justification

ANNEXURE

GLOSSARY

Sr. No. Terms Used Meaning
1. AO Adjudicating Officer
2. Board The Securities and Exchange Board of India
3. Depositories Act Depositories Act, 1996
4. DA Designated Authority
5. DM Designated Member
6. FCA Financial Conduct Authority
7. IBBI The Insolvency and Bankruptcy Board of India
8. IBC Insolvency and Bankruptcy Code, 2016
9. SAT Securities Appellate Tribunal
10. Settlement Regulations Securities and Exchange Board of India (Settlement Proceedings) Regulations, 2018
11. Intermediaries Regulations Securities and Exchange Board of India (Intermediaries) Regulations, 2008
12. SCRA Securities Contracts (Regulation) Act, 1956
13. SEBI Securities and Exchange Board of India
14. SEBI Act The Securities and Exchange Board of India Act, 1992
15. SEC US Securities and Exchange Commission
16. WTM Whole Time Member

PART-A

REVIEW OF THE INTERMEDIARIES REGULATIONS

I. INTRODUCTION

Intermediaries operate as the bridge between capital providers and capital seekers in the securities market. The capital providers i.e. the investors, especially retail investors, do not have adequate information, knowledge or expertise and the capital seekers i.e. the issuers do not have adequate resources to reach out to individual investors spread across the world. Therefore, intermediaries play a very crucial role in making the market matrix, and ensuring smooth working of anonymous order-driven trading platforms.

DEFINING INTERMEDIARIES

The Committee notes that although only Chapters V, V-A and VI of the Securities and Exchange Board of India (Intermediaries) Regulations, 2008 (“Intermediaries Regulations”) have been notified and are in force, the definition of an intermediary under regulation 2(1)(g) is not yet operative. For the purpose of the Report, it may be referred to in order to understand the concept from a regulatory perspective since the other statutes do not offer any principle based definition of the term “intermediary”. The Intermediaries Regulations has defined the term “intermediary” as follows:

“Regulation 2 (1) (g) – “intermediary” means a person mentioned in clauses (b) and (ba) of sub-section (2) of section 11 and sub-section (1) and (1A) of section 12 of the [SEBI] (supplied) Act and includes an asset management company in relation to the Securities and Exchange Board of India (Mutual Funds) Regulations, 1996, a clearing member of a clearing corporation or clearing house, foreign portfolio investors and a trading member of a derivative segment or currency derivatives segment of a stock exchange but does not include foreign venture capital investor, mutual fund, collective investment scheme and venture capital fund;”

The intermediaries mentioned in clauses (b) and (ba) of sub-section (2) of section 11 and sub-section (1) and (1A) of section 12 of the SEBI Act are given below:

i) stock brokers;

ii) sub-brokers (this category has since ceased to exist);

iii) share transfer agents;

iv) bankers to an issue;

v) trustees of trust deeds;

vi) registrars to an issue;

vii) merchant bankers;

viii) underwriters;

ix) portfolio managers;

x) investment advisers;

xi) depositories and their participants;

xii) custodians of securities;

xiii) foreign institutional investors;

xiv) credit rating agencies

xv) such other intermediaries who may be associated with the securities markets in any manner or such other intermediaries as the Board may, by notification, specify in this behalf.

The definition of “intermediary” is inclusive although the term “intermediary” as defined in the Intermediaries Regulations, specifically includes and excludes certain types of persons associated with the securities markets. Thus, even other market participants, which provide services akin to that of an intermediary, albeit not specifically included in the definition, would come under the purview of Intermediaries Regulations.

Several other players in the securities market are required to register under the specific regulations governing them and their activities such as, –

(a) The Securities and Exchange Board of India (Mutual Funds) Regulations, 1996;

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