Any group or association of intermediaries, desirous of being recognized as a Self Regulatory Organization, may form a company as per the provisions of section 8 of the Companies Act, 2013 and make an application to the SEBI for grant of certificate of recognition as a Self Regulatory Organization.
Following are the examples of SROs in India are:
- Association of Mutual Funds in India (AMFI)
- Association of Merchant Bankers of India (AMBI)
- Registrars Association of India (RAIN)
- Foreign Exchange Dealers Association of India (FEDAI)
Under SRO regulations, the Self Regulatory Organization” means an organization of intermediaries which is representing a particular segment of the securities market and which is duly recognised by the SEBI but excludes a stock exchange.
The references of ‘intermediary’ has different definition/meaning in acts/regulations and these all can be summarised for easy understanding:
| The Intermediary means the following | Includes | Not Includes |
| – stock brokers
– sub-brokers – share transfer agents – bankers to an issue – trustees of trust deeds – registrars to an issue – merchant bankers – underwriters – portfolio managers – investment advisers – depositories – depositories participants – custodians of securities – foreign institutional investors – credit rating agencies (Others who may be associated with securities markets or SEBI by notification, specify) |
– a company formed and registered under companies act, 1956/2013 and granted approval by the SEBI as AMC under SEBI (Mutual Funds) Regulations, 1996
– a clearing member of a clearing corporation or clearing house – foreign portfolio investors – a trading member of a derivative segment [or currency derivatives segment] of a stock exchange |
– foreign venture capital investor
– mutual fund – collective – investment scheme – venture capital fund |
It is important to note that for the purpose of making application under regulations 3 of the SRO regulations, the ‘distributor’ is considered as deemed intermediary;
| Distributor is | ||
| Any person engaged by; | – intermediary
– company – mutual fund – collective investment scheme – venture capital fund |
for sale/distribution of securities. |
Functions and Obligations of SRO
- Always abide by the directions of the SEBI.
- Responsible for investor protection and education of investors or its members and ensure observance of Securities Laws by its members.
- Specify standard of conduct for its members and responsible for the implementation of the same by its members.
- Conduct inspection and audit of its members, on regular basis, through independent auditors.
- Submit its annual report to the SEBI
- Treat all members and the applications for membership in a fair and transparent manner.
- Promptly inform the SEBI about violations of the provisions of the Act/rules/regulations/directions/circulars/guidelines
- Conduct screening and certification tests for its members, agents and other persons as it may determine
- Conduct training programmes for its members or agents and also conduct awareness programmes for securities market investors.
- Make endeavors for introduction of best business practices amongst its members.
- Act in utmost good faith and shall avoid conflict of interest in the conduct of its functions.
- Comply with the norms of corporate governance as applicable to listed companies.
Also, they may collect admission and membership fees from its members for carrying out the purposes of these regulations and discharge such other functions and obligations as may be specified by the SEBI.
In case of inspection, it is the duty of the Chairman, every director, officer and employee of the SRO, who is being inspected;
- to produce before the inspecting authority or any person authorize; such books, accounts and other documents in their custody or control and
- file the statements and information
- allow the reasonable access to the occupied premises or premises occupied by any other person on their behalf
- extend reasonable facility for examining any books, records, documents and computer data in their possession or any other person and
- provide the copies of documents or other materials which, in the opinion of the inspecting authority are relevant.
The SRO Regulations, 2004 has 5 chapters divided into 24 regulations and two schedules; in brief they are:
Chapter I: PRELIMINARY
- Short title and commencement
- Definitions
Chapter II: RECOGNITION OF SELF REGULATORY ORGANIZATION
- Recognition of Self Regulatory Organization
- Eligibility criteria
- Grant of in-principle approval
- Grant of recognition as a Self Regulatory Organization
- Application to conform to the requirements
- Furnishing of information, clarification and personal representation
- Conditions of certificate and validity period
- Renewal of certificate.
- Procedure where certificate is not granted
- Effect of refusal to grant certificate
Chapter III: COMPOSITION AND FUNCTIONS OF SELF REGULATORY ORGANIZATIONS
- Composition of Board of Directors.
- Membership of Self Regulatory Organization
- Functions and Obligations of Self Regulatory Organization
- Governing norms of Self Regulatory Organization
Chapter IV: INSPECTION AND AUDIT
- Board’s right to inspect
- Procedure for inspection
- Obligations of Self Regulatory Organization on inspection by the Board
- Submission of report to the Board
- Appointment of auditor
- Power of the Board to call for periodical returns or direct inquiries to be made
Chapter V: ACTION IN CASE OF DEFAULT
- Obligation of Board of Directors to take disciplinary action against a member if so directed by the Board.
- Withdrawal of recognition
- Action in case of violation
FIRST SCHEDULE: FORMS
FORM A: Application for recognition / Renewal of a Self Regulatory Organization
FORM B1: Certificate of Recognition
Form B2: Certificate of renewal of Recognition
FORM C: Notice to show cause against the withdrawal of registration
SECOND SCHEDULE: Fee
References:
1. Securities and Exchange Board of India Act, 1992
2. SEBI (Self Regulatory Organizations) Regulations, 2004
3. SEBI (Certification of Associated Persons in the Securities Markets) Regulations, 2007
4. SEBI (Intermediaries) Regulations, 2008
5. SEBI Website/www.sebi.gov.in
6. MCA Website/www.mca.gov.in
7. AI Overview/Generative AI (experimental)
Note: Readers are advised to go through the original content of the act/regulations/given references.
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