The Securities and Exchange Board of India (SEBI) Intermediaries Regulations, 2008, is a significant piece of legislation that governs the activities and conduct of various intermediaries operating in the Indian securities market. SEBI, the regulatory authority for the securities market in India, introduced these regulations to enhance investor protection, ensure market integrity, and promote fair and transparent practices among intermediaries.
The SEBI Intermediaries Regulations, 2008, were introduced by SEBI on September 26, 2008, and came into effect from April 18, 2009. These regulations aim to regulate various intermediaries operating in the Indian securities market, including stockbrokers, depository participants, portfolio managers, investment advisors, merchant bankers, and other market participants. The regulations are designed to ensure that intermediaries maintain high standards of integrity, transparency, and professionalism while dealing with investors and other market participants.
Objectives of SEBI Intermediaries Regulations, 2008:
- Investor Protection: The regulations aim to safeguard the interests of investors and ensure that intermediaries act in the best interest of their clients.
- Market Integrity: SEBI seeks to maintain the integrity and fairness of the securities market by setting guidelines for intermediaries’ conduct and business practices.
- Transparency and Disclosure: Intermediaries are required to provide transparent and accurate information to their clients, ensuring that investors can make well-informed decisions.
- Fair Market Practices: The regulations prohibit unfair practices, market manipulation, and fraudulent activities among intermediaries.
- Professional Standards: SEBI sets professional standards and qualifications for intermediaries to ensure that they possess the necessary skills and expertise to serve their clients effectively.
- Regulatory Compliance: The regulations establish a framework for compliance with SEBI rules and guidelines by all intermediaries operating in the market.
Provisions of SEBI Intermediaries Regulations, 2008:
Registration and Eligibility Criteria:
The regulations specify the eligibility criteria for different categories of intermediaries and the process for obtaining SEBI registration. Intermediaries are required to meet certain capital adequacy requirements, qualifications, and experience criteria to be eligible for registration.
Code of Conduct:
SEBI mandates that all intermediaries adhere to a prescribed code of conduct, which includes maintaining high standards of integrity, fairness, and professionalism in their dealings. The code also emphasizes the importance of confidentiality and due diligence in handling client information.
Fit and Proper Criteria:
The regulations require intermediaries to satisfy the “fit and proper” criteria, which assesses their integrity, reputation, and financial soundness. Only individuals and entities meeting these criteria are allowed to act as intermediaries.
Risk Management and Internal Controls:
Intermediaries are required to implement robust risk management and internal control mechanisms to mitigate risks and ensure compliance with regulatory requirements.
Investor Grievance Redressal:
The regulations mandate that intermediaries have a proper grievance redressal mechanism in place to address investor complaints and resolve disputes in a timely and efficient manner.
Client Registration and KYC:
Intermediaries are responsible for conducting appropriate client due diligence, Know Your Customer (KYC) procedures, and risk profiling before offering services to clients.
Reporting and Disclosures:
Intermediaries are required to submit periodic reports and disclosures to SEBI, providing information on their financials, compliance, and client-related data.
Impact on Different Categories of Intermediaries:
Let’s explore how the SEBI Intermediaries Regulations, 2008, impact different categories of intermediaries:
The regulations set eligibility criteria for stockbrokers, define their code of conduct, and mandate client registration and KYC procedures. Stockbrokers are required to implement robust risk management and internal controls to ensure market integrity and investor protection.
Depository Participants (DPs):
The regulations establish eligibility criteria and fit and proper criteria for DPs. They require DPs to maintain high standards of client service, security, and confidentiality in their operations.
Portfolio managers need to obtain SEBI registration and meet specific capital adequacy requirements. The regulations mandate compliance with the code of conduct, risk management, and reporting obligations for portfolio managers.
The regulations introduce a comprehensive framework for the registration and regulation of investment advisors. Investment advisors are required to act in a fiduciary capacity, disclose conflicts of interest, and provide transparent advice to clients.
Merchant bankers need to adhere to a code of conduct, meet fit and proper criteria, and comply with reporting and disclosure requirements specified by SEBI.
Though mutual funds are primarily regulated under separate SEBI regulations, the SEBI Intermediaries Regulations, 2008, also apply to certain aspects of mutual fund distribution and disclosure.