Securities Market Intermediaries

As per Regulation 4 of the SEBI (Credit Rating Agencies) Regulations, 1999, the SEBI shall consider application of any credit rating agency only if it is made by any of the following categories, namely:

(i)A public financial institution;

(ii)A scheduled commercial bank;

(iii)A foreign bank operating in India with the approval of the Reserve Bank of India;

(iv)A foreign credit rating agency incorporated in a Financial Action Task Force (FATF) member jurisdiction and recognised under their law, having a minimum of five years’ experience in rating securities.;

(v)Any company or a body corporate, having continuous net worth of minimum rupees one hundred crore as per its audited annual accounts for the previous five years in relation to the date on which application to SEBI is made seeking registration.

Here, Partnership firm is not covered under Regulation 4 and hence the firm cannot apply for certificate of registration under the SEBI (Credit Rating Agencies) Regulations 1999 irrespective of its net worth.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2019, Q. 1(a) (Old syllabus).

The statement is based on SEBI circular no. SEBI/HO/MIRSD/MIRSD4/CIR/P/2017/ 71 dated 30th June, 2017, issued for Monitoring and Review of Ratings by Credit Rating Agencies (CRAs):

As per regulation 15 of SEBI (Credit Rating Agencies) Regulations, 1999, CRAs are required to continuously monitor the rating of securities and disseminate information regarding newly assigned ratings, and changes in earlier rating, promptly through press releases on website of CRAs as well as all the stock exchanges where the said securities are listed.

Material Events requiring a review

CRAs shall carry out a review of the ratings upon the occurrence of or announcement/ news of material events including, but not restricted to the following:

a.Quarterly/Half-Yearly/Annual results;

b.Merger/Demerger/Amalgamation/Acquisition;

c.Corporate debt restructuring, reference to BIFR and winding-up petition filed by any party/creditors;

d.Significant decline in Share prices/Bond prices of the issuer or group companies which is not linked to overall market movement;

e.Significant increase in debt level or cost of debt of the issuer company;

f.Losses, sharp revenue De-growth, etc. based on publicly disclosed financial statements, which are not in line with CRA's earlier estimates;

g.Granting, withdrawal, surrender, cancellation or suspension of key licences or regulatory approvals;

h.Disruption/commencement/postponement of operations of any unit or division of the listed entity;

i.Any attachment or prohibitory orders against the Issuer;

j.Any rating action taken by an international rating agency with respect to rating assigned to the Issuer/instruments issued by the Issuer.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2018, Q. 6A(ii) (Syllabus 2017).

Regulation 11 of the SEBI (Foreign Portfolio Investors) Regulations, 2019 states that the SEBI shall not consider an application for the grant of approval as designated depository participant unless the applicant satisfies the following conditions, namely:

1)the applicant is a depository participant registered with the SEBI;

2)the applicant is a custodian registered with the SEBI;

3)the applicant is an Authorized Dealer Category-1 bank authorized by the RBI;

4)the applicant has multinational presence either through its branches or through agency relationships with intermediaries regulated in their respective home jurisdictions;

5)the applicant has systems and procedures to comply with the requirements of Financial Action Task Force Standards, Prevention of Money Laundering Act, 2002, Rules prescribed thereunder and the circulars issued from time to time by SEBI;

6)the applicant is a fit and proper person based on the criteria specified in Schedule II of the SEBI (Intermediaries) Regulations, 2008; and

7)any other criteria specified by SEBI from time to time.

The SEBI may consider an application from an entity, regulated in India or in its home jurisdiction, for grant of approval to act as designated depository participant, upon being satisfied that the applicant has sufficient experience in providing custodial services and that the grant of such approval is in the interest of the development of the securities market. After considering an application, SEBI may grant approval to the applicant, if it is satisfied that the applicant is eligible and fulfils the requirements including payment of fees.

An application for grant of approval to act as designated depository participant which is not complete in all respects or is false or misleading in any material particular, shall be deemed to be deficient and shall be liable to be rejected by SEBI after giving a reasonable opportunity to remove the deficiency, within the time as specified by SEBI.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2021, Q. 4(a) (Old syllabus).

Exemption from registration as Investment Advisor

Regulation 4 of the SEBI (Investment Advisers) Regulations, 2013 provides that the following persons are exempted from the requirement of registration as Investment Advisor subject to the fulfilment of the conditions stipulated therefore-

(a)Any person who gives general comments in good faith in regard to trends in the financial or securities market or the economic situation where such comments do not specify any particular securities or investment product.

(b)Any insurance agent or insurance broker who offers investment advice solely in insurance products and is registered with Insurance Regulatory and Development Authority for such activity.

(c)Any pension advisor who offers investment advice solely on pension products and is registered with Pension Fund Regulatory and Development Authority for such activity.

(d)Any distributor of mutual funds, who is a member of a self-regulatory organisation recognised by SEBI or is registered with an association of asset management companies of mutual funds, providing any investment advice to its client's incidental to its primary activity.

(e)Any advocate, solicitor or law firm, who provides investment advice to their clients, incidental to their legal practise.

(f)Any member of Institute of Chartered Accountants of India, Institute of Company Secretaries of India, Institute of Cost and Works Accountants of India, Actuarial Society of India or any other professional body as may be specified by SEBI, who provides investment advice to their clients, incidental to his professional service.

(g)Any stock broker or sub-broker registered under SEBI (Stock Brokers) Regulations, 1992, Portfolio Manager registered under SEBI (Portfolio Managers) Regulations, 1993 or merchant banker registered under SEBI (Merchant Bankers) Regulations, 1992, who provides any investment advice to its client's incidental to their primary activity. However, such intermediaries shall comply with the general obligation(s) and responsibilities as specified in Chapter III of these regulations. Further the existing portfolio manager offering only investment advisory services may apply for registration under these regulations after expiry of his current certificate of registration as a portfolio manager.

(h)Any fund manager, by whatever name called of a mutual fund, alternative investment fund or any other intermediary or entity registered with SEBI.

(i)Any person who provides investment advice exclusively to clients based out of India. However, persons providing investment advice to Non-Resident Indian or Person of Indian Origin shall fall within the purview of these regulations.

(j)Any principal officer, persons associated with advice and partner of an investment adviser which is registered under these regulations. However, such principal officer, persons associated with advice and partner shall comply with these regulations.

(k)Any other person as may be specified by SEBI.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2021, Q. 6A(iv) (Old syllabus).

(i)The SEBI (Investment Advisers) (Second Amendment) Regulations, 2024, introduced the concept of a “part-time investment adviser”, which means an individual or a firm, who for consideration, is engaged in the business of providing investment advice and is also engaged in any other business activity or employment. Thus, part-time investment adviser can continue with other business activities or employment.

(ii)As per Regulation 13 of the SEBI (Investment Advisers) Regulations, 2013 as amended, the number of clients of a part-time investment adviser shall not exceed 75 in total at any point of time. Therefore, in this case, as some of the experienced part-time advisers are handling close to 100 clients, which are in contravention to the limits prescribed under the SEBI (Investment Advisers) Regulations, 2013.

(iii)SEBI (Investment Advisers) Regulations, 2013 and SEBI (Intermediaries) Regulations, 2008, as may be amended from time to time, are applicable to Sun Advisory Services.

(iv)An investment adviser is no longer required to meet a criteria of net worth under the SEBI (Investment Advisers) Regulations, 2013. The investment adviser requires to maintain a deposit of such sum as specified by the SEBI, which is based on the number of clients.

(v)An investment adviser is required to get yearly audit from a member of the Institute of Company Secretaries of India or Institute of Chartered Accountants of India or Institute of Cost Accountants of India within 6 months from the end of each financial year, in order to check the whether the Requirements of the SEBI (Investment Advisers) Regulations, 2013 are complied with.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2026, Q. 1(b) (Syllabus 2022).

Conditions of certificate

As per Regulation 9(1) of the SEBI (Intermediaries) Regulations, 2008, any certificate granted by the SEBI to an intermediary shall be subject to the condition, namely:—

(a)where the intermediary proposes to change its status or constitution, it shall obtain prior approval of the SEBI for continuing to act as an intermediary after such change in status or constitution;

(b)it has to pay the applicable fees in accordance with the relevant regulations;

(c)it shall abide by the provisions of the securities laws and the directions, guidelines and circulars as may be issued thereunder;

(d)it shall continuously comply with the requirements of regulation 4;

(e)it shall meet the eligibility criteria and other requirements specified in SEBI (Intermediaries) Regulations, 2008 and the relevant regulations.

The SEBI may impose other conditions as it may deem fit in the interest of investors or orderly development of the securities market or for regulation of the working of the intermediary and the intermediary shall comply with such conditions.

(2)A request for prior approval, under clause (a) of sub regulation (1) which is complete in all respects shall be disposed off by the SEBI within a period of sixty days from the date of receipt of such request and where the decision of the SEBI has not been communicated to the intermediary within the said period of sixty days, the prior approval shall be deemed to have been granted.

(3)The request for prior approval under clause (a) of sub regulation (1) shall contain the information in Form A in respect of the intermediary after the proposed change in status or constitution and the information under Part I of Form A shall be uploaded in the website specified by the SEBI.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2022, Q. 5(c) (Syllabus 2017).

Regulation 17 of the SEBI (Research Analysts) Regulations, 2014, deals with the Compensation of Research Analysts:

•Research entity shall not pay any bonus, salary or other form of compensation to any individual employed as research analyst that is determined or based on any specific merchant banking or investment banking or brokerage services transaction.

•The compensation of all individuals employed as research analyst shall be reviewed, documented and approved annually by Board of Directors/ Committee appointed by Board of Directors of the research entity, which does not consist of representation from its merchant banking or investment banking or brokerage services divisions.

•The Board of Directors/Committee appointed by Board of Directors of the research entity approving or reviewing the compensation of individual employed as research analyst shall not take into account such individual's contribution to the research entity's investment banking or merchant banking or brokerage services business.

•An individual employed as research analyst by research entity shall not be subject to the supervision or control of any employee of the merchant banking or investment banking or brokerage services divisions of that research entity.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2021, Q. 6A(i) (Old syllabus).

Under the SEBI (Bankers to an Issue) Regulations, 1994, a Banker to an Issue means a scheduled bank or such other banking company as may be specified by the SEBI from time to time, carrying on any of the following activities:

(i)Acceptance of application and application monies;

(ii)Acceptance of allotment or call monies;

(iii)Refund of application monies;

(iv)Payment of dividend or interest warrants;

(v)Providing escrow services for the purposes of issue management, buyback, delisting, or open offer, as required under the relevant regulations made by SEBI;

(vi)Opening of a separate bank account for depositing the proceeds in the initial public offer/ further public offer; and

(vii)Such other activities as may be specified by SEBI.

Bankers to the issue, as the name suggests, carries out all the activities of ensuring that the funds are collected and transferred to the Escrow accounts. While one or more banks may function as Bankers to the Issue as well as collection banks, others may do the limited work of collecting the applications for securities along with the remittance in their numerous branches in different centres. The banks are expected to furnish prompt information and records to the company and to the lead manager for monitoring and progressing the issue work.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2025, Q. 2(d) (Syllabus 2022).

Banker to an Issue means a scheduled bank carrying on all or any of the following activities:

(i)Acceptance of application and application monies;

(ii)Acceptance of allotment or call monies;

(iii)Refund of application monies;

(iv)Payment of dividend or interest warrants.

Bankers to the issue, as the name suggests, carries out all the activities of ensuring that the funds are collected and transferred to the Escrow accounts. The Banks render crucial service in mobilisation of capital for companies.

While one or more banks may function as Bankers to the Issue as well as collection banks, others may do the limited work of collecting the applications for securities along with the remittance in their numerous branches in different centres. The banks are expected to furnish prompt information and records to the company and to the lead manager for monitoring and progressing the issue work. For this purpose, the company has to enter into an agreement with different banks specifying the conditions, terms and remuneration for services to be rendered by each such bank.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2021, Q. 6A(ii) (Old syllabus).

Bankers to an Issue

Banker to an issue means a scheduled bank carrying on all or any of the following activities:

(i)Acceptance of application and application monies;

(ii)Acceptance of allotment or call monies;

(iii)Refund of application monies;

(iv)Payment of dividend or interest warrants.

Bankers to the issue, as the name suggests, carries out all the activities of ensuring that the funds are collected and transferred to the Escrow accounts. While one or more banks may function as Bankers to the issue as well as collection banks, others may do the limited work of collecting the applications for securities along with the remittance in their numerous branches in different centres. The banks are expected to furnish prompt information and records to the company as well as to the lead manager for monitoring and progressing the issue work.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2020, Q. 6(a) (Syllabus 2017).

According to SEBI (Bankers to an Issue) Regulations, 1994, “banker to an issue” means a scheduled bank carrying on all or any of the following activities:

(i)Acceptance of application and application monies;

(ii)Acceptance of allotment or call monies;

(iii)Refund of application monies;

(iv)Payment of dividend or interest warrants.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2018, Q. 6(c) (Syllabus 2017).

In terms of the SEBI (Credit Rating Agencies) Regulations, 1999, Credit Rating Agency means a body corporate which is engaged in, or proposes to be engaged in, the business of rating of securities that are listed or proposed to be listed on a stock exchange recognized by the SEBI.

Minimum net worth requirement for Credit Rating Agency is Rupees 25 crores.

General Obligations of Credit Rating Agency are as under:

1.Every credit rating agency shall abide by the Code of Conduct.

2.Every credit rating agency shall enter into a written agreement with each client whose securities it proposes to rate.

3.Every credit rating agency shall, during the lifetime of securities rated by it continuously monitor the rating of such securities.

4.Every credit rating agency shall disseminate information regarding newly assigned ratings, and changes in earlier rating promptly through press releases and websites, and, in the case of securities issued by listed companies, such information shall also be provided simultaneously to the concerned regional stock exchange and to all the stock exchanges where the said securities are listed.

5.Every credit rating agency shall disclose Rating Definitions and Rationale.

6.Where any information is called for by the SEBI from a credit rating agency for the purposes of the SEBI (Credit Rating Agencies) Regulations, 1999, including any report relating to its activities, the credit rating agency shall furnish such information to the SEBI.

7.Every credit rating agency shall comply with such guidelines, directives, circulars and instructions as may be issued by the SEBI from time to time.

8.Every credit rating agency shall appoint a compliance officer who shall be responsible for monitoring the compliance of the Act, rules and regulations, notifications, guidelines, instructions etc. issued by the SEBI or the Central Government.

9.Every credit rating agency shall keep and maintain books of accounts, records and documents for a minimum period of five years.

10.All claims, differences or disputes between a credit rating agency and its client arising out of or in relation to the activities of the credit rating agency in the securities market shall be submitted to a dispute resolution mechanism that includes mediation and/or conciliation and/or arbitration, in accordance with the procedure specified by SEBI.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2024, Q. 2(b) (Syllabus 2022).

In terms of the (Credit Rating Agencies) Regulations, 1999, a Credit Rating Agency means a body corporate which is engaged in, or proposes to be engaged in, the business of rating of securities that are listed or proposed to be listed on a stock exchange recognized by the SEBI.

Credit rating is extremely important as it not only plays a role in investor protection but also benefits industry as a whole in terms of direct mobilization of savings from individuals. Rating also provides a marketing tool to the company and its investment bankers in placing company’s debt obligations with an investor base that is aware of, and comfortable with, the level of risk. Ratings also encourage discipline amongst corporate borrowers to improve their financial structure and operating risks to obtain a better rating for their debt obligations and thereby lower the cost of borrowing.

The Roles and responsibilities of Credit rating agency are as follow:

1)Every credit rating agency shall abide by the Code of Conduct.

2)Every credit rating agency shall enter into a written agreement with each client whose securities it proposes to rate.

3)Every credit rating agency shall, during the lifetime of securities rated by it continuously monitor the rating of such securities.

4)Every credit rating agency shall disseminate information regarding newly assigned ratings, and changes in earlier rating promptly through press releases and websites, and, in the case of securities issued by listed companies, such information shall also be provided simultaneously to the concerned regional stock exchange and to all the stock exchanges where the said securities are listed.

5)Every credit rating agency shall disclose Rating definition and rationale.

6)Where any information is called for by the SEBI from a credit rating agency, including any report relating to its activities, the credit rating agency shall furnish such information to the SEBI.

7)Every credit rating agency shall comply with such guidelines, directives, circulars and instructions as may be issued by the SEBI from time to time.

8)Every credit rating agency shall appoint a compliance officer who shall be responsible for monitoring the compliance of the Act, rules and regulations, notifications, guidelines, instructions etc. issued by the SEBI or the Central Government.

9)Every credit rating agency shall keep and maintain books of accounts, records and documents for a minimum period of five years.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2024, Q. 6A(iii) (Syllabus 2017).

Credit Watch

When a major deviation from the expected trends of the issuers business occurs, or when an event has taken place, it creates an impact on the debt servicing capability of the issuer and warrants a rating change, the rating agency may put such ratings under credit watch till the exact impact of such unanticipated development is analyzed and decision is taken regarding the rating change. The credit watch listing may also specify positive or negative outlooks. It should be noted that being under credit watch does not necessarily mean that there would be a rating change.

Ownership as a rating consideration

Ownership by a strong concern may enhance the credit rating of an entity, unless there exists a strong barrier separating the activities of the parent and the subsidiary. The important issues involved in deciding the relationship are - the mutual dependence on each other, legal relationship, to what extent one entity has the desire and ability to influence the business of the other and how important is the operation of the subsidiary to the owner.

Rating agency keeps the information provided by the issuer confidential and completes the rating within 2 to 4 weeks. Once the rating is assigned, it is communicated to the issuer, who is given an opportunity to make one request for a review, only in case fresh facts or clarifications become relevant. After these are considered, the final rating is assigned. In India, the issuer has the option of not accepting the assigned rate in which case the rating is not disclosed by the rating agency. However, if the rating is accepted, it comes under the surveillance process of the concerned agency.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2021, Q. 1(c) (Old syllabus).

The factors generally considered for rating of manufacturing companies are as under:

•Industry Risk It is defined as the strength of the industry within the economy and relativity to the economic trends. It is evaluated on the basis of factors like business cyclicality, earnings volatility, growth prospects, demand - supply projections, entry barriers and extent of competition and nature and extent of regulation.

•Company's industry and market position The company's sales position in its major fields and its historical background of its market position is analyzed along with ability to sustain/increase market shares; brand strengths and position; price leadership and distribution and marketing strengths/weaknesses.

•Operating efficiencies

Ability to control costs, productivity efficiencies relative to others, labour relationship, extent of forward and backward integration, access to raw materials/ markets, and technology.

•Accounting Quality

Financial statements are adjusted for non-standard accounting treatments. Overall evaluation of the accounting policies employed and the extent to which they understate or overstate financial performance and position.

These include analysis of auditor's qualifications, revenue recognition, depreciation policy, inventory evaluation, funding for pension liabilities, undervalued assets etc.

•Financial flexibility

Evaluation of the company's financing needs, plans and alternatives, its flexibility to accomplish its financing programmes under stress without damaging creditworthiness.

•Earnings protection

The key measurements which indicate the basic long term earnings power of the company including return on capital, profit margins, earnings from various business segments, sources of future earnings growth, coverage ratios etc.

•Financial leverage

Relative usage of debt and levels of debt appropriate to different types of businesses, utilization of long and short term sources of funds, management of working capital.

•Cash flow adequacy

It is the relationship of cash flows to leverage and the ability to internally meet all cash needs of the business. It measures the magnitude and variability of future cash flows relative to debt servicing obligations and other commitments such as group company funding. BIFR packages and contingent liabilities. This analysis goes into the inherent protective factors for expected cash flows of the company and the sensitivity of these cash flows to changes in variables like raw material costs and selling prices.

•Management evaluation

The record of achievement in operations and financial results, strategic and financial planning, commitment, consistency and credibility, overall quality of management, line of succession, organisation structure and management strategies.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2021, Q. 2A(ii) (Old syllabus).

The rating methodology for financial services companies is based on CAMELS model encompassing Capital adequacy, Asset Quality, Management, Earning, Liquidity, System and Control.

The working group set up by RBI under the chairmanship of Shri S. Padmanabhan recommended that the banks should be rated on the lines of International CAMELS Model. The parameters recommended by the committee are:

(i)Capital Adequacy : It is measured by the ratio of capital to risk- weighted assets. A sound capital base strengthens confidence of depositors.

(ii)Asset Quality : One of the indictors for asset quality is the ratio of non-performing loans to total loans (GNPA). The gross non-performing loans to gross advances ratio is more indicative of the quality of credit decisions made by bankers. Higher GNPA is indicative of poor credit decision making.

(iii)Management : The ratio of non-interest expenditures to total assets can be one of the measures to assess the working of management. This variable which includes a variety of expenses, such as payroll, workers compensation and training investment, reflects the management policy stance.

(iv)Earnings : It can be measured as the return on asset ratio.

(v)Liquidity : Cash maintained by the banks and balances with central bank, to total asset ratio is an indicator of banks liquidity. In general, banks with a larger volume of liquid assets are perceived safe, since these assets would allow banks to meet unexpected withdrawals.

(vi)Systems and Control : The internal controls, other systems and procedures of banks are considered.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2020, Q. 1(c) (Old syllabus).

Credit rating agency shall not rate a security issued by its promoter. In case promoter is a lending institution, its chairman, director or employee shall not be a chairman, director or employee of a credit rating agency or its rating committee. No credit rating agency shall rate a security issued by an entity, which is a borrower or its promoter or a subsidiary of its promoter or an associate of its promoter, if there are common chairman, directors between credit rating agency and these entities, there are common employees, there are common chairman, Directors, Employees on the rating committee. No credit rating agency shall rate a security issued by its associate or subsidiary, if the credit rating agency or its rating committee has a chairman, director or employee who is also a chairman, director or employee of any such entity.

However, the Credit Rating Agency may rate a security issued by its associate having a common independent director with it or rating committee if,

i.such an independent director does not participate in the discussion on rating decisions, and

ii.the Credit Rating Agency makes a disclosure in the rating announcement of such associate (about the existence of common independent director) on its Board or of its rating committee, and that the common independent director did not participate in the rating process or in the meeting of its Board of Directors or in the meeting of the rating committee, when the securities rating of such associate was discussed.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2020, Q. 2A(iii) (Old syllabus).

Credit Rating is the analysis and assessment of company’s financial securities. Credit Rating is a symbolic indication of the current opinion regarding the relative capability of a corporate entity to service its debt obligations in time with reference to the instrument being rated. It enables the investor to differentiate between debt instruments on the basis of their underlying credit quality. To facilitate simple and easy understanding, credit rating is expressed in alphabetical or alphanumerical symbols.

The rating methodology for non-banking financial services companies is based on CAMELS model encompassing, Capital adequacy, Asset quality, Management, Earnings, Liquidity, systems and control.

The following six parameters are recommended:

(i)Capital Adequacy : Capital adequacy is measured by the ratio of capital to risk-weighted assets (CRAR). A sound capital base strengthens confidence of depositors.

(ii)Asset Quality : One of the indicators for asset quality is the ratio of non-performing loans to total loans (GNPA). The gross non-performing loans to gross advances ratio is more effective / indicative of the quality of credit decisions made by bankers / credit suppliers. Higher GNPA is indicative of poor credit decision-making.

(iii)Management : The ratio of non-interest expenditures to total assets (MGNT) can be one of the measures to assess the working of the management. This variable, which includes a variety of expenses, such as payroll, workers compensation and training investment, reflects the management policy stance.

(iv)Earnings : It can be measured as the return on asset ratio.

(v)Liquidity : Cash maintained by the banks and balances with central bank, to total asset ratio (LQD) is an indicator of bank’s liquidity. In general, institutions/ banks with a larger volume of liquid assets are perceived safe, since these assets would allow banks to meet unexpected withdrawals.

(vi)Systems and Control : The internal controls, other systems and procedures of banks are considered.

In order to further strengthen the disclosures to be made by Credit Rating Agencies and to enhance the rating standards, the following disclosures have been made mandatory by SEBI:

(i)Computation of Cumulative Default Rates (CDR)

(ii)In order to achieve a consistent approach, CRAs, in consultation with SEBI, shall frame a uniform Standard Operating Procedure (SOP) in respect of tracking and timely recognition of default, which shall be disclosed on the website of each CRA.

(iii)Introducing Probability of Default (PD) benchmarks for CRAs

(iv)Rating symbol for Instruments having explicit Credit Enhancement feature

(v)Disclosure of rating sensitivities in press release

(vi)Disclosure on liquidity indicators

(vii)Tracking deviations in bond spreads

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2019, Q. 4(a) (Old syllabus).

(i)A : Instruments with this rating are considered to have adequate degree of safety regarding timely servicing of financial obligations. Such instruments carry low credit risk. This falls under “Long-Term Debt Instruments”.

(ii)A4 : Instruments with this rating are considered to have minimal degree of safety regarding timely payment of financial obligations. Instruments carry very high credit risk and are susceptible to default. This falls under “Short-Term Debt Instruments”.

(iii)A(SO) : Instruments with this rating are considered to have adequate degree of safety regarding timely servicing of financial obligations. Such instruments carry low credit risk. This falls under ‘Long-Term Structured Financial Instruments”.

(iv)A4(SO) : Instruments with this rating are considered to have minimal degree of safety regarding timely payment of financial obligations. Comments carry very high credit risk and are susceptible to defaults. This falls under “Short Term Structured Financial Instruments”.

(v)Amfs : Schemes with this rating are considered to have the adequate degree of safety regarding timely receipt of payments from the investments that they have made. This falls under “Long Term Debt Mutual Fund Schemes”.

(vi)A1mfs : Schemes with this rating are considered to have very strong degree of safety regarding timely receipt of payment from the investment that they have made.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2018, Q. 1(c) (Old syllabus).

(a)The term “Custodian” is a person who carries on or propose to carry on the business of providing custodial services to the client. The custodian keeps the custody of the securities of the client. The custodian also provides incidental services such as maintaining the accounts of securities of the client, collecting the benefits or rights accruing to the client in respect of securities.

(b)Specific responsibilities of the custodian are as follows:

i)Administrate and protect the assets of the clients,

ii)Open a separate custody account and deposit account in the name of each client,

iii)Record assets,

iv)Conduct registration of securities.

(c)Minimum net worth requirement of custodian is Rs. 50 crores.

(d)The SEBI (Custodian) Regulations, 1996

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2025, Q. 2A(iii) (Syllabus 2022).

Custodial services

A custodian holding a certificate of registration as on the date of commencement of the SEBI (Custodian) (Amendment) Regulations, 2022, may provide custodial services in respect of silver or silver related instruments held by a mutual fund only after taking prior approval of the SEBI.

“Custodial Services” in relation to securities or goods of a client or gold or gold related instruments or silver or silver related instruments held by a mutual fund or title deeds of real estate assets held by a real estate mutual fund scheme in accordance with the Securities and Exchange Board of India (Mutual Funds) Regulations, 1996 means, the safekeeping of such securities or goods or gold or gold related instruments or silver or silver related instruments or title deeds of real estate assets and providing services incidental thereto, and includes-

(i)maintaining accounts of securities or goods or gold or gold related instruments or silver or silver related instruments or title deeds of real estate assets of a client;

(ii)undertaking activities as a Domestic Depository in terms of the Companies (Issue of Indian Depository Receipts) Rules, 2004;

(iii)collecting the benefits or rights accruing to the client in respect of securities or goods or gold or silver related instruments or title deeds of real estate assets;

(iv)keeping the client informed of the actions taken or to be taken by the issuer of securities, having a bearing on the benefits or rights accruing to the client;

(v)keeping the client informed of the actions taken or to be taken with respect to the goods held on its behalf; and

(vi)maintaining and reconciling records of the above-mentioned services.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2023, Q. 6(a) (Syllabus 2017).

Custodian is a person who carries on or proposes to carry on the business of providing custodial services to the client. The custodian keeps the custody of the securities of the client. The custodian also provide incidental services such as maintaining the accounts of securities of the client, collecting the benefits of the rights accruing to the client in respect of securities.

Every custodian should have adequate facilities, sufficient capital and financial strength to manage the custodial services. The SEBI (Custodian) Regulations, 1996 prescribe the obligations and responsibilities of the custodians.

Obligations and Responsibilities:

•Every custodian shall abide by the Code of Conduct.

•Where a custodian is carrying on any activity besides that of acting as custodian then the activities relating to his business as custodian shall be separate and segregated from all other activities.

•Every custodian shall have adequate mechanisms for the purposes of reviewing, monitoring and evaluating the custodian's controls, systems, procedures and safeguards.

•No custodian shall assign or delegate its functions as a custodian to any other person unless such person is a custodian.

•Every custodian shall open a separate custody account for each client, in the name of the client whose securities are in its custody and the assets of one client shall not be mixed with those of another client.

•Every custodian shall enter into an agreement with each client on whose behalf it is acting as custodian.

•Every custodian shall have adequate internal controls to prevent any manipulation of records and documents including audits for securities, goods and rights or entitlements arising from the securities and goods held by it on behalf of its client.

•Every custodian shall maintain the records and documents.

•Every custodian shall appoint a compliance officer who shall be responsible for monitoring the compliance of the Acts, rules and regulations, notifications, guidelines, instructions, etc., issued by the SEBI or the Central Government and for redressal of investors' grievances.

•Where any information is called for by the SEBI, it shall be the duly of the custodian to furnish such information within such reasonable period as the SEBI may specify.

Net worth requirements : Minimum of Rs. 50 crores.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2022, Q. 6A(iii) (Syllabus 2017).

Custodians of Securities

A custodian is a person who carries on or propose to carry on the business of providing custodial services to the client. The custodian keeps the custody of the securities of the client. The custodian also provides incidental services such as maintaining the accounts of securities of the client, collecting the benefits or rights accruing to the client in respect of securities.

Custodians of Securities carrying the following activities:

•Administrate and protect the assets of the clients.

•Open a separate custody account and deposit account in the name of each client.

•Record assets.

•Conduct registration of securities.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2020, Q. 6(b) (Syllabus 2017).

As per the SEBI (Custodian) Regulations, 1996, a custodian is a person who carries on the business of providing custodial service to the client. The custodian keeps the custody of the securities of the client. The custodian also provides incidental services such as maintaining the accounts of securities of the client, collecting benefits or rights accruing to the client in respect to the securities.

Roles and Responsibilities:

•Administrate an protect the assets of the clients

•Open a separate custody account and deposit account in the name of each client

•Record Assets

•Conduct registration of Securities

Net Worth: Minimum Rs. 50 crore.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2019, Q. 6(a) (Syllabus 2017).

Simplification of procedure and standardization of formats of documents for issuance of duplicate securities certificates (Circular No. SEBI/HO/MIRSD/MIRSD_RTAMB/P/CIR/2022/70 dated May 25, 2022)

With a view to make issuance of duplicate securities more efficient and investor friendly, SEBI has simplified the procedure and documentation requirements for issuance of duplicate securities. The requirements are as specified below:

1.Submission by the security holder of copy of FIR including e-FIR/Police complaint/Court injunction order/copy of plaint (where the suit filed has been accepted by the Court and Suit No. has been given), necessarily having details of the securities, folio number, distinctive number range and certificate numbers.

2.Issuance of advertisement regarding loss of securities in a widely circulated newspaper. However, there shall be no requirement to comply with above mentioned Para l and 2, if the value of securities as on the date of submission of application, along with complete documentation as prescribed by the SEBI does not exceed Rs.5 Lakhs.

3.Submission of Affidavit and Indemnity bond as per the format prescribed by the SEBI. There shall be no requirement of submission of surety for issuance of duplicate securities

4.In case of non-availability of Certificate Nos./Distinctive Nos./ Folio nos., the RTA (upon written request by the security holder) shall provide the same, to the security holder only where the signature and the address of the security holder matches with the RTA / listed company’s records. In case the signature and/or the address do not match, the security holder shall first comply with the KYC procedure and then only the details of the securities shall be provided to the security holder by the RTA/listed company.

5.Duplicate securities shall be issued in dematerialized mode only.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2024, Q. 3(a) (Syllabus 2017).

Simplification of procedure and standardization of formats of documents for issuance of duplicate securities certificates (Circular No. SEBI/HO/MIRSD/MIRSD_ RTAMB/P/CIR/2022/70 dated May 25, 2022)

With a view to make issuance of duplicate securities more efficient and investor friendly, SEBI has simplified the procedure and documentation requirements for issuance of duplicate securities to small investors. The requirements are as specified below:

1.Submission by the security holder of copy of FIR including e-FIR/Police complaint/Court injunction order/copy of plaint, necessarily having details of the securities, folio number, distinctive number range and certificate numbers.

2.Issuance of advertisement regarding loss of securities in a widely circulated newspaper.

However, there shall be no requirement to comply with above mentioned Para 1 and 2, if the value of securities as on the date of submission of application, along with complete documentation as prescribed by the SEBI does not exceed Rs.5 Lakhs.

3.Submission of Affidavit and Indemnity bond as per the format prescribed by the SEBI. There shall be no requirement of submission of surety for issuance of duplicate securities.

4.In case of non-availability of Certificate Nos./Distinctive Nos./ Folio nos., the RTA (upon written request by the security holder) shall provide the same, to the security holder only where the signature and the address of the security holder matches with the RTA / listed company’s records. In case the signature and/or the address do not match, the security holder shall first comply with the KYC procedure and then only the details of the securities shall be provided to the security holder by the RTA/listed company.

As mandated vide SEBI Circular dated January 25, 2022, duplicate securities shall be issued in dematerialized mode only.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2024, Q. 2(e) (Syllabus 2017).

Categories of Foreign Portfolio Investors

An applicant seeking registration as a foreign portfolio investor may apply in one of the categories mentioned below or any other category as may be specified by the SEBI from time to time –

(a)"Category I foreign portfolio investor" which shall include –

(i)Government and Government related investors such as central banks, sovereign wealth funds, international or multilateral organizations or agencies including entities controlled or at least 75% directly or indirectly owned by such Government and Government related investor(s);

(ii)Pension funds and university funds;

(iii)Appropriately regulated entities such as insurance or reinsurance entities, banks, asset management companies, investment managers, investment advisors, portfolio managers, broker dealers and swap dealers;

(iv)Entities from the Financial Action Task Force member countries, or from any country specified by the Central Government by an order or by way of an agreement or treaty with other sovereign Governments, which are –

I.appropriately regulated funds;

II.unregulated funds whose investment manager is appropriately regulated and registered as a Category I foreign portfolio investor: Provided that the investment manager undertakes the responsibility of all the acts of commission or omission of such unregulated fund;

III.university related endowments of such universities that have been in existence for more than five years.

(v)An entity (A) whose investment manager is from the Financial Action Task Force member country and such an investment manager is registered as a Category I foreign portfolio investor; or (B) which is at least seventy-five per cent owned, directly or indirectly by another entity, eligible under sub-clause

(ii), (iii) and (iv) of clause (a) of this regulation and such an eligible entity is from a Financial Action Task Force member country:

However, such an investment manager or eligible entity undertakes the responsibility of all the acts of commission or omission of the applicants seeking registration.

(b)"Category II foreign portfolio investor" shall include all the investors not eligible under Category I foreign portfolio investors such as –

(i)appropriately regulated funds not eligible as Category-I foreign portfolio investor;

(ii)endowments and foundations;

(iii)charitable organisations;

(iv)corporate bodies;

(v)family offices;

(vi)Individuals;

(vii)appropriately regulated entities investing on behalf of their client, as per conditions specified by the Board from time to time;

(viii)Unregulated funds in the form of limited partnership and trusts;

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2021, Q. 2(e) (Old syllabus).

“Foreign Portfolio Investor" means a person who has been registered under Chapter II of SEBI (Foreign Portfolio Investors) Regulations, 2019 and shall be deemed to be an intermediary in terms of the provisions of the SEBI Act, 1992.

General Obligations and Responsibilities

The foreign portfolio investor shall –

a)comply with the provisions of Foreign Portfolio Investors Regulations, as far as they may apply, circulars issued thereunder and any other terms and conditions specified by the SEBI from time to time;

b)forthwith inform the Board and designated depository participant in writing, if any information or particulars previously submitted to the SEBI or designated depository participant are found to be false or misleading, in any material respect;

c)forthwith inform the SEBI and designated depository participant in writing, if there is any material change in the information including any direct or indirect change in its structure or ownership or control, previously furnished by him to the SEBI or designated depository participant;

d)as and when required by the SEBI or any other Government agency in India, submit any information, record or documents in relation to its activities as a foreign portfolio investor;

e)forthwith inform the SEBI and the designated depository participant, in case of any penalty, pending litigation or proceedings, findings of inspections or investigations for which action may have been taken or is in the process of being taken by an overseas regulator against it;

f)obtain a Permanent Account Number from the Income Tax Department;

g)in relation to its activities as foreign portfolio investor, at all times, subject itself to the extant Indian laws, rules, regulations, guidelines and circulars issued from time to time;

h)be a fit and proper person based on the criteria specified in Schedule II of the Securities and Exchange Board of India (Intermediaries) Regulations, 2008;

i)undertake necessary KYC on its shareholders/investors in accordance with the rules applicable to it in the jurisdiction where it is organised;

j)provide any additional information or documents including beneficiary ownership details of their clients as may be required by the designate depository participant or the SEBI or any other enforcement agency to ensure compliance with the Prevention of Money Laundering Act, 2002 and the rules and regulations specified thereunder, the Financial Action Task Force standards and circulars issued from time to time by the Board; and

k)ensure that securities held by foreign portfolio investors are free from all encumbrances.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2021, Q. 6(e) (Syllabus 2017).

A foreign portfolio investor shall invest only in the following securities, namely-

a)shares, debentures and warrants issued by a body corporate; listed or to be listed on a recognized stock exchange in India

b)units of schemes launched by mutual funds under SEBI (Mutual Fund) Regulations, 1996

c)units of schemes floated by a Collective Investment Scheme in accordance with the Securities and Exchange Board of India (Collective Investment Schemes) Regulations, 1999

d)derivatives traded on a recognized stock exchange

e)units of real estate investment trusts, infrastructure investment trusts and units of Category III Alternative Investment Funds registered with the Board

f)Indian Depository Receipts

g)any debt securities or other instruments as permitted by the Reserve Bank of India for foreign portfolio investors to invest in from time to time, and

h)such other instruments as specified by the Board from time to time.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2020, Q. 4(a) (Old syllabus).

Offshore Derivative Instruments (ODI) : ODI means any instrument, by whatever name called, which is issued overseas by a foreign portfolio investor against securities held by it that are listed or proposed to be listed on any recognized stock exchange in India, as its underlying.

FPIs can issue, subscribe to or otherwise deal in ODIs, directly or indirectly, only if such ODIs are issued to persons who are regulated by an appropriate foreign regulatory authority, and the ODIs are issued after compliance with ‘Know Your Client’ (KYC) norms. Such offshore derivative instruments shall not be issued to or transferred to persons who are resident Indians or non-resident Indians and to entities that are beneficially owned by resident Indians or non-resident Indians.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2018, Q. 2(d) (Old syllabus).

Investment Adviser

The SEBI (Investment Advisers) Regulations, 2013 defines that the Investment Adviser means any person, who for consideration, is engaged in the business of providing investment advice to clients or other persons or group of persons and includes any person who holds out himself as an investment adviser, by whatever name called.

General Obligations and Responsibilities:

1.An investment adviser shall act in a fiduciary capacity towards its clients and shall disclose all conflicts of interests as and when they arise.

2.An investment adviser shall not receive any consideration by way of remuneration or compensation or in any other form from any person other than the client being advised, in respect of the underlying products or securities for which advice is provided.

3.An investment adviser shall maintain an arms-length relationship between its activities as an investment adviser and other activities.

4.An investment adviser which is also engaged in activities other than investment advisory services shall ensure that its investment advisory services are clearly segregated from all its other activities, in the manner as prescribed.

5.An investment adviser shall ensure that in case of any conflict of interest of the investment advisory activities with other activities, such conflict of interest shall be disclosed to the client.

6.An investment adviser shall not divulge any confidential information about its client, which has come to its knowledge, without taking prior permission of its clients, except where such disclosures are required to be made in compliance with any law for the time being in force.

7.An investment advisor shall not enter into transactions on its own account which is contrary to its advice given to clients for a period of fifteen days from the day of such advice.

8.An investment advisor shall follow Know Your Client procedure as specified by the SEBI from time to time.

9.An investment adviser shall abide by Code of Conduct.

10.An investment adviser shall not act on its own account, knowingly to sell securities or investment products to or purchase securities or investment product from a client.

11.In case of change in control of the investment adviser, prior approval from the SEBI shall be taken.

12.Investment advisers shall furnish to the SEBI information and reports as may be specified by the SEBI from time to time.

13.It shall be the responsibility of the investment adviser to ensure compliance with the certification and qualification requirements.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2024, Q. 2A(i) (Syllabus 2022).

General Obligations and Responsibilities of an Investment Adviser

The SEBI (Investment Advisers) Regulations, 2013 provides the following general obligations and responsibilities of an Investment Adviser:

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2022, Q. 5(b) (Syllabus 2017).

SEBI has notified amendments to SEBI (Investment Advisers) Regulations, 2013. These amendments are intended to strengthen the regulatory framework for investment advisers.

The amendments highlights in respect of the following three areas are as follows:

Eligibility Criteria for Investment Advisers

150 in total, shall apply for registration with SEBI as non-individual investment adviser.

Implementation services

Investment Advisers are allowed to provide implementation services (Execution) through direct schemes/ products in the securities market. However, no consideration can be received directly or indirectly, at investment adviser’s group or family level for these services.

Fees

The fee charged by the Investment Adviser for providing Investment Advice from a client shall be in the manner as specified by SEBI.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2021, Q. 5(c) (Old syllabus).

The general obligations of an Intermediary under the SEBI (Intermediaries) Regulations, 2008 are as under:

(1)An intermediary shall provide the SEBI with a certificate of its compliance officer on the 1st April of each year certifying:

(a)the compliance by the intermediary with all the obligations, responsibilities and the fulfillment of the eligibility criteria on a continuous basis under these regulations and the relevant regulations;

(b)that all disclosures made in Form A and under the relevant regulations are true and complete.

(2)Each intermediary shall prominently display a photocopy of the certificate at all its offices including branch offices.

(3)The intermediary shall also prominently display the name and contact details of the compliance officer to whom complaint may be made in the event of any investor grievance.

(4)The intermediary shall maintain such books, accounts and records as specified in the relevant regulations.

Period of validity of certificate

The certificate granted to an intermediary has to be permanent, unless surrendered by the intermediary or suspended or cancelled in accordance with SEBI (Intermediaries) Regulations, 2008.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2026, Q. 2A(iv) (Syllabus 2022).

Intermediaries are service providers and are an integral part of any financial system. SEBI regulates various intermediaries in the primary and secondary markets through its regulations for these respective intermediaries. SEBI has defined the role of each of the intermediary, the eligibility criteria for granting registration, their functions and responsibilities and the code of conduct to which they are bound.

With this aim, these intermediaries are working towards their following objectives:

a)To smoothen the process of investment.

b)To establish a link between the investors and the users of funds.

c)Corporations and Governments do not market their securities directly to the investors. Instead, they hire the services of the market intermediaries to represent them to the investors.

d)Investors, particularly small investors, find it difficult to make direct investment. A small investor desiring to invest may be able to diversify across issuers to reduce risk. He may not be equipped to assess and monitor the credit risk of issuers. Market intermediaries help investors to select investments by providing investment consultancy, market analysis and credit rating of investment instruments.

e)In order to operate in secondary market, the investors have to transact through share brokers. Registrars and Share Transfer Agents, Custodians and Depositories Participants are capital market intermediaries that provide important infrastructure services for both primary and secondary markets.

Therefore, it is said that the capital market intermediaries are vital link between investor, issuer and regulators.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2025, Q. 2A(ii) (Syllabus 2022).

Redressal of Investor Grievances by an Intermediary

The intermediary shall make endeavours to redress investor grievances promptly but not later than 45 days of receipt thereof and when called upon by the SEBI to do so it shall redress the grievances of investors within the time specified by the SEBI.

The intermediary shall maintain records regarding investor grievances received by it and redressal of such grievances.

The intermediary shall at the end of each quarter of a Financial Year ending on 31st March upload information about the number of investor grievances received, redressed and those remaining unresolved beyond three months of the receipt thereof by the intermediary on the website specified by the SEBI.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2024, Q. 6(e) (Syllabus 2017).

An application, for grant of a certificate to act as an intermediary, has to be made to the SEBI in Form A of Schedule I with such additional information as required to be provided under the relevant regulations, and the application fee, as specified in the relevant regulations.

SEBI can reject the application of the intermediary if –

•it is not complete in all respects and does not conform to the requirements in Form A and the requirements specified in the relevant regulations;

•it does not contain such additional information as required by SEBI;

•it is incorrect, false or misleading in nature;

•the applicant is not in compliance with the eligibility requirements as set out under SEBI (Intermediaries) Regulations, 2008 or the relevant regulations;

•the applicant is not a fit and proper person;

•the principal officer does not have the requisite qualification or experience as required under the relevant regulations.

On the abovementioned grounds, the application can be rejected by the SEBI for reasons to be recorded by the SEBI in writing. However, the applicant has to be given an opportunity in writing to make good the deficiencies within the time specified by SEBI, for the purpose. Further, where an application is rejected for the reason that it contains false or misleading information, no such opportunity may be given and the applicant cannot make any application for grant of certificate under SEBI (Intermediaries) Regulations, 2008 or any other regulations for a period of 1 year from the date of such rejection.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2024, Q. 6A(ii) (Syllabus 2017).

Intermediaries are service providers and are an integral part of any financial system. SEBI regulates various intermediaries in the primary and secondary markets through its regulations for these respective intermediaries. SEBI has defined the role of each of the intermediary, the eligibility criteria for granting registration, their functions and responsibilities and the code of conduct to which they are bound. These regulations also empower SEBI to inspect the functioning of these intermediaries and to collect fees from them and to impose penalties on erring entities.

Primary Market Intermediaries

•Merchant Bankers

•Bankers to the Issue

•Registrars to an issue and share transfer agents

•Underwriters

•Debenture Trustees

Secondary Market Intermediaries

•Stock brokers

•Depository

•Share Transfer Agents

Rejection of Application : Any application of grant of certificate:-

can be rejected by the SEBI for reasons to be recorded by the SEBI in writing.

However, the applicant has to be given an opportunity in writing to make good the deficiencies within the time specified by the SEBI, for the purpose.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2023, Q. 2(b) (Syllabus 2022).

Effect of refusal to grant certificate to an intermediary.

Section 12 of the SEBI Act, 1992 requires that any intermediary in the capital market shall function as such only under a Certificate of Registration issued by SEBI. Where an intermediary has failed to make an application or where the existing intermediary has been refused grant of certificate under these regulations, the Intermediary has to;

i.Forthwith cease to act as such intermediary;

ii.Transfer its activities to another intermediary which has been granted a certificate for carrying on such activity or allow its clients or investors to withdraw or transfer their securities or funds held in its custody without any additional cost to such client or investor;

iii.Make provisions as regards liability incurred or assumed by the intermediary;

iv.Take such other action within the time period and in the manner, as may be required under the relevant regulations or as may be directed by the SEBI.

While refusing grant of certificate to an intermediary, the SEBI may impose such conditions upon the intermediary as it deems fit for protection of investors or clients of the intermediary or the securities market and such conditions shall be complied with.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2023, Q. 6A(ii) (Syllabus 2017).

Capital market intermediaries are a link between issuer and investors. They help in interposing between investors and issuer and are established by the regulators. These intermediaries provide services to Issuer or Investor or both and are regulated under Securities and Exchange Board of India (SEBI). Entities that help the issuing company and investing investors to perform various transactions in capital market are called as capital market intermediaries.

Intermediaries are service providers and are an integral part of any financial system. SEBI regulates various intermediaries in the primary and secondary markets through its regulations for these respective intermediaries. SEBI has defined the role of each of the intermediary, the eligibility criteria for granting registration, their functions and responsibilities and the code of conduct to which they are bound.

Kinds of Capital Market Intermediaries:

1.Merchant bankers

2.Registrars and Share Transfer agents (RTA)

4.Underwriters

5.Debenture trustees

6.Bankers to an issue

7.Portfolio Managers

8.Stock brokers

General obligations of Capital Market Intermediaries:

Capital Market intermediaries are required to perform the necessary due diligence in the discharge of their duties, as per the respective SEBI Regulations, keeping in mind the Code of Conduct laid down by SEBI.

The registered capital market intermediaries shall be required to comply with the general obligations and responsibilities as specified in the SEBI (Intermediaries) Regulations, 2008 as well as the specific regulation pertaining to the intermediary such as SEBI Merchant Bankers Regulations, Portfolio Managers Regulations etc. including -

•An intermediary and its directors, officers, employees and key management personnel shall continuously abide by the code of conduct.

•An intermediary shall provide SEBI with a certificate of its compliance officer on the 1st April of each year certifying:

(a)the compliance by the intermediary with all the obligations, responsibilities and the fulfillment of the eligibility criteria on a continuous basis;

(b)that all disclosures made in Form A and under the relevant regulations are true and complete.

•Each intermediary shall prominently display a photocopy of the certificate at all its offices including branch offices.

•The intermediary shall also prominently display the name and contact details of the compliance officer to whom complaint may be made in the event of any investor grievance.

•The intermediary shall maintain such books, accounts and records as specified in the relevant regulations.

•The intermediary shall make endeavours to redress investor grievances promptly but not later than 45 days of receipt thereof and when called upon by SEBI to do so it shall redress the grievances of investors within the time specified by SEBI.

•An intermediary shall appoint a compliance officer for monitoring the compliance by it of the requirements of the Act, rules, regulations, notifications, guidelines, circulars and orders made or issued by SEBI or the Central Government, or the rules, regulations and bye-laws of the concerned stock exchanges, or the self regulatory organization, where applicable.

•An intermediary, its directors, officers, employees or key management personnel shall not render, directly or indirectly, any investment advice about any security in the publicly accessible media, whether real-time or non-real-time, unless a disclosure of its interest, direct or indirect, including its long or short position in the said security has been made, while rendering such advice.

•An intermediary shall comply with the net worth requirement as specified by SEBI.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2023, Q. 5(b) (Syllabus 2017).

Appointment of Compliance Officer by intermediaries An intermediary registered with SEBI shall appoint a compliance officer for monitoring the compliance by it of the requirements of the Act, rules, regulations, guidelines, circulars and orders made or issued by the SEBI or the Central Government, or the rules, regulations and byelaws of the concerned stock exchanges, or the self regulatory organisation. However, the intermediary may not appoint compliance officer if it is not carrying on the activity of the intermediary. The compliance officer shall report to the intermediary or its board of directors, in writing, of any material non-compliance by the intermediary.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2023, Q. 6(e) (Syllabus 2017).

Conditions of Certificate : Any certificate granted by the SEBI to an intermediary has to be subject to the following conditions that:

•where the intermediary proposes to change its status or constitution, it has to obtain prior approval of the SEBI for continuing to act as an intermediary after such change in status or constitution;

•it has to pay the applicable fees in accordance with the relevant regulations;

•it has to abide by the provisions of the securities laws and the directions, guidelines and circulars as may be issued there under;

•it has to continuously comply with the requirements of Regulation 4;

•it has to meet the eligibility criteria and other requirements specified in these regulations and the relevant regulations.

The SEBI may impose other conditions as it may deem fit in the interest of investors or orderly development of the securities market or for regulation of the working of the intermediary and the intermediary has to comply with such conditions.

Period of validity of certificate

The certificate granted to an intermediary has to be permanent unless surrendered by the intermediary or suspended or cancelled in accordance with the SEBI (Intermediaries) Regulations, 2008.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2022, Q. 5(c) (Syllabus 2017).

SEBI vide its circular dated 20th April, 2018 provides for compulsory internal audit of Registrar to an Issue/Share Transfer Agents (RTAs) which is discussed below:

1.All Registrar to an Issue/Share Transfer Agents (RTAs) are required to carry out internal audit on annual basis by independent qualified CA/CS/CMA and Certified Information Systems Auditor (CISA) who don't have any conflict of interest.

2.Eligibility of auditors for conducting the internal audit of the RTA:

i.The audit firm shall have a minimum experience of 3 years in the financial sector.

ii.An auditor shall be appointed for a maximum term of 5 years, with a cooling-off period of 2 years.

3.The auditor shall cover all aspects of RTA operations including investor grievance redressal mechanism and compliance with the requirements stipulated in the SEBI Act, Rules and Regulations made there under, and guidelines/circulars issued by SEBI from time to time.

4.The reports and state the methodology adopted, deficiencies observed, and consideration of response of the management on the deficiencies.

5.The report shall include a summary of operations and of the audit, covering the size of operations, number of transactions audited and the number of instances where violations/ deviations where observed while making observations on the compliance of any regulatory requirement.

6.The report shall comment on the adequacy of systems adopted by the RTAs for compliance with the requirements of regulations and guidelines issued by SEBI and investor grievance redressal.

7.The RTA shall submit a copy of report of the internal audit to Issuer Company within 3 months from the end of the financial year. Copy of the same shall also be preserved by the RTA.

8.The Governing Council (Board of Directors, Board of Partners, proprietor, etc. as applicable) of the RTA shall consider the report of the internal auditor and take steps to rectify the deficiencies, if any. The RTA shall send the Action Taken Report in prescribed format to Issuer Company within next one month and a copy thereof shall be maintained by the RTA.

9.The audit observations along with the corrective steps taken by the RTA shall be placed before the Board of Directors of the Issuer Company.

10.The Issuer Companies shall satisfy themselves regarding the adequacy of the corrective measures taken by the concerned RTA. If not satisfied with the corrective measures, Issuer Company may take more stringent corrective measures.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2018, Q. 6A(iii) (Syllabus 2017).

Internal Audit of Intermediaries

Efficient internal control systems and processes are pre requisite for good governance. The governance being a dynamic concept requires constant evaluation and monitoring of the systems and processes. In the context of Capital Markets, capital markets intermediaries are an important constituent of overall governance framework. Being an important link between regulators, investors and issuers, they are expected to ensure that their internal controls are so efficient that ensure effective investor service at all times and provide regulators comfort as to the compliance of regulatory prescription. In this direction that SEBI has authorised Practising Company Secretaries to undertake internal audit of various capital market intermediaries.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2021, Q. 6(e) (Syllabus 2017).

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 Delisting, an Investor Charter has been developed in consultation with the Merchant Bankers. 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. All the registered Merchant Bankers have to disclose on their website, Investor Charter for each of the following categories, as prescribed by SEBI:

1.Initial Public Offer (IPO) and Further Public Offer (FPO) including Offer for Sale (OFS);

2.Rights Issue;

3.Qualified Institutions Placement (QIP);

4.Preferential Issue;

5.SME IPO and FPO including OFS;

6.Buyback of Securities;

7.Delisting of Equity Shares;

8.Substantial Acquisitions of Shares and Takeovers.

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 prescribed by the SEBI.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2023, Q. 5(c) (Syllabus 2017).

The key highlights of the SEBI {KYC (Know Your Client) Registration Agency (KRA)}, Regulations, 2011 are as follows:

—An intermediary shall perform the initial KYC of its clients and upload the details on the system of the KRA.

—When the client approaches another intermediary, the intermediary can verify and download the client’s details from the system of the KRA (KYC Registration Agency).

—As a result, once the client has done KYC with a SEBI registered intermediary, he need not undergo the same process again with another intermediary.

—SEBI shall not consider an application, unless the applicant is a fit and proper person to the satisfaction of the SEBI and is a wholly-owned subsidiary of a recognised stock exchange, having nationwide network of trading terminals

—Besides, wholly-owned subsidiaries of depositories, other market intermediaries and Self-Regulatory Organisations would also be able to secure certificate for initial registration as KRA.

—The KRA shall obtain the KYC documents of the client from the intermediary as prescribed by SEBI and in terms of the rules, regulations, guidelines and circulars issued by SEBI or any other authority for Prevention of Money Laundering, from time to time.

—The KRAs can, in co-ordination with each other, prepare operating instructions for implementing requirements under this regulation and share data on KYC documents.

—KRA shall be responsible for storing, safeguarding and retrieving the KYC documents and submit to SEBI or any other statutory authority as and when required.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2018, Q. 6(d) (Old syllabus).

No, an NBFC cannot be a merchant banker.

Regulation 6 of the SEBI (Merchant Bankers) Regulations, 1992 states that the applicant shall be a body corporate other than a non-banking financial company as defined under clause (f) of section 45-I of the Reserve Bank of India Act, 1934. However, the Merchant Banker who has been granted registration by the Reserve Bank of India to act as a primary or satellite dealer may carry on such activity subject to the condition that it shall not accept or hold public deposit.

Regulation 21A of the SEBI (Merchant Bankers) Regulations, 1992 provides that a merchant banker shall not lead manage any issue or be associated with any activity undertaken under any regulations made by SEBI, if he is a promoter or a director or an associate of the issuer of securities or of any person making an offer to sell or purchase securities. However, a merchant banker who is an associate of such issuer or person may be appointed, if he is involved only in the marketing of the issue or offer.

A merchant banker shall be deemed to be an “associate of the issuer or person” if:

(i)either of them controls, directly or indirectly through its subsidiary or holding company, not less than 15% of the voting rights in the other; or

(ii)either of them, directly or indirectly, by itself or in combination with other persons, exercises control over the other; or

(iii)there is a common director, excluding nominee director, amongst the issuer, its subsidiary or holding company and the merchant banker.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2021, Q. 6(d) (Old syllabus).

Co-investment Portfolio Manager

Co-investment means investment made by a Manager or Sponsor or investor of Category I and II Alternative Investment Fund(s) in investee companies where such Category I or Category II Alternative Investment Fund(s) make investment. However, Co-investment by investors of Alternative Investment Fund shall be through a Co-investment Portfolio Manager as specified under the Securities and Exchange Board of India (Portfolio Managers) Regulations, 2020.

Further, ‘Co-investment Portfolio Manager’ is defined under the SEBI (Portfolio Managers) Regulations, 2020. It means a Portfolio Manager who is a Manager of a Category I or Category II Alternative Investment Fund(s); and

(i)provides services only to the investors of such Category I or Category II Alternative Investment Fund(s), and

(ii)makes investment only in unlisted securities of investee companies where such Category I or Category II Alternative Investment Fund(s) make investments:

Provided that the Co-investment Portfolio Manager may provide services to investors from any other Category I or Category II Alternative Investment Fund(s), which are managed by them and are also sponsored by the same Sponsor(s)."

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2023, Q. 6(b) (Syllabus 2017).

“Discretionary Portfolio Manager” means a portfolio manager who under a contract relating to portfolio management, exercises or may exercise, any degree of discretion as to the investment of funds or management of the portfolio of securities of the client, as the case may be.

A portfolio manager plays a pivotal role in deciding the best investment plan for an individual as per his income, age as well as ability to undertake risks. A portfolio manager is responsible for making an individual aware of the various investment tools available in the market and benefits associated with each plan. Make an individual realize why he actually needs to invest and which plan would be the best for him. A portfolio manager is responsible for designing customized investment solutions for the clients according to their financial needs.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2021, Q. 6A(i) (Syllabus 2017).

Meaning of Portfolio Manager

Portfolio manager means any person who pursuant to a contract or arrangement with the client, advises or directs or undertakes on behalf of the client (whether as a discretionary portfolio manager or otherwise) the management or administration of a portfolio of securities or the funds of the clients as the case may be.

Role of Portfolio Manager

A portfolio manager plays a pivotal role in deciding the best investment plan for an individual as per his income, age as well as ability to undertake risks. A portfolio manager is responsible for making an individual aware of the various investment tools available in the market and benefits associated with each plan. Make an individual realize why he actually needs to invest and which plan would be the best for him. A portfolio manager is responsible for designing customized investment solutions for the clients according to their financial needs.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2019, Q. 6(b) (Syllabus 2017).

Responsibilities of Research Analyst

A research analyst is a professional who prepares investigative reports on securities or assets for in-house or client use. He is very quantitative, analytical, logical, and good at managing numbers and data.

Research analyst is primarily responsible for:

i.preparation or publication of the content of the research report;

ii.providing research report;

iii.making ‘buy/sell/hold’ recommendation;

iv.giving price target;

v.offering an opinion concerning public offer, with respect to securities that are listed or to be listed in a stock exchange, whether any such person has the job title of ‘research analyst’ and includes any other entities engaged in issuance of research report or research analysis.

Research analysts study companies and industries, analyze raw data, and make forecasts or recommendations about whether to buy, hold or sell securities. They analyze information to provide recommendations about investments in securities to their clients. Investors often view analysts as experts and important sources of information about the securities they review and often rely on their advice. There are basically three broad types of analysts, viz. sell-side analysts, buy-side analysts and independent analysts.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2024, Q. 6(b) (Syllabus 2017).

Research Analysts analyse information to provide recommendations about investments in securities to their clients. Investors often view analysts as experts and important sources of information about the securities they review and often rely on their advice. There are three broad type of analysts:

-Sell-side analysts : They typically publish research reports on the securities of companies or industries that they cover. These research reports carry specific recommendations, such as recommendation to buy, hold or sell the subject security. It also includes the analyst's expectation of the future price performance of the security (“price target”).

-Buy-side analysts : They generally work for money managers like mutual funds, hedge funds, pension funds, or portfolio managers that purchase and sell securities for their own investment accounts or on behalf of others. Research reports of these analysts are generally circulated among the top management of the employer firms as these reports contain advice about securities to buy, hold or sell.

-Independent Analysts : They work for research originators or boutiques firms that are legal entities separate from full service investment firm and sell their research to others on a subscription or other basis.

The activities of Research Analyst in India are governed by SEBI (Research Analysts) Regulations, 2014.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2020, Q. 6(a) (Old syllabus).

Research Analysts

As per SEBI (Research Analysts) Regulations, 2014, “Research analyst” means a person who is primarily responsible for,-

(i)preparation or publication of the content of the research report; or

(ii)providing research report; or

(iii)making ‘buy/sell/hold’ recommendation; or

(iv)giving price target; or

(v)offering an opinion concerning public offer,

with respect to securities that are listed or to be listed in a stock exchange, whether or not any such person has the job title of ‘research analyst’ and includes any other entities engaged in issuance of research report or research analysis.

They study Companies and industries, analyse raw data, and make forecasts or recommendations about whether to buy, hold or sell securities. They analyse information to provide recommendations about investments in securities to their clients. Investors often view analysts as experts and important sources of information about the securities they review and often rely on their advice.

There are basically three broad types of analysts, viz. sell-side analysts, buy-side analysts and independent analysts.

The net worth requirements of Research Analysts are:

•Body corporate or limited liability partnership firm – not less than ₹25 Lakh.

•Individual or partnership firm shall have net tangible assets of value not less than ₹1 Lakh.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2019, Q. 6(e) (Syllabus 2017).

As per the SEBI (Research Analysts) Regulations, 2014, “Research Analyst” means a person who is primarily responsible for:

i.preparation or publication of the content of the research report; or

ii.Providing research report; or

iii.making ‘buy / sell / hold recommendation; or

iv.giving price target; or

v.offering an opinion concerning public offer, with respect to securities that are listed or to be listed in a stock exchange, whether or not any such person has the job title of ‘Research Analyst’ and include any other entities engaged in issuance of Research Report or Research Analysis.

Net worth requirement : Body Corporate or Limited Liability Partnership firm – not less than Rs. 25 lakhs; Individual or Partnership firm shall have net tangible assets of value not less than Rs. 1 Lakh.

Role and Responsibility : They study companies and Industries, analyse raw data and make forecast or recommendations about whether to buy, hold or sell securities. They analyse information to provide recommendations about investments in securities to their clients. Investors often view analysts as experts and important source of information about the securities they review and often rely on their advice. There are basically three broad types of analysts, viz. sell-side analysts, buy-side analysts and independent analysts.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2019, Q. 5(b) (Syllabus 2017).

Registrars and Share transfer Agent means the person appointed by a body corporate or any person or group of persons to carry on the various activities as prescribed under the SEBI (Registrars to an Issue and Share Transfer Agents) Regulations, 1993.

Pre-issue Activities:

•Sending instructions to Banks for reporting of collection figures and collection of applications.

•Providing practical inputs to the Lead Manager and Printers regarding the design of the Bid cum-Application form.

•Facilitate and establish information flow system between clients, Banks and Managers to the issue.

•Liaisoning with Regulatory Authorities such as SEBI & Stock Exchanges.

Post Issue Activities:

•Data capturing & validation,

•Reconciliation,

•Provide Allotment Alternatives in consultation with Client/ Merchant Banker and Stock Exchanges,

•Facilitating Listing,

•Uploading of data to the Depositories for crediting of securities electronically,

•Dispatch of Refund orders/ Share Certificates /Credit Advise,

•Periodic Report submission to Regulatory Authorities,

•Reconciliation of Refund payments,

•Attending to post issue Investor queries,

•Web-based investor enquiry system for allotment / refund details.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2024, Q. 2A(iv) (Syllabus 2022).

Transfer Agent

A transfer agent is a person who has been granted a Certificate of Registration to conduct the business of transfer agent under the SEBI (Registrars to an Issue and Share Transfer Agents) Regulations, 1993. Share transfer agent means

(i)any person, who on behalf of any body corporate, maintains the records of holders of securities issued by such body corporate and deals with all matters connected with the transfer and redemption of its securities;

(ii)a department or division, by whatever name called, of a body corporate performing the activities referred in sub-clause (i) if at any time the total number of the holders of its securities issued exceed one lakh.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2023, Q. 6(c) (Syllabus 2022).

The Registrar to an Issue and Share Transfer Agents undertake the following activities with respect to issue:

Pre-Issue Work

•Sending instructions to Banks for reporting of collection figures and collection of applications.

•Providing Practical inputs to the Lead Manager and Printers regarding the design of the Bid cum-application form.

•Facilitate and establish information flow system between clients, Banks and Managers to the issue.

•Liaison with Regulatory Authorities such as SEBI & Stock Exchanges.

Post-Issue Work

•Data capturing & validation

•Reconciliation

•Provide Allotment Alternatives in consultation with Client / Merchant Banker and Stock Exchanges

•Facilitating Listing

•Uploading of data to the Depositories for crediting of securities electronically

•Dispatch of Refund orders / Share Certificates / Credit Advise

•Periodic Report submission to Regulatory Authorities

•Reconciliation of Refund payments

•Attending to post issue Investor queries

•Web-based investor enquiry system for allotment / refund details

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2020, Q. 6A(ii) (Syllabus 2017).

Registrar to an issue

‘Registrar to an Issue’ means the person appointed by a body corporate or any person or group of persons to carry on the following activities on its or his or their behalf i.e:

(i)collecting application for investor in respect of an issue;

(ii)keeping a proper record of applications and monies received from investors or paid to the seller of the securities; and

(iii)(a) assisting body corporate or person or group of persons in determining the basis of allotment of the securities in consultation with the stock exchange;

(b)finalising the list of person entitled to allotment of securities;

(c)processing and dispatching of allotment letters, refund orders or certificates and other related documents in respect of the issue.

(iv)public issue activities which includes any pre-issue activities, activities during the issue and post issue activities.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2019, Q. 2(a) (Old syllabus).

Share transfer agent services are:

•Processing of transfer of securities in physical form.

•Processing Transmission / Transposition / Consolidation of holdings.

•Processing of demat requests and converting physical holding into electronic holding (dematerialization).

•Processing of remat requests and converting electronic holding into physical holding (rematerialization)

•Recording of specimen signatures in electronic media.

•Recording of Change of address, Bank Mandates and ECS requests received from investors in physical mode.

•Accurate scanning and capturing of data.

•Issue of Duplicate/split/Consolidated Share Certificates .

•Registration of Nomination.

•Registration of Legal documents such as Power of Attorney etc.

•Dividend payout management services.

•Maintenance of relevant Records.

•Maintain and upkeep of statutory records such as Transfer Deeds , Demat / Remat Request Form,

•Register of Members, Allotment Registers , undelivered returned security documents and other Registers and Returns.

•Processing of Call payments and Endorsements.

•Investor Services including providing investor related information, across counters through written communication and through telephone and via e-mail.

•Integrating electronic beneficiary positions with the physical shareholding.

•Redress Investor Complaints which appears in SEBI Complaints Redress System (SCORES).

•Assisting Client Companies in the redressing investor grievances which appears in their ID.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2019, Q. 6A(i) (Old syllabus).

The following are the services rendered by the Share Transfer Agent:

i.Processing of transfer of securities in physical form.

ii.Processing Transmission/Transposition/Consolidation of Holdings.

iii.Processing of demat request in converting physical Holdings into electronic holding

iv.Processing of remat request and converting electronic Holdings into physical building.

v.Recording of specimen signatures in electronic media.

vi.Recording of change of address, bank mandates and ECS request received from investors in physical mode.

vii.Accurate scanning and capturing of data.

viii.Issue of Duplicate / Split / consolidated shares certificates

ix.Registration of nomination.

x.Dividend payout Management Services.

xi.Registration of legal documents such as power of attorney,etc.

xii.Maintenance of statutory record such as Transfer Deeds, Demat/Remat Request Form, Register of Members, Allotment Registers, undelivered return security documents and other Registers and Returns.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2018, Q. 6(a) (Old syllabus).

(i)“Stock Broker” means a person having trading rights in any recognised stock exchange and includes a trading member. A stock broker plays a very important role in the secondary market helping both the seller and the buyer of the securities to enter into a transaction. The buyer and seller may be either a broker or a client. A stock broker is regulated by the provisions of the SEBI (Stock Brokers) Regulations, 1992.

(ii)Stock Broker has specific roles and responsibilities under the SEBI (Stock Brokers) Regulations, 1992, when executing an order, the stock broker may on behalf of his client buy or sell securities from his own account i.e. as principal or act as an agent. For each transaction he has to issue necessary contract note indicating whether the transaction has been entered into by him as a principal or as an agent for another. While buying or selling securities as a principal, the stock broker has to obtain the consent of his client and the prices charged should be fair and justify by the conditions of the market. Stock broker may also act as an underwriter.

(iii)The stock broker shall have such net worth and shall deposit with the stock exchange such sum as may be specified by the SEBI / stock exchange from time to time. The stock-broker shall satisfy the minimum net worth and deposit requirements as specified in Schedule VI of the SEBI (Stock Brokers) Regulations, 1992.

(iv)SEBI may designate a stock broker as a qualified stock broker having regard to its size and scale of operations, likely impact on investors and securities market, as well as governance and service standards, on the basis of the following parameters and the appropriate weightages thereon:

a)the total number of active clients;

b)the available total assets of clients with the stock broker;

c)the trading volumes of the stock broker;

d)the end of day margin obligations of all clients of a stock broker;

e)compliance score as may be specified by SEBI;

f)grievance redressal score as may be specified by SEBI; and

g)the proprietary trading volumes of the stock broker.

(v)A portfolio manager plays a pivotal role in deciding the best investment plan for an individual as per his income, age as well as ability to undertake risks. A portfolio manager is responsible for making an individual aware of the various investment tools available in the market and benefits associated with each plan. On the other hand, a stock broker plays the role in the secondary market helping both the seller and the buyer of the securities to enter into a transaction. The buyer and seller should be entering into the transaction [through stock broker] at their own risk. Whereas, portfolio manager makes an individual realize why he actually needs to invest and which plan would be the best for him. A portfolio manager is responsible for designing customized investment solutions for the clients according to their financial needs. Whereas, a stock broker does not provide such customized solutions to his client.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2025, Q. 1(b) (Syllabus 2022).

The new definition of Qualified Stock Broker (QSB) has been inserted which means a stock broker referred to in regulation 18D of the SEBI (Stock Brokers) Regulations, 1992.

Further, regulation 18D of the SEBI (Stock Brokers), Regulations, 1992 states that the SEBI may designate a stock broker as a qualified stock broker having regard to its size and scale of operations, likely impact on investors and securities market, as well as governance and service standards, on the basis of the following parameters and the appropriate weightages thereon: -

(a)the total number of active clients;

(b)the available total assets of clients with the stock broker;

(c)the trading volumes of the stock broker;

(d)the end of day margin obligations of all clients of a stock broker;

(e)compliance score as may be specified by the Board;

(f)grievance redressal score as may be specified by the Board; and

(g)the proprietary trading volumes of the stock broker.

The stock broker designated as a qualified stock broker shall be required to meet enhanced obligations and discharge responsibilities to ensure: -

(a)appropriate governance structure and processes;

(b)appropriate risk management policy and processes;

(c)scalable infrastructure and appropriate technical capacity;

(d)framework for orderly winding down;

(e)robust cyber security framework and processes; and

(f)investor services including on line complaint redressal mechanism.

SEBI has designated stock brokers, based on identified parameters, as Qualified Stock Brokers to mitigate this risk. Certain Stock Brokers in the market handle a very large number of clients, very large amount of client funds and very large trading volumes. Possible failure of such brokers has the potential to cause widespread impact on investors and reputational damage to the Indian securities market. QSBs would need to comply with enhanced risk management practices/requirements. There would also be enhanced monitoring of such QSBs by SEBI / Market Infrastructure Institutions (MIIs).

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2024, Q. 6A(ii) (Syllabus 2017).

Role of Stock Broker

Stock Broker means a person having trading rights in any recognised stock exchange and includes a trading member. A stock broker plays a very important role in the secondary market helping both the seller and the buyer of the securities to enter into a transaction. The buyer and seller may be either a broker or a client. When executing an order, the stock broker may on behalf of his client buy or sell securities from his own account i.e. as principal or act as an agent. For each transaction he has to issue necessary contract note indicating whether the transaction has been entered into by him as a principal or as an agent for another. While buying or selling securities as a principal, the stock broker has to obtain the consent of his client and the prices charged should be fair and justified by the conditions of the market. Stock broker may also act as an underwriter.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2024, Q. 6(c) (Syllabus 2017).

Qualified Stock Broker

Qualified Stock Broker means a stock broker referred under Regulation 18 D of the SEBI (Stock Brokers) Regulations, 1992.

According to Regulation 18D (1), the SEBI may designate a stock broker as a qualified stock broker having regard to its size and scale of operations, likely impact on investors and securities market, as well as governance and service standards, on the basis of the following parameters and the appropriate weightages thereon:

a)the total number of active clients;

b)the available total assets of clients with the stock broker;

c)the trading volumes of the stock broker;

d)the end of day margin obligations of all clients of a stock broker;

e)compliance score as may be specified by the Board;

f)grievance redressal score as may be specified by the Board; and

g)the proprietary trading volumes of the stock broker.

Regulation 18D (2) prescribes that –

The stock broker designated as a qualified stock broker shall be required to meet enhanced obligations and discharge responsibilities to ensure –

a)appropriate governance structure and processes;

b)appropriate risk management policy and processes;

c)scalable infrastructure and appropriate technical capacity;

d)framework for orderly winding down;

e)robust cyber security framework and processes; and

f)investor services including online complaint redressal mechanism.

SEBI has designated stock brokers, based on identified parameters, as Qualified Stock Brokers (QSBs) to mitigate this risk. Certain Stock Brokers in the market handle a very large number of clients, very large amount of client funds and very large trading volumes. Possible failure of such brokers has the potential to cause widespread impact on investors and reputational damage to the Indian securities market. QSBs would need to comply with enhanced risk management practices/requirements. There would also be enhanced monitoring of such QSBs by SEBI / Market Infrastructure Institutions (MIIs).

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2023, Q. 6(c) (Syllabus 2017).

Monetary Penalty on stock -brokers/sub- broker in respect of various violations.

As per SEBI (stock brokers and sub brokers) regulations 1992, a stock broker or a sub-broker shall be liable for monetary penalty in respect of the following violations, namely :

1.Failure to file any return or report with SEBI.

2.Failure to furnish any information, books or other documents within 15 days of issue of notice by SEBI.

3.Failure to maintain books of account or record as per the Act, rules or regulations framed there.

4.Failure to redress the grievances of investors within 30 days of receipts of notice from SEBI.

5.Failure to issue contract notes in the form and manner specified by the Stock Exchange of which such broker is a member.

6.Failure to deliver any security or make payment of the amount due to the investor within 48 hours of the settlement of trade unless the client has agreed in writing otherwise.

7.Charging of brokerage which is in excess of brokerage specified in the regulations or the bye-laws of the stock exchange.

8.Dealing in securities of a body corporate listed on any stock exchange on his own behalf or on behalf of any other person on the basis of any unpublished price sensitive information.

9.Procuring or communicating any unpublished price sensitive information except as required in the ordinary course of business or under any law.

10.Counselling any person to deal in securities of anybody corporate on the basis of unpublished price sensitive information.

11.Indulging in fraudulent and unfair trade practices relating to securities.

12.Failure to maintain client opening form.

13.Failure to segregate his own funds or securities from the client’s funds or securities or using the securities or funds of the client for his own purpose or for purpose of any other client.

14.Acting as an unregistered sub-broker or dealing with unregistered sub-brokers.

15.Failure to comply with directions issued by SEBI under the Act or the regulations framed thereunder.

16.Failure to exercise due skill, care and diligence.

17.Failure to obtain prior approval of SEBI in case of change in control of stock broker.

18.Failure to satisfy the net worth or capital adequacy norms, if any, specified by SEBI.

19.Extending use of trading terminal or any unauthorized person or place.

20.Violations for which no separate penalty has been provided under SEBI (stock brokers and sub brokers) regulations 1992.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2019, Q. 5(e) (Old syllabus).

SEBI vide its circular no. SEBI/HO/MIRSD/DoP/CIR/P/2018/113 dated 12/07/2018 has discontinued acceptance of cash by Stock Brokers.

In view of the various modes of payments through electronic means available today, it is directed that Stock Brokers shall not accept cash from their clients either directly or by way of cash deposit to the bank account of stock broker.

All payments shall be received / made by the Stock Brokers from/to the clients strictly by account payee crossed cheques/ demand draft or by way of credit into the bank account through electronic fund transfer, or any other mode permitted by the Reserve Bank of India. The stock brokers shall accept cheques drawn only by the clients and also issue cheques in favour of the clients only, for their transactions. Stock Brokers shall not accept cash from their clients either directly or by way of cash deposit to the bank account of Stock Broker.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2019, Q. 6A(ii) (Syllabus 2017).

Under the current regulatory framework, Sub-Brokers (‘SB’) need to seek registration from SEBI under SEBI (Stock Broker and Sub-Broker) Regulations, 1992, and Authorized Persons (‘AP’) need to seek registration from the concerned Exchange. There is no difference in the operative role of a Sub-Broker and that of an Authorized Person. Therefore, SEBI vide its circular no. SEBI/HO/MIRSD/DoP/CIR/P/2018/117 dated 03/ 08/2018 has discontinued with sub-broker as an intermediary to be registered with SEBI. In view of the same, the need for the category of the Sub-Broker as a market intermediary may no longer be required. Therefore, it is decided that –

(a)No fresh registration shall be granted to any person as Sub-Broker. Any pending applications for registration as Sub-Broker under process, shall be returned to the concerned Stock Exchanges for onward transmission to the applicant.

(b)The registered Sub-Brokers shall have time till March 31, 2019 in order to migrate to act as an Authorised Person (AP) and / or Trading Member (TM). The sub- Brokers, who do not choose to migrate into AP and / or TM, shall deemed to have surrendered their registration with SEBI as Sub-Broker, w.e.f. March 31, 2019.

(c)Consequent upon migration/deemed surrender, the Certificate of Registration granted to the Sub-Broker by SEBI shall stand withdrawn.

(d)The migration path for existing registered Sub-Broker, shall be under:

i.In case of a registered Sub-Broker who is already approved to act as AP in Derivatives Segment of the Exchanges, he shall be registered with the Exchanges to continue activities of Sub-Broker as AP in Cash Segment.

ii.In case of a registered Sub-Broker who is not approved by Stock Exchanges to act as AP in Derivatives Segment, Exchanges shall register them as AP in Cash Segment, to continue their operations without disruption.

iii.The existing Sub-Broker has an option to become a Trading Member, if the Sub-Broker meets the eligibility criteria prescribed under Stock Exchange Bye-Laws and SEBI Regulations and by complying with these Regulations.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2019, Q. 6A(iii) (Syllabus 2017).