Details/clarifications on provisions related to association of persons regulated by the Board, MIIs, and their agents with persons engaged in prohibited activities
Summary
This circular clarifies restrictions on regulated entities and their agents regarding associations with persons engaged in unregistered advisory or performance claim activities. It defines prohibited activities as providing security advice without registration or making implied return claims without permission, while exempting pure investor education. The document provides FAQs to guide compliance for stock exchanges, clearing corporations, depositories, and other intermediaries. The document clarifies that NISM may use market price data with a one-day lag for simulation labs. It outlines permissible and prohibited associations for regulated entities, distinguishing between general professional services and activities involving prohibited parties. Finally, it details the consequences of violations, including regulatory actions and penalties, and specifies the effective date of these regulations.
Text
SEBI (Intermediaries) (Amendment) Regulations, 2024, SECC (Fourth Amendment) Regulations, 2024 and DP (Second Amendment) Regulations, 2024 were published in the Official Gazette on August 29, 2024.
Persons regulated by the Board, MIIs, and their agents shall not have any direct or indirect association with another person who provides advice/recommendation on securities without Board registration or makes claims of returns/performance without Board permission.
The person regulated by the Board is required to ensure that any person associated with it or its agent does not engage in the activities mentioned in clauses (i) or (ii) above.
The term 'another person' shall not include a person who is engaged solely in investor education, provided that such a person does not directly or indirectly indulge in any activity as referred to in clauses (i) or (ii) above.
Regulation 16A of Intermediaries Regulations, Regulation 44B of SECC Regulations and Regulation 82B of DP Regulations provide the provisions on association of persons regulated by the Board, MIIs, and their agents with another person engaged in prohibited activities.
Person regulated by the Board includes persons registered under section 12 of the Act, asset management companies of mutual funds, investment managers of AIFs/IITs/REITs registered with the Board, and MIIs like stock exchanges, clearing corporations and depositories.
As per section 182 of the Indian Contract Act, agent is a person employed to do any act for another or represent another in dealings with third persons; examples include employees, mutual fund distributors, and authorized persons of stock brokers.
Persons regulated by the Board and their agents shall not associate with another person engaged in providing security advice without registration or making claims of returns/performance without permission.
Association means association involving transaction of money or money's worth, referral of a client, interaction of information technology systems, or any other association of similar nature or character.
It is the responsibility of persons regulated by the Board to ensure that any person associated with them or their agent does not engage in prohibited activities, to the extent of their association.
Investor education is not a prohibited activity, but persons regulated by the Board must ensure that such persons do not engage in providing unregistered advice or making unpermitted performance claims.
A person engaged solely in education should not use market price data of preceding thirty days to indicate future price, advice, or recommendation related to securities in talks, videos, or screens.
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Source: SecMarx — Details/clarifications on provisions related to association of persons regulated by the Board, MIIs, and their agents with persons engaged in prohibited activities. Verbatim text is public record; SecMarx structuring (linkage to applying orders) is cited to us.