Regulation 16 - Investment of clients' moneys and management of clients' portfolio of securities - Securities and Exchange Board of India (Portfolio Managers) Regulations, 1993

1 [16. Investment of clients' moneys and management of clients' portfolio of securities].─ (1) 2 [(a) The money or securities accepted by the portfolio manager shall not be invested or managed by the portfolio manager except in terms of the agreement between the portfolio manager and the client.] (b) Any renewal of portfolio fund on maturity of the initial period shall be deemed as a fresh placement 3 [* * *]. 4 [(2) Notwithstanding anything contained in the agreement referred to in regulation 14, the funds or securities can be withdrawn or taken back by the client before the maturity of the contract under the following circumstances, namely- (a) voluntary or compulsory termination of portfolio management services by the portfolio manager or the client. (b) suspension or cancellation of the certificate of registration of the portfolio manager by the Board. (c) bankruptcy or liquidation of the portfolio manager.] (3) The portfolio manager shall invest funds of his clients in money market instruments 5 [or derivatives] or as specified in the contract: 6 [Provided that leveraging of portfolio shall not be permitted in respect of investment in derivatives:] Provided 7 [further] that the portfolio manager shall not deploy the clients' funds in bill discounting, badla financing or for the purpose of lending or placement with corporate or non-corporate bodies. Explanation.─ For the purposes of this sub-regulation: money market instruments includes commercial paper, trade bill, treasury bills, certificate of deposit and usance bills. 8 [(4) The portfolio manager shall not while dealing with clients funds indulge in speculative transactions that is, he shall not enter into any transaction for purchase or sale of any security which is periodically or ultimately settled otherwise than by actual delivery or transfer of security except the transactions in derivatives.] (5) The portfolio manager shall, ordinarily purchase or sell securities separately for each client. However, in the event of aggregation of purchases or sales for economy of scale, inter se allocation shall be done on a pro rata basis and at weighted average price of the day's transactions. The portfolio manager shall not keep any open position in respect of allocation of sales or purchases effected in a day. (6) Any transaction of purchase or sale including that between the portfolio manager's own accounts and client's accounts or between two clients' accounts shall be at the prevailing market price. (7) The portfolio manager shall segregate each clients' funds and portfolio of securities and keep them separately from his own funds and securities and be responsible for safekeeping of clients' funds and securities. 9 [(8) The portfolio manager shall not hold the listed securities 10 [or unlisted securities], belonging to the portfolio account, in its own name on behalf of its clients either by virtue of contract with clients or otherwise: Provided that any portfolio manager holding the listed securities belonging to the portfolio account in its own name on behalf of its clients on the date of commencement of the Securities and Exchange Board of India (Portfolio Managers) (Amendment) Regulations, 2008 shall segregate each clients listed securities and keep them separately within six months from such commencement: Provided further that the Board may in the interest of investors or for the development of securities market, on an application made in this behalf by a portfolio manager with respect to any specific investment existing on the date of commencement of the Securities and Exchange Board of India (Portfolio Managers) (Amendment) Regulations, 2008, relax the strict enforcement of this regulation:] 11 [Provided further that the portfolio manager shall segregate each client s holding in unlisted securities in separate accounts in respect of investment by new clients and fresh investments by existing clients: Provided further that existing investments in unlisted securities of clients, as on date of notification of Securities and Exchange Board of India (Portfolio Managers) (Amendment) Regulations, 2012 may continue as such till maturity of investment.] 12 [(9) The portfolio manager may, subject to authorization by the client in writing, participate in securities lending.] ******** 1 Substituted for Investment of clients moneys , by the SEBI (Portfolio Managers) (Amendment) Regulations, 2002, w.e.f. 11-10-2002. 2 Substituted, ibid. Prior to substitution, clause (a) read as under: (a) The portfolio manager shall not accept money or securities from his client for a period of less than one year: Provided that in the case of placement of funds for portfolio management by the same client on more than one occasion or on a continual basis, each placement shall be for a minimum period of one year. 3 The words and shall be for a minimum period of one year omitted by the SEBI (Portfolio Managers) (Amendment) Regulations, 2002, w.e.f. 11-10-2002. 4 Substituted by the SEBI (Portfolio Managers) (Amendment) Regulations, 2002, w.e.f. 11-10-2002. Prior to substitution, sub-regulation (2) read as under: (2) Notwithstanding anything contained in the agreement between a portfolio manager and his client, referred to in regulation 14 hereof, the, portfolio funds can be withdrawn or taken back by portfolio client at his risk before the maturity date of the contract under the following circumstances, namely:- (a) Voluntary or compulsory, termination of Portfolio management services by the Portfolio manager; (b) suspension or termination of registration of Portfolio manager by the Board; (c) bankruptcy or liquidation in case the portfolio manager is a body corporate; (d) permanent disability, lunacy or insolvency in case the portfolio manager is an individual; 5 Inserted by the SEBI (Portfolio Managers) (Amendment) Regulations, 2002, w.e.f. 11-10-2002. 6 Inserted, ibid. 7 Inserted, ibid. 8 Substituted by the SEBI (Portfolio Managers) (Amendment) Regulations, 2002, w.e.f. 11-10-2002. Prior to substitution, sub regulation (4) read as under: (4) The portfolio manager shall not while dealing with clients funds indulge in speculative transactions, that is, he shall not enter into any transaction for purchase or sale of any security in which transaction is periodically or ultimately settled otherwise than by actual delivery or transfer of security. The portfolio manager may enter into transactions on behalf of client for the specific purpose of meeting margin requirements only if the contract so provides and the client is made aware of the attendant risks of such transactions. 9 Substituted by the SEBI (Portfolio Managers) (Amendment) Regulations, 2008, w.e.f. 11-08-2008. Prior to substitution, sub-regulation (8) read as follows: (8) The portfolio manager may hold the securities belonging to the portfolio account in [its] own name on behalf of [its] clients only if the contract so provided and in such an event the record of the portfolio manager and [its] report to the client should clearly indicate that the securities are held by [it] on behalf of the portfolio account. [The words his and him were substituted by its and it respectively, by the SEBI (Portfolio Managers) (Amendment) Regulations, 2002, w.e.f. 11-10-2002.] 10 Inserted by SEBI (Portfolio Managers) (Amendment) Regulations, 2012, w.e.f. 10-2-2012. 11 Inserted by SEBI (Portfolio Managers) (Amendment) Regulations, 2012, w.e.f. 10-2-2012. 12 Inserted by the SEBI (Portfolio Managers) (Amendment) Regulations, 2002, w.e.f. 11-10-2002.