LATEST AMENDMENTS IN SEBI RULES & REGULATIONS

[Mr. M. GOVINDARAJAN]

Amendments

On 26.08.2024 the Securities and Exchange Board of India (‘Board’ for short) brought amendments to the following regulations-

• Securities and Exchange Board of India (Depositories and Participants) Regulations, 2018, through SEBI (Depositories and Participants) (Second Amendment) Regulations, 2024, vide Notification No. SEBI/LAD-NRO/2024/200 dated 26.08.2024.
• Securities and Exchange Board of India (Intermediaries) Regulations, 2008, through SEBI (Intermediaries) (Amendment) Act, 2024, vide Notification No. SEBI/LAD-NRO/2024/201, dated 26.08.2024.
• Securities Contracts (Regulation) (Stock Exchanges and Clearing Corporations) Regulations, 2018, through Securities Contracts (Regulation) (Stock Exchanges and Clearing Corporations) (Fourth Amendment) Regulations, 2024, vide Notification No. SEBI/LAD-NRO/2024/202, dated 26.08.2024.

The Board brought an amendment in Securities Contract (Regulations) Rules, 1957, through Securities Contract (Regulations) Amendment Rules, 2024, vide Notification No. GSR 518(E), dated 28.08.2024.

Amendment to depositories regulations

The amendment regulations came into effect from 26.08.2024. The amendment inserted a new Chapter VII A dealing with restrictions in dealing with other entities, containing two Regulations 82B and 82C.

Regulation 82B placed restrictions in having association with certain persons.   The term ‘association’ is defined under Explanation 1 to this Regulation as meaning-

• a transaction involving money or money’s worth;
• referral of a client;
• interaction of information technology systems;
• any other association of a similar nature or character.

Regulation 82B (1) provides that a depository or its agent, shall have any direct or indirect association, with another person who-

• provides advice or any recommendation, directly or indirectly, in respect of or related to a security or securities, unless the person is registered with or otherwise permitted by the Board to provide such advice or recommendation; or
• makes any claim, of returns or performance expressly or impliedly, in respect of or related to a security or securities, unless the person has been permitted by the Board to make such a claim.

Regulation 82B (1) shall not apply in respect of an association through a specified digital platform.

The expression ‘another person’ is defined under Explanation 3 to this Regulation as not including a person who is engaged in investor education, provided that such a person does not, directly or indirectly, indulge in any activity as referred to in any clause of sub-regulation (1) without the necessary permission.

The expression ‘specified digital platform’ is defined in Explanation 2 to this Regulation as a digital platform as specified by the Board, which has a mechanism in place to take preventive as well as curative action, to the satisfaction of the Board, to ensure that such a platform is not used for indulging in any activity as referred to either clause of sub-regulation (1).

Regulation 82B (2) provides that the depository shall ensure that any person associated with it or its agent does not engage in the activities mentioned in either of the clauses in sub-regulation (1) without the necessary permission.

Regulation 82C provides punishment for violation of Regulation 82B.  The said Regulation provides that the Board may, in case of violation of any of the provisions of regulation 82B, take such action as it may deem fit including action under Chapter V of the Securities and Exchange Board of India (Intermediaries) Regulations, 2008.

Amendment to Intermediaries regulations

The amendments brought in Intermediaries regulations came into effect from 26.08.2024.  The amendment inserted a new Chapter III dealing with restrictions in dealing with other entities, containing two Regulations 16A and 16B.

Regulation 16A of the regulations placed restrictions in having association with certain persons. The term ‘association’ is defined under Explanation 2 to this Regulation as meaning-

• a transaction involving money or money’s worth;
• referral of a client;
•  interaction of information technology systems;
• any other association of a similar nature or character.

Regulation 16A (1) provides that a person regulated by the Board or its agent, shall have any direct or indirect association, with another person who-

• provides advice or any recommendation, directly or indirectly, in respect of or related to a security or securities, unless the person is registered with or otherwise permitted by the Board to provide such advice or recommendation; or
• makes any claim, of returns or performance expressly or impliedly, in respect of or related to a security or securities, unless the person has been permitted by the Board to make such a claim.

The expression ‘person regulated by the Board’ is defined under Explanation 1 to this Regulation as-

• a person registered with the Board under Section 12 of the Act;
• an asset management company of a mutual fund registered with the Board;
• investment manager of an alternative investment fund or infrastructure investment trust registered with the Board;
• manager of a real estate investment trust registered with the Board.

The expression ‘another person’ is defined under Explanation 4 to this Regulation as not including a person who is engaged in investor education, provided that such a person does not, directly or indirectly, indulge in any activity as referred to in any clause of sub-regulation (1) without the necessary permission.

Regulation 16A (2) provides that the depository shall ensure that any person associated with it or its agent does not engage in the activities mentioned in either of the clauses in sub-regulation (1) without the necessary permission.

Regulation 16B provides punishment for violation of Regulation 16A. The said Regulation provides that the Board may, in case of violation of any of the provisions of regulation 82B, take such action as it may deem fit including action under Chapter V these regulations.

Amendment to Stock Exchanges and clearing corporations

This amendment came into effect from 26.08.2024.  The amendment inserted a new Chapter VI A dealing with restrictions in dealing with other entities, containing two Regulations 44B and 44C.

Regulation 44B placed restrictions in having association with certain persons.  The term ‘association’ is defined under Explanation 1 to this Regulation as meaning-

• a transaction involving money or money’s worth;
• referral of a client;
• interaction of information technology systems;
• any other association of a similar nature or character.

Regulation 44B (1) provides that a depository or its agent, shall have any direct or indirect association, with another person who-

• provides advice or any recommendation, directly or indirectly, in respect of or related to a security or securities, unless the person is registered with or otherwise permitted by the Board to provide such advice or recommendation; or
• makes any claim, of returns or performance expressly or impliedly, in respect of or related to a security or securities, unless the person has been permitted by the Board to make such a claim.

Regulation 44B (1) shall not apply in respect of an association through a specified digital platform.

The expression ‘another person’ is defined under Explanation 3 to this Regulation as not including a person who is engaged in investor education, provided that such a person does not, directly or indirectly, indulge in any activity as referred to in any clause of sub-regulation (1) without the necessary permission.

The expression ‘specified digital platform’ is defined in Explanation 2 to this Regulation as a digital platform as specified by the Board, which has a mechanism in place to take preventive as well as curative action, to the satisfaction of the Board, to ensure that such a platform is not used for indulging in any activity as referred to either clause of sub-regulation (1).

Regulation 44C provides that the Board may, in case of violation of any of the provisions of regulation 44B, take such action as it may deem fit including action as provided under regulation 49 (power to issue directions and levy penalty.

Amendment to Securities Contracts (Regulation) Rules

The amendments came into effect from 26.08.2024.  The amendment inserted two new definitions – International Financial Service Centre’ and ‘International Financial Service Centers Authority’.

The newly inserted Rule 2(ca) defines the expression ‘International Financial Service Centre’ as defined in clause (g) of sub-section (1) of section 3 of the International Financial Services Centers Authority Act, 2019.

The newly inserted Rule 2(cb) defines the expression ‘International Financial Service Centers Authority’ as the Authority established under sub-section (1) of section 4 of the International Financial Services Centers Authority Act, 2019.

Amendment to Rule 19

Rule 19 provides the requirements with respect to listing of the securities on a recognized stock exchange. The amendment inserted an explanation after the fourth proviso to Rule 19(2)(b). The said explanation provides that  the provisions of sub-clause (i) shall apply to, or in relation to, an applicant company desirous of getting its securities listed on a recognized stock exchange in an International Financial Service Centre, subject to the modification that the reference to 25% in that sub-clause shall be construed as reference to 10%, irrespective of the post issue capital of such company and sub-clauses (ii), (iii) and (iv) shall not apply.

Amendment to Rule 19A

The amendment inserted a Explanation after the explanation to sub-rule (6). The new Explanation provides that the provisions of sub-rules (1) to (5) shall apply to, or in relation to, a company listed on a recognized stock exchange in an International Financial Service Centre, subject to the modification that references to 25% in those sub-rules shall be construed as references to 10% and the first proviso to sub-rule (5) shall not apply to such company.”.