Tag Archives: stock exchanges

market access to IFSC based stock exchanges

The International Financial Services Centre Authority has issued guidelines on providing market access to investors through authorised persons based in foreign jurisdictions. Gist of the circular is given below:

IFSCA has received representations from Stock Exchanges and market participants based in IFSC on permitting market access in IFSC through Authorized Persons based in jurisdictions overseas. Subsequent to discussions and deliberations, with a view to expand the depth and
reach of the market for exchange traded securities in IFSC, it has been decided to permit stock brokers/ trading members (registered with either IFSCA or SEBI or both) of the stock exchanges to provide market access to investors through Authorized Persons based in foreign jurisdictions. The regulatory framework governing the market access through Authorized
Persons is enclosed at Annexure-1.

  1. The stock exchanges and stock brokers shall have the operational flexibility to prescribe requirements/guidelines, in addition to those stated in the said framework, as they deem fit, in the interest of investors and the market. However, no relaxations shall be granted by them
    in the framework specified by the Authority.
  2. The Stock Exchanges shall make the necessary amendments to their by-laws, rules and regulations to implement the said framework.
  3. This circular is issued in exercise of powers conferred by section 12 of the International Financial Services Centres Authority Act, 2019 to develop and regulate the financial products, financial services and financial institutions in the International Financial Services Centres.
  4. A copy of this circular is available on the website of the International Financial Services Centres Authority at http://www.ifsca.gov.in
  5. IFSCA – Regulatory framework for Authorized Persons 1 | Page
    Annexure-1
    Regulatory Framework for Market Access to IFSC based Stock Exchanges through Authorized Persons
  6. Who is an “Authorized Person”?
    Any person – individual, partnership firm, LLP or body corporate – who is appointed as such by a stock broker /trading member and who provides access to the trading platform of a stock exchange as an agent of the stock broker.
  7. Appointment of Authorized Person
    A stock broker may appoint one or more Authorized Person(s) after obtaining specific prior approval from the stock exchange concerned for each such person.
  8. Procedure for Appointment
    a) The stock broker shall select a person in compliance with the criteria laid down by the Exchange and this framework for appointment as an Authorized Person and forward the application of the person to stock exchange for approval.
    b) On receipt of the aforesaid application, the stock exchange
    i. shall accord approval on satisfying itself that the person is eligible for
    appointment as Authorized Person, or
    ii. shall refuse approval on satisfying itself that the person is not eligible for appointment as Authorized Person
  9. Eligibility Criteria
    I. An individual is eligible to be appointed as Authorized Person if he:
    a) is a citizen of India or a citizen of any of the Financial Action Task Force (FATF) compliant jurisdictions;
    b) is not less than 18 years of age;
    c) has not been convicted of any economic/financial offence in his home
    jurisdiction or overseas;
    d) has a good reputation and character;
    e) is a graduate from a recognized institution in the jurisdiction of his
    citizenship; and
    f) the approved users and / or sales personnel of the Authorized Person shall have the necessary certifications, prescribed by the stock exchanges, at all points of time
    II. A partnership firm, LLP or a body corporate is eligible to be appointed as an Authorized Person if;
    a) it is incorporated in the IFSC or in any of the FATF compliant jurisdictions or which is governed by an FATF style regional body
    b) if all the partners or directors, as the case may be, comply with the
    requirements contained in clause I above
    c) the object clause of the partnership deed or of the Memorandum of
    Association contains a clause permitting the person to deal in securities
    business
    III. The person shall have the necessary infrastructure like adequate office space, equipment and manpower to effectively discharge the activities on behalf of the stock broker.
  10. Conditions of Appointment
    The following are the conditions of appointment of an Authorized Person:
    a) The stock broker shall be responsible for all acts of omission and commission of the Authorized Person
    b) All acts of omission and commission of the Authorized Person shall be deemed to be those of the stock broker
    c) The Authorized Person shall not receive or pay any money or securities in its own name or account. All receipts and payments of securities and funds shall be in the name or account of the stock broker
    d) The Authorized Person shall receive his remuneration – fees, charges,
    commission, salary, etc. – for his services only from the stock broker and he shall not charge any amount from the clients
    e) A person shall not be appointed as an Authorized Person by more than one stock broker on the same stock exchange
    f) A partner or director of an Authorized Person shall not be appointed as an Authorized Person on the same stock exchange
    g) The stock broker and Authorized Person shall enter into written agreement(s) in the form(s) specified by the stock exchange. The agreement shall inter-alia cover the scope of the activities, responsibilities, confidentiality of information, commission sharing, termination clause, etc.
  11. Withdrawal of Approval
    The approval given to an Authorized Person shall be withdrawn by the stock exchange:
    a) on receipt of a request to that effect from the concerned stock broker or the Authorized Person, subject to compliance with the requirements prescribed by the stock exchange, or
    b) on being satisfied that the continuation of the Authorized Person is
    detrimental to the interest of investors or the securities market or
    c) the Authorized Person at a subsequent date fails to fulfil the eligibility criteria specified at clause 4
  12. Obligations of a Stock Broker
    a) The stock broker shall be responsible for all acts of omission and commission of his Authorized Person(s) and/or their employees, including liabilities arising therefrom
    b) If any trading terminal is provided by the stock broker to an Authorized Person, the place where such trading terminal is located shall be treated as the branch office of the stock broker
    c) The stock broker shall display at each branch office additional information such as particulars of the Authorized Person in charge of that branch, time lines for dealing through the Authorized Person, etc., as may be specified by the stock exchange
    d) The stock broker shall notify changes, if any, in the Authorized Person to all registered clients of that branch at least thirty days before the change
    e) The stock broker shall conduct periodic inspection of branches assigned to the Authorized Persons and the records of the operations carried out by them
    f) The client shall be registered with the stock broker only. The funds and
    securities of the clients shall be settled directly between the stock broker and the client and all documents like contract notes, statement of funds and securities shall be issued to the client by the stock broker. The Authorized Person may provide administrative assistance in procurement of documents and settlement, but shall not issue any document to the client in his own name. No fund/securities of the clients shall be credited to the accounts of the Authorized Person
    g) On noticing any irregularities in the operations of the Authorized Person, the stock broker shall:
    i. seek withdrawal of approval of the Authorized Person,
    ii. withhold all moneys due to Authorized Person till resolution of client
    complaint,
    iii. alert clients / potential investors in the location where such an Authorized Person operates,
    iv. file a complaint with the police and take all measures required to protect the interest of the investors and the market
  13. Obligations of the Stock Exchange
    a) The stock exchanges shall maintain a database of all the Authorized Persons which shall include the following:
    i. Tax Id of home jurisdiction of individual Authorized Person and in case
    of a partnership, LLP or body corporate, the Tax id of the home
    jurisdiction of all the partners or directors and Legal Entity Identifier
    (LEI) number of the entity as the case may be
    ii. Details of the stock broker with whom the Authorized Person is
    registered
    iii. Locations of branch assigned to the Authorized Person(s)
    iv. Number of terminals and their details, given to each Authorized Person.
    v. Withdrawal of approval of the Authorized Person
    vi. Change in status or constitution of the Authorized Person
    vii. Disciplinary action taken by the Exchange against the Authorized
    Person
    The data pertaining to points 8(a)(ii) to 8(a)(vii) above shall be made available on websites of the stock exchanges.
    b) While conducting the inspection of the stock broker, the stock exchange shall also conduct inspection of branches (where the terminals of the Authorized Persons are located) and records of the operations carried out by them
    c) The dispute between a client and an Authorized Person shall be treated as a dispute between the client and the stock broker. The stock exchanges shall put in place the appropriate dispute resolution/ redressal mechanisms accordingly
    d) In case of withdrawal of approval of Authorized Person due to disciplinary action, the stock exchange shall disseminate the names of such Authorized Persons on its website citing the reason for cancellation

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trading/ clearing member default

SEBI circular dated 1st October, 2020 giving more time upto 31st October, 2020 to trading member/ clearing members to submit indemnity bond cum undertaking to the stock exchanges. Also stock exchanges have been given leeway to modify the draft of the undertaking wherever required. Gist of the circular follows

  1. In terms of clause 9 of SEBI circular SEBI/ HO/ MIRSD/ DPIEA/ CIR/ P/ 2020/115 dated July 01, 2020 on the captioned subject, TMs / CMs are required to provide a list of all their bank accounts to the Stock Exchanges (SEs) / Clearing Corporations (CCs) and the SEs / CCs shall obtain an Undertaking cum Indemnity bond from the TM within 90 days from the date of the said SEBI circular.
  2. In view of the prevailing situation due to Covid-19 pandemic and representation received from the Stock Exchanges, it has been decided to extend the timeline for submission of the Undertaking cum Indemnity bond by the TM / CM for all the bank accounts by a period of one month i.e. till October 31, 2020.
  3. It has also been decided to provide flexibility to the SEs / CCs for modifying the Undertaking cum Indemnity bond they need to take from TMs / CMs and suitably modify the draft undertaking wherever required.
  4. Stock Exchanges and Clearing Corporations are directed to bring the provisions of this circular to the notice of their members and also disseminate the same on their websites.

https://www.sebi.gov.in/legal/circulars/oct-2020/standard-operating-procedure-in-the-cases-of-trading-member-clearing-member-leading-to-default-extension-of-timeline-for-submission-of-the-undertaking-cum-indemnity-bond-by-the-trading-members-tm-_47780.html

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recovery of assets of defaulter member

SEBI circular dated 28th September, 2020 on the subject of recovery of assets of a defaulter member in the stock exchange from the debit balance clients of the defaulting member.

  1. SEBI vide circular SEBI/HO/MIRSD/DOP/CIR/P/2018/153 dated December 17, 2018 had specified Early Warning Mechanism to prevent diversion of client’s securities and consequential action(s) to be initiated by the Stock Exchanges (“SEs”), Clearing Corporations (“CCs”) and Depositories were also specified in the said Circular.
  2. Further, SEBI vide circular SEBI/HO/MIRSD/DPIEA/CIR/P/2020/115 dated July 01, 2020 (“SOP Circular”) had specified Standard Operating Procedure in the cases of Trading Member (“TM”) / Clearing Member (“CM”) leading to default. SEBI circular CIR/ HO/ MIRSD/ MIRSD2/ CIR/ P/ 2017/64 dated June 22, 2017 and the SOP Circular have inter alia specified that all SE/CC shall initiate the process to settle debit balance client accounts by selling their securities if such clients fail to clear
    their debit balance after giving notice period for 5 days.
  3. As per Section 2(j) of the Securities Contracts (Regulation) Act, 1956 (“SCRA”) a stock exchange is an entity which is established for the purposes of assisting, regulating or controlling the business of buying, selling or dealing in securities. A Stock Exchange is recognised by SEBI in terms of Section 4 of SCRA. In terms of provisions of SCRA, a recognised stock exchange acts as a first level regulator in the securities market, in so far as trading on its platform by its members. In terms of Section 9 of SCRA, a recognised stock exchange has been empowered to frame bye laws for the regulation and control of contracts in securities entered into by its members. Sub-section (2) of Section 9, lays down a list of matters relating to different aspects of contract in securities, for which Stock Exchanges can make bye laws. These bye laws inter alia provide for admission of members, listing of securities, declaring a member defaulter, resolution of disputes between member and client through arbitration and annulment of trade, etc. These provisions also
    apply to a Clearing Corporation in terms of Section 8A of SCRA.
  4. In the case of default by TM/CM, it has been noted that in certain cases there is shortfall of funds/securities with defaulter member to meet the obligation of clients / SE / CC. The bye-laws of SE/CC provide for the procedure for declaring a member as defaulter when, amongst other reasons, the member is not able to fulfil its obligations and also provide for initiation of proceedings in a court of law whenever a member is declared as a defaulter and there is a shortfall of funds/securities with
    the defaulter member.
  5. The SE/CC are advised to initiate suitable actions for liquidating the assets (movable and immovable) of defaulter member including that of debit balance clients (to the extent of debit balance), within six months of declaration of defaulter, for recovery of the assets not in possession of the SE/CC, before appropriate court of law.
  6. Stock Exchanges and Clearing Corporations are further advised to:
    a) draw attention of the provisions of this circular to the notice of their members and participants, as the case may be, and disseminate the same on their websites;
    b) make amendments to their bye-laws, rules, regulations wherever necessary;
    c) communicate to SEBI, the status of the implementation of the provisions of this circular in their monthly development report.
  7. This circular is being issued in exercise of the powers conferred under Section 11 (1) of the Securities and Exchange Board of India Act, 1992 read with Section 10 of the Securities Contracts (Regulation) Act, 1956 to protect the interests of investors in securities and to promote the development of, and to regulate the securities market.

https://www.sebi.gov.in/legal/circulars/sep-2020/recovery-of-assets-of-defaulter-member-and-recovery-of-funds-from-debit-balance-clients-of-defaulter-member-for-meeting-the-obligations-of-clients-stock-exchange-clearing-corporation_47695.html

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listing of InvITs and ReiTs on IFSC bourses

SEBI circular dated 16th September, 2020 on the subject matter.

Sub: Listing and trading of units of Infrastructure Investment Trusts (InvITs) and Real Estate Investment Trusts (REITs) on recognized stock exchanges in International Financial Services Centres (IFSC)

  1. Securities and Exchange Board of India (International Financial Services Centre) Guidelines, 2015 were notified by SEBI on March 27, 2015, which came into force on April 01, 2015.
  2. Clause 7 of SEBI (IFSC) Guidelines, 2015 specifies the types of securities in which dealing may be permitted by stock exchanges operating in IFSC. It has been decided to permit ‘Units of InvITs and REITs by whatever name called in the Permissible Jurisdictions’ as permissible security under sub-clause (vi) of Clause 7 of SEBI (IFSC) Guidelines, 2015.
  3. Accordingly, ‘Units of InvITs and REITs by whatever name called in the Permissible Jurisdictions’ meeting the following conditions may be permitted to list on stock exchanges operating in IFSC:
    i. Such InvITs and REITs which are incorporated/settled in Permissible Jurisdictions, as may be notified by the Government of India from time to time pursuant to notification no. G.S.R. 669(E) dated September 18, 2019 in respect of sub-rule 1 of rule 9 of Prevention of Money-Laundering (Maintenance of Records) Rules, 2005;
    In this regard, the Government of India vide notification dated November 28, 2019, has notified the list of Permissible Jurisdictions in pursuance of notification dated September 18, 2019. Accordingly, a list of Permissible Jurisdictions for the purpose of this clause is placed at Annexure A.
    ii. Such InvITs and REITs are regulated by the securities market regulator(s) in the Permissible Jurisdictions.
    iii. Such InvITs and REITs are listed on any of the specified international exchanges in the Permissible Jurisdiction. A list of International Exchanges for the purpose of this clause is also placed at Annexure A.
  4. Stock exchanges in IFSC shall evolve a detailed framework prescribing the initial and continuous listing requirements for such InvITs and REITs whose units are listed/proposed to be listed on stock exchanges in IFSC (based on para 3 above).
  5. The applicability of this circular is subject to such conditions that may be prescribed by SEBI, Reserve Bank of India and other appropriate authority from time to time.

List of Permissible Jurisdictions and International Exchanges

  1. United States of America – NASDAQ, NYSE
  2. Japan – Tokyo Stock Exchange
  3. South Korea – Korea Exchange Inc.
  4. United Kingdom excluding British Overseas Territories- London
    Stock Exchange
  5. France – Euronext Paris
  6. Germany – Frankfurt Stock Exchange
  7. Canada – Toronto Stock Exchange

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faqs on Indian Stamp Act amendments

Frequently Asked Questions (FAQs) on Indian Stamp Act, 1899 Amendments and Rules made thereunder

  1. Why amendments in the Indian Stamp Act, 1899 have been made?
    Answer: The amendments have been carried out with respect to securities market transactions. The present system of collection of stamp duty on securities market transactions has led to multiple rates for the same instrument, resulting in jurisdictional disputes and multiple incidences of duty, thereby raising the transaction costs in the securities market and hurting capital formation.
  2. What is the basic framework being created through the amendments to the Indian Stamp Act, 1899?
    Answer: Through the said amendments, the Central Government has created the legal and institutional mechanism to enable States to collect stamp duty on securities market instruments at one place by one agency (through the Stock Exchanges or Clearing Corporations authorised by the Stock Exchange or by the Depositories) on one instrument. A mechanism for appropriate sharing the stamp duty with relevant State Government based on State of domicile of the buying client has also been included. In the extant scenario, stamp duty was payable by both seller and buyer whereas in the new system it is levied only on one side (payable either by the buyer or by the seller but not by both, except in case of certain instrument of exchange where the stamp duty shall be borne by both parties in equal proportion).
  3. What are the expected key benefits of amendments in the Indian Stamp Act, 1899?
    Answer: The amendments in the Indian Stamp Act, 1899 and Rules made thereunder will facilitate ease of doing business and will bring in uniformity and affordability of the stamp duty on securities across States and thereby build a pan-India securities market. Further, cost of collection would be minimised while revenue productivity is enhanced. Further, this system will help develop equity markets and equity culture
    across the length and breadth of the country, ushering in balanced regional development.
  4. The amended provisions of the Stamp Act and Rules made thereunder will come into force from which date?
    Answer: The amended provisions of the Indian Stamp Act, 1899 brought through Finance Act, 2019 and Rules made thereunder shall come into force w.e.f 1st July,
  5. What all instruments are covered under Part AA of Chapter II of the amended Stamp Act and the Rules made thereunder?
    Answer: Each security is charged with a duty as specified in Schedule I of the amended Stamp Act. Securities are defined to include all those instruments specified in clause (h) of section 2 of the Securities Contracts (Regulation) Act, 1956; a “derivative” as defined in clause (a) of Section 45U of the Reserve Bank of India Act, 1934; a certificate of deposit, commercial usance bill, commercial paper and such other debt instrument of original or initial maturity up to one year as the Reserve Bank of India may specify from time to time; repo on corporate bonds; and any other instrument declared by the Central Government, by notification in the Official Gazette, to be securities for the purposes of this Act.
  6. Who will collect the Stamp Duty on behalf of the State Government?
    Answer: The stamp-duty on sale of securities, transfer of securities and issue of securities shall be collected on behalf of the State Government by the Stock Exchange or Clearing Corporation authorized or Depositories (authorized collecting agents). The Central Government has also notified the Clearing Corporation of India Limited (CCIL) and the Registrars to Issue and / or Share Transfer Agents to act as collecting agents.
  7. What is the manner of collection of stamp duty under new system?
    Answer: For all exchange based secondary market transactions in securities, Stock Exchanges shall collect the stamp duty; and for off-market transactions (which are made for a consideration as disclosed by trading parties) and initial issue of securities happening in demat form, Depositories shall collect the stamp duty.
  8. When and how will the stamp duty be transferred to each State?
    Answer: The collecting agents shall within three weeks of the end of each month and in accordance with the Rules made in this behalf by the Central Government, transfer the stamp-duty collected to the State Government where the residence of the buyer is located and in case the buyer is located outside India, to the State Government having the registered office of the trading member or broker of such buyer and in case where there is no such trading member of the buyer, to the State Government having the registered office of the participant. The collecting agent shall transfer the collected stamp-duty in the account of concerned State Government with the Reserve Bank of India or any scheduled commercial bank, as informed to the collecting agent by the
    Reserve Bank of India or the concerned State Government.
  9. What would be the fees for the collecting agent?
    Answer: The collecting agent may deduct 0.2 per cent of the stamp-duty collected on behalf of the State Government towards facilitation charges before transferring the same to such State Government.
  10. How the State Government will communicate regarding stamp duty matter?
    Answer: The State Government shall appoint a nodal officer for all official communications with the principal officers (appointed representatives of collecting agents) for the purposes of collection of stamp-duty in accordance with stamp duty Rules.
  11. What if collecting agents fails to transfer the duty to the State Government within the time period specified in the Stamp Act and Rules made thereunder?
    Answer: The collecting agents have to transfer collected stamp duty to the State Government within three weeks of the end of each month. Any collecting agent who fails to collect the stamp duty or fails to transfer stamp duty to the State Government within fifteen days of the expiry of the time specified, shall be punishable with fine which shall not be less than one lakh rupees, but which may extend up to one per cent of the collection or transfer so defaulted.
  12. Will any information be provided to the State Government in respect of the stamp duty collected?
    Answer: The collecting agent shall submit a return of stamp-duty collected on various transactions to the State Government including details of defaulters in the prescribed format on a monthly basis to be furnished manually or electronically within seven days of the succeeding month. Further, the collecting agent shall furnish a consolidated return of stamp-duty collected during a financial year manually or electronically on or before the 30th June immediately following that financial year to the concerned State Government and the Accountant General of each State. The State Government may provide an online facility by which a collecting agent shall upload State wise monthly and yearly returns. Further, if a collecting agent fails to submit details of transactions to the Government or submits a document or makes a declaration which is false or which such person knows or believes to be false, shall be punishable with fine of one lakh rupees for each day during which such failure continues or one crore rupees, whichever is less.
  13. Can collecting agents utilise amount collected on behalf of States for any other purpose?
    Answer: The stamp-duty collected on behalf of the State Government shall not be utilized by any collecting agent for any other purpose and shall be transferred to the State Government along with interest earned on such amount, if any.
  14. Who will collect the stamp duty in case of private placements/ e-IPOs through Stock Exchange platform?
    Answer: As per section 9A(1)(c), stamp duty shall be collected by the Depository on any creation or change in the records of a Depository, pursuant to issue of securities. This should be followed even in case of private placements/ e-IPOs through stock exchange platform.
  15. Whether stamp duty is applicable on bonus issue of shares?
    Answer: In case of bonus issue, there is no consideration which means bonus shares are issued free to existing shareholders. Section 21 of the Amended Indian Stamp Act read with sub-section 16B of Section 2 clearly indicates that stamp duty is to be collected on market value which is based on price or consideration involved.
  16. Whether stamp duty is applicable on units of Mutual Fund?
    Answer: Sub-Section 23A of Section 2 of the Indian Stamp Act, 1899 defines securities as including securities defined in clause (h) of section 2 of the Securities Contracts (Regulation) Act, 1956 (SCRA). Further, it may be noted that clause (h)(id) of Section 2 of SCRA, 1956, which defines “securities” includes “units or any other such instrument issued to the investors under any mutual fund scheme” under its ambit. Therefore, units of Mutual Fund Schemes are to be considered as securities for the purpose of applicability of stamp duty also
  17. Which section of amended Indian Stamp Act, 1899 (section 9A or 9B) is applicable for Mutual Funds for the purposes of collection and transfer of stamp duty to States/UTs?
    Answer: Since RTI and/or STA of Mutual Funds have been declared as Depositories under the Stamp Act vide gazette notification dated 8th Jan, 2020, the entire mutual fund business gets covered under Section 9A of the Indian Stamp Act. Section 9B is not applicable to them. RTAs have to function like a Depository in respect of collection of Stamp Duty on issue and sale or transfer of mutual funds in SoA form. The extant Stamp Rules applies to them as well i.e. the operational clause for them is Section 9A and not 9B of the Indian Stamp Act.
  18. Who will collect and transfer the Stamp duty to States in case of transactions in units of Mutual Funds and AIFs in Statement of Account/ Physical (non-demat form)?
    Answer: To provide for collection of Stamp Duty on transactions in mutual fund and AIF units in the statement of account/physical (non-demat) form, RTI and/or STA have been notified (vide Gazette Notification dated 8th January, 2020) as a “Depository” for the limited purposes of acting as a “collecting agent” under the said Act and the Rules made thereunder. Accordingly, for non-demat Mutual Fund and
    AIF transactions, collection of stamp duty by RTAs shall be governed by the provisions of Section 9A(1)(b) and 9A(1)(c) and the transfer of stamp duty to the respective States shall be governed by the provisions of Section 9A (4). Thus, the transfer of collected stamp duty to respective States/UTs by RTAs also is governed by buyer-based principle as covered in Section 9A(4) and not on the basis of registered office of the issuer.
  19. Who will collect the Stamp duty in case of Mutual Fund and AIF transactions (sale, transfer and issue of units in demat mode) through recognized Stock Exchange or Depository?
    Answer: As clear from the Act that in case of Mutual Fund and AIF transactions (sale, transfer and issue of units in demat mode) through recognized Stock Exchange or Depository as defined under SCRA, 1956 and Depositories Act, 1996 respectively, the respective Stock Exchange/ authorized Clearing Corporation or a Depository is already empowered to collect stamp duty as per Amended Indian Stamp Act and Rules made thereunder.
  20. On transfer of units of Mutual Funds and AIFs held in physical form stamp duty is to be collected from the transferor. As these transfers happen outside the purview of RTAs what will be process of collection and remittance of stamp duty?
    Answer: Stamp duty has to be collected and remitted only by collecting agents (RTA for physical units and Depositories for demat units). Where Mutual Fund and AIF units are issued in physical form, stamp duty has to be collected and remitted by RTA. Accordingly, when the transferee approaches RTA for effecting the transfer in their books, RTA will be collecting the stamp duty from the transferor before effecting the transfer which will then be remitted to the state of domicile of the transferee.
  21. How stamp duty is calculated in case of issuance of Mutual fund Units?
    Answer: Stamp duty is imposed on the value of units excluding other charges like service charge, AMC fee, GST etc. If the units are issued for Rs.1 crore then Rs.500 would be the stamp duty to be remitted to States.
  22. Whether switching in Mutual fund attract stamp duty?
    Answer: The issue of fresh units in the switched scheme would also attract stamp duty even though there is no physical consideration paid or transfer of ownership. This is because the new units are deemed to have been purchased with the NAV realized from the sale of earlier units.
  23. Whether stamp duty is applicable on redemption of Mutual Fund units?
    Answer: Redemption is not liable to duty as it is neither a transfer nor an issue nor a sale.
  24. Whether stamp duty will be charged on off-market transfer of securities without consideration such on gift, legacy transfer etc.?
    Answer: No. Section 21 of the Amended Indian Stamp Act read with sub-section 16B of Section 2 clearly indicates that stamp duty is to be collected on market value which is based on price or consideration involved.
  25. Whether stamp duty is applicable at multiple levels of a single transaction (on account of procedural requirements) and to which State Government the stamp duty amount be transferred in such cases?
    Answer: It should be ensured that double incidence of stamp duty doesn’t occur on any transaction. Where, before being credited in the buyer’s demat account, the securities are transferred from the demat accounts of issuer to clearing corporation, member, etc., the stamp duty shall be transferred to the State Government where the residence of the buyer is located.
  26. Whether stamp duty will be applicable in case of creation of segregated portfolio?
    Answer: No. Since no consideration is received from the investors and the mechanism is only to facilitate mutual funds to deal with liquidity risk leading to equal treatment of all investors, issuance of units in segregated portfolio is not liable to stamp duty.
  27. Whether stamp duty will be applicable in case of conversion of holding from Dematerialisation into Statement of Account (SoA) form and vice versa?
    Answer: No. Conversion of existing mutual fund units held in SoA mode to demat mode or vice-versa does not tantamount to issuance or transfer of mutual fund units and it only reflects the change in mode of holding without any change in beneficiary ownership. Accordingly, stamp duty is not applicable on such conversions.
  28. What are the stamp duty rates being implemented through the Amended Indian Stamp Act?
    Stamp Duty Rates w.e.f. 1st July 2020
    Instrument Rate
    Issue of Debenture 0.005%
    Transfer and Re-issue of debenture 0.0001%.
    Issue of security other than debenture 0.005%
    Transfer of security other than debenture on delivery basis; 0.015%
    Transfer of security other than debenture on non-delivery basis 0.003%
    Derivatives––
    (i) Futures (Equity and Commodity) 0.002%
    (ii) Options (Equity and Commodity) 0.003%
    (iii) Currency and Interest Rate Derivatives 0.0001%
    (iv) Other Derivatives 0.002%
    Government Securities 0%
    Repo on Corporate Bonds 0.00001%

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SCORES

SEBI circular dated 13th August, 2020 laying down standard operating procedure for redressal of grievances by listed companies.

Investors are encouraged to initially take up their grievances for redressal with the concerned listed company directly. SCORES platform can also be used to submit grievances directly to the company for resolution, if the complainant has not approached the company earlier. Companies are expected to resolve the complaint directly.

In case the company does not redress the complaint within 30 days from the date of receipt of the complaint, such direct complaints shall be forwarded to Designated Stock Exchange (DSE) through SCORES. Basically it means that the investor will have to complain again in the SCORES system if the company has not redressed his grievance within 30 days.

At the time of lodging the complaint through SCORES platform, in case the
complainant had approached the company earlier, the complainant shall submit all such details of the complaint in SCORES i.e., period of cause of event, date of grievance taken up with the entity, address of the company corresponded earlier, etc. Such complaints shall be forwarded to the DSE. This is not clear, when the complaint is filed at the SCORES platform, then why the necessity to forward complaints to the stock exchange.

Upon receipt of the complaint through SCORES platform, the SE shall take up the complaint with the company. The company is required to redress the complaint and submit an Action Taken Report (ATR) within 30 days from the date of receipt of such complaint. So basically it means that enforcement of SCORES is done by the respective stock exchange.

In case the ATR is not submitted by the company within 30 days or SE is of the opinion that the complaint is not adequately redressed and the complaint remains pending beyond 30 days, a reminder shall be issued by SE to the listed company through SCORES directing expeditious redressal of the grievance within another 30 days. SE should ensure that the ATRs are not frivolous. Company asking for further documents or information is not tantamount to redressal of the complaint.

On being adequately satisfied with the response of the company with respect to the complaint, the stock exchange shall submit an ATR to SEBI. It should be “fully satisfied” rather than adequately satisfied, which is very vague.

For any failure to redress investor grievances pending beyond 60 days by listed companies, stock exchange shall initiate appropriate action against the listed company as detailed below.

SEBI circular empowers the stock exchanges to levy fines and if the fines are not paid or the complaints are not redressed, then the promoter’s shareholding can be frozen. Stock exchanges can levy a fine of upto Rs.1000/- per day for those complaints which are not redressed within the stipulated time period. Stock exchanges have power to take any other action as it may deem fit beyond the levy of fines and freezing of the shareholding of the promoters.

Then it has laid down procedures after the fines have been paid for the unfreezing of the promoters’ shares in the exchange. After this period, payment of fines levied is mandatory. Even if the complaint has been redressed, the shares will not be unfrozen until and unless the fines have been paid.

This circular will come into force from 1st September, 2020,

Copy of the circular can be found here

https://www.sebi.gov.in/legal/circulars/aug-2020/investor-grievances-redressal-mechanism-handling-of-scores-complaints-by-stock-exchanges-and-standard-operating-procedure-for-non-redressal-of-grievances-by-listed-companies_47325.html

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SCORES

SEBI has decided vide its public notice dated 11th August, 2020 that going forward all complaints against listed entities, SEBI registered intermediaries and SEBI registered market infrastructure institutions have to be made only on the SCORES platform. People cannot anymore send complaints to the SEBI e-mail id or to the e-mail id of the officers of the SEBI. But even before this change, any e-mail sent to the SEBI e-mail id i.e. sebi@sebi.gov.in was never used to be attended. That was their apathy. I have sent so many mails against the mutual funds to the SEBI e-mail ids, but they never bothered to reply even, forget about redressing the same.

SCORES is an online platform on which the person who wants to make a complaint has to register himself giving his PAN and other details and nowadays there is a web application too.

Don’t know the efficacy of SCORES platform, since i have not tried it so far.

SEBI circular can be found here i.e .

https://www.sebi.gov.in/media/public-notices/aug-2020/public-notice-for-processing-of-complaints-only-through-scores_47309.html

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clearing corpn in IFSCs

SEBI has vide its circular dated 7th August, 2020 amended the SEBI (International Financial Services Centres) Regulations 2015 by allowing other entities to pick up stake in a clearing corporation to be set up in an IFSC. The majority stake of 51% shall continue to be held by a recognised stock exchange or clearing corporation in India or of a foreign jurisdiction and they may have to in turn form a subsidiary to provide the services of a clearing corporation in an IFSC.

The remaining portion of the shareholding of the said clearing corporation in an IFSC can be held by any person whether Indian or foreign jurisdiction but they cannot hold more than 5% of the equity of the said clearing corporation whether directly or indirectly, individually or jointly or acting in concert.

But entities like i) any other stock exchange, ii) a clearing corporation,
iii) a depository, iv) a banking company, v) an insurance company, whether Indian or of foreign jurisdiction for (i) to (v), vi) a public financial institution of Indian jurisdiction, vii) a foreign commodity derivatives exchange; and viii)a bilateral or multilateral financial institution approved by the Central Government, may hold upto 15 % of the equity share capital of the said clearing corporation whether directly or indirectly, individually or jointly or acting in concert.

Copy of the SEBI circular can be found here https://www.sebi.gov.in/legal/circulars/aug-2020/sebi-international-financial-services-centres-guidelines-2015-amendment_47281.html

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Regulation of investment advisors

SEBI has vide its circular dated 6th August, 2020 sought to regulate the administration and supervision of investment advisors through a wholly owned subsidiary of recognised stock exchanges. It can be a newly incorporated subsidiary or an existing subsidiary also.

The parameters for the same are given below.

A. Criteria for grant of recognition-

The recognition of stock exchange subsidiary, in terms of the aforesaid Regulation 14, shall be based on the eligibility of the parent entity, i.e. the stock exchange, for which the following eligibility criteria is laid down:
i. Number of years of existence: Minimum 15 years
ii. Stock exchanges having a minimum networth of INR 200 crores
iii. Stock exchanges having nation-wide terminals
iv. Investor grievance redressal mechanism including Arbitration
v. Capacity for investor service management gauged through reach of Investor Service Centers (ISCs)- Stock exchanges having ISCs in at least 20 cities

B. Setting up of requisite systems by stock exchanges for the purpose

i. The stock exchange shall either form a subsidiary or designate an existing
subsidiary for the purpose of regulating IAs.
ii. The subsidiary shall include in its MoA, AoA and bye-laws, requisite provisions to fulfil the below mentioned responsibilities.
iii. The subsidiary shall put in place systems/process for grievance redressal, administrative action against IAs, governing IAs, maintaining data, sharing of information with SEBI etc.
iv. The subsidiary shall have the necessary infrastructure like adequate office space, equipment and manpower to effectively discharge the below mentioned activities. Infrastructure may be shared with other group entities where required.
C. Responsibilities of subsidiary of a stock exchange-

The subsidiary of a stock exchange shall have following responsibilities:
i. Supervision of IAs including both on-site and offsite
ii. Grievance redressal of clients and IAs
iii. Administrative action including issuing warning and referring to SEBI for enforcement action
iv. Monitoring activities of IAs by obtaining periodical reports
v. Submission of periodical reports to SEBI
vi. Maintenance of database of IAs

The stock exchanges who are fulfilling the above criteria are required to submit their application to the SEBI within 30 days of this circular.

Copy of SEBI circular can be found at this link https://www.sebi.gov.in/legal/circulars/aug-2020/administration-and-supervision-of-investment-advisers_47276.html

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Minimum Public Shareholding

https://www.sebi.gov.in/legal/circulars/may-2020/relaxation-from-the-applicability-of-sebi-circular-dated-october-10-2017-on-non-compliance-with-the-minimum-public-shareholding-mps-requirements_46669.html

SEBI has issued a circular (as per above) dated 14th May, 2020 wherein those listed companies where minimum public shareholding requirements falls between March 2020 to August 2020 – any action taken against such companies shall be withdrawn or not initiated. 

 

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SEBI – relaxations

https://www.sebi.gov.in/legal/circulars/mar-2020/-further-relaxations-from-compliance-with-certain-provisions-of-the-sebi-listing-obligations-and-disclosure-requirements-regulations-2015-lodr-and-the-sebi-circular-dated-january-22-2020-relatin-_46436.html

Further relaxations made by SEBI in compliance matters because of the Covid crisis.

Reg 40(9) certification has been relaxed by one month.

reg 44(5) – holding of AGM by top 100 market listed entities – should have been done within 5 months from the closure – now one month extra has been given

conduct of various committee meetings in a financial year – nomination cum remuneration committee, stakeholders committee, risk management committee, – they are supposed to hold at least one meeting during the financial year. If they have not met, then they can meet upto june 2020.

Standard Operating Procedure i/r of fines and other enforcement actions for non compliances – action will be deferred and will be applicable only for compliances for the period ending 30th june, 2020.

reg 47 – publication of advertisement in newspapers in respect of board meetings and other matters is being exempted since many newspapers are not bringing out their print version of the newspapers.

Still the regulation 76 of the SEBI (Depositories) Act regarding reconcilation of share capital audit is not covered in these circulars.

 

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mutual funds

SEBI circular dated 26th February, 2020 allowing investors to purchase mutual funds directly from the stock exchanges instead of through the distributors.

https://www.sebi.gov.in/legal/circulars/feb-2020/facilitating-transaction-in-mutual-fund-schemes-through-the-stock-exchange-infrastructure_46093.html

Subject: Facilitating transaction in Mutual Fund schemes through the Stock
Exchange Infrastructure

1. SEBI vide its Circular no. CIR/MRD/DSA/32/2013 dated October 04, 2013, and
CIR/MRD/DSA/33/2014 dated December 09, 2014 had permitted mutual fund distributors
to use recognised stock exchanges’ infrastructure to purchase and redeem mutual fund
units directly from Mutual Fund / Asset Management Companies.
2. Subsequently, SEBI vide its Circular no. SEBI/HO/MRD/DSA/CIR/P/2016/113 dated
October 19, 2016 allowed SEBI Registered Investment Advisors (RIAs) to use
infrastructure of the recognised stock exchanges to purchase and redeem mutual fund
units directly from Mutual Fund/ Asset Management Companies on behalf of their
clients, including direct plans.
3. In order to further increase the reach of this platform, it has been decided to allow
investors to directly access infrastructure of the recognised stock exchanges to
purchase and redeem mutual fund units directly from Mutual Fund/ Asset
Management Companies.

4. The recognised stock exchanges, clearing corporations and depositories may make
necessary amendment to their existing byelaws, rules and/or regulations, wherever
required.
5. This circular is issued in exercise of the powers conferred under Section 11(1)
of the Securities and Exchange Board of India Act 1992, read with Section 10
of the Securities Contracts (Regulation) Act, 1956 to protect the interests of
investors in securities and to promote the development of, and to regulate the
securities market.
6. This circular is available on SEBI website at http://www.sebi.gov.in at “Legal
Framework→Circulars”.

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Rights issues

SEBI has issued a circular dated 22nd January, 2020 streamlining the process of issue and allotment of rights shares by listed companies.

https://www.sebi.gov.in/legal/circulars/jan-2020/streamlining-the-process-of-rights-issue_45753.html

Salient features of the amendments are as follows:

1.1 The period for advance notice to stock exchange(s) under Regulation 42(2) of LODR Regulations has been reduced from at least 7 working days to at least 3 working days (excluding the date of intimation and the record date), for the purpose of rights issue.

1.2 Issuance of newspaper advertisement disclosing date of completion of dispatch and intimation of same to the stock exchanges for dissemination on their websites, as per Regulation 84 (1) of ICDR Regulations, shall be completed by the issuer at least 2 days before the date of opening of the issue.

1.3 Introduction of dematerialized Rights Entitlements (REs) –

1.3.1. In the letter of offer and the abridged letter of offer, the issuer shall disclose the process of credit of REs in the demat account and renunciation thereof.

1.3.2. REs shall be credited to the demat account of eligible shareholders in dematerialized form. 1.3.3. In REs process, the REs with a separate ISIN shall be credited to the demat account of the shareholders before the date of opening of the issue, against the shares held by them as on the record date.

1.3.4. Physical shareholders shall be required to provide their demat account details to Issuer / Registrar to the Issue for credit of REs not later than two working days prior to the issue closing date, such that credit of REs in their demat account takes place at least one day before the issue closing date.

1.4 Trading of dematerialized REs on stock exchange platform –

1.4.1. REs shall be traded on secondary market platform of Stock exchanges, with T+2 rolling settlement, similar to the equity shares. Trading in REs on the secondary market platform of stock exchanges shall commence along with the opening of the issue and shall be closed at least four days prior to the closure of the rights issue.

1.4.2. Investors holding REs in dematerialized mode shall be able to renounce their entitlements by trading on stock exchange platform or off-market transfer. Such trades will be settled by transferring dematerialized REs through depository mechanism, in the same manner as done for all other types of securities.

1.5. Payment mode – Application for a rights issue shall be made only through ASBA facility.

1.6. No withdrawal of application shall be permitted by any shareholder after the issue closing date.

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