भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
SEBI/HO/MIRSD/DOP1/CIR/P/2018/80 May 11, 2018
To,
All Underwriters registered with SEBI
Dear Sir / Madam,
Subject: Master Circular for Underwriters registered with SEBI
1. Securities and Exchange Board of India (SEBI) has been issuing various
circulars/directions from time to time. In order to enable the users to have an
access to the applicable circulars/directions at one place, Master Circular for
Underwriters registered with SEBI has been prepared.
2. This Master Circular is a compilation of the circulars issued by SEBI up to
March 31, 2018, which are operational as on the date of this circular. References
in the circular to the statutes / Regulations which now stand repealed, have
been suitably updated.
3. In case of any inconsistency between the Master Circular and the
applicable circulars, the contents of the relevant circular shall prevail.
4. The Master Circular is a compilation of all the existing/ applicable circulars
issued by the Market Intermediaries Regulation and Supervision
Department of SEBI to Underwriters. Efforts have been made to
incorporate applicable provisions of existing circulars issued by other
Departments of SEBI relevant to Underwriters.
Yours faithfully,
Surabhi Gupta
Deputy General Manager
Phone No.: 022 -26449315
Email ID: surabhig@sebi.gov.in
1
भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
Table of Contents
Particulars Page No.
Regulatory Compliance and Periodic Reporting 3
Grievance Redressal Mechanism 8
General obligations 17
Schedule - I - List of Circulars 26
2
भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
CHAPTER - I - REGULATORY COMPLIANCE AND PERIODIC
REPORTING
1. Conditions for granting registration where a connected persons has been
granted registration1
1.1. The Board may consider grant of certificate to an applicant,
notwithstanding that another entity in the same group has been previously
granted registration by the Board, if the following conditions are fulfilled:
1.1.1. The entities are incorporated as separate legal entities.
1.1.2. The entities have independent Board of Directors. Independent
Board of Directors for this purpose means that common directors
should not be in majority in both the Boards.
1.1.3. There is absolute arm’s length relationship with reference to their
operations.
1.1.4. The key personnel and infrastructure are independently available
for each entity.
1.1.5. Each entity has independent regulatory controls and supervisory
mechanism
1.2. It is also clarified that when as per the above policy, two entities in the
same group are granted registration, any action by way of suspension or
cancellation of registration taken by SEBI against one entity, may entail
action under Regulation 25 of the said Regulations against other entities of
the same group registered in terms of the said Regulations.
Explanation: For the purposes of this circular, two entities are considered
to be in the same group if:
1. the same person, by himself or in combination with relatives, directly or
indirectly exercises control over both the entities or,
2. the entities are related parties as defined under SEBI (Listing Obligations
and Disclosure Requirements) Regulations, 2015 or,
1 RUW Circular No. 1 (2002-2003) dated September 23, 2002
3
भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
3. where one entity directly or indirectly exercises control over the other
entity.
[‘Control’ for this purpose means control as defined in regulation 2(1)(e) of
the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations,
2011]
2. Designated e-mail ID for regulatory communication with SEBI2
2.1. SEBI has been communicating with the registered market intermediaries,
stock exchanges and depositories etc. through circulars, letters, directions
etc. SEBI has already put in place a system for issuance of digitally signed
circulars with respect to stock exchanges, depositories and merchant
bankers.
2.2. In line with the above, it has been decided to extend the system of issuance
of digitally signed circulars to all other registered intermediaries.
2.3. In order to facilitate the above, all registered intermediaries are required to
create a designated email id for regulatory communications. This email id
shall be an exclusive email id only for the above purpose and should not
be a person centric email id.
2.4. The Designated e-mail ID shall be communicated to SEBI at
intermediary@sebi.gov.in as per the format prescribed at Annexure I.
ANNEXURE I
Format for sending the Designated e-mail ID for regulatory communication with
SEBI
1. The file should be an excel file.
2. The name of the file and the subject of the email shall specify the type of intermediary
and the name of the intermediary. For example – “Registrar to an issue – ABC co. Ltd.”
3. The file shall contain the following details:
Name Address Category Registration Designated Name of
No email id compliance
officer
2 SEBI Circular No. MIRSD/ DPSIII/ Cir-21/ 08 dated July 07, 2008
4
भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
The file shall be emailed to intermediary@sebi.gov.in.
3. Periodic Reporting on change in status or constitution3
3.1. All underwriters shall report the following change(s) to SEBI on a half-
yearly basis within 15 days of expiry of the half-year, commencing from
the half-year ended September 30, 2011 :
i. Amalgamation, demerger, consolidation or any other kind of corporate
restructuring falling within the scope of section 230 of the Companies Act,
2013 or the corresponding provision of any other law for the time being in
force
ii. Change in Director, including managing director/ whole-time director
iii. In case of a partnership firm any change in partners not amounting to
dissolution of the firm
iv. Change in shareholding not resulting in change in control
If there is no change during the relevant half-year, it shall be indicated in
the report.
3.2. The above report shall be submitted in electronic form only to e-mail id
uw@sebi.gov.in, with the subject line ”Report on change of status or
constitution submitted by aaa for the half-year ended xxx yyyy” where aaa
represents the name of underwriter, xxx represents the month at the end
of the half-year and yyyy represents the year. For example, if an
underwriter ABC Limited submits the aforesaid report for the half-year
ended September 2011, the e-mail sent to uw@sebi.gov.in shall bear the
subject line “Report on change of status or constitution submitted by ABC
Limited for the half-year ended September 2011”.
4. Revised procedure for seeking prior approval for change in control through
single window4
4.1. With a view to expedite the process of granting prior approval, it has been
decided to adopt a ‘single window clearance at SEBI’, for the Stock Brokers
and Sub-brokers, Merchant Bankers, Debenture Trustees, Registrar to an
3 SEBI Circular No. CIR/MIRSD/6/2011 dated June 17, 2011
4 SEBI Circular No. CIR/MIRSD/14/2011 dated August 02, 2011
5
भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
Issue and Share Transfer Agents, Underwriters, Depository Participants,
Bankers to an Issue and Credit Rating Agencies, in case of their having
multiple registrations with SEBI. Accordingly, in consultation with the
major stock exchanges and market participants, it has been decided to
adopt the following procedure;
4.1.1. In case an applicant holds multiple registrations with SEBI, it shall
make only one application to SEBI accompanied by the following
information about itself, the acquirer and the directors/partners of the
acquirer;
• Whether any application was made in the past to SEBI seeking
registration in any capacity but it was not granted? If yes, details
thereof.
• Whether any action has been initiated / taken under SCRA/SEBI Act
or rules and regulations made thereunder? If yes, status thereof along
with corrective action taken to avoid such violations in the future. The
acquirer shall also confirm that it shall honour all past liabilities /
obligations of the applicant, if any.
• Whether any investor complaint is pending? If yes, steps taken and
confirmation that the acquirer shall resolve the same.
• Details of litigation, if any.
• That all the fees due to SEBI have been paid.
• That there will not be any change in the Board of Directors of
incumbent, till the time prior approval is granted.
• That the incumbent shall inform all its existing investors / clients in
order to enable them to take informed decision regarding their
continuance or otherwise with the entity with new management.
4.1.2. Further, in case the incumbent is a registered stock broker and / or
depository participant, in addition to the above, it shall obtain
approval / NOC from all the Stock Exchanges / Depositories, where
the incumbent is a member / Depository Participant and forward a
self-attested copy of the same to SEBI.
4.1.3. The application shall be addressed to "Chief General Manager,
MIRSD, SEBI".
4.1.4. The prior approval granted by SEBI shall be valid for a period of 180
days from the date of communication.
6
भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
5. Online Registration Mechanism for Securities Market Intermediaries5
5.1. SEBI has decided to operationalize SEBI Intermediary Portal
(https://siportal.sebi.gov.in) for the intermediaries to submit all the
registration applications online. The SEBI Intermediary Portal shall include
online application for registration, processing of application, grant of final
registration, application for surrender / cancellation, submission of
periodical reports, requests for change of name/address/ other details,
etc., Link for SEBI Intermediary Portal is also available on SEBI website -
www.sebi.gov.in.
5.2. SEBI Intermediary Portal is made operational for following intermediaries:
5.2.1. Stock Brokers
5.2.2. Sub-brokers
5.2.3. Merchant Bankers (MB)
5.2.4. Underwriters (UW)
5.2.5. Registrar to an Issue and Share Transfer Agents (RTA)
5.2.6. Debenture Trustees (DT)
5.2.7. Bankers To An Issue (BTI)
5.2.8. Credit Rating Agency (CRA)
5.2.9. Depository Participants (DP)
5.3. Henceforth, all applications for registration/ surrender/other requests
shall be made through SEBI Intermediary Portal only. The applications in
respect of stock brokers/ sub-broker and depository participants shall
continue to be made through the stock exchanges and depositories
respectively.
5.4. The applicants will be separately required to submit relevant documents
viz. declarations/ undertakings required as a part of application forms
prescribed in relevant regulations, in physical form, only for records
without impacting the online processing of applications for registration.
5.5. Where applications are made through the stock exchanges / depositories,
the hard copy of the applications made by their members shall be
preserved by them and shall be made available to SEBI, as and when called
for.
5.6. In case of any queries and clarifications with regard to the SEBI
Intermediary Portal, intermediaries may contact on 022-26449364 or may
write at portalhelp@sebi.gov.in.
5 SEBI Circular No. SEBI/HO/MIRSD/MIRSD1/CIR/P/2017/38 dated May 02, 2017
7
भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
6. Grievance Redressal Mechanism6
6.1. All registered Merchant Bankers, registered Registrars to an Issue/ Share
Transfer Agents, registered Debenture Trustees, registered Bankers to
Issue and registered Underwriters are advised to designate an e-mail ID of
the grievance redressal division/compliance officer exclusively for the
purpose of registering complaints by investors.
6.2. The above entities are also advised to display the email ID and other
relevant details prominently on their websites and in the various
materials/pamphlets/advertisement campaign initiated by them for
creating investor awareness.
6.3. As an additional measure and for information of all investors who deal/
invest/ transact in the market, it has now been decided that offices of
intermediaries shall prominently display basic information, as provided in
Annexure II, about the grievance redressal mechanism available to
investors.
ANNEXURE II
FOR OTHER INTERMEDIARIES
Dear Investor, In case of any grievance / complaint against the Intermediary:
-id
(xxx.@email.com) and Phone No. - 91-XXXXXXXXXX.
-id
(xxx.@email.com) and Phone No. - 91-XXXXXXXXXX.
If not satisfied with the response of the intermediary you can lodge your grievances
with SEBI at http://scores.gov.in or you may also write to any of the offices of SEBI. For
any queries, feedback or assistance, please contact SEBI Office on Toll Free Helpline at
1800 22 7575 / 1800 266 7575.
6.4. All newly listed companies and SEBI registered intermediaries (excluding
Stock Brokers, Sub-Brokers and Depository Participants) are hereby
advised to send their details as per Form-A and Form-B annexed to this
6 SEBI Circulars No. MIRSD/DPS III/Cir-01/07 dated January 22, 2007,CIR/MIRSD/17/2011 dated August
24, 2011,CIR/MIRSD/3/2014 dated August 28, 2014, CIR/OIAE/1/2014 dated December 18, 2014 and
SEBI/HO/OIAE/IGRD/CIR/P/2018/58 dated March 26, 2018.
8
भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
Circular (as Annexure III and Annexure IV respectively), to SEBI in hard
copy and by email to scores@sebi.gov.in and obtain SCORES user id and
password immediately. The email id to be furnished by the listed company
/ SEBI registered intermediary for receiving SCORES user id and
password from SEBI has to be preferably a corporate email id and
necessarily a permanent one. Failure by any listed company or SEBI
registered intermediary to obtain the SCORES user ID and password
would not only be deemed as non-redressal of investor grievances but also
indicate willful avoidance of the same.
ANNEXURE III
FORM - A
AUTHENTICATION FOR SCORES BY LISTED COMPANIES
1. Name of the Company:
2. PAN of Company :
3. CIN of Company:
4. Date of incorporation of company:
5. Registered Office address of company:
6. Complaints processed through: □RTI/STA □Company
7. Please indicate the following:
Name of the RTI/STA (if through RTI/STA):
Whether complaints will be passed to RTI/STA by the company
□ directly to the RTI/STA □ through SCORES
8. Stock exchange on which company is listed/ proposed to be listed:
9. The details of the concerned person of the company to whom User id and password
will be sent:
9
भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
Name :
Designation:
Email id : (Corporate and permanent email id)
Mobile no.
Telephone No. :
Fax No. :
10. Name, PAN and address of the promoters and directors of the company:
Place: Signature of Compliance Officer of company:
Date: Name:
Designation:
Company Seal:
Note: A scanned copy to be sent by email to scores@sebi.gov.in followed by hard copy
to Office of the Investor Assistance and Education, Securities and Exchange Board of
India, Plot No. C4-A, 'G' Block, Bandra Kurla Complex, Mumbai - 400 051
Important: Please note that SCORES has the provision for updating company details by
the company itself. Any field (except the e-mail id which is permanent) such as registered
office address, name of the RTI/STA, name/details of the compliance officer, telephone
numbers, etc should be changed by the company immediately when warranted.
ANNEXURE IV
FORM - B
AUTHENTICATION FOR SCORES BY SEBI REGISTERED INTERMEDIARIES
1. Name of the registered intermediary :
2. Nature of registered intermediary:
3. SEBI registration no.
4. PAN of registered intermediary :
5. Date of SEBI registration of intermediary:
10
भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
6. SEBI registration valid upto:
7. Office address of the intermediary:
8. The details of the concerned person of the intermediary to whom User id and
password will be sent:
Name :
Designation:
Email id : (corporate and permanent email id)
Mobile no.
Telephone No. :
Fax No. :
Place: Signature:
Date: Name:
Designation:
Seal:
Note: A scanned copy to be sent by email to scores@sebi.gov.in followed by hard copy
to the concerned Department/Division of Securities and Exchange Board of India, Plot
No. C4-A, 'G' Block, Bandra Kurla Complex, Mumbai - 400 051
Important: Please note that SCORES has the provision for updating intermediary's
details by the intermediary itself. Any field (except the e-mail id which is permanent)
such as registered office address, name/details of the compliance officer, telephone
numbers, etc should be changed by the intermediary immediately when warranted.
6.5. The registered intermediaries shall submit the details in hard copy (Form-
B) to the Department/Division of SEBI which has granted them
registration to operate in the securities market. SCORES user id and
password of an intermediary shall be created only after receiving approval
from the concerned Department/Division of SEBI.
6.6. In case of complaints against listed companies, the same can be processed
by companies in-house or through its Registrar to Issue and Share Transfer
Agent (RTI/STA). In case the complaints are processed by the RTI/STA on
behalf of the listed company, the company should indicate in the enclosed
Form-A whether they require the facility to forward complaints to the
RTI/STA, so that the ATRs can be uploaded by them. In such cases, the
name of the RTI/STA, the name of the Compliance Officer of the listed
company and email id of the listed company should be furnished, so that
the user id and password can be provided accordingly. In case the
complaints are processed by the RTI/STA on behalf of the listed company,
any failure on the part of the RTI/STA to redress the complaints or failure
11
भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
to update ATR in SCORES, will be treated as failure of the listed company
to furnish information to SEBI and non redressal of investor complaints by
the listed company.
6.7. Intermediaries can view the complaints in the SCORES system by logging
in with their user id and password which will be communicated
separately.
6.8. A daily alert on pending complaints will be forwarded at the e-mail
ID registered with SEBI for regulatory communications.
6.9. All listed companies and SEBI registered intermediaries shall review their
investors grievances redressal mechanism so as to further strengthen it and
correct the existing shortcomings, if any. The listed companies and SEBI
registered intermediaries to whom complaints are forwarded through
SCORES, shall take immediate efforts on receipt of a complaint, for its
resolution, within thirty days. The listed companies and SEBI registered
intermediaries shall keep the complainant duly informed of the action
taken thereon.
6.10. The listed companies and SEBI registered intermediaries shall
update the ATR along with supporting documents, if any, electronically in
SCORES. ATR in physical form need not be sent to SEBI. The proof of
dispatch of the reply of the listed company / SEBI registered intermediary
to the concerned investor should also be uploaded in SCORES and
preserved by the listed company / SEBI registered intermediary, for future
reference.
6.11. Action taken by the listed companies and SEBI registered
intermediaries will not be considered as complete if the relevant details/
supporting documents are not uploaded in SCORES and consequently, the
complaints will be treated as pending.
6.12. A complaint shall be treated as resolved/disposed/closed only
when SEBI disposes/closes the complaint in SCORES. Hence, mere filing
of ATR by a listed company or SEBI registered intermediary with respect
to a complaint will not mean that the complaint is not pending against
them.
6.13. Failure by listed companies and SEBI registered intermediaries to file
ATR under SCORES within thirty days of date of receipt of the grievance
shall not only be treated as failure to furnish information to SEBI but shall
also be deemed to constitute non-redressal of investor grievance.
12
भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
6.14. The Board of Directors of the listed company or the Board of
Directors/ Proprietor/Partner of the registered intermediary shall be
responsible for ensuring compliance with the provisions of this Circular.
6.15. In order to resolve the investor grievances faster, the investors may
approach the concerned listed company or registered intermediary first
with all the requisite details to redress the complaints. In case, the listed
company or registered intermediary fails to redress the complaint to the
investor’s satisfaction, the investor may file a complaint in SCORES.
6.16. At present following types of complaints are not dealt through
SCORES:
6.16.1. Complaints against the companies which are unlisted/delisted, in
dissemination board of Stock Exchanges,
6.16.2. Complaints those are sub-judice i.e. relating to cases which are under
consideration by court of law, quasi-judicial proceedings etc.
6.16.3. Complaints falling under the purview of other regulatory bodies viz.
RBI, IRDAI, PFRDA, CCI, etc., or under the purview of other ministries
viz., MCA, etc.
6.16.4. Complaints against a sick company or a company where a
moratorium order is passed in winding up / insolvency proceedings.
6.16.5. Complaints against the companies where the name of company is
struck off from RoC or a vanishing company as per list published by
MCA.
6.16.6. Suspended companies, companies under liquidation / BIFR / etc.
6.17. To enhance investor satisfaction on complaint redressal, SEBI has
already put in place a ‘Complaint Review facility’ under SCORES wherein
an investor if unsatisfied with the redressal may within 15 days from the
date of closure of his complaint in SCORES opt for review of the complaint
and the complaint shall be escalated
6.18. Effective from August 01, 2018, following procedure shall be
followed for filing and redressal of investor grievances using SCORES:
6.18.1. Investors who wish to lodge a complaint on SCORES are requested
to register themselves on www.scores.gov.in by clicking on “Register
here”. While filing the registration form, details like Name of the
investor, PAN, Contact details, Email id, Aadhaar card number
(optional), CKYC ID(optional) etc. (Annexure V) may be provided for
effective communication and speedy redressal of the grievances. Upon
successful registration, a unique user id and a password shall be
13
भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
communicated to the investor through an acknowledgement email /
SMS.
ANNEXURE V
Details to be provided while registering on SCORES with effect from August 01, 2018:
i. Name of the complainant*
ii. Pan Number*
iii. Aadhaar Number (Optional)
iv. CKYC ID (Optional)
v. DP id & Client Id
vi. Postal address for communication*
vii. Contact number – Mobile* : Landline
viii. Email id* – For receipt of acknowledgement letter / updates of complaints on
SCORES.
ix. Bank account details – To facilitate direct credit of benefits to investor.
x. Client id as given by Broker / Stock Exchange.
Note: * are mandatory fields.
6.18.2. An investor shall use login credentials for lodging complaint on
SCORES (“Login for registered user” section). Details on how to lodge
a complaint on SCORES is at Annexure VI.
14
भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
How to lodge a complaint on SCORES with effect from August 01, 2018. ANNEXURE VI
SCORES Portal
http://www.scores.gov.in /
CLICK
User Registration
( Under “ Register Here ”)
Press submit to complete the registration.
An Email/ SMS informing User ID and Password will be sent to investor.
CLICK
Login to SCORES and Click on
( As per nature of complaint )
“ Complaint Registration ”
Enter
Details like Period of cause of event, Date of grievance taken up with the entity,
address of direct complaint to the entity, Share certificate number / folio number etc .
TYPE
Complaint details in brief
(1000 characters)
Upload supporting documents
( upto 2 MB in PDF format )
C LICK
Add
Enter Character shown in image
CLICK
Submit
Complaint Registration Number is generated and sent to
email id and to mobile number of the complainant.
15
भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
6.18.3. The complainant may use SCORES to submit the grievance directly
to companies / intermediaries and the complaint shall be forwarded
to the entity for resolution. The entity is required to redress the
grievance within 30 days, failing which the complaint shall be
registered in SCORES
6.18.4. Presently, the limitation period for filing an arbitration reference
with stock exchanges is three year. In line with the same and in order
to enhance ease, speed & accuracy in redressal of investor grievance,
the investor may lodge a complaint on SCORES within three years
from the date of cause of complaint, where;
6.18.4.1. Investor has approached the listed company or registered
intermediary for redressal of the complaint and,
6.18.4.2. The concerned listed company or registered intermediary
rejected the complaint or,
6.18.4.3. The complainant does not receive any communication from
the listed company or intermediary concerned or,
6.18.4.4. The complainant is not satisfied with the reply given to him
or redressal action taken by the listed company or an
intermediary.
16
भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
CHAPTER - II- GENERAL OBLIGATIONS
7. Prevention of circulation of unauthenticated news by SEBI Registered
Market Intermediaries through various modes of communication7
7.1. SEBI Registered Market Intermediaries are directed that:
7.1.1. Proper internal code of conduct and controls should be put in place.
7.1.2. Employees/temporary staff/voluntary workers etc.
employed/working in the Offices of market intermediaries do not
encourage or circulate rumours or unverified information obtained
from client, industry, any trade or any other sources without
verification.
7.1.3. Access to Blogs/Chat forums/Messenger sites etc. should either be
restricted under supervision or access should not be allowed.
7.1.4. Logs for any usage of such Blogs/Chat forums/Messenger sites
(called by any nomenclature) shall be treated as records and the same
should be maintained as specified by the respective Regulations which
govern the concerned intermediary.
7.1.5. Employees should be directed that any market related news received
by them either in their official mail/personal mail/blog or in any other
manner, should be forwarded only after the same has been seen and
approved by the concerned Intermediary’s Compliance Officer. If an
employee fails to do so, he/she shall be deemed to have violated the
various provisions contained in SEBI Act/Rules/Regulations etc. and
shall be liable for action. The Compliance Officer shall also be held
liable for breach of duty in this regard.
8. Guidelines on Outsourcing of Activities by Intermediaries8
8.1. Principles for Outsourcing
The risks associated with outsourcing may be operational risk,
reputational risk, legal risk, country risk, strategic risk, exit-strategy risk,
7 SEBI Circulars No Cir/ ISD/1/2011 dated March 23, 2011 and Cir/ ISD/2/2011 dated March 24, 2011
8 SEBI Circular No. CIR/MIRSD/24/2011 dated December 15, 2011
17
भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
counter party risk, concentration and systemic risk. In order to address the
concerns arising from the outsourcing of activities by intermediaries based
on the principles advocated by the IOSCO and the experience of Indian
markets, SEBI had prepared a concept paper on outsourcing of activities
related to services offered by intermediaries.
Based on the feedback received on the discussion paper and also
discussion held with various intermediaries, stock exchanges and
depositories, the principles for outsourcing by intermediaries have been
framed (Annexure VII). These principles shall be followed by all
intermediaries registered with SEBI.
ANNEXURE VII
PRINCIPLES FOR OUTSOURCING FOR INTERMEDIARIES
1. An intermediary seeking to outsource activities shall have in place a comprehensive
policy to guide the assessment of whether and how those activities can be appropriately
outsourced. The Board / partners (as the case
may be) {hereinafter referred to as the “the Board”} of the intermediary shall
have the responsibility for the outsourcing policy and related overall responsibility for
activities undertaken under that policy.
1.1 The policy shall cover activities or the nature of activities that can be outsourced, the
authorities who can approve outsourcing of such activities, and the selection of third party
to whom it can be outsourced. For example, an activity shall not be outsourced if it would
impair the supervisory authority’s right to assess, or its ability to supervise the business
of the intermediary. The policy shall be based on an evaluation of risk concentrations,
limits on the acceptable overall level of outsourced activities, risks arising from
outsourcing multiple activities to the same entity, etc.
1.2 The Board shall mandate a regular review of outsourcing policy for such activities in
the wake of changing business environment. It shall also have overall responsibility for
ensuring that all ongoing outsourcing decisions taken by the intermediary and the
activities undertaken by the third-party, are in keeping with its outsourcing policy.
2 The intermediary shall establish a comprehensive outsourcing risk management
programme to address the outsourced activities and the relationship with the third
party.
2.1 An intermediary shall make an assessment of outsourcing risk which depends on
several factors, including the scope and materiality of the outsourced activity, etc. The
factors that could help in considering materiality in a risk management programme
include:
a. The impact of failure of a third party to adequately perform the activity on the
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भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
financial, reputational and operational performance of the intermediary and on the
investors / clients;
b. Ability of the intermediary to cope up with the work, in case of non performance or
failure by a third party by having suitable back-up arrangements;
c. Regulatory status of the third party, including its fitness and probity status;
d. Situations involving conflict of interest between the intermediary and the third party
and the measures put in place by the intermediary to address such potential
conflicts, etc.
2.2 While there shall not be any prohibition on a group entity / associate of the
intermediary to act as the third party, systems shall be put in place to have an arm’s length
distance between the intermediary and the third party in terms of infrastructure,
manpower, decision-making, record keeping, etc. for avoidance of potential conflict of
interests. Necessary disclosures in this regard shall be made as part of the contractual
agreement. It shall be kept in mind that the risk management practices expected to be
adopted by an intermediary while outsourcing to a related party or an associate would be
identical to those followed while outsourcing to an unrelated party.
2.3 The records relating to all activities outsourced shall be preserved centrally so that the
same is readily accessible for review by the Board of the intermediary and / or its senior
management, as and when needed. Such records shall be regularly updated and may also
form part of the corporate governance review by the management of the intermediary.
2.4 Regular reviews by internal or external auditors of the outsourcing policies, risk
management system and requirements of the regulator shall be mandated by the
Board wherever felt necessary. The intermediary shall review the financial and
operational capabilities of the third party in order to assess its ability to continue to
meet its outsourcing obligations.
3 The intermediary shall ensure that outsourcing arrangements neither diminish its
ability to fulfill its obligations to customers and regulators, nor impede effective
supervision by the regulators.
3.1 The intermediary shall be fully liable and accountable for the activities that are being
outsourced to the same extent as if the service were provided in-house.
3.2 Outsourcing arrangements shall not affect the rights of an investor or client against the
intermediary in any manner. The intermediary shall be liable to the investors for the loss
incurred by them due to the failure of the third party and also be responsible for redressal
of the grievances received from investors arising out of activities rendered by the third
party.
3.3 The facilities / premises / data that are involved in carrying out the outsourced
activity by the service provider shall be deemed to be those of the registered intermediary.
The intermediary itself and Regulator or the persons authorized by it shall have the
right to access the same at any point of time.
3.4 Outsourcing arrangements shall not impair the ability of SEBI/SRO or auditors to
exercise its regulatory responsibilities such as supervision/inspection of the intermediary.
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भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
4 The intermediary shall conduct appropriate due diligence in selecting the third party
and in monitoring of its performance.
4.1 It is important that the intermediary exercises due care, skill, and diligence in the
selection of the third party to ensure that the third party has the ability and capacity to
undertake the provision of the service effectively.
4.2 The due diligence undertaken by an intermediary shall include assessment of:
a. third party’s resources and capabilities, including financial soundness, to perform the
outsourcing work within the timelines fixed;
b. compatibility of the practices and systems of the third party with the intermediary’s
requirements and objectives;
c. market feedback of the prospective third party’s business reputation and track
record of their services rendered in the past;
d. level of concentration of the outsourced arrangements with a single third party; and
e. the environment of the foreign country where the third party is located.
5 Outsourcing relationships shall be governed by written contracts / agreements /terms
and conditions (as deemed appropriate) {hereinafter referred to as “contract”} that
clearly describe all material aspects of the outsourcing arrangement, including the
rights, responsibilities and expectations of the parties to the contract, client
confidentiality issues, termination procedures, etc.
5.1 Outsourcing arrangements shall be governed by a clearly defined and legally binding
written contract between the intermediary and each of the third parties, the nature and
detail of which shall be appropriate to the materiality of the outsourced activity in relation
to the ongoing business of the intermediary.
5.2 Care shall be taken to ensure that the outsourcing contract:
a. clearly defines what activities are going to be outsourced, including appropriate service
and performance levels;
b. provides for mutual rights, obligations and responsibilities of the intermediary and the
third party, including indemnity by the parties;
c. provides for the liability of the third party to the intermediary for unsatisfactory
performance/other breach of the contract
d. provides for the continuous monitoring and assessment by the intermediary of the third
party so that any necessary corrective measures can be taken up immediately, i.e., the
contract shall enable the intermediary to retain an appropriate level of control over the
outsourcing and the right to intervene with appropriate measures to meet legal and
regulatory obligations;
e. includes, where necessary, conditions of sub-contracting by the third-party, i.e. the
contract shall enable intermediary to maintain a similar control over the risks when a third
party outsources to further third parties as in the original direct outsourcing;
f. has unambiguous confidentiality clauses to ensure protection of proprietary and
customer data during the tenure of the contract and also after the expiry of the contract;
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भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
g. specifies the responsibilities of the third party with respect to the IT security and
contingency plans, insurance cover, business continuity and disaster recovery plans, force
majeure clause, etc.;
h. provides for preservation of the documents and data by third party ;
i. provides for the mechanisms to resolve disputes arising from implementation of the
outsourcing contract;
j. provides for termination of the contract, termination rights, transfer of information and
exit strategies;
k. addresses additional issues arising from country risks and potential obstacles in
exercising oversight and management of the arrangements when intermediary outsources
its activities to foreign third party. For example, the contract shall include choice-of-law
provisions and agreement covenants and jurisdictional covenants that provide for
adjudication of disputes between the parties under the laws of a specific jurisdiction;
l. neither prevents nor impedes the intermediary from meeting its respective regulatory
obligations, nor the regulator from exercising its regulatory powers; and
m. provides for the intermediary and /or the regulator or the persons authorized by it to
have the ability to inspect, access all books, records and information relevant to the
outsourced activity with the third party.
6 The intermediary and its third parties shall establish and maintain contingency plans,
including a plan for disaster recovery and periodic testing of backup facilities.
6.1 Specific contingency plans shall be separately developed for each outsourcing
arrangement, as is done in individual business lines.
6.2 An intermediary shall take appropriate steps to assess and address the potential
consequence of a business disruption or other problems at the third party level. Notably,
it shall consider contingency plans at the third party; co-ordination of contingency plans
at both the intermediary and the third party; and contingency plans of the intermediary
in the event of non-performance by the third party.
6.3 To ensure business continuity, robust information technology security is a necessity.
A breakdown in the IT capacity may impair the ability of the intermediary to fulfill its
obligations to other market participants/clients/regulators and could undermine the
privacy interests of its customers, harm the intermediary’s reputation, and may ultimately
impact on its overall operational risk profile. Intermediaries shall, therefore, seek to
ensure that third party maintains appropriate IT security and robust disaster recovery
capabilities.
6.4 Periodic tests of the critical security procedures and systems and review of the backup
facilities shall be undertaken by the intermediary to confirm the adequacy of the third
party’s systems.
7 The intermediary shall take appropriate steps to require that third parties protect
confidential information of both the intermediary and its customers from intentional
or inadvertent disclosure to unauthorised persons.
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भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
7.1 An intermediary that engages in outsourcing is expected to take appropriate steps to
protect its proprietary and confidential customer information and ensure that it is not
misused or misappropriated.
7.2 The intermediary shall prevail upon the third party to ensure that the employees of
the third party have limited access to the data handled and only on a “need to know” basis
and the third party shall have adequate checks and balances to ensure the same.
7.3 In cases where the third party is providing similar services to multiple entities, the
intermediary shall ensure that adequate care is taken by the third party to build
safeguards for data security and confidentiality.
8 Potential risks posed where the outsourced activities of multiple intermediaries are
concentrated with a limited number of third parties.
In instances, where the third party acts as an outsourcing agent for multiple
intermediaries, it is the duty of the third party and the intermediary to ensure that strong
safeguards are put in place so that there is no co-mingling of information/documents,
records and assets.
8.2. Activities that shall not be Outsourced
The intermediaries desirous of outsourcing their activities shall not,
however, outsource their core business activities and compliance
functions. A few examples of core business activities may be – execution
of orders and monitoring of trading activities of clients in case of stock
brokers; dematerialisation of securities in case of depository participants;
investment related activities in case of Mutual Funds and Portfolio
Managers. Regarding Know Your Client (KYC) requirements, the
intermediaries shall comply with the provisions of SEBI {KYC (Know Your
Client) Registration Agency} Regulations, 2011 and Guidelines issued
there under from time to time.
8.3. Other Obligations
i. Reporting To Financial Intelligence Unit (FIU) - The intermediaries
shall be responsible for reporting of any suspicious transactions / reports
to FIU or any other competent authority in respect of activities carried out
by the third parties.
ii. Need for Self Assessment of existing Outsourcing Arrangements – In
view of the changing business activities and complexities of various
financial products, intermediaries shall conduct a self assessment of their
existing outsourcing arrangements within a time bound plan, not later
than six months from the date of issuance of this circular and bring them
in line with the requirements of the guidelines/principles.
22
भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
9. General Guidelines for dealing with conflicts of interest9
9.1. All intermediaries, recognised stock exchanges, recognised clearing
corporations and depositories (hereinafter collectively referred to as "such
entities") are presently governed by the provisions for avoidance of conflict
of interest as mandated in the respective regulations read with relevant
circulars issued from time to time by SEBI. On the lines of Principle 8 of the
International Organisation of Securities Commissions (IOSCO) Objectives
and Principles of Securities Regulations, it has been decided to put in place
comprehensive guidelines to collectively cover such entities and their
associated persons, for elimination of their conflict of interest, as detailed
hereunder.
9.2. Such entities shall adhere to these guidelines for avoiding or dealing with
or managing conflict of interest. They shall be responsible for educating
their associated persons for compliance of these guidelines.
9.3. For the purpose of these guidelines "intermediaries" and "associated
persons" have the same meaning as defined in Securities and Exchange
Board of India(Certification of Associated Persons in the Securities
Markets) Regulations, 2007.
9.4. Such entities and their associated persons shall,
9.4.1. lay down, with active involvement of senior management, policies
and internal procedures to identify and avoid or to deal or manage
actual or potential conflict of interest, develop an internal code of
conduct governing operations and formulate standards of appropriate
conduct in the performance of their activities, and ensure to
communicate such policies, procedures and code to all concerned;
9.4.2. at all times maintain high standards of integrity in the conduct of
their business;
9.4.3. ensure fair treatment of their clients and not discriminate amongst
them;
9.4.4. ensure that their personal interest does not, at any time conflict with
their duty to their clients and client’s interest always takes primacy in
their advice, investment decisions and transactions;
9.4.5. make appropriate disclosure to the clients of possible source or
potential areas of conflict of interest which would impair their ability
9 SEBI Circular No. CIR/MIRSD/5/2013 dated August 27, 2013
23
भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
to render fair, objective and unbiased services;
9.4.6. endeavor to reduce opportunities for conflict through prescriptive
measures such as through information barriers to block or hinder the
flow of information from one department/ unit to another, etc.;
9.4.7. place appropriate restrictions on transactions in securities while
handling a mandate of issuer or client in respect of such security so as
to avoid any conflict;
9.4.8. not deal in securities while in possession of material non published
information;
9.4.9. not to communicate the material non published information while
dealing insecurities on behalf of others;
9.4.10. not in any way contribute to manipulate the demand for or supply
of securities in the market or to influence prices of securities;
9.4.11. not have an incentive structure that encourages sale of products not
suiting the risk profile of their clients;
9.4.12. not share information received from clients or pertaining to them,
obtained as a result of their dealings, for their personal interest;
9.5. The Boards of such entities shall put in place systems for implementation
of this circular and provide necessary guidance enabling identification,
elimination or management of conflict of interest situations. The Boards
shall review the compliance of this circular periodically.
9.6. Such entities shall conduct assessment of their existing policies on conflict
of interest in a time bound manner, not later than 6 months from the date
of this circular and bring them in line with the requirements of these
guidelines.
9.7. The said guidelines shall be in addition to the provisions, if any, contained
in respective regulations/ circulars issued by the Board from time to time
regarding dealing with conflict of interest, in respect of such entities.
10. Digital Mode of Payment10
10.1. SEBI has notified the SEBI (Payment of Fees and Mode of Payment)
(Amendment) Regulations, 2017 on March 06, 2017 to enable digital mode of
payment (RTGS/NEFT/IMPS etc.) of fees/penalties/remittance/other
payments etc.
10 SEBI Circular No. SEBI/HO/GSD/T&A/CIR/P/2017/42 dated May 16, 2017
24
भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
10.2. Pursuant to above, SEBI has been receiving direct credit of amounts
from various intermediaries / other entities.
10.3. In order to identify and account such direct credit in the SEBI
account, it has been decided that the various intermediaries / other entities
shall provide the information as mentioned in Annexure –VIII to SEBI once
the payment is made.
ANNEXURE VIII
Date Dep Na Type SEBI PA Amo Purpose of Bank name UTR
artm me of Regis N unt Payment and No
ent of Interm tratio (in (including Account
of Inte ediary n Rs.) the period number
SEBI rme Num for which from which
diar ber (if payment was payment is
y/ any) made e.g. remitted
Oth quarterly,
er annually)
Enti
ties
10.4. The above information should be emailed to the respective
department(s) as well as to Treasury& Accounts division at tad@sebi.gov.in.
11. Intermediaries in IFSC11
11.1. Clause 8 of SEBI IFSC Guidelines which specifies that any recognised
entity or entities desirous of operating in IFSC as an intermediary, may
form a company to provide such financial services relating to securities
market has been amended as follows:
“8. (1) Any SEBI-registered intermediary (except trading member or clearing
member) or its international associates in collaboration with such SEBI-registered
intermediary may provide financial services relating to securities market, in IFSC,
without forming a separate company, subject to the prior approval of the Board.
*********
11 SEBI Circulars No. SEBI/HO/CIR/P/2017/85 dated July 27, 2017 and
SEBI/HO/MRD/DSA/CIR/P/2017/117 dated October 17, 2017
25
भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
Schedule I
List of Circulars incorporated in Master Circular
Footnote no. Circular No. and Date Subject
1 RUW Circular No. 1 (2002-2003) dated Conditions for granting registration
September 23, 2002 where a connected persons has been
granted registration
2 MIRSD/ DPSIII/ Cir-21/ 08 dated July 07, Designated e-mail ID for regulatory
2008 communication with SEBI
3 CIR/MIRSD/6/2011 dated June 17, 2011 Periodical report- Grant of prior
approval to underwriters
4 CIR/MIRSD/14/2011 dated August 02, 2011 Revised procedure for seeking prior
approval for change in control through
single window
5 SEBI Circular No. Online Registration Mechanism for
SEBI/HO/MIRSD/MIRSD1/CIR/P/2017/38 Securities Market Intermediaries
dated May 02, 2017
6 MIRSD/DPS III/Cir-01/07 dated January 22, Exclusive e-mail ID for redressal of
2007, Investor Complaints
CIR/MIRSD/17/2011 dated August 24, 2011, Processing of Investor Complaints in
SEBI Complaints Redress System
(SCORES)
CIR/MIRSD/3/2014 dated August 28, 2014 Information regarding Grievance
Redressal Mechanism
CIR/OIAE/1/2014 dated December 18, 2014 Redressal of investor grievances through
SEBI Complaints Redress System
(SCORES) platform
26
भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
SEBI/HO/OIAE/IGRD/CIR/P/2018/58 Investor grievance redress mechanism –
dated March 26, 2018 new policy measures
7 Cir/ ISD/1/2011 dated March 23, 2011 Unauthenticated news circulated by
SEBI Registered Market Intermediaries
through various modes of
communication
Cir/ ISD/2/2011 dated March 24, 2011 Addendum to Circular no.
Cir/ISD/1/2011 dated March 23, 2011
8 CIR/MIRSD/24/2011 dated December 15, Guidelines on Outsourcing of Activities
2011 by Intermediaries
9 CIR/MIRSD/5/2013 dated August 27, 2013 General Guidelines for dealing with
Conflicts of Interest of Intermediaries,
Recognised Stock Exchanges,
Recognised Clearing Corporations,
Depositories and their Associated
Persons in Securities Market
10 SEBI/HO/GSD/T&A/CIR/P/2017/42 dated Digital mode of payment
May 16, 2017
11 SEBI /HO /CIR /P /2017 /85 dated July 27, Securities and Exchange Board of India
2017 (International Financial Services
Centres) Guidelines, 2015 –
Amendments
SEBI /HO /MRD /DSA /CIR /P /2017 /117 Securities and Exchange Board of India
dated October 17, 2017 (International Financial Services
Centres) Guidelines, 2015 –
Amendments
27