CIRCULAR
SEBI/HO/MIRSD/ MIRSD-PoD-1/P/CIR/2025/11 January 29, 2025
To,
All registered Intermediaries
All recognized Stock Exchanges
All recognized Clearing Corporations
All registered Depositories
BSE Limited (Administration and Supervisory Body for Investment Advisers and
Research Analysts- IAASB/RAASB)
Sir / Madam,
Sub: Details/clarifications on provisions related to association of persons
regulated by the Board, MIIs, and their agents with persons engaged in
prohibited activities
1. Securities and Exchange Board of India (Intermediaries) (Amendment)
Regulations, 2024, Securities Contracts (Regulation) (Stock Exchanges and
Clearing Corporations) (Fourth Amendment) Regulations, 2024 and Securities and
Exchange Board of India (Depositories and Participants) (Second Amendment)
Regulations, 2024 have been published in the Official Gazette on August 29, 2024.
2. These regulations inter alia provide that persons regulated by the Board, MIIs
(stock exchanges, clearing corporations, depositories), and agents of such
persons/MIIs shall not have any direct or indirect association with another person
who-
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(i) provides advice or any recommendation, directly or indirectly, in respect of
or related to a security or securities, unless the person is registered with or
otherwise permitted by the Board to provide such advice or
recommendation; or
(ii) makes any claim, of returns or performance expressly or impliedly, in
respect of or related to a security or securities, unless the person has been
permitted by the Board to make such a claim.
The person regulated by the Board (including recognised stock exchanges,
clearing corporations and depositories) is required to ensure that any person
associated with it or its agent does not engage in the activities mentioned in clauses
(i) or (ii) above.
It has been clarified that the term “another person” shall not include a person who
is engaged solely in investor education, provided that such a person does not,
directly or indirectly, indulge in any activity as referred to in clauses (i) or (ii) above.
3. In this regard, the details/clarifications on the provisions are provided in the form
of frequently asked questions at Annexure A. This is intended to provide guidance
for compliance to persons regulated by the Board, MIIs, and their agents on their
association with another person.
4. This circular is issued in exercise of powers conferred under section 11(1) of the
Securities and Exchange Board of India Act, 1992 read with Regulation 36 of
Securities and Exchange Board of India (Intermediaries) Regulations, 2008,
Regulations 50 of Securities Contracts (Regulation) (Stock Exchanges and
Clearing Corporations) Regulations, 2018 and Regulation 96 of Securities and
Exchange Board of India (Depositories and Participants) Regulations, 2018, to
protect the interests of investors in securities market and to promote the
development of, and to regulate the securities market.
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5. This circular is available on the SEBI website at www.sebi.gov.in under the
category "Legal Circulars".
Yours faithfully,
Aradhana Verma
General Manager
Tel. No. 022-26449633
aradhanad@sebi.gov.in
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Annexure A
1. Which regulations provide provisions for association of persons regulated by
the Board, MIIs, and their agents with another person engaged in prohibited
activities?
Regulation 16A of Securities and Exchange Board of India (Intermediaries)
Regulations, 2008 (‘Intermediaries Regulations’), Regulation 44B of Securities
Contracts (Regulation) (Stock Exchanges and Clearing Corporations) Regulations,
2018 (‘SECC Regulations’) and Regulation 82B of Securities and Exchange Board of
India (Depositories and Participants) Regulations, 2018 (‘DP Regulations’) provide the
provisions on association of persons regulated by the Board, MIIs, and their agents
with another person engaged in prohibited activities (hereinafter referred to as “the
regulations” or “these regulations” in this circular).
2. Who is a ‘person regulated by the Board’ for these regulations?
The term ‘Person regulated by the Board’ is defined in Intermediaries Regulations as-
(a) a person registered with the Board under section 12 of the Act;
(b) an asset management company of a mutual fund registered with the Board;
(c) investment manager of an alternative investment fund or infrastructure
investment trust registered with the Board;
(d) manager of a real estate investment trust registered with the Board;
SECC Regulations and DP Regulations have similar provisions on association with
another person, as in Intermediaries Regulations, for recognised stock exchanges,
clearing corporations and registered depositories (MIIs) respectively.
In this circular, hereinafter, for the ease of reference, person regulated by Board as
defined under Intermediaries Regulations and MIIs are collectively referred to as
“persons regulated by the Board.”
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3. Who is an agent of persons regulated by the Board?
As per section 182 of the Indian Contract Act, 'agent' is a person who is employed to
do any act for another, or to represent another in dealings with third persons. Whether
a person is an agent of another person regulated by the Board is fact specified. Some
examples of agent are: Employees, Mutual Fund Distributors, Authorised Persons of
stock brokers etc.
4. What are the restrictions on persons regulated by the Board and their agents on
their association with another person?
Persons regulated by the Board and their agents shall not have any direct or indirect
association with another person who is engaged in any of the two activities not
permitted by the Board. These two prohibited activities are:
(i) providing advice or any recommendation, directly or indirectly, in respect of or
related to a security or securities, without being registered with or otherwise
permitted by the Board to provide such advice or recommendation; and
(ii) making any claim, of returns or performance expressly or impliedly, in respect
of or related to a security or securities, without being permitted by the Board to
make such a claim.
5. What constitutes an association between persons regulated by the Board and
their agents with another person?
The “association” for the purposes of these regulations shall mean the association in
the nature of transaction involving money or money’s worth or referral of a client or
interaction of information technology systems or any other association of similar nature
or character, by any name called.
6. Whether persons regulated by the Board are responsible to ensure that the
persons with whom they associate do not engage in abovementioned two
prohibited activities?
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Yes. It is the responsibility of the persons regulated by the Board to ensure that any
person associated with them or their agent, directly or indirectly, does not engage in
any of the abovementioned two prohibited activities, directly or indirectly. However,
such responsibility shall be with respect and to the extent of their association.
Example: If a broker is availing tax advisory services from a tax advisor and his
association with the tax advisor is limited to availing such services, the broker shall
only have the responsibility to ensure, while availing such services, that such tax
advisor is not engaged in prohibited activities.
7. Are there any restrictions on persons regulated by the Board and their agents
to associate with another person who is engaged in investor education?
Investor education is not one of the two prohibited activities under these regulations.
However, it must be ensured by the persons regulated by the Board that such person
providing education does not engage in any of the abovementioned two prohibited
activities, directly or indirectly.
8. What distinguishes education and advice/recommendation?
A person engaged solely in education shall mean that such person is not engaged in
any of the two prohibited activities. Such person should not be using the market price
data of the preceding three months to speak/talk/display the name of any security
including using any code name of the security in his/her talk/speech, video, ticker,
screen share etc. indicating the future price, advice or recommendation related to
security or securities.
9. Whether the professional services provided by the person regulated by the
Board to another person (e.g. an unregistered IA), like opening of his personal
demat account or trading account, amount to association of such person with
such another person?
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There is no restriction on any person in availing the professional services offered by
persons regulated by the Board, or their agents such as demat account or trading
account services provided that such services/accounts are not used for any of the
abovementioned two prohibited activities, directly or indirectly.
Example: Any person can avail demat account services from any depository
participant without any restriction. Such demat account of a person with DP shall not
amount to association of a DP with that person. However, in case such demat account
is used to engage in aforesaid two prohibited activities, directly or indirectly, depository
participant shall take appropriate necessary action to deactivate/discontinue the
services for such demat account.
10. Whether stock brokers can avail services of another person who is engaged in
any of the abovementioned two prohibited activities?
Persons regulated by the Board including stock brokers can not avail services of
another person who is engaged in any of the abovementioned two prohibited activities,
directly or indirectly.
11. Whether the Mutual Fund Distributors (MFDs), Authorised Persons (APs),
Portfolio Management Services Distributors (PMS Distributors) and Alternative
Investment Fund Distributors (AIF Distributors) are required to comply with
these regulations for their association with another person?
MFDs, APs, PMS Distributors and AIF Distributors are agents of Asset Management
Companies (AMCs), stock brokers, portfolio managers and investment manager of
AIFs respectively. AMCs, stock brokers, stock brokers, portfolio managers and
investment manager of AIFs being persons regulated by the Board are responsible to
ensure compliance of their agents with these regulations.
12. What are the consequences of violation of these regulations for persons
regulated by the Board and their agents?
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As per Regulation 16B of Intermediaries Regulations and Regulation 82C of DP
Regulations, SEBI may, in case of violation of any of the provisions of Regulation 16A
of Intermediaries Regulations and Regulation 82B of DP Regulations respectively,
take such action as it may deem fit including action under Chapter V of Intermediaries
Regulations. Such action may include the enquiry, adjudication or an order under
Section 11B of SEBI Act, 1992.
Further, in terms of Regulations 44C of SECC Regulations, SEBI may, in case of
violation of any of the provisions of Regulation 44B of SECC Regulations, take such
action as it may deem fit including action as provided under regulation 49 of SECC
Regulations. Such action may include adjudication or an order under Section 11B of
SEBI Act, 1992.
Potential actions could include penalty, suspension/cancellation of registration,
debarment etc.
13. Can SEBI registered intermediaries make any payment to or receive payment
from or share or receive any client information from or with another person
engaged in any of the abovementioned two prohibited activities, directly or
indirectly?
For the purposes of these regulations, “association” means-
(a) a transaction involving money or money’s worth;
(b) referral of a client;
(c) interaction of information technology systems;
(d) any other association of a similar nature or character.
Sharing client information is of similar nature as of “referral of a client”. Hence, making
any payment or receiving payment or sharing any client information from or with any
person shall amount to “association” under these regulations, and is not permitted.
Thus, such intermediaries are prohibited to make any payment or receive payment or
share any client information from or with another person engaged in any of the
abovementioned two prohibited activities, directly or indirectly.
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14. Whether persons regulated by the Board and their agents are allowed to
associate for their branding/marketing/promotional activities with another
person?
The persons regulated by the Board and their agents are allowed to associate for their
branding/marketing/promotional activities with another person provided that such
another person is not engaged in any of the abovementioned two prohibited activities,
directly or indirectly.
15. Can SEBI regulated entities and their agents associate with another person who
is promoting consumer products from the sectors such as banking, financial
services, and insurance, which are not regulated by SEBI?
Some of the products which are not under the purview of SEBI may come under the
jurisdiction of some other regulatory authority. Hence, regulatory provisions of such
other regulatory authority shall be applicable. However, persons regulated by the
Board shall ensure that they and their agents shall not associate, directly or indirectly,
with another person if such another person is engaged in any of the abovementioned
two prohibited activities, directly or indirectly.
e.g. if a broker associates with a person (who is promoting insurance product)
engaged in any of the two prohibited activities, it would be violation of the SEBI
regulations since the Intermediaries Regulations prohibit any association, directly or
indirectly, with another person engaged in any of the two prohibited activities.
16. Do the following amount to violation under the regulations?
a) Advertising/branding/lead generation through a marketing agency by any
name.
The same shall amount to violation of the regulations if the person regulated by
the Board or its agent indirectly ends up in getting associated with an entity
engaged in any of the two prohibited activities.
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b) Association through digital platforms where person regulated by Board
or its agent has control on where any advertisement/content appear.
No, if a person regulated by Board or its agent does not, directly or indirectly,
end up in getting associated with an entity engaged in any of the two prohibited
activities. Since the person or its agent has control on where its
advertisement/content appear, it can ensure that there is no such association.
c) Association through digital platforms where person regulated by Board
or its agent has no control over the content/entity with whom it gets
associated.
The same shall amount to violation of the regulations if the person regulated by
Board or its agent indirectly ends up in getting associated with an entity
engaged in any of the two prohibited activities.
17. When will these regulations come into effect?
These regulations have come into force with effect from August 29, 2024. Persons
regulated by the Board and their agents have been advised through a circular dated
October 22, 2024 to terminate their existing contracts, if any, with persons engaged in
any of the abovementioned two prohibited activities, directly or indirectly, within three
months from the date of issuance of that circular. Hence, these regulations are already
in force.
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