Introduction
The Securities Exchange Board of India (‘SEBI’), on 04.12.2024, issued a notification[i] amending the SEBI (Intermediaries) Regulations, 2008 (‘2008 Regulations’) by substituting reg. 30A. This amendment, titled SEBI (Intermediaries) Regulations, 2024, establishes a revised framework for summary proceedings against intermediaries. These changes aim to enhance regulatory efficiency, strengthen investor protection, and ensure accountability among intermediaries in the securities market.
The revised reg. 30A introduces a structured and expedited procedure for dealing with specific categories of violations or non-compliance by intermediaries. The notification issued by SEBI provides the following:
Applicable Cases: The summary proceedings procedure applies to cases including expulsion of stock brokers or clearing members, termination of depository participant agreements, false claims of return or performance, non-payment of fees, non-traceability of person, failure to submit periodic reports, and admission of violations. Notably, the scope has been expanded vide this amendment to include several categories of intermediaries and persons under SEBI’s purview, and additional grounds have been introduced for initiating summary proceedings.
Issuance of Notice: The competent authority will issue a notice specifying the grounds for initiating proceedings and the alleged violations. Intermediaries must submit a written response and any documentary evidence within 21 calendar days. An extension of up to 15 calendar days may be granted for valid reasons.
Timeline for Passing an Order: The competent authority is mandated to pass an order within 21 calendar days of receiving the written response or upon the expiry of the written submission timeline. Compared to the erstwhile reg. 30A, this amendment retains the procedural framework but provides additional details, such as the extension of the submission timeline by 15 calendar days for justified reasons.
No Personal Hearings: The notification provides that no personal hearings will be granted under this regulation, emphasising the summary nature of the proceedings. This provision remains unchanged as against the erstwhile regulation.
Order and Directives: The competent authority may pass an appropriate order, including cancellation or suspension of registration certificates or any other directives deemed necessary.
Imposition of Conditions: The competent authority may impose conditions to safeguard investor interests and ensure continuity of service. Such conditions may include addressing unresolved liabilities or defaults.
Post-Cancellation Obligations: Additional obligations have been imposed, such as intermediaries whose registration certificates are cancelled must return the cancelled certificate of registration, cease related activities, and facilitate the transfer of client assets, records, or funds without imposing additional costs on clients. Additionally, the noticee must address liabilities incurred or assumed, maintain proper records, and comply with specific directives issued by the competent authority.
Transparency in Communication: Orders passed under reg. 30A must be communicated to the concerned intermediary/noticee, and the relevant stock exchange(s), clearing corporation(s), or depositories. These orders must also be made publicly accessible on the websites of relevant entities.
Conclusion
The substitution of reg. 30A fosters a robust regulatory framework for intermediaries in the securities market. By streamlining summary proceedings and prioritising investor protection, SEBI aims to enhance market integrity and accountability. These amendments are expected to enhance greater transparency, efficiency, and compliance while safeguarding the interests of investors and other stakeholders.
End Note
[i] Notification No. SEBI/LAD-NRO/GN/2024/216 dated 04.12.2024.
Authored by Purvi Garg & Srishty Jaura, Advocates at Metalegal Advocates. The views expressed are personal and do not constitute legal opinions.
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