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In a bid to stop investment advice masquerading as investor education, the market regulator has mandated that any unregistered advisor must use three-month old prices to make their point.
SEBI has released clarifications related to association persons regulated by the boards of Market Infrastructure Institutions (MIIs) and their agents with persons engaged in prohibited activities.
This would mean that persons regulated by SEBI, MIIs (stock exchanges, clearing corporations, depositories) and their agents will not have a direct or indirect association with another person who:
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 SEBI to provide such advice or recommendation
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 SEBI to make such a claim
Here Are The Important Clarifications Provided By SEBI On The Regulations:
1) Who is a ‘person regulated by the Board’ for these regulations?
(a) An Asset Management Company of a mutual fund registered with SEBI
(b) Investment manager of an alternative investment fund or infrastructure investment trust registered with SEBI
(c) Manager of a real estate investment trust registered with SEBI
2) Who is an agent of persons regulated by the Board?
An ‘agent’ is a person who is employed to
do any act for person regulated by SEBI, or to represent the person regulated by SEBI in dealings with third persons. Some examples would be Employees, Mutual Fund Distributors, Authorised Persons of stock brokers.
3) What are the restrictions on persons regulated by SEBI and their agents on
their association with another person?
Persons regulated by SEBI and their agents shall not have any direct or indirect association with another person who is engaged in any of the two activities:
a) 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 SEBI
b) Making any claim, of returns or performance expressly or impliedly, in respect of or related to a security or securities, without being permitted by SEBI
4) What constitutes an association between persons regulated by SEBI and their agents with another person?
The ‘association’ 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
5) Whether persons regulated by SEBI are responsible to ensure that the persons with whom they associate do not engage in abovementioned two prohibited activities?
Yes. It is the responsibility of the persons regulated by SEBI 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.
6) 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.
7) What distinguishes education and advice/recommendation?
A person engaged solely in education 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)What are the consequences of violation of these regulations for persons regulated by SEBI and their agents?
Action may include the enquiry, adjudication or an order. Potential actions could include penalty, suspension/cancellation of registration, debarment
10)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.
11) 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
SEBI or its agent indirectly ends up in getting associated with an entity engaged in any of the two prohibited activities.
b) Association through digital platforms where person regulated by SEBI or its agent has control on where any advertisement/content appear.
No. 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.
12)When will these regulations come into effect?
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 above mentioned two prohibited activities, directly or indirectly, within three months from the date of issuance of that circular.