The Securities and Exchange Board of India (“SEBI”) vide circular no. SEBI/HO/IMD/DF1/CIR/P/2020/148 dated August 6, 2020 (“Circular”) has decided to recognise a wholly owned subsidiary of the stock exchange (“SE Subsidiary”) to administer and supervise the investment advisers (“IAs”) registered with SEBI.  

Criteria for grant of recognition: 

The recognition of SE Subsidiaries shall be based on the following eligibility criteria of its parent entity, i.e., the stock exchange:

1. It shall have been in existence for at least 15 (fifteen) years;
2. It shall have a net worth of at least Rs. 200,00,00,000 (Rupees two hundred crore);
3. It shall have nation-wide terminals;
4. It shall have an investor grievance redressal mechanism, including arbitration; and
5. It shall have investor service centers in at least 20 (twenty) cities.  

Setting up of requisite systems by stock exchange:

1. The stock exchange shall either form a subsidiary, or designate an existing subsidiary for regulating IAs;
2. The SE Subsidiary shall in its charter documents and bye-laws, include provisions to fulfil the below mentioned responsibilities;
3. The SE Subsidiary shall put in place a system for (i) grievance redressal; (ii) administrative action against IAs; (iii) governing IAs; (iv) maintaining data; (v) sharing information with SEBI etc.; and
4. The SE Subsidiary shall have necessary infrastructure to efficiently discharge the below mentioned activities.  

Responsibilities of the SE Subsidiary:

1. Supervision of IAs (both on-site and off-site);
2. Grievance redressal of clients and IAs;
3. Administrative action including issuing warning and referring to SEBI for enforcement action;
4. Monitoring activities of IAs;
5. Submission of periodical reports to SEBI; and
6. Maintenance of database of IAs. 

The stock exchanges fulfilling the abovementioned eligibility criteria, can submit a detailed proposal, incorporating requisite systems and mechanism to discharge responsibilities as aforesaid, to SEBI within 30 (thirty) days from the date of the Circular.

This update has been contributed by Aastha (Partner) and Kartik Jigyasi (Associate).