On January 8, 2021, the Securities and Exchange Board of India (“SEBI”) issued an informal guidance (“Informal Guidance”) in connection with the SEBI (Investment Advisers) Regulations, 2013 (“Investment Advisers Regulations”) in response to a request from HDFC Securities Limited (“HDFC”).
HDFC is registered with SEBI as an investment adviser and as a stock broker with stock broking being the primary business. HDFC had requested the informal guidance on whether a trading member can receive broking income from advisory clients for execution services.
SEBI opined that as per Regulation 22A of the Investment Advisers Regulation, an investment adviser may provide implementation services to its advisory clients in the securities market. The client shall not, however, be under any obligation to avail implementation services and thus, only after the advisory client has given consent to receiving implementation services can the investment adviser or group of the investment adviser provide such services. Further, such investment adviser or group shall not charge any implementation fees from the advisory client. Therefore, a trading member or its group entity cannot receive any broking income from advisory clients while providing execution services where such execution is emanating from advice offered by the trading member as an investment adviser.
Please find a copy of the Informal Guidance here.
This update has been contributed by Suchita Ambadipudi (Partner) and Smriti Tripathi (Associate).
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