19 August 2008

New SEBI intermediaries regulations - Economic Times

I have written a piece describing the new umbrella regulation for securities intermediaries in today's Economic Times. Unfortunately, it is published only in the Delhi and Mumbai editions. So here it is, if you haven't read it.

While finalizing this regulation took a lot of effort, particularly getting the natural justice bit right while simplifying the disciplinary process, it requires two things to really get the philosophy and the substance of the new regulatory regime marching - a) get the new supplemental regulations in place e.g. an amended Stock Broker regulations which only prescribes regulatory norms which are relevant for stock brokers b) get the master circulars promised by SEBI over a year back out. The first of the master circulars was ready in April, but seems to have lost itself.

PS: The consultative paper on the subject is available here. This gives a more detailed background about the changes then proposed (at the consultative stage) . The new SEBI (Intermediaries) Regs. 2008 notified on 26th May 08 is available at the SEBI website.

PPS: The SEBI (Criteria for Fit and Proper Persons) Regulations 2002 and SEBI (Procedure for Holding Enquiry by Enquiry Officer and Imposing Penalty) Regulations, 2002 stand repealed and are substituted by provisions in the new regulations. The former is made more principle based and the latter is streamlined with a provision for benches of 'designated authority'. More on that in a future blog as there is a dramatic change from the previously mis-labeled 'enquiry' process.

6 comments:

Anonymous said...

Hi,
Just thinking of the financial ops of builders and real estate companies vis-a-vis their customers.....partcipation in the produce, pooling of subscriptions, away from management ("whether or not such properties or subscriptions and the investments made thereof are evidenced by identifiable properties or otherwise..")....I feel it neatly fits into SEBI (CIS) Regulations. What do you feel ?
Regards,
Anonymous1

Sandeep said...

It usually fits into three slots, Venture Capital, FDI and CIS. Indeed there has been at least one registration of a property developer registering under CIS Regulations.
If it is FDI, then it falls outside SEBI's jurisdiction.

Anonymous said...

Thanks. Why only 1 and not all ? Is there any lack of clarity ?
Regards,
Anonymous1

Sandeep said...

Usually, if it's registered as VC, SEBI doesn't insist on dual registration - which is fine philosophically as there is a regulatory registration process, but maybe not technically. Also the lines demarcating VC, PMS and CIS are not very clear. Much of PMS activity would also fall under both regulations.

BTW, not all such property development schemes would amount to CIS. See the US Supreme court case (S.E.C. v. W.J. Howey Co., 328 U.S. 293, 301 (1946)) of Howey which we have copied for the ingredients of the regulations. You can find it at http://laws.findlaw.com/us/328/293.html

Anonymous said...

Thanx a ton. But as per reg., PMS can handle only securities and funds thus no real estate. VC has investment restrictions too.I wonder about these 100% real estate companies which besides their property production activities have also become huge investment intermediaries.. accepting deposits, tranche payments, clients not necessarily being the end users (S.E.C. v. W.J. Howey Co.) etc. Sorry for persisting with my queries and taking your valuable time but I am feeling that there are too many similarities between the business models of property developers today and erstwhile plantation schemes.
Regards,
Anonymous1

Sandeep said...

I have no reason to disagree with your position.