NISM Series III-A: Securities Intermediaries Compliance Certification 'Final Test'

These regulations outline the framework for individuals who provide information related to insider trading violations to the Securities and Exchange Board of India (SEBI), acting as informants. The regulations establish mechanisms to encourage individuals to come forward and report instances of insider trading. They include provisions for maintaining confidentiality and protecting informants from any adverse consequences for providing such information. The goal is to enhance the effectiveness of insider trading regulations by encouraging a culture of reporting and ensuring timely action against violators.

A Clearing House is involved in aggregating transactions over a trading period and netting the positions to determine the liabilities of members. In financial markets, a clearing house acts as an intermediary between buyers and sellers to facilitate the smooth settlement of trades. It becomes the counterparty to both the buyer and the seller, guaranteeing the fulfillment of the trade. The clearing house aggregates transactions, calculates the net position for each member, and ensures the settlement of obligations. This process helps manage counterparty risk and ensures the integrity and efficiency of the financial markets.

The Audit Committee of a listed company or other analogous body for an intermediary or fiduciary is required to review compliance with the provisions of the relevant regulations at least once in one financial year. This ensures that there is a periodic and systematic assessment of compliance with the regulations governing the entity’s operations, enhancing transparency and accountability.

Regulation 7H of the SEBI (Prohibition of Insider Trading) Regulations, 2015, specifies the requirements with respect to informants, particularly focusing on confidentiality. This regulation ensures that the identity of the informant and the information provided remain confidential to protect the informant from any potential adverse consequences.

Depository participants are entities that facilitate the interaction between investors and depositories in the securities market. They are required to be registered with SEBI (Securities and Exchange Board of India) through their respective depositories (National Securities Depository Limited or Central Depository Services Limited). This registration ensures that depository participants comply with regulatory requirements and maintain the necessary standards to operate in the securities market.

In the context of financial regulations and anti-money laundering measures, authorities often require the recording of certain transactions to monitor and prevent illicit financial activities. In this case, the correct threshold for recording single cash transactions is those exceeding Rs. 10 lakh. This helps in tracking large cash transactions and ensuring transparency in financial transactions.

Both the Principal Officer and the Money Laundering Control Officer typically have access to client identification data (CDD – Customer Due Diligence) information, transaction records, and other relevant information. These individuals play crucial roles in anti-money laundering (AML) and counter-terrorist financing (CTF) measures within organizations, ensuring compliance with regulations and the effective implementation of policies to prevent illicit financial activities.

This statement is false. A registrar to an issue cannot act as a registrar for any issue of securities if they are an associate of the body corporate issuing the securities. This restriction is in place to ensure independence and avoid potential conflicts of interest in the registration process of securities issued by a particular body corporate.

Key Result Areas (KRAs) are required to develop a monitoring mechanism through internal audit. Internal audit processes help organizations assess and enhance their internal controls, risk management, and overall operational efficiency. This ensures that the organization is meeting its objectives and complying with relevant regulations and standards. Internal audits are conducted by an organization’s internal audit team or department, providing an independent and objective evaluation of various aspects of the business.

Investors are generally not allowed to submit more than one application form for Rights Entitlements available in a particular demat account. This helps maintain fairness and prevents the manipulation of entitlements during the rights issue process.

The client, whose securities it proposes to rate, shall agree to disclose the Rating assigned to his securities by any credit rating agency during the last 3 years in the offer document. This requirement ensures transparency and provides relevant information to potential investors.

The Issue of capital and disclosure requirements applies to the Initial public offer of an unlisted issuer. This regulation is specific to the process of a company going public for the first time when it is not already listed on a stock exchange.

Clients of special category (CSC) include High net-worth clients, companies offering foreign exchange services, and Politically Exposed Persons (PEP).

According to Regulation 12 of the SEBI (Intermediaries) Regulations, 2008, an intermediary should prominently display a photocopy of the certificate at all its offices, including branch offices. This ensures transparency and informs clients about the intermediary’s authorization by the regulatory authority.

The mandatory reporting responsibilities of a Compliance Officer include co-ordination with regulators, reporting noncompliance observed to the Board of Directors (BOD), and periodic submission of reports. These ensure effective oversight and adherence to regulatory requirements.

The Alternative Investment Fund (AIF) may launch schemes subject to filing a placement memorandum with SEBI. The placement memorandum provides details about the fund’s investment strategy, terms, and conditions, serving as an essential document for regulatory compliance and investor information.

Depository participants are responsible for informing the issuer about the transfer of securities in the name of beneficial owners at intervals and as prescribed by bye-laws. Depository participants act as intermediaries between the depository and the investors, facilitating the smooth transfer and holding of securities in electronic form.

Any person aggrieved by the order passed by the adjudicating officer under the Prevention of Money Laundering Act, 2002 may prefer to appeal to the Appellate Tribunal. The Appellate Tribunal provides a forum for individuals to challenge and seek redressal for decisions made under the provisions of the PMLA.

Registered intermediaries are required to take reasonable measures to verify the sources of funds and wealth of clients and beneficial owners identified as Politically Exposed Persons (PEPs). This is part of the due diligence process to prevent money laundering, terrorist financing, and other financial crimes. Verifying the legitimacy of funds and wealth sources helps ensure compliance with regulatory requirements and mitigates the risk of illicit activities.

Members of stock exchanges are required to preserve books, accounts, and other documents as specified by the Securities Contracts (Regulation) Act (SCRA). This preservation is essential for maintaining transparency and facilitating regulatory oversight in the financial markets.

Futures contracts are exchange-traded contracts that involve the agreement to sell or buy financial instruments or physical commodities for future delivery at a predetermined price. These contracts are standardized and traded on organized exchanges, providing a way for participants to hedge against price fluctuations or speculate on future market movements.

All registered intermediaries are required to obtain senior management approval for establishing business relationships with Politically Exposed Persons (PEPs). PEPs are individuals who hold prominent public positions, and due diligence is necessary to prevent financial institutions from being used for money laundering or other illicit activities by such individuals.

Alternative Investment Funds (AIFs) are allowed to raise funds only through private placement. This means that they can only solicit funds from a select group of investors, and not through a public offering. This restriction is designed to ensure that AIFs operate in a more controlled and regulated environment, typically catering to sophisticated investors.

Research Analysts are mandatorily required to be registered with the Securities and Exchange Board of India (SEBI) as per regulatory requirements. This registration ensures that analysts adhere to certain standards and guidelines, promoting transparency and protecting the interests of investors in the financial markets.

Foreign Portfolio Investors (FPIs) are required to provide Know Your Customer (KYC) related documents based on the category under which they are registered. KYC documents are essential for verifying the identity and legitimacy of the investors participating in financial markets.

The compliance officer is appointed by the Board of Directors to ensure adherence to the SEBI Act and regulations.

The statement is FALSE. A person cannot be appointed as an authorized person by more than one trading member.

The Compliance Officer may immediately and independently report to SEBI any non-compliance observed by them. This emphasizes the importance of swift reporting to regulatory authorities for prompt action on any observed non-compliance.

In interest rate options, a “Floor” is bought to earn a minimum rate of return on floating-rate investments, particularly in the event that the benchmark interest rate begins to decline.

In case of failure by a stock broker to comply with SEBI regulations, depositories may take actions such as imposing 100% concurrent audit on the depository participant to ensure proper compliance.

Engaging in activities that distort market equilibrium or seek personal gain by an intermediary violates the principle of “Conflict of interest.” This involves a situation where an individual or entity has competing interests that could compromise their objectivity, leading to potential harm to others or the integrity of the market.

A show cause notice must specify the alleged contravention and indicate the relevant provisions of the Act, rules, or regulations that are believed to have been violated. This ensures clarity and transparency in communicating the basis for the notice, allowing the recipient to understand the charges and respond appropriately.

The agreement between insiders regarding off-market trades must be reported to the company within two working days. Off-market trades refer to transactions that occur outside the formal exchange, such as over-the-counter (OTC) trades or private transactions among insiders. Reporting such agreements enhances transparency and regulatory compliance.

After investigation and inquiry on a fraudulent action, SEBI (Securities and Exchange Board of India) may choose to take various actions, including suspending the registration of the intermediary, restraining individuals from accessing the securities market, and issuing warnings or censures. This allows SEBI to enforce regulatory measures and maintain the integrity of the securities market.

A foreign portfolio investor can invest in Indian depository receipts (IDRs). IDRs are financial instruments denominated in Indian Rupees, representing ownership of shares of a foreign company. FPIs are allowed to invest in IDRs, subject to regulatory guidelines and restrictions.

SEBI (Securities and Exchange Board of India) has the authority to prohibit any company from issuing a prospectus, any offer document, or advertisement soliciting money from the public for the issue of securities if it deems necessary to protect the interests of investors or the securities market.

After the suspension of its certificate, an intermediary is not allowed to allow its clients or investors to withdraw their securities or funds held in its custody. Suspension typically involves restricting the intermediary’s activities, and client withdrawals may not be permitted during such a period.

A debenture trustee may inspect books of account, registers, and trust property of the body corporate to the extent necessary for discharging its obligations. This includes ensuring that the terms of the trust deed are being adhered to and protecting the interests of debenture holders.

Regulation 3(4) specifies that the Board of Directors (BOD) shall require parties to execute agreements to impose confidentiality and non-disclosure obligations. This regulation is likely a part of a legal or regulatory framework addressing the need to protect sensitive information within the context provided.

At least two-thirds of the investable funds of a venture capital undertaking shall be invested in unlisted equity shares and equity-linked instruments of a venture or in companies listed or proposed to be listed on an SME exchange. This regulation emphasizes the focus on supporting unlisted ventures and SMEs through equity investments.

A banker to an issue may indeed develop its own internal code of conduct to govern its internal operations and establish standards of appropriate conduct. This helps ensure ethical practices and compliance with regulatory requirements in the context of handling and managing issues related to securities offerings.

Every debenture trustee is required to pay fees of Rs. 20 lakh at the time of the grant of a certificate of registration. This fee is associated with the regulatory processes and obligations related to debenture trustees in financial markets.

The recurring registration fee for every three years for a credit rating agency is Rs. 15 lakhs. This fee is part of the regulatory requirements for credit rating agencies to maintain their registration and operate in the financial market.

When the loss is indemnified by the depository, it does have the right to recover the same from the participant, especially if the loss is due to the negligence of the participant. The depository may seek reimbursement from the responsible party in cases where the loss is a result of their actions or negligence.

As per the Prevention of Money Laundering Act, 2002, if the Director finds that a reporting entity has failed to comply with its obligations, a penalty greater than Rs. 10,000 may be imposed. The specific amount of the penalty may vary based on the severity and nature of the non-compliance.

The Securities Contracts (Regulation) Act, 1956 is enacted with the objective of preventing undesirable speculation and regulating contracts and transactions in securities. This law provides a legal framework for the regulation of securities markets in India.

The credit rating agency is required to disclose to the client the rating assigned to their securities through regular methods of dissemination. This transparency ensures that clients are informed about the creditworthiness of their securities as assessed by the credit rating agency.

Cumulative Open Order Value for a client is the total value of its unexecuted orders released from the stock broker system. This metric represents the total value of orders that have been placed by the client but have not yet been executed in the market.

A merchant banker advises the issuer company on all matters related to the public issue, including the activities mentioned in the inter-se allocation of responsibilities. The role of a merchant banker is crucial in facilitating the entire process of a public issue, providing advice, managing documentation, and ensuring compliance with regulatory requirements.

A failure by the broker to issue contract notes in the form and manner specified by the stock exchange of which the broker is a member is penalized under Section 15F. This section likely contains provisions for enforcing compliance with the specified format and manner of issuing contract notes to ensure transparency and regulatory standards in stock market transactions.

The code of conduct for custodians is prescribed under the SEBI (Custodian) Regulations, 1996. These regulations lay down the framework for the operations and conduct of custodians in the securities market, including guidelines and standards to ensure transparency, fairness, and ethical practices in their functioning.

The National Pension System (NPS) is a defined contribution retirement savings scheme regulated by the Pension Fund Regulatory and Development Authority (PFRDA) in India. It is designed to enable systematic savings and investments for retirement, allowing individuals to contribute to their pension accounts, which are invested in a mix of equities, fixed deposits, liquid funds, and other instruments. The scheme provides flexibility and choices to subscribers in terms of fund allocation and pension options.

In the context of investment advisory, if it is set up as a subsidiary, the net worth requirement is to be met by the subsidiary itself. The subsidiary is expected to maintain the necessary financial strength and net worth to comply with regulatory standards and ensure the stability and credibility of its operations in the financial markets.

Every depository, upon receiving intimation from a participant, registers the transfer of security in the name of the transferee. The transferee is the party receiving the transferred securities, and the depository ensures that the ownership records are updated accordingly. This process helps maintain accurate and secure records of ownership in the electronic book-entry system used by depositories.