NISM Series III-A: Securities Intermediaries Compliance (Non Fund) Mock Test (Set 2)

Registration of Intermediaries – The Section 12 of SEBI Act states that no person shall sponsor or cause to be sponsored or carry on or caused to be carried on any venture capital funds or collective investment schemes including mutual funds if the same does not obtain a certificate of registration from SEBI.

As per the code of conduct of SEBI (Merchant Bankers) Regulations, the Merchant Banker should ensure that SEBI is promptly informed about any action, legal proceedings, etc., initiated against it in respect of material breach or non-compliance by it, of any law, rules, regulations, and directions of SEBI or of any other regulatory body.

a) Summoning and enforcing the attendance of any person and examining him on oath

b) Requiring the discovery and production of documents

c) Receiving evidence on affidavits

d) Issuing commissions for the examination of witnesses or documents

e) Reviewing its decisions

f) Dismissing an application for default or deciding it ex-parte

g) Setting aside any order of dismissal of any application for default or any order passed by it ex-parte

h) Any other matter which may be prescribed

As per Section 15U (2), the SAT shall have, for discharging its functions, the same powers as are vested in a civil court under the Code of Civil Procedure, 1908, while trying a suit, in respect of the following matters:

a) Summoning and enforcing the attendance of any person and examining him on oath

b) Requiring the discovery and production of documents

c) Receiving evidence on affidavits

d) Issuing commissions for the examination of witnesses or documents

e) Reviewing its decisions

f) Dismissing an application for default or deciding it ex-parte

g) Setting aside any order of dismissal of any application for default or any order passed by it exparte

h) Any other matter which may be prescribed

As per the SEBI Act, an organisation / firm needs to appoint a compliance officer who is responsible for setting forth policies and procedures and monitoring adherence to the rules for the preservation of “Price Sensitive Information”, pre-clearing of all designated employees and their dependents trades, monitoring of trades and the implementation of the code of conduct under the overall supervision of the partners/proprietors.

All registered intermediaries should develop customer acceptance policies and procedures that aim to identify the types of customers that are likely to pose a higher than the average risk of money laundering or terrorist financing. By establishing such policies and procedures, the intermediaries will be in a position to apply Client Due Diligence on a risk sensitive basis depending on the type of customer business relationship or transaction.

Dealing in securities shall be deemed to be a fraudulent or an unfair trade practice if it involves encouraging the clients by an intermediary to deal in securities solely with the object of enhancing his brokerage or commission.

Records have to be maintained for all cash transactions of the value of more than Rs. 10 lakh or its equivalent in foreign currency.

Yes. Every Merchant Banker is required to pay Rs. Twenty Lakh as registration fees (as per SEBI (Payment of Fees) (Amendment) Regulations, 2014) at the time of grant of Certificate of Initial Registration by SEBI.

The Economic Offences Wing (EOW) in the Central Bureau of Investigation was created in 1964 to deal with offences under various sections of the Indian Penal Code and notified Special Acts mainly relating to serious frauds in banks, stock exchanges, financial institutions etc.

Section 15E prescribes the penalty payable by an AMC of a mutual fund registered under the SEBI Act, on failing to comply with any of the regulations that place restrictions on the activities of asset management companies.

Internal Stakeholders include the Board of Directors, Officers and Employees. External Stakeholders include Central Government, SEBI, Stock Exchanges and other regulatory authorities like Registrar of Companies, Reserve Bank of India, Income Tax, investors, issuers and other intermediaries.

All registered intermediaries are required to obtain senior management approval for establishing business relationships with Politically Exposed Persons (PEPs).

Every underwriter shall pay thirteen lakh thirty three thousand and three hundred rupees as registration fees at the time of grant of certificate of registration.

(i) Assessing a client’s capacity for absorbing loss;

(ii) Identifying whether the client is unwilling or unable to accept the risk of loss of capital;

(iii) Appropriately interpreting client responses to questions and not attributing inappropriate weight to certain answers.

Dealing in securities shall be deemed to be a fraudulent if an intermediary does not disclose to his client transactions entered into on his behalf.

Whoever commits the offence of money-laundering shall be punishable with rigorous imprisonment for a term which shall not be less than 3 years but which may extend to 7 years and shall also be liable to fine which may extend to Rs. 5 lakhs.

As per SEBI (Prohibition of Insider Trading) Regulations defines unpublished price sensitive information as any information, relating to a company or its securities, directly or indirectly, that is not generally available which upon becoming generally available, is likely to materially affect the price of the securities and shall, ordinarily including but not restricted to, information relating to the following:-
(i) Financial results;
(ii) Dividends;
(iii) Change in capital structure;
(iv) Mergers, de-mergers, acquisitions, delistings, disposals and expansion of business and such other transactions;
(v) Changes in key managerial personnel.

FIU-I is an independent body reporting directly to the Economic Intelligence Council headed by the Finance Minister and is the central nodal agency responsible for receiving, processing, analyzing and disseminating information regarding suspicious financial transactions in order to support anti-money laundering efforts.

The bye laws need to be approved by SEBI and shall be in conformity with the provisions of the SC(R)A, 1956, SC(R)R, 1957 and the SEBI Act, 1992.

Fraud occurs when an intermediary either does not disclose or partially discloses transactions entered on the client’s behalf. This emphasizes the importance of full and transparent communication between intermediaries and their clients to prevent fraudulent practices.

(a) Monetary penalty

(b) Penalties as specified under the SEBI (Intermediaries) Regulations, 2008 including suspension or cancellation of certificate of registration as a stock broker

(c) Prosecution under regulation 24 of the SEBI Act

Every registrar to an issue and share transfer agent being a body corporate shall keep and maintain the books of accounts and documents in respect of three preceding financial years,

As per the Code of Conduct for Brokers – A stock-broker should issue without delay to its client or client of the subbroker, as the case may be a contract note for all transactions in the form as specified by the Stock Exchange.

If the client does not co-operate with the credit rating agency so as to enable the credit rating agency to comply with its obligations, the credit rating agency shall carry out the review on the basis of the best available information or in the manner as specified by SEBI from time to time.

SEBI (Prohibition of Insider Trading) Regulations :
1. Compliance officer shall be responsible for compliance of policies, procedures, maintenance of records, monitoring adherence to the rules for the preservation of unpublished price sensitive information, monitoring of trades and the implementation of the codes specified in these regulations under the overall supervision of the board of directors of the listed company or the head of an organization, as the case may be.
2. Designated persons may execute trades subject to compliance with these regulations. Trading by designated persons shall be subject to pre- clearance by the compliance officer

Hedge funds in India are regulated by SEBI (Alternative Investment Funds) Regulations.

Registrars to an Issue and Share Transfer Agents (RTAs) servicing more than 2 crore folios are referred to as “Qualified RTAs”