NISM Series III-A: Securities Intermediaries Compliance (Non Fund) Mock Test (Set 3)

Regulation 3(1) stipulates that an insider shall not allow access to any Unpublished Price Sensitive Information (UPSI) relating to a company or securities listed to any person, including other insiders. This is part of the insider trading regulations to prevent the unauthorized sharing of sensitive information.

In front running, the owner or purchaser of the block trade may engage in offsetting futures as a means of hedging against price fluctuations caused by the block transaction. Hedging is a risk management strategy used to mitigate potential losses from adverse price movements.

Bankers to an Issue are involved in activities such as accepting application monies, accepting call monies, and processing payments of dividends or interest warrants. However, the collection of securities transaction tax is not typically a function performed by Bankers to an Issue.

Maintenance margin refers to the minimum amount, calculated as a percentage of the market value of securities based on the last trading day’s closing price, that a client needs to maintain with the broker. It is a risk management measure to ensure that clients have sufficient funds to cover potential losses in their trading positions.

An investment adviser shall disclose to a prospective client all material information about itself, including its disciplinary history. This disclosure requirement is intended to provide clients with comprehensive and transparent information about the adviser’s background and any disciplinary actions that may impact the advisory relationship.

A KRA (KYC Registration Agency) applicant should have a net worth of at least Rs. 20 crore on a continuous basis. This financial requirement is set to ensure that KRAs have the necessary financial strength to fulfill their responsibilities in maintaining and managing KYC records in the securities market.

The periodic reports or other communications prepared for unit holders of a mutual fund shall not be included in a research report. This separation is maintained to prevent any potential conflict of interest and ensure transparency in the communication of information to investors. Research reports should be distinct from materials intended for existing unit holders of mutual funds.

Material risks of an alternative investment fund may include concentration risk at the fund level, foreign exchange risk at the fund level, leverage risk at both the fund and investee company levels, and more. Managing these risks is crucial for the effective operation and stability of the alternative investment fund.

Depositories facilitate the release of securities when sold or the recording of securities when bought or obtained on allotment. They play a crucial role in the electronic book-entry system, maintaining records of ownership and facilitating the transfer of securities in a more efficient and secure manner.

The Client Due Diligence (CDD) process shall necessarily be revisited when there are suspicions of money laundering or financing of terrorism. This ensures that enhanced measures are taken to verify and monitor client activities in situations where there may be an increased risk of financial crimes.

Any change in control of the investment adviser requires prior approval from SEBI (Securities and Exchange Board of India). This regulatory oversight ensures that changes in control are scrutinized to maintain the integrity and compliance of the investment advisory activities.

The main purpose of the Indian Contract Act, 1872, is to impart credibility about the fulfillment of obligations in mercantile transactions. This act provides the legal framework for contracts in India, governing agreements and ensuring that parties adhere to their contractual obligations.

Debenture trustees shall disclose information to investors and the general public by issuing a press release on issues such as default by the issuer company to pay interest on debentures and failure to create a charge on the assets. This disclosure is essential for transparency and keeping stakeholders informed about the financial health and performance of the issuer company.

A banker to an issue may not accept applications after office hours, after the date of closure of the issue, or on bank holidays. The acceptance of applications is generally restricted to the specified time frame during office hours on working days as per the regulatory guidelines.

If the issuer opts for the alternate method of book building, the issuer may offer the specified securities to its employees at a price not lower than 10% of the floor price. This provision is to ensure fair and reasonable pricing for employees participating in the issuance.

The SEBI Act, 1992, empowers SEBI (Securities and Exchange Board of India) to perform the function of registering and regulating the working of venture capital funds. This authority is granted to SEBI to oversee and regulate various entities operating in the securities market, including venture capital funds.

Registrars are the entities that typically collate data on subscriptions regarding primary issuances. They play a key role in managing and maintaining records of shareholders and their subscriptions to securities issued by companies.

Section 11(4) empowers SEBI (Securities and Exchange Board of India) to suspend trading in any security. This authority allows SEBI to take necessary measures, including suspension of trading, to maintain the integrity of the securities market and protect the interests of investors.

Section 15Z of the SEBI Act provides the right to appeal to the Supreme Court. This section outlines the appellate jurisdiction and the forum for individuals or entities aggrieved by SEBI’s orders to appeal to the Supreme Court of India.

Section 15 of the SEBI Act levies a penalty for non-disclosure of acquisition of shares and takeovers. This includes persons who fail to make a public announcement to acquire shares at a minimum price as required by the regulatory provisions.

The ruling given by SEBI (Securities and Exchange Board of India) can be challenged by petitioning the Securities Appellate Tribunal (SAT). SAT is the appellate authority that reviews decisions made by SEBI, providing a legal avenue for parties aggrieved by SEBI’s orders to seek redressal.

The custodian shall have the mechanisms inspected annually by an expert, and the inspection report should be forwarded to SEBI (Securities and Exchange Board of India) within 3 months from the date of inspection. This requirement ensures periodic assessment and reporting of the custodian’s mechanisms for compliance and regulatory purposes.

The depository should forward a DDP (Depository Participant) application to SEBI (Securities and Exchange Board of India) within 30 days from the date of receipt by the depository. This timeframe ensures timely processing of applications and adherence to regulatory procedures.

A Category III Alternative Investment Fund may be either open-ended or closed-ended. The flexibility in the structure allows Category III AIFs to choose the type (open or closed-ended) based on their investment strategy and objectives.

Depositories shall put necessary procedures in place for the issue and credit of Rights Entitlements in demat mode. Depositories play a key role in facilitating the dematerialization and transfer of securities, including rights entitlements, in the securities market.

Algo orders shall not be released in breach of the value per order, quantity limit, or price bands defined by the exchange for the security. These restrictions are in place to ensure fair and orderly trading in the market and prevent manipulative practices.

Bankers to an Issue are involved in the acceptance of application and application monies during the process of issuing securities. They play a crucial role in collecting funds from investors who apply for shares or other securities during an initial public offering (IPO) or a rights issue.

A depository participant’s records of approval, notice, entry, and cancellation of pledge should be maintained for 8 years. This duration is in accordance with regulatory requirements to ensure proper documentation and record-keeping for audit trails and compliance purposes.

As per SEBI (ICDR) Regulations, both audited and standalone financial statements need to be prepared in accordance with Generally Accepted Accounting Principles (GAAP). It is not limited to only audited and consolidated financial statements.

Section 15D of the SEBI Act empowers SEBI to impose penalties for certain defaults in the case of mutual funds. This includes violations and non-compliance with regulations related to mutual funds, and SEBI can impose penalties for such defaults to ensure regulatory adherence.

Section 12 of the SEBI Act states that no person shall sponsor or cause to be sponsored any venture capital funds or collective investment schemes if the same does not obtain a certificate of registration from SEBI. This emphasizes the requirement for registration with SEBI for entities engaging in such activities to ensure regulatory oversight and investor protection.

Depositories have the right to effect the transfer of beneficial ownership, while custodians do not. This is because depositories operate on a book-entry system where they maintain electronic records of ownership, allowing them to transfer beneficial ownership without the need for physical securities. Custodians, on the other hand, typically hold physical securities and do not have the same direct transferability features.

Section 23JA of the Securities Contracts (Regulation) Act, 1956 provides for the application in writing to SEBI proposing for the settlement of proceedings initiated or to be initiated for the alleged defaults. This section enables parties to seek settlement with SEBI in certain cases.

The documents and records that need to be maintained by an investment adviser include the suitability assessment of the advice, copies of agreements with clients, KYC (Know Your Client) of clients, and more. This comprehensive documentation is essential for regulatory compliance and ensuring transparency in the advisory process.

A depository participant shall ensure that it has satisfactory internal control procedures in place as well as adequate financial and operational capabilities. This is crucial for maintaining the integrity of the depository system, ensuring compliance with regulatory requirements, and providing quality services to clients.

The transaction involving dealing in securities by a foreign portfolio investor shall be only through stock brokers registered with the Board (SEBI – Securities and Exchange Board of India). This ensures that FPIs conduct their transactions through authorized intermediaries in the securities market.

If the person opts to hold securities with a depository, the depository, on receipt of issuer’s information, shall enter the name of the Allottee as the beneficial owner of the security. This ensures that the person who has been allotted the securities is recognized as the beneficial owner in the depository’s records.