Crack Grade B 1

IFSC Capital Market

The eligible participants permitted in capital markets in IFSC are as follows:
Stock Exchange
Commodity Exchange
Clearing Corporation
Depository
Stockbroker
Investment Advisor
Portfolio Manager
Alternative Investment Fund (AIF)
Mutual Fund
Any other intermediary
Intermediaries: Intermediaries are those entities which offer various services in relation to the
capital markets. There are various categories of intermediaries such as stock brokers, merchant
bankers, underwriters etc.

A stock exchange is an institution which provides a platform for buying and selling of existing
securities.

A commodity exchange is a place where buying and selling of commodities occurs. A commodity
is any raw material or primary agricultural product that can be bought or sold, whether wheat,
gold, or crude oil, among many others.

Merchant Bankers: A merchant bank is a financial institution that provides capital to companies
in the form of share ownership instead of loans. A merchant bank also provides advisory on
corporate matters to the firms they lend to. Both commercial banks and investment banks may
engage in merchant banking activities.

In case of both the public issues and right issues, it is mandatory to appoint a Merchant Banker.
The task of Merchant Banker is basically that of a facilitator or coordinator. It coordinates the
process of issue management by helping the underwriters, registrars and bankers, in pricing and
marketing the issue and complying with the SEBI guidelines.

Merchant Bankers are prohibited from carrying on certain activities such as acceptance of
deposits, leasing and bill discounting. They are not allowed to borrow any money from the market.
They are also debarred from engaging in the acquisition and sale of securities on a commercial
basis. Examples: ICICI Securities, SBI Capital Market, Goldman Sachs etc.

Stock brokers and Sub-Broker

A stockbroker is a regulated professional individual, usually associated with a brokerage form
firm or broker-dealer, who buys and sells stocks and other securities for both retail and
institutional clients, through a stock exchange or over the counter, in return for a fee or
commission. Stockbrokers are known by numerous professional designations, depending on the
license they hold, the type of securities they sell, or the services they provide.

On the other hand, a sub broker is a person who is not a trading Member of a Stock Exchange
but who acts on behalf of a trading member as an agent. His task is to help investors in dealing

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in securities through such trading members (brokers). The leading stock brokers in India are listed
as below:
• India Infoline
• ICICI Direct
• Share Khan
• India Bulls
• Geojit Securities
• HDFC
• Reliance Money
• Religare
• Angel Broking

The maximum allowable brokerage is 2.5% of the contract price.

Underwriters: An underwriter is a person who engages in the business of underwriting the public
issue of securities of a particular company. An underwriting is an arrangement in which a
registered underwriter gives an undertaking to the issuing company that in case the company’s
public issue is not fully subscribed, the underwriter will purchase the unsubscribed portion of the
public issue.

Underwriting is compulsory for a public issue. It is necessary for a public company which invites
public subscription for its securities to ensure that 90% of its public issue is fully subscribed
otherwise the whole issued amount has to be refunded. The company cannot fully rely on
advertisements to ensure full subscription. In case of any under subscription, it has to be made
good by the underwriters. And, the underwriting agreement has to be made in advance of the
opening of the public issue.

Depositories: Depository is an institution which maintains investors account in electronic form.

One of the main functions of the Depository is to transfer the ownership of shares from one investor
to another whenever the trading of shares takes place. It helps in reducing the paper work involved
in trade, expedites the transfer and reduces the risk associated with physical shares such as
damage, theft, and subsequent misuse of the certificates or fake securities. Depositories are
regulated by Depositories Act 1996.

The Depositories Act provides that every person subscribing to securities offered by an issuer has
the option to receive the security certificates or hold securities with a depository. However,
investors need to note that while securities can be held by way of certificates, dealing in the market
is permitted only if the securities are in the demat mode.

They interface with the investors through their agents called Depository participants (DPs) the
banks (private, public and foreign), financial institutions or registered trading members.

 Depository Participant: DP is an agent of the depository and is authorised to offer

depository services to investors. According to guidelines, financial institutions, banks,
custodians, stockbrokers, etc. can become Depository Participants in a depository.

CUSTODIANS
The custodians play a critical role in the secondary market. SEBI Custodian of Securities
Regulation, 1996 was framed for the proper conduct of their business. According to SEBI
regulations, custodial services in relation to securities of a client or gold/gold related instrument
held by a mutual fund or title deeds of real estate assets held by a real estate mutual fund mean
safekeeping of such securities or gold/gold related instruments or title deeds of real estate assets
and providing related services.
The related services provided by them are as follows:
• Maintaining accounts of the securities of a client.
• Collecting the benefits /rights accruing to the client in respect of securities.
• Keeping the client informed of the actions taken by issuer of securities.
• Maintaining and reconciling records of the services as referred above.
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Further, every custodian should appoint a compliance officer to monitor the compliance of SEBI
Act and its various rules, regulations and guidelines and also for redressal of investor grievances.
The compliance officer should immediately report any non-compliance observed by him to the
SEBI.

CLEARING HOUSES/ Corporations: Clearing house is an exchange-associated body charged with

the function of ensuring (guaranteeing) the financial integrity of each trade. Orders are cleared by
means of the clearinghouse acting as the buyer to all sellers and the seller to all buyers. Clearing
houses provide a range of services related to the guarantee of contracts, clearance and settlement
of trades, and management of risk for their members and associated exchanges.

The clearing house acts as the medium of transaction between the buyer and the seller. Every
contract between a buyer and a seller is substituted by two contracts so that clearing house
becomes the buyer to every seller and the seller to every buyer. In a transaction where P sells
futures to R, R is replaced by the clearinghouse and the risk taken by P becomes insignificant.
Similarly, the credit risk of R is taken over by the clearing house; thus, the credit risk is now
assumed by the clearing house rather than by individuals. The credit risk of the clearing house is
then minimised by employing some deposits as collaterals by both, buyers and sellers. These
deposits, known as margins, are levied on each transaction depending upon the volatility of the
instrument and adjusted everyday for price movements.

A mutual fund is a type of professionally managed collective investment scheme that pools money
from many investors to purchase securities. While there is no legal definition of the term "mutual
fund", it is most commonly applied only to those collective investment vehicles that are regulated
and sold to the general public. They are sometimes referred to as "investment companies" or
"registered investment companies.

Venture capital (VC) is financial capital provided to early-stage, high-potential, high risk, growth
start-up companies. The venture capital fund makes money by owning equity in the companies it
invests in. The typical venture capital investment occurs after the seed funding round as the first
round of institutional capital to fund growth (also referred to as Series A round) in the interest of
generating a return through an eventual realization event, such as an IPO or trade sale of the
company.

A portfolio manager is either a person who makes investment decisions using money other people
have placed under his or her control or a person who manages a financial institution's asset and
liability (loan and deposit) portfolios. On the investments side, they work with a team of analysts
and researchers, and are ultimately responsible for establishing an investment strategy.

Alternative Investment Fund (AIF) is a privately pooled investment vehicle that collects funds
from investors, whether Indian or foreign, for investing it in accordance with a defined investment
policy for the benefit of its investors;

Debenture trustee: A debenture trustee is one that serves as the holder of debenture stock for
the benefit of another party. When a company is looking to raise capital, one method of
accomplishing this is by issuing stock as a form of debt with the obligation to repay the debt at a
specific interest rate.
A debenture trust deed is a document created by the company where debenture trustees are
appointed to protect the interest of the debenture holders. To act as debenture trustee, the entity
should either be a scheduled bank carrying on commercial activity, a public financial institution,
an insurance company, or a body corporate. The entity should be registered with SEBI to act as a
debenture trustee. The contract deed entered into with a debenture trustee must specify the
interest rate and date of interest and principal repayments.

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International Financial Services Centres Authority Capital Market

Intermediaries) Regulations, 2021
These regulations may be called the International Financial Services Centres Authority (Capital
Market Intermediaries) Regulations, 2021
Notified on: 18th October, 2021
Definitions:
account aggregator” means a person that undertakes the business of providing the service of
retrieving or collecting information of its customer pertaining to financial assets and consolidating,
organizing and presenting such information to the customer or any other person as per the
instructions of the customer;
“banker to an issue” means a bank carrying out banking related activities in an issue;
“broker dealer” means a person having trading rights in any recognised stock exchange and
includes a trading member;
“clearing member” means a person having clearing and settlement rights in any recognised
clearing corporation;
“credit rating agency” means a person which is engaged in the rating of securities or financial
products, or such other products as may be introduced by the Authority from time to time;
custodial services” in relation to financial products means safekeeping of such financial products
and providing services incidental thereto, and includes:
a. maintaining accounts of such financial products;
b. collecting the benefits or rights accruing to the client in respect of such financial
products;
c. keeping the client informed of the actions taken or to be taken by the issuer, having a
bearing on the benefits or rights accruing to the client;
d. maintaining and reconciling records of the services; and
e. undertaking activities relating to issuance of depository receipts in an IFSC
“custodian” means a person who carries on or proposes to carry on the business of providing
custodial services;
“debenture trustee” means a trustee appointed in respect of any issue of debentures;
“depository participant” means a participant of a recognised depository
“discretionary portfolio manager” means a portfolio manager who under a contract relating to
portfolio management, exercises or may exercise, any degree of discretion as to the investment of
funds or management of the portfolio of securities of the client, as the case may be;
“Foreign Jurisdiction” means a country, other than India, whose securities market regulator is
a signatory to International Organization of Securities Commission’s Multilateral Memorandum of
Understanding (IOSCO’s MMOU).
“investment advice” means advice relating to investing in, purchasing, selling or otherwise
dealing in securities or investment products, and advice on investment portfolio containing
securities or investment products, whether written, oral or through any other means of
communication for the benefit of the client and shall include financial planning:
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investment adviser” means a person, who for consideration, is engaged in the business of
providing investment advice to clients or other persons or group of persons and includes any
person who holds out himself as an investment adviser, by whatever name called.
“investment banker” means a person who is engaged in the business of issue management either
by making arrangements regarding selling, buying or subscribing to securities or acting as
manager, consultant, adviser or rendering corporate advisory service in relation to such issue
management;
“key managerial personnel (KMP)” means the officers or personnel of the intermediary who are
members of its core management team and includes members of the management one level below
the executive directors of the intermediary, functional heads and includes ‘key managerial
personnel’ as defined under the Companies Act, 2013 or any other person whom the intermediary
may declare as a key managerial personnel;
"net worth" means the aggregate value of the paid-up share capital (or capital contribution) and
all reserves created out of the profits, securities premium account and debit or credit balance of
profit and loss account, after deducting the aggregate value of the accumulated losses, deferred
expenditure and miscellaneous expenditure not written off, as per the balance sheet, but does not
include reserves created out of revaluation of assets, write-back of depreciation and amalgamation;
“portfolio manager” means a person, who pursuant to a contract with a client, advises or directs
or undertakes on behalf of the client (whether as a discretionary portfolio manager or otherwise)
the management or administration of a portfolio of securities or financial products or funds of the
client;
“principal officer” means a person who is responsible for the overall activities of the intermediary
in the IFSC and includes:
(i) proprietor, in the case of a proprietary concern;
(ii) any partner, in the case of a partnership firm;
(iii) any designated partner, in the case of a limited liability partnership;
(iv) whole time/ executive / managing director, in the case of a body corporate;
(v) trustee, in the case of a trust; and (vi) any other person designated as a principal officer;

“self-clearing member” means a member of a recognised clearing corporation who is also a broker
dealer and clears and settles trades on its own account or on account of its clients only
Registration
1. Intermediaries like Broker dealers, Clearing members, Depository participants, Investment
bankers, Portfolio managers, Investment advisers, Custodians should obtain certificate of
registration.
2. Intermediaries like Credit rating agencies, Debenture Trustees, Account Aggregators etc
should obtain registration for providing financial services in an IFSC.
3. Any person who provides investment advice to clients, incidental to his professional service is
not required to obtain registration. For example insurance agent or insurance brokers providing
investment advice solely in insurance products.
4. A Banking Unit shall be permitted to function as a banker to an issue in an IFSC, without any
additional registration requirement.

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The following persons shall not be required to seek registration as an investment adviser in
IFSC:

 any person who gives general comments in good faith in regard to trends in the financial or
securities market or the economic situation.
 any insurance agent or insurance brokers recognised or registered or authorised by the
Authoritywho offers investment advice solely in insurance products;.
 any pension adviser recognised or registered or authorised by the Authority, who offers
investment advice solely in pension products;
 any distributor of mutual funds providing any investment advice to its clients
 any advocate, solicitor or law firm, who offers investment advice to its clients
 any member of the Institute of Chartered Accountants of India, the Institute of Company
Secretaries of India, the Institute of Cost Accountants of India, the Institute of Actuaries of
India or any other professional body as may be specified by the Authority, who provides
investment advice (either in his individual capacity or as an employee of a firm) to his
clients,
 any broker dealer, portfolio manager or investment banker registered by the Authority
under these regulations, who offers investment advice to its clients, incidental to their
primary activity;
 any fund manager, by whatever name called, providing advice to a mutual fund, alternative
investment fund or any other fund registered or regulated by the Authority or any other
securities market regulator;
 any person providing investment advice to investors such as: central and state
governments; multilateral agencies; sovereign wealth funds; intermediaries registered with
the Authority; banks; insurance companies;pension funds; provident funds; public
financial institutions etc.
 any principal officer and person associated with advice of an investment adviser
Application for Registration
1. Applicant entity shall submit an application form in the format provided in Part I of Schedule I
(An applicant may apply for multiple registrations in the same application form)
2. Provided that the applicant seeking registration to act as a broker dealer or clearing member or
depository participant shall make the application through the recognised stock exchange or
recognised clearing corporation or recognised depository respectively
3. They will examine the eligibility of the applicant and forward the application with the application
fees to the Authority (Within 30 days of receipt of application)
4. Once registration is granted, no separate registration is needed to perform work in any other
capacity, just approval of concerned authority is needed.

 A registered broker dealer may be permitted to act as a clearing member in a recognised

clearing corporation, only approval of concerned recognised clearing corporation is needed.
 A registered broker dealer may be permitted to operate in more than one recognised stock
exchange.
 A registered clearing member may be permitted to act as a broker dealer in a recognised
stock exchange; only approval of concerned recognised srock exchange is needed.
 A registered clearing member may be permitted to operate in more than one recognised
clearing corporation.
 Subject to approval by the concerned recognised depository, a registered depository
participant may be permitted to act as a participant of another recognised depository
without obtaining separate certificate of registration.

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Legal form of Applicant
1. A capital market intermediary seeking registration with the Authority shall be required to be
present in an IFSC by establishing a branch or forming a company or limited liability partnership
or body corporate or partnership firm or proprietorship firm or any other form as may be permitted
by the Authority.
2. Conditions applicable on capital market intermediary operating as branch in an IFSC:

 comply with the minimum net worth requirements specified in these regulations
 shall maintain such minimum capital as may be specified by the Authority

Net Worth Requirements

1. An entity seeking registration as a capital market intermediary shall comply with the net worth
requirements as specified in Schedule II of these regulations.
2. Provided that an entity operating as a capital market intermediary in multiple categories shall
maintain the highest of the applicable minimum net worth requirements.

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Fit and Proper Requirements
A capital market intermediary shall ensure that the entity and its principal officers, directors/
partners/designated partners, key managerial personnel and controlling shareholders are fit and
proper persons, at all times, that means:

 Person should have financial integrity, good reputation and character, honesty etc.
 Person has not incurred any of the following disqualifications:
o convicted by a court for any offence involving moral turpitude or any economic
offence
o a recovery proceeding has been initiated against the person by a financial regulatory
authority
o an order for winding up has been passed against the person for malfeasance
o the person has been declared insolvent
o the person has been declared a fugitive economic offender
o the person is financially not sound or has been categorized as a wilful defaulter
o the person has been found to be of unsound mind
o an order, restraining, prohibiting or debarring the person from accessing or dealing
in financial
o products or financial services, has been passed by any regulatory authority, and a
period of 3 years from the date of the expiry of the period specified in the order has
not elapsed.

Registration Requirements
Authority shall take into account following matters into consideration:

 The applicant or its principal officer has adequate past experience in the activities as a
capital market intermediary
 Applicant has the necessary infrastructure like adequate office space, equipment,
communication facilities and manpower
 Satisfactory financial credit worthiness along with eligibility criteria, net worth and fund
allocation requirements.

Requirements to be fulfilled in order to be registered as Portfolio manager or an Investment

adviser, Principal officer of applicant should have:

 A professional qualification or post-graduate degree or post graduate diploma (minimum

two years in duration) in finance, law, accountancy, business management, commerce,
economics, capital market, banking, insurance or actuarial science from a university or an
institution recognised by the Central Government or any State Government or a recognised
foreign university or institution or association or a CFA Charter from the CFA Institute; or
a certification from any organization or institution or association or stock exchange which
is recognised/ accredited by IFSCA or a regulator in India or Foreign Jurisdiction

 An experience of at least five years in related activities in the securities market or

financial products including in a portfolio manager, broker dealer, investment advisor,
research analyst or fund management.

 In addition to above, in respect of an application for registration as a portfolio

manager, the applicant shall have in its employment at least one person with the
following qualifications:
o a graduate from a university or an institution recognised by the Central Government
or any State Government or a foreign university or qualification/ or a certification
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from any organization or institution or association or stock exchange which is
recognised/ accredited by IFSCA or a regulator in India or Foreign Jurisdiction.
o experience of at least two years in related activities in the securities market or
financial products:
o Provided that any employee of the portfolio manager who has decision making
authority related to fund management shall have the same minimum
qualifications/certification and experience as specified for the principal officer

 In addition to above, in respect of an application for registration as an investment

adviser, all persons associated with investment advice of the applicant shall have:
o a graduate from a university or an institution recognised by the Central Government
or any State Government or a foreign university or qualification/ or a certification
from any organization or institution or association or stock exchange which is
recognised/ accredited by IFSCA or a regulator in India or Foreign Jurisdiction.
o experience of at least two years in related activities in the securities market or
financial products:

Simplified application:

 an entity registered and regulated in India or a Foreign Jurisdiction having valid registration
may either through its branch or subsidiary apply for registration under the same category
with a simplified application form specified in Part II of Schedule I, along with the
application fees specified by the Authority.
 The entity registered would be required to comply with all the provisions of this Chapter for
continuing to operate as a capital market intermediary, within a period of 1 year from
the date of registration.

Grant of Registration
1. Authority may grant registration to the applicant after considering the application and on being
satisfied that the applicant has complied with the conditions laid down.
2. If the Authority is of the opinion that the registration cannot be granted, it shall communicate
the deficiencies to the Applicant giving it thirty days’ time to rectify them
3. The registration granted to a capital market intermediary may be withdrawn by the Authority
only after giving a reasonable opportunity of being heard

Validity Period

 The certificate of registration of a capital market intermediary shall be valid for such period
as may be specified by the Authority.
 The Annual Fee shall be applicable starting from the financial year after the year in which
certificate of registration is granted by the Authority and shall be payable in the first month
of each financial year i.e. in April.
 A registered capital market intermediary may file an application with the Authority for
surrender of its registration.

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General Obligations and Responsibilities
1. Every capital market intermediary shall abide by the Code of Conduct as specified in Schedule
III
2. Every capital market intermediary shall maintain and preserve books of accounts in electronic
retrieval form for a minimum of ten years:

 a copy of the balance sheet at the end of each accounting period

 a copy of profit and loss account for each accounting period;
 a copy of the auditor’s report on the accounts for each accounting period;
 a statement of net worth for each quarter;
 documentation relating to compliance with anti-money laundering (AML) and combating
the financing of terrorism (CFT) guidelines;
 documents relating to account opening of each client and any power of attorney or signature
authority forms of the clients;
 relevant records and documents relating to its activities in capital markets;
 such other books of accounts, records and documents as may be specified by the Authority
from time to time.

3. In relation to a capital market intermediary not being a body corporate, it shall maintain
following books of accounts in electronic form for 10 years:

 all sums of money received and expended, its assets and liabilities, statement of net worth,
compliance with AML and CFT guidelines

4. A registered capital market intermediary shall take adequate steps for redressal of grievances
of the investors within one month of the date of the receipt of the complaint.

Change in Control

 A registered capital market intermediary operating in the form of branch in an IFSC shall
intimate the Authority of which it is a member (if appliable), within fifteen days of any
direct or indirect change in control of the intermediary.

Annual Audit

 A registered capital market intermediary shall have an annual audit conducted in respect
of compliance with these regulations by a member of the Institute of Chartered Accountants
of India or a member of the Institute of Company Secretaries of India or any person
authorised to conduct audit in a Foreign Jurisdiction.

Appointment of Compliance Officer : A registered capital market intermediary shall appoint a

person as its compliance officer for ensuring compliance with the regulatory requirements.
Specific Obligations and Responsibilities
1. Broker Dealers & Clearing members:

 They may have following as clients; Indian Resident, Non-Resident Individual, a non-
individual resident in India who is eligible under FEMA to invest funds offshore, an
individual resident in India who is eligible under FEMA to invest funds offshore.

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 shall ensure compliance with the applicable laws, including bye-laws, rules and regulations
specified by Recognised stock exchange.

2. Depository Participants:

 They may have following as clients; Indian Resident, Non-Resident Individual, a non-
individual resident in India who is eligible under FEMA to invest funds offshore, an
individual resident in India who is eligible under FEMA to invest funds offshore.
 Shall ensure compliance with the applicable laws, including bye-laws, rules and regulations
specified by Recognised stock exchange
 Separate accounts shall be opened in the name of each of the beneficial owners and the
securities of each beneficial owner shall be segregated
 A depository participant shall reconcile its records with every depository in which it is a
participant, on a daily basis

3. Investment Bankers

 A statement specifying such responsibilities shall be furnished to the Authority at least

one month before the opening of the issue for subscription
 An investment banker shall enter into an agreement with the issuer of securities
specifying the roles and responsibilities of the investment banker in the issue
 An investment banker shall not undertake any activity, except for marketing of the issue or
offer, if the investment banker is a promoter or an associate of the issuer of securities. an
investment banker shall be deemed to be an “associate of the issuer or person” if:
o either of them controls, directly or indirectly through its subsidiary or holding
company, not less than fifteen per cent. of the voting rights in the other.
o either of them, directly or indirectly, exercises control over the other or
o there is a common director amongst the issuer, its subsidiary or holding company
and the investment banker
 No investment banker or any of its principal officers, directors, partner or manager shall
enter into any transaction in securities of issuer on the basis of unpublished price sensitive
information obtained by them in the course of any professional assignment
 An investment banker shall submit to the Authority complete particulars of any transaction
for acquisition of securities of any body corporate whose issue is being managed by that
investment banker within fifteen days from the date of entering into such transaction
 An investment banker may act as an underwriter of an issue in an IFSC.
 An underwriter shall not derive any direct or indirect benefit from underwriting the issue
except commission or brokerage
 At any point of time, the total underwriting obligations under all the agreements shall
not exceed 20 times the net worth of the investment banker.

4. Portfolio Managers

 They may have following as clients; Indian Resident, Non-Resident Individual, a non-
individual resident in India who is eligible under FEMA to invest funds offshore, an
individual resident in India who is eligible under FEMA to invest funds offshore.
 A portfolio manager shall provide a disclosure document to the client, prior to entering into
an agreement with the client.

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 Notwithstanding anything contained in the agreement between the portfolio manager and
the client, the funds or securities can be withdrawn by the client before the maturity of the
contract under the following circumstances:
o voluntary or compulsory termination of portfolio management services by either of
the parties
o suspension or cancellation of the certificate of registration of the portfolio manager
o bankruptcy or liquidation of the portfolio manager
 A discretionary portfolio manager shall individually and independently manage the funds
of the client in accordance with the needs of the client,
 whereas a non-discretionary portfolio manager shall manage the funds of the client in
accordance with the directions of the client
 A portfolio manager shall not accept from the client, funds or securities worth less
than USD 70,000
 A portfolio manager shall segregate each client’s holding in securities in separate accounts
 A portfolio manager shall not borrow funds or securities on behalf of the client
 The portfolio manager shall not leverage the portfolio of its clients for investment in
derivatives, unless express consent has been obtained
 The portfolio manager shall not while dealing with clients’ funds indulge in speculative
transactions
 A portfolio manager shall, ordinarily purchase or sell securities separately for each client.
However, in the event of aggregation of purchases or sales for economy of scale, inter se
allocation shall be done on a pro rata basis and at weighted average price of the day's
transactions.
 The portfolio accounts of a portfolio manager shall be audited annually and a copy of the
certificate shall be given to the client
 A portfolio manager shall disclose a change in the identity of the Principal Officer to the
Authority and the clients within 7 working days of effecting the change.

5. Investment Advisers

 They may have following as clients; Indian Resident, Non-Resident Individual, a non-
individual resident in India who is eligible under FEMA to invest funds offshore, an
individual resident in India who is eligible under FEMA to invest funds offshore.
 Disclosures to be made by Investment adviser to the client:
o any potential or actual conflict of interest
o all material facts relating to the key features of the products or securities
o warnings, disclaimers in documents and advertising materials relating to an
investment product
 An investment adviser shall not enter into transactions on its own account which is contrary
to the advice given to its clients for a period of 15 days from the day of such advice
 Provided that during the period of 15 days, if the investment adviser is of the opinion that
the situation has changed, then it may enter into such a transaction on its own account
after giving such revised assessment to the client at least 24 hours in advance of
entering into such transaction.
 An investment adviser shall ensure that all investments on which investment advice is
provided is suitable to the risk profile of the client and is consistent with the client’s
investment objectives and financial position
 An investment adviser shall maintain an arm’s length relationship between its activities as
investment adviser and distributor by providing advisory services through a separately
identifiable department or division

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6. Credit Rating Agencies:

 A credit rating agency shall enter into a written agreement with each client whose securities
it proposes to rate
 Client shall disclose:
o the rating assigned to the client’s securities listed or proposed to be listed in
an IFSC by any credit rating agency during the last three years
o any rating given in respect of the client’s securities listed in an IFSC by any other
credit rating agency, which has not been accepted by the client
 The credit rating agency shall disclose to the client the rating assigned to the securities
irrespective of whether the rating is or is not accepted by the client
 A credit rating agency shall, during the lifetime of securities rated by it, continuously
monitor the rating of such securities and carry out periodic reviews of the rating, unless
the rating is withdrawn
 A credit rating agency shall make public the definitions of the concerned rating, along with
the symbol and also state that the ratings do not constitute recommendations to buy, hold
or sell any securities
 A credit rating agency, shall give rating which is fair and appropriate
 A credit rating agency shall prevent trading on the basis of unpublished price sensitive
information obtained by them.

7. Debenture Trustees

 A debenture trustee shall enter into an agreement with the issuer before the opening of the
subscription list for issue of debentures
 A person shall not be appointed as a debenture trustee if it is likely to have conflict of
interest.
 Role of Debenture Trustee:
o It should accept the trust deed with all standard information related to the debt
issue.
o It should call for periodical report from the issuer company within seven days of the
relevant board meeting or within forty five days of the respective quarter whichever
is earlier
o It communicates to the debenture holder defaults, if any, in respect of the payment
of interest or redemption of debentures
o It appoints a nominee director on the board of the issuer in the event of two
consecutive defaults in payment of interest or default in creation of security or
default in redemption of debentures.
o The assets of the issuer and of the guarantors are sufficient to discharge the interest
and principal amount at all times
o It takes steps to convene a meeting of debenture holders as and when required
o Ensures that debentures have been credited in the demat accounts of the debenture
holders
o It may inspect books of account, record, registers of the issuer and can also obtain
reports from the lead bank regarding the progress of the project
o It informs the Authority immediately of any breach of trust deed
 Before creating a charge on the security for the debentures, the debenture trustee shall
exercise independent due diligence to ensure that such security is free from any
encumbrance
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Cross Border Business

 Provisions applicable to registered capital market intermediary incorporated in an IFSC

(NOT on entities incorporated outside IFSC and operating in an IFSC in the form of branch)
 A registered capital market intermediary may undertake cross-border business in capital
markets in India or a Foreign Jurisdiction, subject to the following conditions:
o Intermediary have to comply with all regulations
o There should be a separation in its IFSC related activities with its cross border
operations
o There should be true, correct and adequate disclosures (including risks)
 The intermediary shall maintain records (including details of client, KYC, details of
transactions etc.) of its cross-border activities in electronic retrieval form for a period
of at least ten years.
 The intermediary shall immediately inform the Authority in case any action is taken against
the
 intermediary for its cross-border activities by any financial sector regulator
 A registered capital market intermediary undertaking cross-border business operations
shall submit an annual certification from an auditor to the Authority within 90 days of
end of each financial year (Regarding compliance with all regulatory requirements
specified by Authority)

Appointment of Auditor

 The Authority may appoint an auditor to inspect the books of account, records, documents
infrastructures, systems and procedures or affairs of a capital market intermediary.
 The Authority may appoint a valuer or direct the capital market intermediary to appoint a
valuer, if considered necessary.
 The Authority shall be entitled to recover expenses relating to auditor and valuer from the
capital market intermediary.
 Before undertaking an inspection, the inspecting authority shall give a notice to the capital
market intermediary.
 the recognised stock exchange, recognised clearing corporation and recognised depository
may conduct inspection of registered broker dealer, registered clearing member and
registered depository participant respectively.
 The inspecting authority shall submit an inspection report including interim reports to the
Authority, and the Authority may take such action as it may deem fit and appropriate.

MISCELLANEOUS

 Suspension, cancellation of registration or any other actions: The Authority may take
such action as deemed fit, including suspension or cancellation of registration, against a
capital market intermediary if it:
o fails to comply with any conditions subject to which a certificate of registration has
been granted; or
o contravenes any of the provisions of the Act or rules or regulations or circulars or
guidelines or directions or instructions issued thereunder
 a recognised stock exchange may take such action as deemed fit, including suspension,
against a registered broker dealer, in accordance with the applicable laws.
 a recognised clearing corporation may take such action as deemed fit, including suspension,
against a registered clearing member, in accordance with the applicable laws
 a recognised depository may take such action as deemed fit, including suspension, against
a registered depository participant, in accordance with the applicable laws.

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Power to call for information : The Authority may call for any information, documents or records
from a capital market intermediary.
Power to remove difficulties: In order to remove any difficulties in the interpretation or
application of the provisions of these regulations, the Authority (IFSCA) shall have the power to
issue directions through guidance notes or circulars.
Power to relax strict enforcement of the regulations:

 The Authority may relax the strict enforcement of any requirements of these regulations in
the interest of development and regulation of financial services in IFSC.
 For seeking relaxation, an application, giving details and the grounds on which such
relaxation has been sought, shall be filed with the Authority along with a non-refundable
fee of USD 1500
 The Authority shall process such application within thirty days of the date of receipt of the
application complete in all respects and shall record reasons for acceptance or refusal of
the relaxations sought by the applicant.
Repeal and Savings:
On and from the commencement of these regulations, Chapter III of the Securities and Exchange
Board of India (International Financial Services Centres) Guidelines, 2015 or toher relevant SEBI
guidelines etc shall not apply in an IFSC.

Market Infrastructure Institutions Regulations, 2021.

These regulations may be called the International Financial Services Centres Authority (Market
Infrastructure Institutions) Regulations, 2021.
Notified on: 12th April, 2021
Important Definitions:
associate" in relation to a person shall include another person:

 who, directly or indirectly, by himself, or in combination with other persons, exercises

control over the first person;
 who holds control of at least twenty percent of the total voting power of the first person;
 who is a holding company or a subsidiary company of the first person;
 who is a relative of the first person;
 who is a member of a Hindu Undivided Family wherein the first person is also a member;
Authority means the International Financial Services Centres Authority
Clearing corporation" means an entity that is established to undertake the activity of clearing
and settlement of trades in securities or other instruments or products that are dealt with or
traded on a recognised stock exchange and includes a clearing house;
netting" means the determination by clearing corporation of net payment or delivery
obligations of the clearing members of a clearing corporation by setting off or adjustment of
the obligations or claims arising out of buying and selling of securities including the claims and
obligations arising out of the determination by the clearing corporation or stock exchange, on the
insolvency, winding-up, liquidation or resolution of any clearing member or trading member or
client.

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Netting is a method of settling pending transactions by offsetting them against each other in favor
of one. For example, one party requires another to pay a net balance amount after deducting the
values of what they owed to each other. The process speeds up and simplifies monetary
settlements.
novation means the act of one or more recognised clearing corporations interposing between the
parties of every trade, so as to be a legal counterparty; A novation is an agreement made between
two contracting parties to allow for the substitution of a new party for an existing one.

Recognition

 A person seeking recognition as a market infrastructure institution in an IFSC shall be a

company incorporated in an IFSC
 An application for recognition as a stock exchange or a clearing corporation in an IFSC, as
the case may be, shall be accompanied by a copy of the memorandum of association, articles
of association, bye-laws and other documents as provided in sections 3 and 4 of the
Securities Contracts (Regulation) Act, (SCRA) 1956, rule 5 of the rules and these regulations
(Like Governing Body constitution, Powers and duties of Office bearers etc)

Requirements for grant of recognition

 An applicant seeking recognition as a stock exchange or clearing corporation shall

comply with following conditions:
o the applicant is a company limited by shares
o the applicant is demutualized
o the applicant, its directors and its shareholders are fit and proper persons
o the applicant satisfies the net worth requirements
o applicant has financial capacity, functional expertise and infrastructure
 An applicant seeking recognition as a stock exchange shall comply with additional
conditions:
o the applicant has an online screen-based trading system
o he applicant has an online surveillance capability which monitors prices, volumes
and positions in real time
o should have adequate infrastructure to list securities for trading on its platform
o the applicant has the facility to disseminate information about trades, quantities and
quotes in real time to at least two information vending networks which are accessible
to investors
 An applicant seeking recognition as a clearing corporation shall comply with following
conditions:
o the applicant has necessary infrastructure to ensure timely clearing and settlement
of trades
o applicant has a settlement procedure including netting, novation and guarantee
for settlement of trades in place
o the applicant has the capacity to establish a fund to guarantee settlement of trades
o the applicant has established connectivity with the depositories, clearing banks,
stock exchange and clearing members
o the applicant has the necessary arrangements in place for resolving disputes
o the applicant has an agreement with a depository and with a recognised stock
exchange in respect of clearing and settlement of the trades
 An applicant seeking recognition as a depository shall comply with the following
conditions:
o depository satisfies the net-worth requirements specified in these regulations
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o the automatic data processing systems of the depository have been protected against
unauthorised access, alteration, destruction
o continuous electronic means of communications are established between the
depository, participants, issuers and issuers’ agents is secure
o the depository has made adequate arrangements including insurance for
indemnifying the beneficial owners for any loss that may be caused to such beneficial
owners by the wrongful act, negligence or default of the depository

Grant of Recognition

 The Authority may, after considering the application and on being satisfied that the
applicant has complied with the conditions may grant recognition
 The period of recognition granted to a market infrastructure institution shall be
permanent or for such period not less than one year as may be specified by the Authority
 A recognised market infrastructure institution shall pay the regulatory fee as specified by
the Authority from time to time.

Withdrawal of recognition

 The recognition granted to a market infrastructure institution may be withdrawn by the

Authority after giving a reasonable opportunity of being heard
 Provided that the recognition granted to a stock exchange or a clearing corporation shall
be withdrawn in the manner provided under section 5 of the SCRA ( As per this Central
Government may withdraw recognition by giving notification in official gazette)

Net Worth Requirements

 A recognised market infrastructure institution shall have net worth of at least USD 3
million at all times ( Authority may prescribe higher net worth)
 A recognised market infrastructure institution shall submit an audited net worth
certificate from the statutory auditor on a yearly basis by the thirtieth day of September
of every year for the preceding financial year, to the Authority

Shareholding Requirements

 The shareholding in a recognised stock exchange shall be held by:

o a stock exchange recognised in India or a Foreign Jurisdiction with a minimum
of twenty-six per cent. of the paid-up equity share capital of the recognised stock
exchange OR
o a consortium of market infrastructure institutions recognised in India, an IFSC or a
Foreign Jurisdiction with a minimum of fifty-one per cent. of the paid-up equity
share capital of the recognised stock exchange held by such consortium (Provided
that the stock exchange(s) recognised in India as an IFSC or a Foreign Jurisdiction
shall have fifty-one per cent. or more shareholding within the consortium)
 Any other person in India, an IFSC or a Foreign Jurisdiction shall not acquire or hold
more than twenty-five per cent. of the paid-up equity share capital in the recognised
stock exchange at any time, directly or indirectly, either individually or together with
persons acting in concert.

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 The shareholding in a recognised clearing corporation shall be held by:
o a stock exchange or a clearing corporation recognised in India, an IFSC or a Foreign
Jurisdiction with a minimum of twenty-six per cent. of the paid-up equity share
capital of the recognized clearing corporation; or
o a consortium of market infrastructure institutions recognised in India, an IFSC or a
Foreign Jurisdiction with a minimum of fifty-one per cent. of the paid-up equity
share capital of the recognised clearing corporation held by such consortium
(Provided that the stock exchange(s) recognised in India, an IFSC or a Foreign
Jurisdiction shall have fifty-one per cent. or more shareholding within the
consortium)
 Any other person in India, an IFSC or a Foreign Jurisdiction shall not acquire or hold more
than twenty-five per cent. of the paid-up equity share capital in the recognised clearing
corporation at any time, directly or indirectly, either individually or together with persons
acting in concert.
 The shareholding in a recognised depository shall be held by:
o a depository recognised in India or a Foreign Jurisdiction with a minimum of
twenty-six per cent of the paid-up equity share capital of the recognised depository;
or
o a consortium of market infrastructure institutions with a minimum of fifty-one per
cent. of the paid-up equity share capital of the recognised depository held by such
consortium (Provided that the stock exchange(s) recognised in India, an IFSC or a
Foreign Jurisdiction shall have fifty-one per cent. or more shareholding within the
consortium)
 Any other person in India, an IFSC or a Foreign Jurisdiction shall not acquire or hold more
than twenty-five per cent. of the paid-up equity share capital in the recognised depository
at any time, directly or indirectly, either individually or together with persons acting in
concert,
 Any person who acquires equity shares or voting rights, in a recognised market
infrastructure institution, directly or indirectly, either individually or together with
persons acting in concert, of ten per cent. or more of the paid-up equity share capital shall
not have any conflict of interest and obtain prior approval of the Authority.

Disclosure of Shareholding

 A recognised market infrastructure institution shall disclose to the Authority their

shareholding pattern on a quarterly basis within fifteen days from the end of each
quarter:
o the names of the ten largest shareholders along with the number and per cent. of
shares held by them and
o the names of the shareholders who had acquired shares in that quarter

Listing
A recognised market infrastructure institution may apply for listing of its securities on any stock
exchange pursuant to approval of the Authority

Fit and Proper Requirements

 A recognised market infrastructure institution shall ensure that all its directors, key
management personnel and shareholders are fit and proper persons, at all times

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 In respect of a listed recognised market infrastructure institution, following shareholders
have to comply with fit and proper conditions:
o the acquirer in respect of shareholding less than 5 per cent. in the recognised
market infrastructure institution &
o the acquirer and recognised market infrastructure institution in respect of
shareholding of 5 per cent. or more in the recognised market infrastructure
institution
 A person will be considered fit and proper if he has:
o financial integrity, good reputation and character, honesty
o Should not have following disqualifications:
 the person or any of its whole-time directors or managing partners, has been
convicted by a court for any offence involving moral turpitude or any economic
offence
 an order for winding up has been passed
 Undischarged Insolvent
 A restraining order has been passed against the person or any of its whole-
time
 directors or managing partners, by authority (and 3 years have not elapsed
since then)
 person has been found to be of unsound mind or has been categorized as
willful defaulter
 the person has been declared a fugitive economic offender

Governance of Market Infrastructure Institutions

 Institution shall adopt the broader principles of governance prescribed under the Principles
for Financial Market Infrastructures by Committee on Payments and Market
Infrastructures (CPMI) and International Organization of Securities Commissions
(IOSCO) and such other governance norms as may be specified by the Authority.
 Governing board of recognized market infrastructure shall be in compliance with
following:
o The chairperson shall be elected by the governing board from amongst the public
interest directors
o The number of public interest directors shall not be less than the number of
shareholder directors
o The managing director shall be included in the category of shareholder directors
o The trading members or clearing members in an IFSC or their associates and agents
(except persons on board of a scheduled commercial bank or a public financial
institution) shall not be on the governing board of a recognised stock exchange or a
recognised clearing corporation
o The depository participants in an IFSC shall not be on the governing board of a
recognised depository
o The appointment of directors of a recognised market infrastructure institution shall
be subject to the prior approval of the Authority
o Public interest director shall be nominated for a term of three years, extendable
by another term of three years subject to performance review as may be specified by
the Authority
o The appointment of managing director shall be for a term not exceeding five years
subject to maximum age limit of 70 years (Can be reappointed subject to approval
of Authority)
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 Governing board shall review the overall performance of individual directors regularly.
 Every director and key management personnel of a recognised market infrastructure
institution shall abide by such Code of Ethics and Code of Conduct as may be specified
by the Authority.

General Obligations of Recognised Stock Exchange and a Recognised Clearing

Corporation

 A recognised stock exchange shall use the services of a recognised clearing corporation
for clearing and settlement of its trades.
 A recognised stock exchange shall establish such Investor Education and Protection
Fund
 Settlement Guarantee Fund:
o A recognised clearing corporation shall establish and maintain a Settlement
Guarantee Fund to guarantee the settlement of trades executed on a stock
exchange
o Fund shall have a corpus equivalent to at least the minimum required corpus as
arrived at from the monthly stress test value or USD 1 million, whichever is
higher
o In the event of a recognised clearing member failing to honour its settlement
obligations, the fund shall be utilized to complete such settlement
o The sufficiency of the corpus of the fund shall be tested by way of periodic stress
tests
 The trading hours for all product categories shall be as decided by the recognised stock
exchanges, based on cost-benefit analysis, but shall not exceed 23 hours and 30
minutes in a day and settlement shall be done at least twice a day.

Risk Management:
o The risk management framework shall be in line with the Committee on Payments
and Market Infrastructures (CPMI) and International Organization of Securities
Commissions’ (IOSCO) Principles for Financial Market Infrastructures.
o A clearing corporation shall accept cash and cash equivalents (including major
foreign currencies, term deposit receipts and bank guarantees issued by an IFSC
banking unit), Indian securities held with foreign depositories, foreign securities
or gold, as eligible collateral for trades in all product categories
o The cash and cash equivalents as collateral shall form at least 50% of the
total liquid assets at all times
 A recognised stock exchange providing co-location facilities shall supervise and monitor
such facilities and shall ensure that the integrity, security and privacy of data
 A recognised stock exchange providing co-location facilities shall publish quarterly
reports on their websites on latencies observed at the exchange.
 A recognised stock exchange and a recognised clearing corporation shall have in place
Business Continuity Plan and Disaster Recovery Site to maintain data and transaction
integrity.
 Profits will be utilized as per norms of Authority and Even investments require prior
approval (Except treasury investments)
 Provided further that the recognised stock exchange or recognised clearing corporation
may engage in activities involving deployment of funds or otherwise that are unrelated

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or not incidental to its activity as a stock exchange or clearing corporation, through a
separate legal entity and subject to approval of the Authority

Maintenance of Books of Accounts and Records

 A recognised stock exchange & recognized clearing corporation shall maintain and
preserve the books of account in electronic retrieval form for a minimum period of
twenty years.

Bye Laws and Rules

 A recognised stock exchange and recognised clearing corporation shall, with the prior
approval of the Authority, make bye-laws for the regulation of contracts and clearing
and settlement (Shall not be amended without prior approval of authority)

Obligation in commodity derivatives

 The recognised clearing corporation providing clearing and settlement services for
commodity derivatives which result in physical settlement shall ensure financial
guarantee for settlement of trades including good delivery (Good in terms of Title,
Quantity and quality)

Right of Clearing Member

 The right of a recognised clearing corporation to recover the dues from its clearing
members, arising from the discharge of their clearing and settlement functions, from the
collaterals, deposits and the assets of the clearing members, shall have priority over any
other liability of or claim against the clearing members.

General obligations of a Recognised Depository

 All securities defined under the SCRA and other eligible instruments under IFSCA Act
shall be eligible for being held in dematerialised form in a recognised depository
 Either on the issuer or on the investor exercising an option to hold his securities with a
recognized depository in dematerialised form, the issuer shall enter into an agreement
with the depository to enable the investor to dematerialise the securities (No agreement
needed where depository itself or Central Govt 0r State govt is issuer of securities)
 Systems and Procedure:
o A recognised depository shall have such systems to enable itself to reconcile the
records of ownership of securities on a daily basis
o shall ensure that the integrity of the automatic data processing systems is
maintained at all times
o A recognised depository shall cause an inspection of its controls, systems,
procedures and safeguards to be carried out annually and forward a copy of the
report to the Authority
o A recognised depository shall take adequate measures including insurance to
protect the interests of the beneficial owners against risks

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o A recognised depository shall have in place Business Continuity Plan and
Disaster Recovery Site to maintain data and transaction integrity
 Maintenance of records:
o A recognised depository shall maintain the following records and documents in
electronic retrieval form for a minimum period of twenty years.:
 records of securities dematerialised and rematerialized
 the names of the transferor, transferee, and the dates of transfer of
securities
 details of the holding of the securities of beneficial owners as at the end of
each day
 records of approval, notice, entry and cancellation of pledge or
hypothecation
 details of securities declared to be eligible for dematerialisation in the
depository
 A recognised depository shall have in its bye-laws, the procedure for creation of pledge
by beneficial owners on a security owned by it.

Few Points to be noted:

 Recognised market infrastructure institution shall appoint a compliance officer who shall
be responsible for monitoring the compliance of the applicable laws. (He will report to the
authority)
 A recognised market infrastructure institution shall furnish to the Authority its annual
financial statements and returns by the thirtieth of September of every year.
 a market infrastructure institution shall maintain and preserve all the books,
registers, other documents and records relating to the issue or transfer of its
securities in electronic retrieval form for a minimum of twenty years
 The Authority may at any time undertake inspection, conduct inquiries and audit of any
market infrastructure institution, its associates or any of its shareholders
 The Authority shall have the power to appoint an auditor to inspect or investigate.
 The Authority shall be entitled to recover from the recognised market infrastructure
institution such expenses including fees paid to the auditors.
 The Authority may relax the strict enforcement of any requirement of these regulations
in the interest of development and regulation of financial services in an IFSC.
o For seeking relaxation, an application, giving details and the grounds on which such
relaxation has been sought, shall be filed with the Authority along with a
nonrefundable fee of USD 1500.
o The Authority shall process such application within thirty days of the date of
receipt of the application complete in all respects and shall record reasons for
acceptance or refusal of the relaxations sought by the applicant:

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