SEBI (Intermediaries) Regulations, 2008

What this chapter covers

This chapter carries about 6 per cent of the III-C examination.

LEARNING OBJECTIVES: After studying this chapter, you should know about the:

• Obligations of Intermediaries.
• Inspection and other disciplinary proceedings for intermediaries.
• Actions in case of default by members.
• Code of conduct for intermediaries.
• Fit and Proper Criteria.
• ODR Framework introduced by SEBI.
• Compliance relating to Cyber Security Framework.
• Compliance relating to Artificial Intelligence and Machine Learning.

6.1 Introduction

The SEBI (Intermediaries) Regulations, 2008 were notified in the official gazette on 26th May 2008. These regulations have 6 chapters and 4 schedules.

Six chapters, four schedules, notified 26 May 2008.

The Regulations define who counts as an intermediary:

Four are expressly included — AMC, clearing member, FPI, derivatives or currency derivatives trading member.

And four are expressly excluded — foreign venture capital investor, mutual fund, collective investment scheme and venture capital fund.

The exclusions matter. A mutual fund is not an intermediary under these Regulations, but its asset management company is.

6.2 General obligations

(1) An intermediary shall provide the Board with a certificate of its compliance officer on the 1st April of each year. The certificate confirms the compliance by the intermediary with all the obligations, responsibilities and the fulfilment of the eligibility criteria on a continuous basis under these regulations and the relevant regulations. It also confirms that all disclosures made as prescribed by SEBI.

The 1st of April, every year, signed by the compliance officer.

(2) Each intermediary shall prominently display a photocopy of the certificate at all its offices including branch offices.

(3) The intermediary shall also prominently display the name and contact details of the compliance officer to whom a complaint may be made in the event of any investor grievance.

(4) The intermediary shall maintain such books, accounts and records as specified in the relevant regulations.

(5) The intermediary shall make endeavours to redress investor grievances promptly but not later than forty-five days of receipt thereof and when called upon by the Board to do so it shall redress the grievances of investors within the time specified by the SEBI.

Forty-five days is the outer limit — but where SEBI calls upon the intermediary, SEBI's own timeline applies.

(6) The intermediary shall maintain records regarding investor grievances received by it and redressal of such grievances.

(7) The intermediary shall at the end of each quarter of a Financial Year ending on 31st March upload information about investor grievances on the website specified by SEBI. It uploads three numbers: grievances received, grievances redressed, and those remaining unresolved beyond three months of the receipt thereof by the intermediary.

Quarterly upload, and note the category — those remaining unresolved beyond three months.

6.2.1 The compliance officer

An intermediary is required to appoint a compliance officer. The officer monitors the intermediary's compliance with the requirements of the Act, rules, regulations, notifications, guidelines, circulars and orders made or issued by SEBI, or the Central Government, or the rules and regulations and bye-laws of the concerned stock exchanges or the SRO, where applicable.

One exception: the intermediary may not appoint compliance officer if it is not carrying on the activity of the intermediary.

And the reporting line: the compliance officer shall report to the intermediary or its board of directors in writing, of any material non-compliance by the intermediary.

In writing — an oral report does not discharge the duty.

6.2.2 Code of conduct

An intermediary and its directors, officers, employees and key management personnel shall continuously abide by the code of conduct specified in the Schedule III of SEBI (Intermediaries) Regulations.

"Continuously", and it binds not just the firm but its directors, officers, employees and key management personnel — which is the third review question, marked True.

6.3 Inspection — regulation 19

In plain words: staff must hand over records, the firm must open its premises, the inspector may record statements, and everyone must help. Telephone records and electronic records are expressly named. So are premises occupied by any other person on its behalf.

Obstructing an inspection is itself a violation — as the Vrise matter later in this chapter shows.

6.4 Action in case of default

When does the procedure start? It starts where an intermediary fails to comply with any of the conditions of registration or contravenes any of the provisions of the securities laws (i.e. SEBI Act or SCRA or Depository Act or rules and regulations made thereunder) or directions, instructions or circulars issued thereunder. Then, in terms of Regulation 24(2), the Executive Director shall appoint an officer not below the rank of a Division Chief, as a designated authority.

The Executive Director may, at his discretion, appoint a bench of 3 officers each of whom will not be below the rank of Division Chief to enquire into and to make recommendations as to the action to be taken.

And an important safeguard: no officer who has conducted an investigation or inspection in respect of the alleged violation can be appointed as a designated authority.

The investigator cannot be the judge.

The procedure that follows.

The designated authority shall issue a notice to a person against whom an enquiry has been initiated, to show cause as to why the action, as contemplated against such person, should not be recommended.

The notice shall specify the period (not exceeding 21 days) within which a written reply should be submitted along with documentary evidence, if any, in support of such written reply.

Every notice shall specify the contravention alleged to have been committed by notice by indicating the provisions of the securities laws or the direction or the order of the SEBI which are alleged to have been contravened.

Moreover, there shall be annexed to the notice copies of documents relied upon by SEBI along with the extracts of relevant portions of the reports containing the findings arrived at in an inquiry, investigation or inspection, if any.

The designated authority may grant a request for inspection of documents.

The designated authority shall grant an opportunity of personal hearing and issue or cause to issue a notice scheduling a date for hearing.

What if the noticee stays silent? Suppose he does not reply to the notice or fails to appear on the scheduled date of hearing. If the designated authority is satisfied that sufficient opportunity has been given to the noticee, it may conclude the proceedings after recording the reasons for doing so, on the basis of the material available on record.

Non-participation does not stall the proceeding — but the reasons must be recorded.

6.4.1 The seven recommendations

After considering material available on record and the reply, the designated authority may by way of a report, recommend the following measures:

(i) Disposing of the proceedings without adverse action

(ii) Cancellation of certificate of registration;

(iii) Suspension of certificate of registration for a specified period;

(iv) Prohibition of the noticee from taking up any new assignment or contract or launch a new scheme for such period as may be specified;

(v) Debarment of an officer of the noticee from being employed or associated with any registered intermediary or other person associated with the securities market for such period as may be specified;

(vi) Debarment a branch or an office of the noticee from carrying out activities for such period as may be specified;

(vii) Issuance of a regulatory censure to the noticee.

Seven measures, and the first is no action at all. Note the granularity — an officer may be debarred, or a single branch or an office, without touching the firm's registration.

The designated authority shall endeavour to submit the report within 120 days from the date of receipt of reply to the notice or date of personal hearing whichever is later.

6.4.2 The order

Regulation 27 covers the next step. On receipt of the report containing measures by the designated authority, the competent authority shall cause to forward a copy of the report to the noticee. It then calls upon the noticee to make a submission, in writing, as to why measures recommended by the designated authority should not be taken.

The noticee shall submit not exceeding twenty-one days from date of service, written submission along with documentary evidence if any, in support of the written submission.

Twenty-one days again — the same period as for the show cause reply.

After considering the submission of the noticee, the competent authority has an option. It may if deemed fit, with reasons recorded in writing, remit the matter to the designated authority to enquire afresh or to further enquire and resubmit the report.

The competent authority may grant an opportunity of personal hearing in two cases. The first is where the designated authority has recommended cancellation of certificate of registration. The second is where the competent authority is of the prima facie view that it is a fit case for cancellation of certificate of registration.

Personal hearing at the order stage is tied to cancellation — the gravest measure.

After considering the facts and circumstances of the case, material on record and the written submission, if any, the competent authority shall endeavour to pass an appropriate order within 120 days from the date of submission or personal hearing, whichever is later.

120 days for the report, 120 days for the order.

6.4.3 Common order

The competent authority may pass a common order in respect of a number of noticees where the subject matter in question is substantially the same or similar in nature.

Which is the fourth review question — Yes.

6.4.4 The special summary procedure

Notwithstanding anything contained in these regulations, a shorter procedure applies to seven categories:

(a) the stock broker or a clearing member, in respect of which intimation has been received by SEBI from all the stock exchange(s) or the clearing corporation(s)... that such stock broker or clearing member has been expelled as its member;

(b) a depository participant, in respect of which intimation has been received by SEBI from all the depository(ies)... that the depository participant agreement has been terminated;

(c) a person found to have made claim(s) of return or performance in respect of or related to a security or securities, unless otherwise permitted by SEBI to make such claim(s);

(d) a person which fails to pay the fees, to SEBI or to such body as may be specified;

(e) a person not traceable at its physical address and email address available in the records of SEBI;

(f) a person which has failed to submit periodic reports to the Board for three consecutive periods or such other period(s) as may be specified;

(g) a person which has admitted to have violated any of the provisions of the securities laws or directions, instructions or circulars issued by the Board.

Note the word "all" in (a) and (b) — expulsion by one exchange is not enough; every exchange or depository must have acted.

The procedure is deliberately quick. The notice requires a response within twenty-one calendar days from the date of receipt of the notice, only through a written response, though the competent authority may, for the reasons to be recorded, permit the noticee to submit a written response within a further period not exceeding fifteen calendar days. No further opportunity beyond the timelines specified in sub-regulation (3) shall be allowed.

**The order is to come within twenty-one calendar days of the written submissions or the expiry of the time granted. And crucially: no opportunity of personal hearing shall be granted while disposing of the proceedings initiated under this regulation.

Twenty-one days, plus fifteen, written only, no hearing — that is what makes it summary.

The competent authority shall pass an appropriate order of cancellation or suspension of the certificate of registration of the noticee or any other order, as deemed fit. It may, while passing the order, impose such conditions upon the noticee as it deems fit to protect the interest of the investors or the clients of the noticee or the securities market.

Where necessary, the noticee must satisfy SEBI on:

• Arrangements made for maintenance and preservation of records and other documents.
• Redressal of investor grievances.
• Transfer of records, funds or securities of its clients.
• Arrangements made for ensuring continuity of service to the clients.
• Defaults or pending action, if any.
• Such other conditions in the interest of investors or the client(s) of the noticee or the securities market.

On and from the date of cancellation, the noticee must forthwith:

• Return to the Board the certificate of registration so cancelled.
• Cease to carry on any activity in relation to which the certificate had been granted.
• Transfer its activities to another person holding a valid certificate of registration... or allow its clients or investors to withdraw or transfer their securities or funds held in its custody... without any additional cost to such client or investor.
• Make provisions as regards any liability incurred or assumed by it.
• Take such other action regarding records, securities or money of investors as required.

"Without any additional cost to such client or investor" — the client does not pay for the intermediary's downfall.

And the order is published: a copy is sent to the noticee, sent to the stock exchange(s) or the clearing corporation(s) or the depository(ies) or the body or body corporate recognized by SEBI for administration and supervision of the intermediary... and shall be uploaded on their respective websites, and uploaded on the website of SEBI.

6.4.5 Surrender

An intermediary may surrender the certificate of registration by making a request to the SEBI. SEBI may require it to satisfy SEBI on the arrangements made by the person for maintenance and preservation of records and other documents · redressal of investor grievances · transfer of records, funds or securities of its clients · the arrangements made by it for ensuring continuity of service to the clients · defaults or pending action, if any.

And SEBI may also impose such conditions upon the intermediary as it deems fit for protection of the investors or its clients or the securities market and such intermediary shall comply with such conditions.

Surrender is not a way out of obligations — the same five factors that govern cancellation govern it.

6.4.6 Effect of debarment, suspension, cancellation or surrender

On debarment or suspension, the person shall not undertake any new assignment or contract or launch any new scheme and during the period of such debarment or suspension it shall cease to carry on any activity in respect of which certificate had been granted; shall allow its clients or investors to withdraw or transfer their securities or funds held in its custody... without any additional cost; shall make provisions as regards liability incurred or assumed by it; and shall take such other action on records and client assets as required.

On surrender or cancellation, the person shall:

• Return the certificate of registration so cancelled to SEBI and shall not represent itself to be a holder of the certificate.
• Cease to carry on any activity.
• Transfer its activities to another person holding a valid certificate of registration, and allow clients to withdraw or transfer without any additional cost.
• Make provisions as regards liability incurred or assumed by it.
• Act on records and client assets as required.

The difference is one of duration — suspension and debarment are temporary and the certificate is retained; cancellation and surrender end the registration and the certificate goes back.

Service of notice — regulation 34

Any notice issued or order passed under these regulations may be served – i. by hand delivery to the concerned person or duly authorized agent or ii. by delivery at address available on the records of SEBI... by registered post acknowledgement due or by speed post or by such courier service or by electronic mail service or by any other means of transmission which affords a record of delivery or iii. in case of stock broker or a sub-broker or a depository participant through the concerned stock exchange or depository respectively; and iv. if it cannot be served as per clause (i), (ii) and (iii) by affixing the same on the door or some other conspicuous part of the premises in which such person resides or is known to have last resided or carries on business or is known to have last carried on business or personally works for gain.

Four modes, in order, the last being affixture. Further, every order passed shall be put on the website of SEBI.

6.4.7 Directions

SEBI may also issue directions. It may do so in the interest of the securities market, in the interest of the investors or for the purpose of securing the proper management of any intermediary. This power is without prejudice to any order under the securities laws and the directions, guidelines and circulars issued thereunder. SEBI may issue necessary direction including but not limited to any or all of the following -

a) directing the intermediary or other persons associated with securities market to refund any money or securities collected from the investors under any scheme or otherwise, with or without interest;

b) directing the intermediary or other persons associated with securities market not to access the capital market or not to deal in securities for a particular period or not to associate with any intermediary or with any capital market-related activity;

c) directing the recognized stock exchange concerned not to permit trading in the securities or units issued by a mutual fund or collective investment scheme;

d) directing the recognized stock exchange concerned to suspend trading in the securities or units issued by a mutual fund or collective investment scheme;

e) any other direction which SEBI may deem fit and proper in the circumstances of the case.

Limb (a) is the first review question — True. SEBI may direct a refund with or without interest.

And natural justice is preserved: before issuing any directions, SEBI shall give a reasonable opportunity of being heard to the persons concerned. In case of any interim direction, SEBI shall give a reasonable opportunity of hearing to the persons concerned after passing the direction, without any undue delay.

For an interim direction the hearing comes after — because urgency would otherwise defeat the purpose.

6.5 The code of conduct

I. Investors/Clients - Every intermediary shall make all efforts to protect the interests of investors and shall render the best possible advice to its clients having regard to the client's needs and the environments and his own professional skills.

II. High Standards of Service: An intermediary shall ensure that it and its key management personnel, employees, contractors and agents shall in the conduct of their business, observe high standards of integrity, dignity, ethics and professionalism. And all professional dealings shall be affected in a prompt, effective and efficient manner.

Contractors and agents are included — the standard follows the work, not the payroll.

III. Conflict of Interest: An intermediary shall avoid conflict of interest and make adequate disclosure of his interest and shall put in place a mechanism to resolve any conflict-of-interest situation that may arise in the conduct of its business or where any conflict of interest arises, shall take reasonable steps to resolve the same in an equitable manner.

IV. Compliance and Corporate Governance: An intermediary shall ensure that good corporate policies and corporate governance is in place. It shall ensure that they do not engage in any fraudulent and manipulative transactions in the securities listed on the stock exchanges. It shall also ensure that they do not indulge in any unfair competition which is likely to harm the interests of the other intermediaries or the investors.

On records: an intermediary shall take adequate and necessary steps to ensure that continuity in data and record-keeping is maintained and that the data and records are not lost or destroyed. It shall also ensure that for electronic records and data, up-to-date backup is always available with it.

And four things it must never be party to:

(a) Creation of a false market for securities listed or proposed to be listed on any stock exchange in India;

(b) Price rigging or manipulation of prices of securities listed or proposed to be listed on any stock exchange in India; or

(c) Passing of any unpublished price sensitive information in respect of securities which are listed or proposed to be listed on any stock exchange to any person or intermediary; or

(d) Any activity for distorting market equilibrium or which may affect the smooth functioning of the market or for personal gain.

Finally: an intermediary need to maintain an appropriate level of knowledge and competency. It must also abide by the provisions of any Act, regulations, circulars and guidelines of the Central Government, the Reserve Bank of India (RBI), SEBI, the stock exchanges or any other applicable statutory or self-regulatory or other body.

Fit and proper criteria

The applicant or intermediary shall meet the "fit and proper criteria", as provided in the respective regulations applicable to such an applicant or intermediary including:

• a) the competence and capability in terms of infrastructure and manpower requirements.
• b) the financial soundness, which includes meeting the net worth requirements.

If an applicant is not a fit and proper person, registration is refused — the second review question, answered No.

Who must be fit and proper:

a) the applicant or the intermediary;

b) the principal officer, the directors or managing partners, the compliance officer and the key management persons by whatever name called; and

c) the promoters or persons holding controlling interest or persons exercising control over the applicant or intermediary, directly or indirectly.

And a special rule for unlisted entities: in case of an unlisted applicant or intermediary, any person holding twenty percent or more voting rights, irrespective of whether they hold controlling interest or exercise control, shall be required to fulfil the "fit and proper person" criteria.

Twenty per cent, whether or not it amounts to control.

What SEBI considers: a) integrity, honesty, ethical behaviour, reputation, fairness and character of the person; b) the person not incurring any of the following disqualifications:

i) criminal complaint or information under section 154 of the Code of Criminal Procedure, 1973 has been filed against such person by the Board and which is pending;

ii) charge sheet has been filed against such person by any enforcement agency in matters concerning economic offences and is pending;

iii) an order of restraint, prohibition or debarment has been passed against such person by the Board or any other regulatory authority or enforcement agency in any matter concerning securities laws or financial markets and such order is in force;

iv) recovery proceedings have been initiated by the Board against such person and are pending;

v) an order of conviction has been passed against such person by a court for any offence involving moral turpitude;

vi) any winding up proceedings have been initiated or an order for winding up has been passed against such person;

vii) such person has been declared insolvent and not discharged;

viii) such person has been found to be of unsound mind by a court of competent Jurisdiction and the finding is in force;

ix) such person has been categorized as a wilful defaulter;

x) such person has been declared a fugitive economic offender; or

xi) any other disqualification as may be specified by the Board from time to time.

Eleven disqualifications, and note that several turn on a matter being pending or an order being in force — not on final guilt.

The consequences of being declared not fit and proper. Where any person has been declared as not "fit and proper person" by an order of the Board, such a person shall not be eligible to apply for any registration during the period provided in the said order or for a period of five years from the date of effect of the order, if no such period is specified in the order.

Five years, where the order is silent.

A pending show cause notice also freezes an application. At the time of filing of an application for registration as an intermediary, if any notice to show cause has been issued for proceedings under these regulations or under section 11(4) or section 11B of the Act against the applicant or any other person referred in clause (2), then such an application shall not be considered for grant of registration for a period of one year from the date of issuance of such notice or until the conclusion of the proceedings, whichever is earlier.

One year, or the conclusion of the proceedings, whichever is earlier.

Group entities are insulated. Any disqualification of an associate or group entity of the applicant or intermediary... shall not have any bearing on the "fit and proper person" criteria of the applicant or intermediary unless the applicant or intermediary or any other person referred in clause (2), is also found to incur the same disqualification in the said matter.

Two cure periods. Where a person in category (b) — principal officer, director, managing partner, compliance officer, key management person — fails the criteria, the intermediary shall replace such person within thirty days from the date of such disqualification failing which the "fit and proper person" criteria may be invoked against the intermediary.

Where a person in category (c) — promoter or controller — fails, the intermediary shall ensure that such person does not exercise any voting rights and that such person divests their holding within six months from the date of such disqualification.

Thirty days to replace an officer; six months to divest a holding.

And the criteria are continuous: they apply at the time of application of registration and during the continuity of registration.

Artificial intelligence — regulation 16C

Any person regulated by SEBI who uses artificial intelligence and machine learning tools and techniques carries the responsibility for them. This applies whether the tools are either designed by it or procured from third-party technology service providers. It also applies irrespective of the scale and scenario of adoption of such tools for conducting its business and servicing its investors. Such a person shall be solely responsible –

a) for the privacy, security and integrity of investors' and stakeholders' data including data maintained by it in a fiduciary capacity throughout the processes involved;

b) for the output arising from the usage of such tools and techniques it relies upon or deals with; and

c) or the compliance with applicable laws in force.

"Solely responsible", and either designed by it or procured from third-party technology service providers — buying the tool does not transfer the responsibility.

SEBI may, in case of violation of the provisions of sub-regulation (1), take such action as it may deem fit including action under Chapter V of these regulations.

The definition is wide.

Internal use is covered too — not only tools shown to investors.

And separately, SEBI has also directed the market Intermediaries to meet prescribed reporting and disclosure requirements regarding the Artificial Intelligence and Machine Learning (AI & ML) applications and systems offered and used by them.

Verification of past risk and return metrics — Chapter IIIC

16D. The provisions of this chapter shall be applicable only to Investment Advisers, Research Analysts, Algo Providers empaneled with a recognised stock exchange, and intermediaries permitted by SEBI to provide the services of Investment Advisers, Research Analysts and Algorithmic Trading.

An algo provider shall mean a person empaneled with a recognised stock exchange for providing the facility of algorithmic trading services, in the manner specified by the recognised stock exchange.

16E (1). The persons referred to in Regulation 16D shall be permitted to make claim of returns or performance in the form of risk and return metrics, which have been verified by a credit rating agency recognized by SEBI to carry out the activity of a Past Risk and Return Verification Agency.

A credit rating agency does the verifying, in its capacity as a Past Risk and Return Verification Agency.

(2) Any claim in the form of verified risk or return metrics as referred to in sub-regulation (1) shall be made in the manner specified by the SEBI.

16F. SEBI may, in case of violation of sub-regulations (1) or (2) of Regulation 16E, take such action as it may deem fit including action under Chapter V of these regulations.

And unverified claims have a second consequence — a person found to have made claim(s) of return or performance in respect of or related to a security or securities, unless otherwise permitted by SEBI falls within the special summary procedure for cancellation or suspension.

6.6 Online dispute resolution and cyber security

According to the current system of complaint resolution, any investor having a complaint can first approach the stock exchange for resolution of the complaint and if not satisfied, lodge a complaint with the SCORES. After exhausting these avenues, any complainant who is not satisfied, may opt for the arbitration mechanism of the exchanges.

Exchange, then SCORES, then arbitration.

Stock exchanges and depositories, together known as "Market Infrastructure Institutions" (MIIs), have a robust and time-bound grievance redressal process. The current mechanism caters to disputes between stock brokers and their clients.

SEBI has strengthened the existing mediation/conciliation and arbitration mechanism administered by the MIIs and extended the mechanism to the resolution of complaints against all intermediaries in the Indian securities market. With this view, SEBI has directed the MIIs to establish a common Online Dispute Resolution (ODR) portal. The ODR portal harnesses online conciliation and online arbitration for resolution of disputes arising in the securities markets.

From brokers only, to all intermediaries.

Disputes between Investors/Clients (including institutional/corporate clients) and listed companies (including their registrar and share transfer agents) or any of the specified intermediaries/regulated entities in securities market may be resolved through the ODR portal. The door opens both ways. Listed companies / specified intermediaries / regulated entities OR their clients/investors (or holders on account of nominations or transmission being given effect to) may also refer any unresolved issue of any service requests / service-related complaints for due resolution through the ODR portal.

Either side may refer — the intermediary as well as the investor.

The cyber security guidelines for MIIs:

MIIs will have to maintain offline, encrypted backups of data and regularly test these backups at least on a quarterly basis in order to ensure confidentiality, integrity and availability. They should explore the possibility of retaining spare hardware in an isolated environment. This spare hardware is to rebuild systems in the event starting their operations from both the Primary Data Centre (PDC) and Disaster Recovery Site (DRS) is not feasible;

MIIs should regularly conduct business continuity drills in a bid to check the readiness of the organization and the effectiveness of the existing security controls at the ground level to deal with ransomware attacks;

MIIs are also required to conduct regular vulnerability scanning to identify and address vulnerabilities, especially those on internet-facing devices in order to limit the attack surface. They should also implement a cybersecurity user awareness and training programme which includes guidance on how to identify and report suspicious activity;

As MIIs are systematically important institutions since they provide the infrastructure necessary for the smooth functioning of the securities market, SEBI directed them to Multi Factor Authentication (MFA) for all services.

In short, the cyber security checklist for MIIs is:

• Offline encrypted backups tested quarterly.
• Spare hardware isolated.
• Business continuity drills against ransomware.
• Vulnerability scanning and user awareness training.
• MFA for all services.

Case 6.1: SEBI v/s Vrise Securities Pvt Ltd

Vrise is a member of BSE and NSE. Basis an email received by SEBI alleging dabba trading activities by one Mr Jatin Mehta by using terminals allotted by Vrise, SEBI directed BSE and NSE to conduct surprise inspection to find any possible illegal trading by Vrise.

During an onsite inspection on June 11, 2014, NSE Exchange officials observed that Jatin was operating the terminal of Vrise. The location of the said terminal was not reported to Exchange by Vrise. The inspection team visited the premises on June 12, 2014, however, Jatin being an employee of Vrise refused to accept the inspection letter and denied access to inspection officials to enter the premises. Subsequently, the location was closed on September 2014 when BSE officials reached the premises.

As per NSE records Jatin was a CTCL dealer for Opera House (pin code 400004) premise however was operating the terminal from Borivali (pin code 400092).

Vrise by not uploading CTCL terminals had violated various circulars issued by the Exchanges. Further Vrise by not cooperating with the Exchange officials for conducting inspection and failing to exercise control over its branch had violated Exchange regulations.

The procedure ran exactly as this chapter describes. Enquiry proceedings were initiated against Vrise under SEBI (intermediaries) Regulation for alleged violation. The Designated authority (DA) based on the submissions found Vrise in violation of regulations and circulars and recommended that Vrise be prohibited from registering new fresh clients for a period of one year. Then a Show Cause Notice (SCN) was issued in January 2019 calling upon Vrise as to why action recommended by DA or penalty should not be imposed.

The findings: Vrise operated pro-account from the trading terminal which was not located from its functional corporate office and which was not uploaded to Exchange as mandated in various circulars, and it is established that Vrise failed to extend co-operation to NSE inspecting officials during the course of the inspection and failed to exercise control over branch operations.

The order: the above-mentioned violations by Vrise amounts to violation of Regulation 27 of Brokers Regulation which makes Vrise liable for action under Chapter V of Intermediaries Regulation. The plea that NSE had already penalised it was rejected — well settled principle of law that multiple proceedings for the same set of violations and hence contention of Vrise that it is a one-off incident, NSE has already penalised for the same violation, they have taken corrective steps does not have any merit.

**Under power conferred under section 19 of SEBI Act, 1992 read with regulation 28(2) of SEBI (Intermediaries Regulation), 2008 the adjudicating officer prohibited Vrise from registering new fresh clients for a period of 6 months from the date of order i.e., January 08, 2020.

Note two things. The designated authority had recommended one year; the final order was 6 months. And exchange action does not bar SEBI action on the same facts.

The chapter's review questions confirm four answers. SEBI may direct an intermediary to refund the money or securities collected from the investors with or without interest — True. An applicant not found fit and proper cannot get registration — No. All employees and directors must adhere to the code of conduct — True. And a common order may be passed where the subject matter is substantially the same or similar in nature — Yes.