Designated authority
A SEBI officer not below the rank of Division Chief (or a bench of three) appointed under the Intermediaries Regulations to enquire into an intermediary's default and recommend action.
In plain language
Suppose SEBI thinks a registered intermediary has broken the rules. These may be its terms of registration or the securities laws. SEBI does not just cancel its licence.
The Intermediaries Regulations split the job into two stages. Different people handle each one:
- an enquiry, which ends in a recommendation;
- an order, which makes the final decision.
The person who runs the enquiry is the designated authority.
This split matters for fairness. The officer who looked into or inspected the case cannot be the one who judges it. And the officer who makes the recommendation is not the one who passes the final order.
How it works
Appointment (Intermediaries Regulations, regulation 24(2), as set out in Chapter 6). Where an intermediary fails to comply with any condition of registration, or contravenes the securities laws (the SEBI Act, SCRA, Depositories Act and rules and regulations under them) or directions, instructions or circulars:
- the Executive Director appoints an officer not below the rank of Division Chief as designated authority;
- at his discretion, he may appoint a bench of three such officers;
- no officer who conducted an investigation or inspection of the alleged violation may be appointed.
The enquiry.
- A show cause notice asking why the contemplated action should not be recommended, with a reply period not exceeding 21 days.
- The notice specifies the provisions allegedly contravened, and annexes the documents relied upon and extracts of the relevant reports.
- The designated authority may grant inspection of documents and shall grant a personal hearing.
- If the noticee neither replies nor appears despite sufficient opportunity, the proceedings may be concluded on the record, with reasons.
The report — recommended measures. (i) disposal without adverse action; (ii) cancellation of registration; (iii) suspension for a specified period; (iv) prohibition from new assignments, contracts or schemes; (v) debarment of an officer; (vi) debarment of a branch or office; (vii) regulatory censure. The designated authority shall endeavour to submit the report within 120 days of the reply or hearing, whichever is later.
The order (regulation 27). The competent authority sends the report to the noticee, who may make a written submission within 21 days. The competent authority may remit the matter for fresh or further enquiry; must consider a personal hearing where cancellation is recommended or prima facie fit; and shall endeavour to pass an order within 120 days of the submission or hearing, whichever is later. A common order may be passed for several noticees where the subject matter is substantially the same.
Bypassing the designated authority. A special procedure lets the competent authority proceed directly on a notice in listed cases — expulsion by all exchanges or clearing corporations, termination of all depository participant agreements, unpermitted return claims, unpaid fees, failure to meet net worth or revenue criteria, being untraceable, missing periodic reports for three consecutive periods, or admitting a violation.
A worked example
The workbook's case (Case 6.1, SEBI v. Vrise Securities Pvt Ltd). Acting on an email alleging dabba trading, SEBI had NSE and BSE inspect Vrise. On 11 June 2014 NSE officials found an employee operating a Vrise terminal from Borivali (400092) while registered as a dealer for Opera House (400004); the location had not been reported. The next day he refused the inspection letter and denied the team entry.
| Stage | Who | Outcome |
|---|---|---|
| Inspection | Exchange officials | Unreported terminal location; non-cooperation |
| Enquiry | Designated authority | Found violations; recommended prohibiting Vrise from registering new clients for one year |
| Show cause notice on the recommendation | SEBI, January 2019 | Why the recommended action or penalty should not be imposed |
| Order | Passed under Section 19 of the SEBI Act read with regulation 28(2) | Prohibited from registering new clients for six months from 8 January 2020 |
Vrise argued the NSE had already penalised the same conduct. That did not help: the order records that the contention of a one-off incident, already penalised and corrected, had no merit.
What the two-stage design did here. The designated authority recommended one year; the final order imposed six months. The recommendation is not the decision.
Illustrative scaling: for a broker onboarding about 400 new clients a month at an average first-year brokerage of Rs 6,000 per client, a six-month bar forgoes roughly 2,400 clients and Rs 1.44 crore of first-year brokerage (2,400 × Rs 6,000) — a real cost, but half of what the one-year recommendation would have meant.
Why NISM asks about it
Chapter 6 (SEBI (Intermediaries) Regulations, 2008), 6% of the paper, sets out the action-in-default procedure and illustrates it with the Vrise case.
Expect questions on who appoints (Executive Director), minimum rank (Division Chief), bench of three, the investigating-officer bar, the 21-day reply periods, the 120-day targets, and the seven recommended measures.
Common exam traps
- The designated authority recommends; the competent authority orders. A question that says the designated authority "cancels registration" is wrong.
- Not below Division Chief, appointed by the Executive Director — or a bench of three at his discretion.
- An officer who investigated or inspected the violation cannot be the designated authority.
- 21 days is the maximum reply period to the show cause notice, and the period for written submissions on the report.
- 120 days is an "endeavour" target — for the report and again for the order.
- Inspection of documents is discretionary ("may"); a personal hearing is mandatory ("shall") at the enquiry stage.
- The special procedure skips the designated authority for listed cases such as expulsion by all exchanges or three consecutive missed periodic reports.
- Label to watch. The Vrise order is described in the workbook as passed by "the adjudicating officer" under Section 19 read with regulation 28(2), although the procedure section speaks of the "competent authority". Answer procedural questions with "competent authority".
Check yourself
1.Within what period must a noticee reply to a show cause notice issued by the designated authority?
- a)A period not exceeding 21 days as specified in the notice
- b)Seven days
- c)Sixty days
- d)No period is prescribed
Show the answer
Answer: (a) A period not exceeding 21 days as specified in the notice
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.
Twenty-one days is the ceiling — the notice fixes the actual period within it.
What the notice must contain: it must 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, and 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.
The case against him, and the evidence for it, both disclosed.
Two further rights follow: the designated authority may grant a request for inspection of documents, and the designated authority shall grant an opportunity of personal hearing and issue or cause to issue a notice scheduling a date for hearing.
"Shall grant" — the personal hearing is not discretionary at this stage.
If the noticee stays away: where he does not reply to the notice or fails to appear on the scheduled date of hearing and the designated authority is satisfied that sufficient opportunity has been given, the authority may conclude after recording the reasons for doing so, on the basis of the material available on record.
Note that the same twenty-one days reappears at the next stage — the noticee shall submit not exceeding twenty-one days from date of service, written submission to the competent authority.
And in the special procedure, the period is twenty-one calendar days, extendable by fifteen calendar days, with no opportunity of personal hearing.
2.What measures may the designated authority recommend?
- a)Only cancellation of registration
- b)Disposing of the proceedings without adverse action; cancellation or suspension of registration; prohibition from new assignments, contracts or schemes; debarment of an officer from employment or association with any registered intermediary; debarment of a branch or office; or a regulatory censure
- c)Only a monetary penalty
- d)Only a warning
Show the answer
Answer: (b) Disposing of the proceedings without adverse action; cancellation or suspension of registration; prohibition from new assignments, contracts or schemes; debarment of an officer from employment or association with any registered intermediary; debarment of a branch or office; or a regulatory censure
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, graded from doing nothing to ending the business.
Two of them are notable for their precision. Measure (v) targets an officer of the noticee individually — the firm may continue while the person responsible cannot work in the market. Measure (vi) targets a branch or an office, so a single problem location can be closed without shutting the firm.
Which is exactly what happened in the Vrise case, where the misconduct was at a branch: the designated authority recommended prohibition from registering new clients, and the order imposed measure (iv) for 6 months.
Options A, C and D each name one possibility or none at all. Note that a monetary penalty is not among the seven — penalties come under the SEBI Act's section 15 series, not these regulations.
The report timeline: 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.
And the recommendation is not the decision. The competent authority takes written submissions, may remit the matter to the designated authority to enquire afresh, and passes its own order — in Vrise, at half the recommended period.
3.Can a common order be passed in respect of a number of noticees where the subject matter is substantially the same or similar in nature?
- a)Yes
- b)No
Show the answer
Answer: (a) Yes
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.
Two conditions — several noticees, and a subject matter that is substantially the same or similar.
Why the power exists. A single manipulation may involve many participants; separate orders would repeat the same findings many times and risk inconsistent conclusions on identical facts.
What precedes such an order. Each noticee still gets the full process: a show cause notice from the designated authority indicating the provisions of the securities laws or the direction or the order of the SEBI which are alleged to have been contravened, with copies of documents relied upon by SEBI annexed, not exceeding 21 days to reply, a possible inspection of documents, and an opportunity of personal hearing.
Then the report — 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.
And a second round before the competent authority, which call[s] upon the noticee to make a submission, in writing, as to why measures recommended by the designated authority should not be taken within twenty-one days, before passing an order it endeavours to make within 120 days.
A common order economises on the order, not on the hearing.
The measures available are the same seven — from disposing of the proceedings without adverse action through suspension and debarment of an officer to cancellation of certificate of registration and issuance of a regulatory censure.
And an extra hearing attaches to the gravest: the competent authority may grant an opportunity of personal hearing where the designated authority has recommended cancellation of certificate of registration.
Where this is taught
Free preparation for NISM Series III-ARelated terms
- Dabba tradingIllegal off-exchange "trading" by unregistered operators who record deals against exchange prices in private books and settle only price differences in cash, with no delivery, guarantee or investor protection.
- Securities Appellate TribunalThe statutory tribunal established under the SEBI Act that hears appeals from orders of SEBI and of its adjudicating officers, which must be filed within 45 days of receipt of the order.
- Adjudicating AuthorityThe quasi-judicial body constituted by the Central Government under Section 6 of the PMLA that issues notices, adjudicates attachments of property and confirms confiscations.
- ComplianceThe set of actions by which securities market intermediaries and issuers conform to the rules of SEBI, the exchanges, the depositories and their own boards — records, policies, reports and submissions.
- Dual reporting lineThe compliance officer's two reporting duties — to the board of the entity that appointed him, and, for any non-compliance of the SEBI Act or regulations, immediately and independently to SEBI.