Streamline Procedure for Change in Control of Intermediaries: SEBI

Nikhil Mogha

01 Jun, 2024

The intermediary in a stock market is a person or an entity that helps the investor to invest their funds in various stocks of a company. In order to streamline the procedure for change in control of intermediaries, the SEBI issued a “Procedure for seeking prior approval for change in control” on 28^th November 2022. The circular is issued to provide a streamline procedure and timeline for any change in control by the intermediaries and to provide a unified structure for other certain intermediaries. Further, the said circular also streamline the procedure for change in control of intermediaries in a scheme of arrangement that requires sanction from NCLT. The present article will discuss in detail the Procedure for seeking prior approval for change in control of intermediaries.

Which intermediaries are covered under the present circular?

The SEBI, through circular CIR/MIRSD/14/2011 on 2^nd August 2011, provides a specified Procedure for seeking prior approval for the change in control of certain intermediaries, including Stock Brokers, RTAs & Depository Participants. Therefore, in order to streamline the process for all the intermediaries covered below, the SEBI has issued a present circular on the Procedure for change in control of Intermediaries.

1. Regulation, 9(C) of SEBI (Stock Brokers) Regulation, 1992, r/w Regulation 10B of SEBI (Stock Brokers) Regulation, 1992: Stock Broker and Clearing member shall seek prior approval of SEBI for change in Control.

2. Regulation 36(1) (d) of SEBI (Depositories & Participants) Regulations 2018, Regulation 24 (3) of SEBI (Research Analysts) Regulation 2014, Clause 11 of Regulation 15 of SEBI (Investment Advisers) Regulation, 2013 and Sub claue a of clause 1 of 9A of SEBI (Registrar to an Issue & Share Transfer Agents) Regulation 1993 & Regulation 7(5) of SEBI (Know Your Client Registration Agency) Regulation 2011: Depository Participant, Investment Advisor,  Registrar to an Issue & transfer agent, Research analyst or research entity,and KRA shall seek prior approval of the SEBI for change in control.

What is the streamline procedure for change in control of intermediaries?

As per the circular on the procedure for change in control of intermediaries, the SEBI has introduced the following procedure:

• The intermediary is required to make an online application to SEBI through SEBI Intermediary Portal (SI Portal).
• The online application shall be accompanied by the following information about itself, the acquirer or person who shall have the control and the director or partner of the acquirer:
  • Present and proposed shareholding Patten of applicant
  • Details of application made to SEBI for grant of registration in any capacity but rejected, if any.
  • Status of corrective action taken to avoid future actions, in case of any action initiated under SCRA and SEBI act.
  • Confirmation from the acquirer or the person that they will honour all the past liabilities or obligations, if any.
  • Details in relation to the resolution of an investor complaint
  • Confirmation from the acquirer or the person that they will resolute the investor complaints
  • Details of Litigation, if any.
  • Confirmation that all dues of SEBI have been paid.
  • Duly Stamped and signed Declaration by the authorised signatories from the acquirer or person who shall have the control signifying that:
    1. There will be no change in the board of directors till any prior approval is granted.
    2. After obtaining prior approval from the SEBI, the applicant shall inform all the existing investors or clients about the proposed change before its effect. This enables the investor or clients to take an informed decision regarding their continuance.
    3. They comply with the “Fit & Proper Criteria” specified in the Schedule II of the SEBI (Intermediaries) Regulations 2008.
  • In case the applicant is a registered stock broker, depository participant and clearing member, such a person shall in addition to the requirements above, is required to obtain approval or NOC from all the stock exchanges, depositories or clearing corporations where the incumbent is a member or depository participant and submits the self-attested copy of same to the SEBI.
• The prior approval from the SEBI shall be effective for 6 months from the approval date, after which the applicant must file an application for fresh registration for change in control.

What is the Procedure for change in control of intermediaries through NCLT?

As per the present circular, the Procedure for change in control of intermediaries in a matter which involves a scheme of arrangement and needs prior approval of the NCLT shall, as per the provisions of Companies Act, 2013 take the following steps:

1. The applicant seeking approval from the proposed change in the control of the intermediary shall file an application with SEBI before filing an application before in NCLT.
2. Upon satisfying the above provision’s requirements, the SEBI will grant an in-principle approval.
3. The in-principle approval will be valid for 3 Months from the issuance date, within which the application shall be made to the National Company Law Tribunal or NCLT.
4. The intermediary shall, within 15 days from the order date of NCLT, submit online application form to SEBI for final approval, in additon to the following documents:
   • Copy of the NCLT-approved scheme order
   • Copy of Approved Scheme
   • Statement of explanation for any modification in the approved scheme and draft scheme along with the reason for the same.
   • Detail of compliance mentioned in the in-principle approval accompanied by the observations and conditions.

What are the directions for Stock Exchanges or Clearing Corporations and Depositories?

As per the circular on Procedure for change in control of intermediaries, the stock exchanges or clearing corporation sand depositories are directed to:

1. Inform the provisions of the circular to the member or participant and publish the same on their website.
2. Make amendments in the bye-laws, rules & regulations to implement the above directions.
3. Communicate to SEBI in monthly reports the implementation status of the provisions of this circular.

What is the Applicability Date and other relevant provisions under the circular?

With the coming of the present circular on the Procedure for change in control of intermediaries in regard to the stock brokers, clearing members and depository participants & RTAs, this circular shall supersede the circular no. CIR/MIRSD/14/2011 dated 2^nd August 2011 from the date of the applicability of this circular, i.e. 1^st December 2022.

Conclusion

The present circular has aimed to streamline the procedure for change in control of intermediaries in regard to the Stockbrokers, clearing members, depository participants and RTAs. In order to provide a comprehensive structure, the SEBI has formed a uniform procedure for all intermediaries. This would enable simplicity in the Procedure and removes any inconsistencies associated with the Procedure in various regulations for different classes of intermediaries. Henceforth, the present circular has unified the Procedure for different classes of intermediaries into a single procedure. The circular further provides a unified procedure for all intermediaries in case if there is a change in control of such intermediary in the scheme of arrangement and requires sanction from NCLT.

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