INFORMAL GUIDANCE – IMPLEMENTATION OR EXECUTION SERVICES BY INVESTMENT ADVISER THROUGH TRADING MEMBER

Applicant: Vansh Capital Private Limited.

Date of the Guidance: 05th August 2021.

Factual Background:

i. Vansh Capital Private Limited (hereinafter referred to as ‘Applicant’) is a SEBI registered non-individual investment adviser.

ii. The applicant has a separately identifiable department for distribution and execution services of Equity, Derivatives, Commodity, Currency and Mutual Fund.

iii. The applicant is also the authorised person of a registered broker Sharekhan Limited, and thereby providing access to the stock exchange’s trading platform as an agent of the broker.

iv. The applicant to provide implementation/execution to its investment advisory clients, was in the process of entering into an arrangement of zero commission/ brokerage sharing with the broker for whom it was an authorised person.

Guidance sought:

1. Whether the applicant being an authorised person of trading member give implementation/ execution services to its investment advisory clients?

2. What should an investment advisor do with the amount received due to unavoidable situation from SEBI registered intermediary for brokerage/ commission sharing of investment advisory clients?

3. Whether the investment adviser should return the brokerage/ commission amount to SEBI registered intermediary? (or)

4. Whether such amount received to be deposited with SEBI established Investor Protection and Education Fund (IPEF)?

Provisions Involved:

 

Regulation 15(2)[i] and 22A[ii] of SEBI (Investment Advisers) Regulations, 2013

Informal Guidance by SEBI:

1. SEBI noting that apart from being an investment advisor, the applicant is also an authorised person of trading member, citing regulation 15(2) and 22A of SEBI (Investment Advisers) Regulations, 2013, confirmed that the applicant can provide implementation services to its advisory clients, but that it cannot receive any direct or indirect consideration, either from its clients or from any other entity for such implementation services at any point of time including the investment advisory service period.

2. As regard the second query, SEBI stated that it is hypothetical in nature and declined to respond to the same, as it does not cite relevant legal provisions, because of which it cannot be covered under the SEBI (Informal Guidance) Scheme 2003.

The letter of SEBI can be read at: https://www.sebi.gov.in/enforcement/informal-guidance/aug-2021/informal-guidance-sought-by-vansh-capital-private-limited-regarding-sebi-investment-advisers-regulations-2013_51814.html

As per the Informal Guidance [Scheme] 2003 of SEBI, the guidance provided is applicable only to the Applicant, and is should not be construed as a conclusive decision or determination of any question of law or fact by SEBI, and is also not an Order u/S 15T of SEBI Act, 1992.

[i]  Regulation 15(2) of SEBI (Investment Advisers) Regulations, 2013: 

An investment adviser shall not receive any consideration by way of remuneration or compensation or in any other form from any person other than the client being advised, in respect of the underlying products or securities for which advice is provided. 

[ii] Regulation 22A of SEBI (Investment Advisers) Regulations, 2013:

(1) Investment adviser may provide implementation services to the advisory clients in the securities market:

Provided that investment advisers shall ensure that no consideration including any commission or referral fees, whether embedded or indirect or otherwise, by whatever name called is received; directly or indirectly, at investment adviser’s group or family level for the said service, as the case may be.

(2) Investment adviser shall provide implementation services to its advisory clients only through direct schemes/products in the securities market.

(3) Investment adviser or group or family of an investment adviser shall not charge any implementation fees from the client.

(4) The client shall not be under any obligation to avail of implementation services offered by the investment adviser.


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