The Securities and Exchange Board of India (SEBI) has issued a new circular aimed at clarifying provisions regarding the association of persons regulated by SEBI, Market Infrastructure Institutions (MIIs), and their agents with entities involved in prohibited activities. The regulations, which were amended in 2024, have sparked significant discussion among market participants.
The circular, directed to all registered intermediaries, recognized stock exchanges, clearing corporations, and depositories, addresses critical aspects of the amended SEBI regulations. It specifies that SEBI-regulated entities, such as stock exchanges, clearing corporations, and depositories, as well as their agents, must avoid any direct or indirect association with individuals or entities that engage in the following prohibited activities:
Providing investment advice or recommendations regarding securities without SEBI registration or authorization and making unapproved claims regarding returns or performance of securities. SEBI clarified that “another person” in this context excludes individuals who are solely engaged in investor education, provided they do not participate in any prohibited activities mentioned above. The updated guidelines require SEBI-regulated entities to ensure that none of their associated parties engage in these prohibited actions. Intermediaries are now required to ensure compliance with these regulations, with severe consequences for non-compliance, including penalties, suspension, or cancellation of registration.
The circular also discussed the provision of professional services like opening demat or trading accounts, clarifying that such services do not constitute an illegal association unless used for engaging in prohibited activities. This circular follows a previous SEBI directive from October 2024, which gave entities time until January 2025 to terminate contracts with persons involved in prohibited activities. The current clarifications aim to assist market participants in better understanding their responsibilities and avoiding unlawful associations.
These regulations are already in effect, having come into force on August 29, 2024. SEBI has reiterated that all parties involved must ensure compliance to protect investor interests and maintain market integrity.