Sebi revises framework for approving changes in control of stock brokers

Sebi has put in place a revised framework for seeking its prior approval for changes in control of stock brokers, depository participants and other market intermediaries.

The framework will be applicable for stock broker/clearing member, depository participant, investment adviser, research analyst or research entity, registrar to an issue and share transfer agent and KYC (Know Your Client) Registration Agencies (KRAs).

In a circular on Monday, the regulator said the changes have been made to streamline the process of providing approval to the proposed change in control of the entities.

Under the provisions, which will be effective from December 1, an intermediary should apply online for Sebi's prior approval and along with the application, the entity concerned has to submit various details, including the current and proposed shareholding pattern of the applicant.

"The prior approval granted by Sebi shall be valid for a period of six months from the date of such approval within which the applicant shall file application for fresh registration pursuant to change in control," it said.

The application should be accompanied by information/declaration/undertaking about itself, the acquirer/person as well as the director/partner of the acquirer/person who will have the control.

Information about whether any action has been initiated under Sebi regulations against the entity and any pending investor complaints should be submitted to the regulator.

Among other information, the entity has to provide declaration that there will not be any change in the board of directors till the time prior approval is granted.

"... pursuant to grant of prior approval by Sebi, the incumbent shall inform all the existing investors/clients about the proposed change prior to effecting the same, in order to enable them to take informed decision regarding their continuance or otherwise with the new management," the circular said.

The 'fit and proper person' criteria should also be complied with.

In case the entity is a registered stock broker, clearing member or a depository participant, then NOC (No Objection Certificate) should be obtained from all stock exchanges/clearing corporations/depositories where the entity is a member/depository participant. A self-attested copy of the same has to be submitted to Sebi.

When it comes to cases involving scheme of arrangements that need NCLT approval, Sebi said that first, the application seeking approval for the proposed change in control of the intermediary should be filed with Sebi prior to filing the application with NCLT.

An in-principle approval will be given for three months provided all other regulatory compliances are met, as per the circular.

Within 15 days from the date of the National Company Law Tribunal's order, the intermediary should submit an online application for Sebi's final approval.