NISM Series III A – Registrars to an Issue, Research Analysts, Investment Advisers and Debenture Trustees
Welcome to Part 12 of the NISM Series III A Short Notes series on PassNISM.in. This post covers four important regulatory chapters:
- Chapter XVII: SEBI (Registrar to an Issue and Share Transfer Agent) Regulations, 1994
- Chapter XVIII: SEBI (Research Analyst) Regulations, 2014
- Chapter XIX: SEBI (Investment Advisers) Regulations, 2013
- Chapter XX: SEBI (Debenture Trustees) Regulations, 1993
SEBI (Registrar to an Issue and Share Transfer Agent) Regulations, 1994 Who Is a Registrar to an Issue?
A Registrar to an Issue is a person appointed by a body corporate or group of persons to carry out the following activities:
- Collecting applications from investors in respect of an issue
- Keeping proper records of applications and monies received from investors or paid to the seller of securities
- Assisting the body corporate in:
- Determining the basis of allotment of securities (in consultation with the stock exchange)
- Finalizing the list of persons entitled to allotment
- Processing and dispatching allotment letters, refund orders, certificates, and related documents
Qualified Registrars and Transfer Agents (QRTAs) – Policy Framework
QRTAs formulate and implement a comprehensive policy framework approved by their Board of Directors. This framework must cover:
- Risk management policy
- Business Continuity Plan
- Manner of keeping records
- Wind-down plan
- Data access and data protection policy
- Ensuring integrity of operations
- Scalable infrastructure
- Board of directors oversight
- Investor services and service standards
- Insurance against risk
SEBI (Research Analyst) Regulations, 2014 Who Is a Research Analyst?
A research analyst is a person primarily responsible for:
- Preparation or publication of the content of research reports
- Providing research reports
- Making buy/sell/hold recommendations
- Giving price targets
- Offering opinions on public offers
This applies with respect to listed or to-be-listed securities, regardless of the person's actual job title. The definition also includes any other entity engaged in issuing research reports or research analysis.
Maintenance of Records – Research Analysts
A research analyst or research entity must maintain the following records:
- Research reports — duly signed and dated
- Research recommendations provided
- Rationale for arriving at research recommendations
- Record of public appearances
All records must be maintained in physical or electronic form and preserved for a minimum of 5 years. Where records are maintained electronically and require signatures, they must be digitally signed.
SEBI (Investment Advisers) Regulations, 2013 Who Is an Investment Adviser?
An investment adviser is any person who, for consideration, is engaged in the business of providing investment advice to clients, or who holds themselves out as an investment adviser.
Investment advice means advice relating to:
- Investing in, purchasing, selling, or otherwise dealing in securities or investment products
- Advice on investment portfolios containing securities or investment products
- Whether delivered in written, oral, or any other form
- Financial planning is also included within the scope of investment advice
Risk Profiling and Suitability of Clients
Investment advisers must identify the risk profile of their clients. For this purpose, they must ensure that:
- Necessary information is obtained from the client before providing investment advice
- A process exists for assessing the risk a client is willing and able to take
- Any risk profiling tools used are fit for purpose and limitations are identified and mitigated
- Questions in questionnaires are fair, clear, and not misleading
- The client's risk profile is communicated to them after risk assessment
- Client information and risk assessments are updated periodically
Maintenance of Records – Investment Advisers
An investment adviser must maintain all required records in physical or electronic form and preserve them for a minimum period of 5 years. Where records are required to be signed and are maintained electronically, they must be digitally signed.
SEBI (Debenture Trustees) Regulations, 1993 Who Is a Debenture Trustee?
A debenture trustee is a trustee of a deed for securing any issue of debentures by a body corporate.
Registration and Capital Adequacy
- An application for registration as a debenture trustee must be made to SEBI in the prescribed format
- The certificate of registration is valid unless suspended or cancelled by SEBI
- Capital adequacy requirement: net worth must not be less than ₹10 crore
Responsibilities and Obligations of Debenture Trustees
- Obligations before appointment as debenture trustee
- Debenture trustee must not act for an associate
- Obligations towards the content of the trust deed
- Duties of the debenture trustee during the debenture's lifetime
- Maintenance of books of account, records, and documents
Dissemination of Information by Debenture Trustees
Debenture trustees must issue a press release and disclose information to investors and the general public in any of the following events:
- Default by the issuer company in paying interest on debentures or the redemption amount
- Failure to create a charge on assets
- Revision of the rating assigned to the debentures
All such information must also be placed on the debenture trustee's website. All information/reports on debentures issued — including compliance reports filed by companies and debenture trustees — must be made public on the websites of both the company and the debenture trustee.
Quick Revision – Key Numbers and Requirements
| Intermediary | Minimum Net Worth / Capital | Record Retention |
|---|---|---|
| Debenture Trustee | ₹10 crore | As prescribed (books of accounts) |
| Research Analyst / Entity | As specified | 5 years (digitally signed if electronic) |
| Investment Adviser | As specified | 5 years (digitally signed if electronic) |
Risk Profiling Requirements for Investment Advisers
| Requirement | Detail |
|---|---|
| Risk assessment tool must be | Fit for purpose with identified and mitigated limitations |
| Questionnaire questions must be | Fair, clear, and not misleading |
| Risk profile must be communicated | To the client after risk assessment |
| Client information must be | Updated periodically |
Frequently Asked Questions (FAQs) What is the minimum net worth required for a debenture trustee?
The capital adequacy requirement for a debenture trustee is a minimum net worth of ₹10 crore.
For how long must research analysts maintain records?
Research analysts must maintain research reports, recommendations, rationale, and public appearance records for a minimum of 5 years. Electronically maintained records requiring signatures must be digitally signed.
What is investment advice under SEBI regulations?
Investment advice includes advice on investing in, purchasing, selling, or dealing in securities or investment products, as well as advice on investment portfolios and financial planning. It covers written, oral, and any other form of communication.
When must a debenture trustee issue a press release?
A debenture trustee must issue a press release when there is a default in interest payment or redemption amount, failure to create a charge on assets, or a revision in the debenture's rating.
Continue to Part 13: SEBI (Credit Rating Agencies) Regulations 1999 and SEBI (Custodians of Securities) Regulations 1996.
NISM Series III A – SEBI (Credit Rating Agencies) Regulations 1999 and SEBI (Custodians of Securities) Regulations 1996
Welcome to the final post (Part 13) of the NISM Series III A Short Notes series on PassNISM.in. This concluding chapter covers two important regulations:
- Chapter XXI: SEBI (Credit Rating Agencies) Regulations, 1999
- Chapter XXII: SEBI (Custodian of Securities) Regulations, 1996
Understanding these regulations is essential for clearing the NISM Series III A Securities Intermediaries Compliance exam.
SEBI (Credit Rating Agencies) Regulations, 1999 What Is a Credit Rating Agency (CRA)?
A Credit Rating Agency is a body corporate engaged in — or proposing to be engaged in — the business of rating securities offered by way of public or rights issues.
Registration of Credit Rating Agencies
- Any person wishing to commence business as a CRA must apply to SEBI in the prescribed format
- SEBI will not consider an application unless the applicant is promoted by a person belonging to one of the eligible categories specified
- The certificate of registration is valid unless suspended or cancelled by SEBI
- Upon being granted registration, the CRA must pay the prescribed fee to SEBI
General Obligations of Credit Rating Agencies Arrangement with Client
Every CRA must enter into a written agreement with each client whose securities it proposes to rate. The agreement must include prescribed provisions.
Monitoring of Ratings
Every CRA must continuously monitor the rating of securities throughout the lifetime of those securities. CRAs must disseminate information regarding:
- Newly assigned ratings
- Changes in earlier ratings
This must be done promptly through press releases and on websites.
Procedure for Review of Ratings
Every CRA must carry out periodic reviews of all published ratings during the lifetime of the securities. If a client does not cooperate, the CRA must:
- Carry out the review based on the best available information
- Disclose to investors that the rating has been based on the best available information due to the client's lack of cooperation
Internal Procedures for Employee Trading
Every CRA must frame appropriate procedures and systems for monitoring the trading of securities by its employees in the securities of its clients.
Disclosure of Rating Definitions and Rationale
Every CRA must:
- Make the definitions of the concerned rating — along with the rating symbol — available in the public domain
- Make the rationale for ratings publicly available, covering both favorable and risk factors
- State clearly that ratings do not constitute recommendations to buy, hold, or sell any securities
Submission of Information to SEBI
Every CRA must comply with all SEBI guidelines, directives, circulars, and instructions on credit rating, and must furnish all information sought by SEBI.
Maintenance of Books of Accounts and Records
Under Regulation 21, every CRA must maintain, for a minimum period of 5 years, the specified books of accounts, records, and documents.
Steps on Auditor's Report
Every CRA must take steps to rectify any deficiencies identified in the auditor's report within two months from the date of the auditor's report.
Confidentiality
Every CRA must treat as confidential all information supplied by clients. No CRA may disclose client information to any other person, except where disclosure is required or permitted by law.
The Rating Process
Every CRA must specify its rating process and file a copy — and any modifications — with SEBI for record. Key aspects of the rating process:
- The CRA must follow a proper rating process in all cases
- CRAs must have professional rating committees comprising adequately qualified and knowledgeable members
- All rating decisions — including changes in ratings — must be taken by the rating committee
- CRAs must have qualified analysts for each rating assignment
- CRAs must inform SEBI about any new rating instruments or symbols introduced
- During the rating process, CRAs must record minutes of meetings with issuer management and incorporate them into the rating committee note
- CRAs must meet the audit committee of the rated entity at least once a year to discuss related party transactions, internal financial controls, and other material disclosures bearing on the rating of listed NCDs
Restrictions on Rating of Securities by Promoters Securities Issued by the Promoter
No CRA may rate a security issued by its own promoter. Where the promoter is a financial institution, its Chairman, director, or employee must not serve as Chairman, director, or employee of the CRA or its rating committee.
Securities Issued by Entities Connected with the Promoter
A CRA must not rate a security issued by an entity that is:
- A borrower of the CRA's promoter, or
- A subsidiary or associate of the CRA's promoter
— if there are common Chairman, directors, employees between the CRA and such entities, or if there is overlap on the rating committee.
SEBI (Custodian of Securities) Regulations, 1996 Who Is a Custodian of Securities?
A Custodian of Securities is any person who carries on or proposes to carry on the business of providing custodial services.
Custodial services include safekeeping of:
- Securities of a client
- Gold or gold-related instruments held by a mutual fund
- Title deeds of real estate assets held by a real estate mutual fund scheme
— along with all services incidental to safekeeping.
Capital Adequacy Requirements for Custodians
An applicant for the position of Custodian of Securities must have a net worth of minimum ₹50 crore.
Every certificate granted to a custodian is valid unless suspended or cancelled by SEBI.
General Obligations and Responsibilities of Custodians 1. Segregation of Activities
Where a custodian carries on activities other than custodial services, it must ensure that its custodial business is separate and segregated from all other activities. Officers and employees engaged in custodial services must not be engaged in other activities.
2. Monitoring, Review, and Inspection of Systems
Every custodian must have adequate mechanisms to review, monitor, and evaluate its controls, systems, procedures, and safeguards on a continuous basis.
3. Prohibition of Assignment
A custodian must not assign or delegate its custodial functions to any other person, unless that person is also a registered custodian. An exception exists: a custodian may engage a non-custodian for physical safekeeping of gold belonging to a mutual fund's gold ETF scheme.
4. Separate Custody Account
Every custodian must open a separate custody account for each client in the name of that client. The assets of one client must not be mixed with those of another client.
5. Agreement with Client
Every custodian must enter into a written agreement with each client on whose behalf it provides custodial services. The agreement must address all required matters.
6. Internal Controls
Every custodian must have adequate internal controls to prevent manipulation of records and documents, including audits for securities and all rights or entitlements arising from securities held on behalf of clients.
7. Maintenance of Records and Documents
Without prejudice to any other law in force, every custodian must maintain specified records and documents for a minimum period of 5 years.
Capital Adequacy – All Key Intermediaries at a Glance
| Intermediary | Minimum Net Worth / Capital Adequacy |
|---|---|
| Merchant Banker | ₹5 crore |
| Underwriter | ₹20 lakh |
| Debenture Trustee | ₹10 crore |
| Custodian of Securities | ₹50 crore |
Complete Record Retention Summary – All Regulations
| Regulation | Record Type | Retention Period |
|---|---|---|
| SCRR Rule 15(1) | Books of accounts and documents | 5 years |
| SCRR Rule 15(2) | Certain other documents | 2 years |
| PMLA | Transaction records | 10 years from cessation |
| AML Guidelines (SEBI) | Client identity records | 5 years from cessation of transactions |
| Banker to an Issue | Required records | Minimum 8 years |
| CRA Regulation 21 | Books of accounts, records, documents | Minimum 5 years |
| Research Analyst Regulations | Research reports and records | Minimum 5 years |
| Investment Adviser Regulations | Client records and advice | Minimum 5 years |
| Custodian of Securities Regulations | Specified records and documents | Minimum 5 years |
Frequently Asked Questions (FAQs) What is the minimum net worth required for a Custodian of Securities?
The minimum net worth requirement for a Custodian of Securities is ₹50 crore.
Can a credit rating agency rate securities issued by its own promoter?
No. A CRA is prohibited from rating a security issued by its own promoter. Additionally, if the promoter is a financial institution, common directors, Chairman, or employees between the CRA and the promoter are also prohibited.
Do credit ratings constitute recommendations to buy or sell securities?
No. CRAs are explicitly required to state that ratings do not constitute recommendations to buy, hold, or sell any securities.
For how many years must a CRA maintain its books of accounts?
Under Regulation 21 of the SEBI (Credit Rating Agencies) Regulations, 1999, a CRA must maintain books of accounts, records, and documents for a minimum of 5 years.
What must a custodian do with the assets of different clients?
A custodian must maintain a separate custody account for each client. The assets of one client must not be mixed with those of another client under any circumstances.
Final Words – NISM Series III A Exam Preparation
This concludes our 13-part short notes series for the NISM Series III A – Securities Intermediaries Compliance (Non-Fund) exam. Here's a quick overview of what we covered:
- Introduction to the Financial System
- Regulatory Framework – SEBI, RBI, IRDA, PFRDA
- Introduction to Compliance and the Compliance Officer
- SEBI Act, 1992
- SCRA, 1956 and SEBI (Intermediaries) Regulations, 2008
- SEBI (Prohibition of Insider Trading) Regulations
- SEBI (Fraudulent Trade Practices) Regulations and PMLA/KYC
- SEBI (Foreign Portfolio Investors) Regulations and Stock Brokers Regulations
- SEBI (Alternative Investment Funds) Regulations and Portfolio Managers
- Merchant Bankers, Takeovers, Underwriters and ICDR Regulations
- Depositories Act and SEBI (Depositories and Participants) Regulations
- Registrars, Research Analysts, Investment Advisers and Debenture Trustees
- Credit Rating Agencies and Custodians of Securities
To maximize your score, we strongly recommend:
- Taking the NISM Series III A free mock tests on PassNISM.in
- Reviewing the official NISM workbook for case studies and detailed examples
- Paying special attention to record-keeping timelines, capital adequacy requirements, and the role of the Compliance Officer
All the best for your NISM Series III A exam!
Internal Links