CS Executive · Capital Market and Securities Laws

Securities Market Intermediaries: formula sheet

Full chapter guide

Key formulas

General duty of SEBI: Section 11(1): protect investors + promote development of + regulate the securities market; Three limbs. Use them as the opening line of any answer on SEBI's role.
Registration of core intermediaries: Section 11(2)(b): stock brokers, sub-brokers, share transfer agents, bankers to an issue, trustees of trust deeds, registrars to an issue, merchant bankers, underwriters, portfolio managers, investment advisers and other intermediaries; The list is not exhaustive. It ends with 'such other intermediaries'.
Registration of market infrastructure and specified intermediaries: Section 11(2)(ba): depositories, participants, custodians of securities, foreign institutional investors, credit rating agencies and others specified by notification; Remember that the last category depends on SEBI's notification.
Funds: Section 11(2)(c): venture capital funds and collective investment schemes, including mutual funds; Mutual funds are covered here, not under clause (b).
Inquiry powers: Section 11(2)(i) and 11(3): call for information, inspect, inquire, audit; civil court powers; Civil court powers cover discovery and production of documents, summoning and examining on oath, and issuing commissions.
Interim measures: Section 11(4): by order, with reasons recorded in writing, suspend trading, restrain persons, impound proceeds, attach for up to ninety days, direct not to dispose of assets; A hearing must be given before or after the order. Attachment must be confirmed by the Special Court within ninety days.
Registration requirement (Section 12(1)): No stock-broker or sub-broker shall buy, sell or deal in securities except under a certificate of registration from SEBI, in accordance with its conditions; Applies to dealing in securities. The certificate is granted under the regulations made under the Act.
Application and fees (Section 12(2)): Application for registration: in the manner and with fees determined by regulations; Details of manner and fees are in regulations, not in the Act.
Suspension or cancellation (Section 12(3)): SEBI may suspend or cancel a certificate by order, after giving a reasonable opportunity of being heard; Natural justice is a mandatory condition. Write it in every answer on this point.
Regulation-making power (Section 30(2)(d)): Regulations may provide for conditions of the certificate, the fee, and the manner of suspension or cancellation under Section 12; This is why eligibility and capital adequacy are in the regulations.
Penalty: failure to issue contract notes (Section 15F(a)): Penalty: not less than ₹1,00,000 but up to ₹1,00,00,000; Applies where a registered broker fails to issue contract notes in the form and manner specified by the exchange of which it is a member.
Penalty: failure to deliver securities or pay (Section 15F(b)): Penalty: not less than ₹1,00,000, up to ₹1,00,000 per day of continuing failure, subject to a maximum of ₹1,00,00,000; Applies where the broker fails to deliver securities or pay the investor within the period specified in the regulations.
Penalty: excess brokerage (Section 15F(c)): Penalty: not less than ₹1,00,000 but up to 5 times the brokerage charged in excess of the specified brokerage; Brokerage above the limit set in the regulations triggers this penalty.
Registration requirement: Section 12(1A), SEBI Act, 1992: depository / participant / custodian → must hold SEBI certificate of registration; Dealing in securities without registration, or outside its conditions, is not permitted. The certificate is granted under the regulations made under the Act.
Application for registration: Section 12(2): application in the manner and with the fees determined by regulations; The manner and fees are in the regulations, not in the Act itself.
Suspension or cancellation: Section 12(3): SEBI order + reasonable opportunity of being heard; No suspension or cancellation order can be made without first hearing the person concerned.
Demat transfer: Transfer = debit seller's account + credit buyer's account (book entry); No physical certificate moves. The depository records the change.
Roles at a glance: Depository = holds securities electronically; DP = agent of depository; Beneficial owner = investor; Learn these three definitions in one line each.
Registration requirement: Merchant banker / underwriter → no dealing in securities without a SEBI certificate of registration (SEBI Act, section 12(1)); The certificate must be obtained in accordance with the regulations, and the intermediary must act within its conditions.
Application for registration: Application in the manner and with the fee determined by regulations (section 12(2)); The Act leaves manner and fee to regulations.
Suspension or cancellation: SEBI may suspend or cancel by order, after giving a reasonable opportunity of being heard (section 12(3)); Natural justice is a condition. An order without a hearing is not valid under this section.
Regulation-making power: Section 30(2)(d): conditions of registration, fee, manner of suspension or cancellation; This is the source of the merchant banker and underwriter regulations on registration.
Merchant banker vs underwriter: Merchant banker = manages the issue and checks disclosures; Underwriter = agrees to subscribe to the shortfall; The most common comparison question. Link each to its core risk: disclosure risk and subscription risk.
Registration requirement: No RTI or STA may deal in securities except under a SEBI certificate of registration (Section 12(1), SEBI Act, 1992); The certificate must be obtained in accordance with the regulations. Operating without it is a violation.
Application and fee: Application for registration: manner and fees as determined by regulations (Section 12(2)); The Act leaves the detail to regulations. Do not quote a fee amount unless you are sure.
Suspension or cancellation: Board may suspend or cancel by order, after reasonable opportunity of being heard (Section 12(3)); The hearing is a proviso condition. Always mention it in a conclusion on action against an RTA.
Regulation-making power: Section 30(2)(d): conditions of certificate, fee, and manner of suspension or cancellation; This explains why the detailed rules sit in regulations and not in the Act.
RTI versus STA: RTI = issue-time work (applications, allotment, refunds); STA = ongoing register and transfers; Use this one-line test to separate the two roles.
Registration requirement for bankers to an issue and debenture trustees: Section 12(1): no banker to an issue or trustee of trust deed shall buy, sell or deal in securities except under a certificate of registration from SEBI; The certificate must be obtained in accordance with the regulations made under the Act. Dealing means acting within the intermediary's activity in the securities market.
Registration requirement for credit rating agencies: Section 12(1A): no credit rating agency shall buy or sell or deal in securities except under a certificate of registration from SEBI; Same condition: the certificate is obtained in accordance with the regulations made under the Act.
Application for registration: Section 12(2): application in the manner and with the fees determined by regulations; Manner and fees are set by regulations, not by the Act itself.
Suspension or cancellation: Section 12(3): SEBI may by order suspend or cancel a certificate in the manner determined by regulations, after giving a reasonable opportunity of being heard; Natural justice is a mandatory condition. An order without a hearing is not valid.
Source of regulation-making power: Section 30(2)(d): regulations may provide for conditions of registration, fee and manner of suspension or cancellation under Section 12; This links Section 12 to the CRA, debenture trustee and banker regulations.
Role in one line each: CRA = rates the instrument | Debenture trustee = protects holders | Banker to an issue = handles application money; Use this to answer difference questions quickly.
Registration rule: No portfolio manager / investment adviser may deal in securities without a SEBI certificate of registration (Section 12(1)); Dealing must be under and in accordance with the conditions of the certificate, obtained under SEBI regulations.
Mutual fund registration: Sponsoring or carrying on a mutual fund or venture capital fund needs SEBI registration (Section 12(1B)); The Act makes CIS and mutual funds a registration matter. Mutual fund contributions are excluded from the CIS definition in Section 11AA(3)(viii).
Suspension or cancellation: SEBI may suspend or cancel registration by order, after a reasonable opportunity of being heard (Section 12(3)); The procedure is set by regulations. Always mention the hearing.
Penalty for advisers and analysts: Section 15EB: not less than ₹1,00,000, up to ₹1,00,000 per day of failure, maximum ₹1,00,00,000; Applies to failure to comply with SEBI regulations or directions.
Penalty: mutual fund without registration: Section 15D(a): not less than ₹1,00,000, up to ₹1,00,000 per day, maximum ₹1,00,00,000; Sections 15D(b) to (f) use the same range for other mutual fund defaults, such as breach of registration terms, failure to list, to despatch unit certificates, to refund application money or to invest as specified.
Mutual fund structure: Sponsor → Trust (trustees) → AMC → Schemes → Unit holders; Know the role of each constituent.
Registration rule for intermediaries (Section 12(1)): Stock-broker, sub-broker, registrar, merchant banker, underwriter, portfolio manager, investment adviser etc. → no dealing without SEBI certificate; Dealing must be under and in accordance with the conditions of the certificate.
Registration rule for custodians, FIIs and others (Section 12(1A)): Depository, participant, custodian, foreign institutional investor, credit rating agency, other notified intermediary → certificate required; The last category applies only to intermediaries SEBI specifies by notification.
Funds (Sections 12(1B) and 12(1C)): Venture capital fund / collective investment scheme / mutual fund → certificate; AIF / business trust → certificate; Applies to anyone who sponsors or carries on the activity.
Suspension or cancellation (Section 12(3)): SEBI order + manner as per regulations + reasonable opportunity of being heard; An order without a hearing is not valid under the proviso.
Regulation-making power (Section 30(2)(d)): Conditions of registration + fee + manner of suspension or cancellation → by regulations; Shows that the Act sets the principle and the regulations set the detail.

Quick revision

Section 12(1) of the SEBI Act, 1992 requires intermediaries to deal only under a SEBI certificate of registration.
Section 12(1) names stock-brokers, sub-brokers, share transfer agents, bankers to an issue, trustees of trust deed, registrars to an issue, merchant bankers, underwriters, portfolio managers and investment advisers.
Section 12(1A) covers depositories, participants, custodians, foreign institutional investors, credit rating agencies and other intermediaries SEBI specifies by notification.
Section 12(1B) bars sponsoring or carrying on venture capital funds or collective investment schemes, including mutual funds, without registration.
Section 12(1C) requires registration for alternative investment funds and business trusts.
A unit linked insurance policy is not a collective investment scheme or mutual fund for Section 12 purposes.
Applications for registration follow the manner and fees set by regulations.
SEBI may suspend or cancel a certificate by order, as set out in the regulations.
No suspension or cancellation order can be made without a reasonable opportunity of being heard.
The registration conditions come from SEBI regulations, so always link the Act to the relevant regulation in your answer.
Write each answer as provision, analysis, conclusion.

Common mistakes

Saying Section 11 lists only stock brokers and merchant bankers. Fix: Learn the three boxes of clauses (b), (ba) and (c), and mention the residual 'other intermediaries'.
Placing credit rating agencies or depositories under clause (b). Fix: Depositories, participants, custodians, FIIs and credit rating agencies are in clause (ba).
Saying sub-brokers are still registered separately with SEBI as the current framework. Fix: Section 12 text still lists sub-brokers, but state that the sub-broker category is replaced by authorised persons appointed by the stock broker and approved by the exchange.
Mixing up the three penalty clauses of Section 15F. Fix: Remember the triggers: (a) contract notes, (b) delivery or payment, with a per-day element, (c) excess brokerage, with a five-times element.
Saying an investor opens an account directly with NSDL or CDSL. Fix: Write that the account is opened with a depository participant, which is the depository's agent.
Treating the depository as a bank or a broker. Fix: Say a depository only holds securities electronically and records transfers. It does not trade or give advice.
Treating merchant banker and underwriter as the same thing. Fix: Separate the functions. Merchant banker manages and does due diligence. Underwriter commits to subscribe to any shortfall.
Saying SEBI can cancel registration immediately. Fix: Always add that under section 12(3) an order needs a reasonable opportunity of being heard.
Treating RTI and STA as the same role in every answer. Fix: Define each separately, then note that one entity may hold registration for both.
Saying SEBI can cancel registration without hearing the person. Fix: Always add: no order under section 12(3) unless a reasonable opportunity of being heard is given.

Exam tips

Open with Section 11(1), then move to the clause relevant to the named intermediary. Examiners reward the provision-first structure.
Learn the clause split (b), (ba), (c) with two examples each. Questions often test whether you can classify.
In a facts-based question, name the intermediary, the power used, the safeguard (hearing, reasons, ninety days) and the conclusion.
Write the Act as the SEBI Act, 1992 and the 2008 regulations as the SEBI (Intermediaries) Regulations, 2008. Do not invent fee or capital figures; if you are unsure, describe the process in words.
Write section numbers for registration (12) and broker penalties (15F). Examiners reward the provision-facts-conclusion structure.
Learn the Section 15F numbers exactly: ₹1,00,000 minimum, ₹1,00,00,000 cap, ₹1,00,000 per day in clause (b), and five times excess brokerage in clause (c).
For sub-broker questions, state the replacement by authorised persons and mention that the broker stays responsible.
In short notes on the code of conduct, group points under integrity, due skill and care, client dealing and record keeping, rather than listing clause numbers you may misquote.