Download SEBI Master Circular on MFs - a one stop legal reference on Mutual Funds issued by SEBI consolidating all about MF as on January 2010

SEBI / IMD / MC No.1 /189241/ 2010 dated 1st January, 2010

To All Mutual Funds, Asset Management Companies (AMCs)
and Association of Mutual Funds in India (AMFI)

Sub: Master Circular for Mutual Funds

For effective regulation of the Mutual Fund Industry, Securities & Exchange Board of India (SEBI) has been issuing various circulars from time to time. In order to enable the industry and other users to have an access to all the applicable circulars at one place, Master Circular for Mutual Funds has been prepared.  This Master Circular is a compilation of all the circulars issued by SEBI on the above subject, which are operational as on date of this circular.

1. This Master Circular includes circulars issued upto December 31, 2009.
2. In case of any inconsistency between the master circular and the applicable circulars, the contents of the relevant circular shall prevail.
3. Master Circular is a compilation of all the existing/applicable circulars issued by Investment Management Department of SEBI issued to Mutual Funds. Efforts have been made to incorporate certain applicable provisions of existing circulars (as on December 31, 2009) issued by other Department/Division of SEBI relevant to Mutual Funds.

The said Master Circular is divided under the following heads:

ABBREVIATIONS............................................................................. 5
CHAPTER 1..................................................................................... 6
OFFER DOCUMENT FOR SCHEMES ................................................. 6
CHAPTER 2................................................................................... 16
CONVERSION AND CONSOLIDATION OF SCHEMES AND LAUNCH OF
ADDITIONAL PLAN........................................................................ 16
CHAPTER 3................................................................................... 21
NEW PRODUCTS ........................................................................... 21
CHAPTER 4………………………………………………………………………….24
RISK MANAGEMENT SYSTEM........................................................ 24
CHAPTER 5................................................................................... 27
DISCLOSURES & REPORTING NORMS ........................................... 27
CHAPTER 6................................................................................... 35
GOVERNANCE NORMS .................................................................. 35
CHAPTER 7................................................................................... 55
SECONDARY MARKET ISSUES ...................................................... 55
CHAPTER 8................................................................................... 59
NET ASSET VALUE........................................................................ 59
CHAPTER 9................................................................................... 68
VALUATION .................................................................................. 68
CHAPTER 10................................................................................. 89
LOADS, FEES AND EXPENSES ....................................................... 89
CHAPTER 11................................................................................. 94
DIVIDEND DISTRIBUTION PROCEDURE ....................................... 94
CHAPTER 12................................................................................. 96
INVESTMENT BY SCHEMES........................................................... 96
CHAPTER 13................................................................................110
ADVERTISEMENTS ......................................................................110

CHAPTER 14................................................................................126
INVESTOR RIGHTS & OBLIGATIONS............................................126
CHAPTER 15................................................................................133
CERTIFICATION AND REGISTRATION OF INTERMEDIARIES .......133
CHAPTER 16................................................................................135
TRANSACTION IN MUTUAL FUNDS UNITS .....................................135

Formats & Annexures are given as attachments.

Download SEBI Master Circular on Mutual Funds (MF)

SEBI ICDR now applies to Convertible preference shares, fast track issues liberalised, employee reservation value limited to Rs. 1 lakh, Anchor Investors in IDR & new book building system introduced based on bids at highest price

No. LAD-NRO/GN/2009-10/23/186926 dated 11th December 2009

Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) (Amendment) Regulations, 2009 [SEBI ICDR Amendment]

Reg 2(k) “convertible security” means a security which is convertible into or
exchangeable with equity shares of the issuer at a later date, with or without the option of the holder of the security and includes convertible debt instrument and convertible preference shares.

Reg 2(zd) “Qualified Institutional Buyer” (QIB) has 11 items now:

“(xi) insurance funds set up and managed by army, navy or air force of
the Union of India;”

Fast Track Issues – FTI

• Reg 10(b): The average market capitalisation of public shareholding of the issuer is at least five thousand crore rupees (thus reduced to Rs.5,000 crores from erstwhile Rs.10,000 crores).
• Reg 10(b): the annualised trading turnover of the equity shares of the issuer during 6calendar months immediately preceding the month of the reference date has been at least 2% of the weighted average number of equity shares listed during such 6 months’ period. 
  • Provided that for issuers, whose public shareholding is less than 15% of its issued equity capital, the annualised trading turnover of its equity shares has been at least 2% of the weighted average number of equity shares available as free float during such 6 months’ period.
• Reg 10(e): the issuer has been in compliance with the equity listing agreement for a period of at least 3 years immediately preceding the reference date.
  • Provided that if the issuer has not complied with the provision of the equity listing agreement relating to composition of board of directors, for any quarter during the last 3 years immediately preceding the reference date, but is compliant with such provisions at the time of filing of offer document with the Registrar of Companies (RoC) or designated stock exchange, as the case may be, and adequate disclosures are made in the offer document about such non-compliances during the 3 years immediately preceding the reference date, it shall be deemed as compliance with the condition.

Reg 29: An issuer may offer specified securities at different prices, subject to the following: [Differential Pricing]
(a) retail individual investors or retail individual shareholders or employees of the issuer entitled for reservation (on competitive basis) made under regulation 42 making an application for specified securities of value not more than 1 lakh rupees may be offered specified securities at a price lower than the price at which net offer is made to other categories of applicants: Provided that such difference shall not be more than ten per cent. of the price at which specified securities are offered to other categories of applicants.

Reg 42(4): The reservation on competitive basis shall be subject to following conditions:
(a) the aggregate of reservations for employees shall not exceed 5% of the post issue capital of the issuer [not the erstwhile 10% of issue size].

Also, a new Clause is inserted as:

“(g) value of allotment to any employee in pursuance of reservation made under sub-regulations (1) [reservations when issue made through book building] or (2) [reservations when issue made through OTHER THAN book building], as the case may be, shall not exceed 1 lakh rupees.”

Reg 50: Allotment procedure and basis of allotment.
(1) The allotment of specified securities to applicants other than anchor investors shall be on proportionate basis within the specified investor categories and the number of securities allotted shall be rounded off to the nearest integer, subject to minimum allotment being equal to the minimum application size as determined and disclosed by the issuer.

“Provided that value of specified securities allotted to any person in pursuance of reservation made under clause (a) of sub-regulation (1) or clause (a) of sub-regulation (2) [ie, to employees of issuer] of regulation 42, shall not exceed 1 lakh rupees.”

New Clause: Regulation 55A in Rights Issue: Reservation for employees alongwith rights issue:
55A. Subject to other applicable provision of these regulations the issuer may make reservation for its employees alongwith rights issue subject to the condition that value of allotment to any employee shall not exceed 1 lakh rupees.

 

IDR Amendments

Out of the portion to Qualified Institutional Buyer (QIB), UPTO 30% to Anchor Investors (AI) as per Schedule XI. Allocation to AI shall be made on same day of bidding. AI shall be,

2 or more, if allocation is	UPTO 250 crores
5 or more, if allocation is	ABOVE 250 crores

UPTO 1/3^rd of AI portion is reserved for domestic Mutual Funds (MF).

 

Reg 98: Condition for issue of IDR:

(e) The balance 50% may be allocated among the categories of non-institutional investors and retail individual investors including employees at the discretion of the issuer and the manner of allocation shall be disclosed in the prospectus. Allotment to investors within a category shall be on proportionate basis;

“Provided that atleast 30% of the said 50% IDR issued shall be allocated to retail individual investors and in case of under subscription in retail individual investor category, spill over to the extent of under-subscription shall be permitted to other categories.”

Schedule VIII dealing with DISCLOSURES IN OFFER DOCUMENT, ABRIDGED PROSPECTUS AND ABRIDGED LETTER OF OFFER is amended and in specific cases of this Schedule, the regulations will be implemented w.e.f. 1st January & 1st April 2010.

SCHEDULE XI
[See regulation 28(3) and 102]
BOOK BUILDING PROCESS

The following Paragraph is newly inserted:

“PART D
Alternate method of book building

(may be inspired from French Auction.  In case of Dutch Auction, allotments made at single price (like the existing book building process). In case of French Auction, allotments made at bid price)

In case of further public offers, the issuer may opt for an alternate method of book building, as given in this part subject to the following:
(a) Issuer shall follow the procedure laid down in Part A of this Schedule except clause (13) [determination of price] and clause (15) (a) [proportionate allotment] thereof.
(b) The issuer shall disclose a floor price in the red herring prospectus.
(c) Investors other than retail individual investors shall bid at any price above the floor price.
(d) The bidder who bids at the highest price shall be allotted the number
of securities that he has bided for and then the bidder who has bided at the second highest price and so on, until all the specified securities on offer are exhausted.
(e) Allotment shall be on price priority basis for investors other than retail individual investors.
(f) Allotment to retail individual investors shall be made proportionately as illustrated in this Schedule.
(g) Where, however the number of specified securities bided for at a price is more than available quantity (HEAVY DEMAND), then allotment shall be done on proportionate basis.
(h) Retail individual investors shall be allotted specified securities at the floor price.
(i) The issuer may place a CAP either in terms of No. of specified securities or % of issued capital of the issuer that may be allotted to a single bidder.”

Download SEBI (ICDR) Regulations, 2009 amended as till year 2009.

FII debt allocation through bidding process and first come first serve process - SEBI

This is in continuation of SEBI FII notification regarding allocation of debt investment limits vide [SEBI]FII allocation of government debt investment limit&link to FII section in SEBI website

Allocation through bidding process

In partial amendment to clause 3 (h) of the aforesaid circular IMD/FII & C/ 37/2009, no single entity shall be allocated more than Rs.300 cr. of the government debt investment limit.

In partial amendment to clause 3 (c) and 3(d) of the earlier circular, the minimum amount which can be bid for shall be Rs.50 cr. and the minimum
tick size shall be Rs.50 cr.

The bidding process shall be on December 17, 2009 on the Bombay Stock Exchange (BSE).

Allocation through first come first serve process
An investment limit of Rs.350 cr. in Government debt shall be allocated among the FIIs/sub-accounts on a first come first served basis in terms of SEBI circular dated January 31, 2008, subject to a ceiling of Rs.50 cr. per registered entity.

The debt requests in this regard shall be forwarded to the dedicated email id
fii_debtrequests@sebi.gov.in. The window for first come first served process shall open at 23:59 PM IST, December 17, 2009. Time period for utilization of the allocated debt limit through first come first served basis shall be 11 working days from the date of the allocation.

Source: Cir No. IMD/FII & C/41/2009 dated 15th December, 2009

No NOC while changing MF Distributor, additional open ended plans as addendum or scheme, revised timelines, investor documents to be maintained by AMC – SEBI Circular

I. Sub: AMFI Guidelines for change of mutual fund distributor vide SEBI/IMD/CIR No./ 13/187052 /2009 dated 11th December 2009

It has come to the notice of SEBI that unwarranted hardship (like mandating No Objection Certificate - NOC) is being caused to investors in mutual fund schemes who wish to switch from an existing mutual fund distributor to
either another mutual fund distributor or opt to deal direct.

 

Now, Mutual Funds (MFs) and Asset Management Companies (AMCs) are advised to ensure compliance with the instruction of the investor informing his desire to change his distributor and / or go direct, without compelling that investor to obtain an NoC from the existing distributor.

 

II. Sub: Modifications in the existing SEBI circulars for Mutual Funds vide SEBI / IMD / CIR No 14 / 187175/ 2009 dated 15th December 2009

Over the years, certain circulars/ guidelines have been revised in line with the requirements of investor protection, market development or effective regulation. In continuation of the effort and in consultation with AMFI, modifications in following existing circulars have been carried out (For modification(s), please refer Annexure I):

1. Payment of interest on delay in dispatch of redemption or repurchase proceeds - SEBI Circular SEBI/ MFD/CIR/2/266/2000 dated May 19, 2000.

1. Guidelines for participation by Mutual Funds in Stock Lending Scheme- SEBI circular MFD/CIR/01/047/99 dated February 10, 1999

1. Consolidation of schemes - SEBI Circular No. SEBI/MFD/CIR No.5/12031/03 dated June 23, 2003

1. Launch of Additional Plan under existing Schemes- SEBI Circular No. MFD/CIR No.12/175/01 dated February 15, 2001

1. Guidelines for Investment/Trading in Securities by Employees of Asset Management Company & Mutual Fund Trustee Companies - SEBI Circular No. MFD/CIR No.4/216/2001 dated May 8, 2001

1. Guidelines for Advertisement by Mutual Funds- SEBI Circular No. MFD/CIR/4/51/2000 dated June 5, 2000

1. Advertisements by Mutual Funds - SEBI Circular No. SEBI/MFD/CIR No.6/12357/03 dated June 26, 2003.

The modifications are highlighted hereunder,

1. Asset Management Companies (AMCs) to dispatch dividend warrants within 30 days of the declaration of the dividend.It is clarified that, in the event of failure of dispatch of dividend within the stipulated 30 day period, the AMC(s) shall be liable to pay interest @ 15% per annum to the unit holders.  Further, a STATEMENT OF INTEREST PAID TO THE INVESTORS FOR DELAYS IN DESPATCH OF DIVIDEND shall be sent to SEBI with Compliance Test Reports.
2. Valuation of collateral securities under Participation by MF in Stock lending scheme will be prescribed by SEBI.
3. The AMCs shall maintain records of dispatch of the letters to the unitholders giving them the option to exit at prevailing NAVs without exit loads and the responses received from them and shall be filed with SEBI within 21 days from the closure of Exit Option.
4. Additional plans sought to be launched under existing open ended scheme can be issued as an ADDENDUM, but if it has a substantially different characteristic, it shall be issued as a separate SCHEME.
5. Time periods are shortened.
6. All other provisions of the aforesaid SEBI circulars remain unchanged, where applicable. These modifications shall be applicable from the date of issue of this circular.
7. Details in SEBI / IMD / CIR No 14 / 187175/ 2009 dated 15th December 2009

III. Sub: Transactions through some mutual fund distributors and compliance with the SEBI circular on AML vide SEBI/IMD/CIR No.12 /186868 /2009 dated 11th December 2o09

It has recently come to our attention that all documentation related to the investor including Know your Client, Power of Attorney (PoA) in respect of transactions/requests made through some mutual fund distributors is not available with the AMC/RTA of the AMC and that the same is stated to be maintained by the respective distributors.

In view of the above, we reiterate that the requirements as mentioned in the master circular ISD/AML/CIR-1/2008 dated December 19, 2008 issued by SEBI is applicable to the Mutual Funds/ AMCs and hence maintaining all the documentation pertaining to the unitholders/investor is the responsibility of the AMC.

Thus, all MF and AMCs are advised to confirm whether all the investor related documents are maintained/ available with them. If not, and to the extent of and relating to such investor accounts/folios where investor related documentation is incomplete/inadequate/not available, then the trustees of the mutual funds are advised to ensure the following:
a. No further payment of any commissions, fees and / or payments in any other mode should be made to such distributors till full compliance/ completion of the steps enumerated herein.
b. Take immediate steps to obtain all investor/ unit holders documents in terms of the AML/ CFT, including KYC documents / PoA as applicable
c. Take immediate steps to obtain all supporting documents in respect of the
past transactions.
d. On a one time basis, send statement of holdings and all transactions since
inception of that folio in duplicate to the investor and seek confirmation from
the unit holders on the duplicate copy.
e. Set up a separate customer services mechanism to handle/ address queries and grievance of the above mentioned unitholders.

Pending completion of documentation, exercise great care and be satisfied of
investor bonafides before authorizing any transaction, including redemption, on such accounts / folios.

The trustees shall forthwith confirm to SEBI that the steps have been taken to address the above and also send a status to SEBI as and when process is
completed to satisfaction.

SEBI Clarification on preservation & maintenance of records of intermediaries taken during Investigation by enforcement agency

MRD/DoP/DEP/Cir- 20 /2009 & MRD/DoP/SE/Cir- 21 /2009 dated 9th December 2009

Re: SEBI (Depositories and Participants) Regulations, 1996 (which mandates preservation of records for 5 years), Securities Contracts (Regulation) Rules, 1957 (stock exchange to preserve records for 2 – 5 years) and SEBI (Stock Brokers & Sub-brokers) Regulations, 1992 (which mandates preservation of records for 5 years).

It is clarified that if a copy of such record is taken by enforcement agency like CBI, Police, Crime Branch etc. during the course of investigation, either from physical or electronic record then the respective original is to be maintained till the trial or investigation proceedings have concluded.

ECB NBFC & Spectrum amended w.e.f December 2009 & others applicable from 1st January 2010 – RBI FEMA Notification

On a review of the prevailing macroeconomic conditions and developments in international financial markets, it has been decided to modify some aspects of the ECB policy as indicated below:

AMENDMENTS WITH IMMEDIATE EFFECT

(i) ECB for the NBFC Sector

As per the current ECB norms, Non-Banking Finance Companies (NBFCs), which are exclusively involved in the financing of the infrastructure sector, are permitted to avail of ECBs from multilateral / regional financial institutions and Government owned development financial institutions for on-lending to the borrowers in the infrastructure sector under the approval route.  In view of the thrust  given to development of infrastructure sector, it has been decided with immediate effect to allow NBFCs exclusively involved in financing the infrastructure projects to avail of ECB from the recognized lender category including international banks under the approval route, subject to complying with the prudential standards prescribed by the Reserve Bank and the borrowing entities fully hedging their currency risk. The AD Category-I bank should certify the compliance with the prudential norms by the borrowing NBFCs.

(ii) ECB for Spectrum in the Telecommunication Sector

As per the extant policy, as indicated in A.P. (DIR Series) Circular No. 26 dated October 22, 2008, payment for obtaining license/permit for 3G Spectrum is considered an eligible end - use for the purpose of ECB under the automatic route. It has now been decided to permit eligible borrowers in the telecommunication sector to avail of ECB for the purpose of payment for Spectrum allocation. This modification will come into effect with immediate effect.

AMENDMENTS WITH EFFECT FROM 1ST JANUARY 2010

(i) All-in-cost ceilings

As per the extant policy, the all-in-cost ceilings have been dispensed with, under the approval route, until December 31, 2009. In view of the improvement in the credit market conditions and narrowing credit spreads in the international markets, it has been decided to withdraw the existing relaxation in the all-in-cost ceilings under the approval route with effect from January 1, 2010. Accordingly, the all-in-cost ceilings under the approval route for the ECBs, where Loan Agreements have been signed on or after January 1, 2010 will be as under:

Average Maturity Period	All -in-cost Ceilings over six month Libor*
3 – 5 years	300 basis points
Over 5 years	500 basis points

*for the respective currency of borrowing or applicable benchmark.

Eligible borrowers proposing to avail of ECB after December 31, 2009, where the Loan Agreement has been signed on or before December 31, 2009 and where the all-in-cost exceed the above ceilings, should furnish a copy of the Loan Agreement. Such proposals would continue to be considered under the approval route.

(ii) Integrated township

As per the extant policy, corporates, engaged in the development of integrated township, as defined in Press Note 3 (2002 Series) dated January 04, 2002, issued by the Department of Industrial Policy and Promotion (DIPP), Ministry of Commerce & Industry, Government of India are permitted to avail of ECB, under the approval route, until December 31, 2009. On a review of the prevailing conditions, it has been decided to extend the current policy until December 31, 2010, under the approval route. All other terms and conditions, stipulated in the A.P. (DIR Series) Circulars referred to above, remain unchanged.

iii) Buyback of the Foreign Currency Convertible Bonds (FCCBs)

In terms of A.P. (DIR Series) Circular No. 39 dated December 8, 2008, read with A.P. (DIR Series) Circular No. 58 dated March 13, 2009 and A.P. (DIR Series) Circular No. 65 dated April 28, 2009, Indian companies have been allowed to buyback their Foreign Currency Convertible Bonds (FCCBs) both under the automatic route and approval route until December 31, 2009. Keeping in view the prevailing macroeconomic conditions and global developments, especially the improvements in the stock prices, it has been decided to discontinue the facility with effect from January 1, 2010.

Source: RBI/2009-10/252 A.P. (DIR Series) Circular No.19 dated 9th December 2009

Consumer Protection & MRTP cases for CS Executive Program/Final exams, interesting read and All the best for December exams 2009

For the world, its the expectation of Christmas week & the New Year Celebrations!!! (but for the blessed few: those who are appearing for Company Secretary exams).

CS Final (Old Syllabus) and CS Executive Program Students do read the recent Economic Law cases as compiled by Mr. Ankur Garg and published here: http://www.caclubindia.com/articles/article_list_detail.asp?article_id=3851

Yehseeyes wishes all the very best for your December 2009 exams.  As of now, forget other things, just remember the following,

1. Read again what you have read before (called as Revision) which is a must to remember atleast something.
2. Fear not for the exams.  Be confident as it is supposed to be faced that way!
3. Have your Hall Ticket, you can take prints also from the link http://icsi.edu/Student/Queries/tabid/1587/Default.aspx and then click “Admit Card Extract Link”, which also requires you to register with www.icsi.in (take print & keep spare copy to avoid last minute misplacement).
4. Keep ready smart writing pens.  Never go for fancy colour inks.  Blue is excellent, at places and rarely you may add it up with Black.
5. Focus on the Questions more in the exam.  Whether it is law or issues or problems, it requires lot of understanding before giving the solutions. 

Its Only This Much.  Hi Only This Much book readers for Company Secretary exams, waiting for your constructive feedbacks (onlythismuch@lawlabz.com) to make CS studies more exciting.

Again wishing you all the best!!! Finish the exams and then we will discuss, what next!!! forget the world, its your exams now…

Manufacturing Enterprise is same as Industry or Industrial Undertaking (SSI) as the Act uses enterprise for both manufacturing & service – MSME Clarifies

The Micro, Small and Medium Enterprises Development Act, 2006 (MSMED) uses the terminology enterprise for the establishments engaged in manufacturing sector as well in service sector.  Therefore, the present terminology “manufacturing enterprise” should be considered as equivalent to the term “industry” or industrial undertaking”, which was used earlier in the definition of Small Scale Industries (SSI).  The establishment engaged in services are termed as “Service Enterprises” in the MSMED Act, 2006.

Source: 16(20)/1/2009-MSME POL dated 5th November 2009

As you know [MSMED]Small Scale Industry definition only under MSMED Act for IDRA too.

To understand all the notifications of industry, read Industries DIPP updates

Now, read in mail Subscribe to Blog

NFE shall be calculated in rupees for SEZ unit approval, fluctuations may be considered, if negative – Ministry Clarification

F.No.C.6/9/2009-SEZ dated November 2009 under Ministry of Commerce & Industry as Instruction No. 41

Sub: Clarification on calculation of NFE as per Rule 53 of the SEZ Rules, 2006

• It is hereby clarified that Net Foreign Exchange (NFE) is to be calculated in rupee terms only.
• In case a unit is NFE negative and claims that it is due to foreign exchange fluctuation, the Approval Committee may consider such cases provided that the unit gets the computations certified by the Authorised Bank, on a case to case, basis.

NOC to release 1% issue amount in SEBI circular and not in DIP/ICDR regulations now, application after 4 months of listing with 2 months for bank guarantee

SEBI - OIAE/Cir-1/2009 dated November 25, 2009

Sub: Issue of No Objection Certificate for release of 1% of issue amount

As per the Listing Agreement with the Stock Exchanges, the issuer company
deposits 1% of the issue amount of the securities offered to the public and/or to the holders of the existing securities of the company, as the case may be, with the designated stock exchange. This amount was being released to issuer companies after obtaining a No Objection Certificate (NOC) from SEBI in accordance with the SEBI (Disclosure and Investor Protection - DIP) Guidelines, 2000.  However, the same provisions had not been found in the amended SEBI (ICDR) Regulations, 2009 which has replaced DIP.  Hence, this circular is issued.

For the purpose of obtaining the NOC, the issuer company shall submit an application on its letter head addressed to SEBI in the format specified in Annexure – A, after lapse of 4 months from listing on the Exchange which was the last to permit listing. The application shall be filed by the post issue lead merchant banker with the concerned designated office of SEBI under which the registered office of the issuer company falls, as specified in Annexure – B. On the date of application, the bank guarantees, if any, included in 1% deposit must have a residual validity of at least 2 months.

SEBI shall issue the NOC after satisfying itself that the complaints arising from the issue received by SEBI against the Company have been resolved to its satisfaction, the Company has been submitting monthly Action Taken Reports on the complaints forwarded by SEBI to the company as per the proforma specified in Annexure – C, and the fees due to intermediaries associated with the issue process including ASBA Banks have been paid.

Debt Listing Agreement amendment & clarification requires Equity Listing Agreement compliance unless excluded by Debt Securities Regulations 2008

SEBI has introduced Simplified Debt Listing Agreement that prescribed norms for issue of public or privately placed debt securities and listing of such securities on the exchange and has also issued Clarification on applicability of SEBI Regulations/ Circulars on Initial and Continuous Disclosures for Convertible and Non-Convertible Debt.

Since Part-A of the Listing Agreement for debt is applicable for debt issuers with already listed equity, it is clarified that the covenants in the Equity Listing Agreement that require submission of a draft offer document to SEBI for observations or obtaining of an acknowledgement card are not applicable in case of an issue of debt securities which is made in terms of the SEBI (Issue and Listing of Debt Securities) Regulations, 2008.

Now, SEBI vide SEBI/IMD/DOF-1/BOND/Cir-5/2009 dated 26th November, 2009 has amended the following in the Debt Listing Agreement:

(a). 100% Asset Cover: To align the Listing Agreement with the provisions of the Companies Act, 1956, the amended Listing Agreement requires issuers to maintain 100% asset cover sufficient to discharge the principal amount at all times for the debt securities issued. Further, to provide more information to investors, the periodic disclosures to the stock exchange shall now require disclosure of the extent and nature of security created and maintained.

(b). Submission of certificate on maintenance of security: As against half-yearly certifications on security cover in respect of listed secured debt securities, the amended Listing Agreement provides for submission of such certificates regarding maintenance of 100% asset cover, and the time limit of submission in respect of the last half year has been aligned with the option provided for submission of annual audited results at a later date. In addition to Banks and NBFCs being exempt from submitting such certificates, issuers of Government guaranteed bonds shall also be exempt.

(c). Statement on Use of Issue Proceeds: In order to enhance the quality of disclosures made to investors, issuers shall be required to furnish a statement of deviations in use of issue proceeds, if any, to the stock exchange on a half yearly basis. Also, the same is required to be published in the newspapers simultaneously with the half-yearly financial results.

(d). Deposit of 1% of issue proceeds: So as to ensure that the interest of investors investing in public issues of debt securities is protected, the issuer shall be required to deposit an amount calculated at 1% of the amount of debt
securities offered for subscription to the public. It is refundable or forfeitable in the manner stated in the Rules, Bye-laws and Regulations of the Exchange.

(e). Submission/ publication of Financial Statements: The time-lines for disclosure of financial statements have been aligned with the proposed changes to the Equity Listing Agreement. Accordingly, issuers would now have to publish/furnish to the Exchange, either audited half yearly financial statements or unaudited half yearly financial statements subject to a limited review within 45 days from the end of the half year. In case of the last half year, issuers may opt to submit their annual audited results in lieu of the unaudited financial results for the period, within 60 days from the end of the financial year.

Click here for detailed amendments in Part A & Part B of Debt Listing Agreement

Records to be maintained from transaction, Non profit organisation included, Suspicious transaction defined in amendment of Money Laundering Rules 2009

Notification No 13/2009/F.No. 6/8/2009- ES & G.S.R 816(E) dated 12th November 2009

Prevention of Money-laundering Act (PMLA), 2002 read with Rules is amended by Prevention of Money-laundering (Maintenance of Records of the Nature and Value of Transactions, the Procedure and Manner of Maintaining and Time for Furnishing Information and Verification and Maintenance of Records of the Identity of the Clients of the Banking Companies, Financial Institutions and Intermediaries)  Amendment Rules, 2009

Rule 2(1)(ca) “non profit organisation” means any entity or organisation that is registered as a trust or a society under the Societies Registration Act, 1860 (21 of 1860) or any  similar State legislation or a company registered under section 25 of the Companies Act, 1956 (1 of 1956);

Rule 3(BA) all  transactions involving receipts by non-profit organisations of  value  more than  Rs. 10 lakh, or its equivalent in foreign currency; Kindly note, Rule 3 deals with Maintenance of records of transactions (nature and value) by banking company or financial institution or intermediary. [thus, covering Charitable trusts, whether temples, churches or mosques, non-government organisations (NGOs), educational institutions or societies and other Non-profit organisations, even Section 25 Company – see definition above]

Rule 6  Retention of records of transactions– The records referred to in rule 3 shall be maintained for a period of ten years from the date of [the word CESSATION OF is removed] transactions between the client and the banking company, financial institution or intermediary, as the case may be.  [Hence, the 10 year period begins from the date of transaction itself].

Rule 2(fa)  “Regulator” means a person or an authority or a Government which is vested with the power to license, authorise, register, regulate or supervise the activity of banking companies, financial institutions or intermediaries, as the case may be;

Rule 2(g)  “Suspicious transaction" means a transaction referred to in clause (h) [which defines the term transaction], including an attempted transaction, whether or not made in cash, which to a person acting in good faith -

(a) gives rise to a reasonable ground of suspicion that it may involve proceeds of an offence specified in the Schedule to the Act, regardless of the value involved; or

(b) appears to be made in circumstances of unusual or unjustified complexity; or

(c) appears to have no economic rationale or bonafide purpose; or

(d) gives  rise  to  a  reasonable  ground  of  suspicion  that  it may involve financing of the activities relating to terrorism;

Rule 8 after sub-rule (3),  the following proviso shall be inserted at the end, namely:-

“Provided that a banking company, financial institution or intermediary, as the case may be, and its employees shall keep the fact  of furnishing information in respect of transactions referred to in clause (D) of sub-rule (1) of rule 3 strictly confidential.  [Thus, the records of transactions are made STRICTLY CONFIDENTIAL!]

In rule 9,-
(a)   for sub-rules (1) and (2), the following sub-rules shall be substituted, namely:-

“(1) Every banking company, financial institution and intermediary, as the case may be, shall,

(a)  at the time of commencement of an account-based relationship, identify its clients, verify their identity and obtain information on the purpose and intended nature of the business relationship,  and

(b) in all other cases, verify identity while carrying out:

(i) transaction of an amount equal to or exceeding rupees fifty thousand, whether conducted as a   single transaction or several transactions that appear to be connected, or

(ii)  any international  money transfer operations.

(1A) Every banking company, financial institution and intermediary, as the case may be, shall identify the beneficial owner and take all reasonable steps to verify his identity.

(1B) Every banking company, financial institution and intermediary, as the case may be, shall exercise ongoing due diligence with respect to the business relationship with every client and closely examine the transactions in order to ensure that they are consistent with their knowledge of the customer, his business  and risk profile.

(1C) No banking company, financial institution or intermediary, as the case may be, shall  keep any anonymous account or account in fictitious names.

(2) Where the client is an individual, he shall for the purpose of sub-rule (1), submit to the banking company, financial institution and intermediary, as the case may be, one certified copy of an ‘officially valid document’ containing details of his identity and address, one recent photograph and such other documents including in respect of the nature of business and financial status of the client as may be required by the banking company or the financial institution or the intermediary, as the case may be.

Provided that photograph need not be submitted by a client falling under clause (b) of sub-rule (1).”;

(b)   after sub-rule (6),  the following sub-rule shall be inserted, namely:-

“(6 A) Where the client is a  juridical person, the banking company, financial institution and intermediary, as the case may be, shall verify that any person purporting to act on behalf of  such client is so authorised and verify the identity of that person.”;

(c) for sub-rule (7), the following sub-rule shall be substituted, namely:-

“ (7) (i)The regulator shall issue guidelines incorporating the requirements of sub- rules (1) to (6A) above and may prescribe enhanced measures to verify the client’s identity taking into consideration type of client, business relationship or nature and value of transactions.

(ii) Every banking company, financial institution and intermediary as the case may be, shall formulate and implement a Client Identification Programme to determine the true identity of its clients, incorporating requirements of sub-rules (1) to (6A) and guidelines issued under clause (i) above.

Prevention of Money Laundering Act (PMLA), 2002 can be downloaded here.   Click here for SEBI Master circular on Money Laundering.

Accordingly, all authorized persons are advised to furnish Suspicious Transaction Report (STR) to FIU-IND in respect of their money changing activities within 7 days of arriving at a conclusion that a transaction, including attempted transaction, whether or not made in cash, or a series of transaction integrally connected are of suspicious nature. The formats of STR, both manual and electronic, have been made available by FIU-IND in their website http://fiuindia.gov.in. [A.P. (DIR Series) Circular No.15 & A.P. (FL/RL Series) Circular No.02 dated November 19, 2009]