CIR/MIRSD/5/2013 August 27, 2013
Recognised Stock Exchanges
Recognised Clearing Corporations
Sub: General Guidelines for dealing with Conflicts of Interest of Intermediaries, Recognised Stock Exchanges, Recognised Clearing Corporations, Depositories and their Associated Persons in Securities Market.
(1) All intermediaries, recognised stock exchanges, recognised clearing corporations and depositories (hereinafter collectively referred to as “such entities”) are presently governed by the provisions for avoidance of conflict of interest as mandated in the respective regulations read with relevant circulars issued from time to time by SEBI. On the lines of Principle 8 of the International Organisation of Securities Commissions (IOSCO) Objectives and Principles of Securities Regulations, it has been decided to put in place comprehensive guidelines to collectively cover such entities and their associated persons, for elimination of their conflict of interest, as detailed hereunder.
(2) Such entities shall adhere to these guidelines for avoiding or dealing with or managing conflict of interest. They shall be responsible for educating their associated persons for compliance of these guidelines.
(3) For the purpose of these guidelines “intermediaries” and “associated persons” have the same meaning as defined in Securities and Exchange Board of India (Certification of Associated Persons in the Securities Markets) Regulations, 2007.
(4) Such entities and their associated persons shall,
(i) lay down, with active involvement of senior management, policies and internal procedures to identify and avoid or to deal or manage actual or potential conflict of interest, develop an internal code of conduct governing operations and formulate standards of appropriate conduct in the performance of their activities, and ensure to communicate such policies, procedures and code to all concerned;
(ii) at all times maintain high standards of integrity in the conduct of their business;
(iii) ensure fair treatment of their clients and not discriminate amongst them;
(iv) ensure that their personal interest does not, at any time conflict with their duty to their clients and client’s interest always takes primacy in their advice, investment decisions and transactions;
(v) make appropriate disclosure to the clients of possible source or potential areas of conflict of interest which would impair their ability to render fair, objective and unbiased services;
(vi) endeavor to reduce opportunities for conflict through prescriptive measures such as through information barriers to block or hinder the flow of information from one department/ unit to another, etc.;
(vii) place appropriate restrictions on transactions in securities while handling a mandate of issuer or client in respect of such security so as to avoid any conflict;
(viii) not deal in securities while in possession of material non published information;
(ix) not to communicate the material non published information while dealing in securities on behalf of others;
(x) not in any way contribute to manipulate the demand for or supply of securities in the market or to influence prices of securities;
(xi) not have an incentive structure that encourages sale of products not suiting the risk profile of their clients;
(xii) not share information received from clients or pertaining to them, obtained as a result of their dealings, for their personal interest;
(5) The Boards of such entities shall put in place systems for implementation of this circular and provide necessary guidance enabling identification, elimination or management of conflict of interest situations. The Boards shall review the compliance of this circular periodically.
(6) Such entities shall conduct assessment of their existing policies on conflict of interest in a time bound manner, not later than 6 months from the date of this circular and bring them in line with the requirements of these guidelines.
(7) The said guidelines shall be in addition to the provisions, if any, contained in respective regulations/ circulars issued by the Board from time to time regarding dealing with conflict of interest, in respect of such entities.
(8) This circular is issued in exercise of powers conferred under Sections 11 of the Securities and Exchange Board of India Act, 1992 to protect the interests of investors in securities and to promote the development of, and to regulate the securities market.
(9) This circular is available on SEBI website (sebi.gov.in) under the categories “Legal Framework” and “Circulars”.