Informal Guidance – FRR Shares & Securities



IMD/ DoF-1/lA/ 50S 1 2017 June 21, 2017

FRR Shares & Securities Ltd.

103/C, Mittal Tower, 10th Floor,

Nariman Point, Mumbai-400 021.

Sir/ Madam,

Sub:- Request for interpretive letter under the SEBI (Informal Guidance) Scheme, 2003 by FRR Shares & Securities Ltd. (FRR).

Ref.- Your letter dated February 14, 2017 and subsequent e-mail dated April 17, 2017 seeking an interpretive letter under the SEBI (Informal Guidance) Scheme, 2003 in connection with the applicability of the SEBI (Investment Advisers) Regulations, 2013 {IA Regulations} as well as SEB! (Merchant Bankers) regulations, 1992, for introducing high net worth individuals to regional Centers approved by U.S. Citizenship and Immigration Services (USCIS) under EB-5 program of USA.

1. In your letter under reference you have inter alia represented as follows:-

a. FRR is registered with SEBI as a stock broker, depository participant and research analyst.

b. FRR has received a business proposal from certain Regional Centres (RC) for introducing HNls who may be interested in the EB-5 program.

c. Under American statutes, EB-5 security offerings generally fall under the category of ‘Private Placements”. Since such an offering does not qualify as a public sale of securities, it does not need to be registered with the Securities and Exchange Commission (SEC), USA and is exempt from the usual reporting requirements.

d. The primary objective of the investor is not to earn profit on the EB-5 investment but to obtain the US citizenship.

e. The role of FRR is restricted to introducing the HNI clients to the RC who will be visiting India for the purpose of inviting applications for the EB-5 program and for this purpose will be conducting road shows/meetings. FRR shall inform their clients about the details of such road shows/meetings.

f. FRR will not be party to any contract/ memorandum of understanding /arrangement between the Indian Investor and the RC.

g. FRR will not be rendering any services to HNI clients and as such will not be executing any form or agreement with them.

h. FRR will not provide any investment advice to the HNI client whether written or oral in connection with investment under EB-5 program.

i. FRR will not provide any assurance (written or oral) to the HNls about returns on investments under EB-5 program.

j. FRR will not be charging any fees from the HNls for the introduction to the RCs and for informing them about the schedule of the road shows/meetings.

k. The RC will conduct meetings, road shows in India entirely at its own expense. No part of the expenses will be borne by FRR. FRR will not be a party to the arrangements for these meetings/road shows in any manner.

l. FRR will execute an agreement with RC for rendering of services by way of introduction of clients to the EB-5 program. However by way of this agreement FRR will not be ensuring any guaranteed amount or number of subscriptions to the RCs.

m. Further, FRR will not take any responsibility of establishing source of funds of Indian Investor to the RC.

n. As part of the arrangement with the RCs, FRR will get introductory fees from them in case of any investment under EB-5 program by HNI client based on terms agreed with the RC. FRR will raise invoice periodically for such agreed fees upon getting information from the RC for the EB-5 investment during the specified period.

2. On the basis of the above, you have sought an interpretive letter under SEBI (Informal Guidance) Scheme, 2003 from SEBI on the following points:

i. Whether activity of introducing the HNls to the RC approved by USCIS for investment under EB5-program could be interpreted as ‘investment advice’ under clause 2 (l) of SEBI (Investment Advisers) Regulations,

ii. Whether EB5 program can be classified as ‘securities’ or ‘investment product’ under clause 2 (l) of SEB! (Investment Advisers) Regulations,

iii. Whether for activity of introducing the HNls to the RC approved by USCIS for investment under EB5-program, FRR can be treated as ‘merchant banker’ under clause 2(cb) of SEBI (Merchant Bankers) Regulations, 1992?

3. Our Comments

The submissions made in your letter have been considered and without necessarily agreeing with your analysis, our view on the issues raised in your letter under reference are given below:-

In respect of query no. (i) and (ii):

a. Regulation 2(1) (m) of the IA regulations defines an “investment adviser” as under:

“investment adviser” means any person, who for consideration, is engaged in the business of providing investment advice to clients or other persons or group of persons and includes any person who holds out himself as an investment adviser, by whatever name called;

b. Regulation 2(1) (g) of the IA regulations defines the term “consideration” as under:

“consideration” means any form of economic benefit including non-cash benefit, received or receivable for providing investment advice;

c. In terms of Regulation 2(1 of IA Regulations, “investment advice” means advice relating to investing in, purchasing, selling or otherwise dealing in securities or investment products, and advice on investment portfolio containing securities or investment products, whether written, oral or through any other means of communication for the benefit of the client and shall include financial planning;

d. Therefore, we are of the view that:

i. In terms of IA Regulations, an investment adviser is a person who is engaged in the business of providing suitable investment advice in respect of securities or investment products to the clients for consideration.

ii. Since FRR does not propose to provide any kind of investment advice to the clients for consideration, the proposed activity of FRR in respect of introducing the HNls to the RCs approved by USCIS does not fall within the ambit of IA Regulations.

In respect of query no. (iii):

e. In terms of Regulation 2(cb) of SEBI (Merchant Bankers) Regulations, 1992 (MB Regulations)”merchant banker” means any person who is engaged in the business of issue management either by making arrangements regarding selling, buying or subscribing to securities or acting as manager, consultant, adviser or rendering corporate advisory service in relation to such issue management;

f. As stated in the SEBI RMB Circular No. 1, dated June 05, 1998, a merchant banker shall undertake only those activities which are related to the Securities market. Further, the said circular lists out 10 activities which may be carried out by the Merchant Bankers.

g. Therefore, we are of the view as under:

Since the proposed activities of FRR do not pertain to issue management and though advisory do not pertain to Indian markets, the activity of introducing high networth individuals to RCs approved by USCIS for investments under EB-5 program may not fall within the ambit of the MB Regulations and may not necessitate registration under these regulations.

4. This position is based on the representation made to the Division in your letters under reference. Different facts or conditions might yield a different result. This letter does not express decision of the Board on the questions referred.

5. You may note that the above views are expressed only with respect to the clarification sought on SEBI (Investment Advisers) Regulations, 2013 and SEBI (Merchant Bankers) Regulations, 1992 and do not affect the applicability of any law and other SEBI Regulations, guidelines and circulars administered by SEBI or any other authority.

Yours faithfully,


Naveen Sharma