Do the services provided by SV Capital to US Company to facilitate purchase of foreign secuirities i.e. securities listed on overseas stock exchanges through the platform constitute “distribution” services, given that SV Capital is not engaged by an intermediary or an issuer? (Regulation 22 3 & 22 4 of the IA Regulations)
Can SV Capital receive both the fee from the US Company and from US Broker? (Regulation 15(A) and 22(3) of IA Regulations
In terms of queries raised above, the following may be stated:
1.1 in this regard, as per Regulation 2 (1) (l) Investment Advice means advice relating to investing in, purchasing, selling or dealing in securities or investment product, 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
1.2 Further in this regard, as per Regulation 2 (1) (m) 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
1.3 Thus for an activity to be considered under the IA regulations vis-à-vis the aforesaid definitions of Investment Adviser & Investment Adviser, the same has to be in the nature of providing IA for a consideration and includes FP
1.4 In the instant case, as per an agreement between SVC and a US Company, SVC will be required to create stacks exclusively for the US Company based on certain financial or qualitative criteria and rebalance the said stacks purchased by customers using the Platform, exclusively for the US Company on a quarterly basis. As per the submission, the customers mentioned above are Indian customers
1.5 Further, as per the agreement with the US Broker, SV Capital will be required to facilitate the purchase of foreign securities by Indian customers through the Platform by providing facilitation services to the US Stock Broker and will facilitate account opening process of the Indian customers with US Stock Broker.
1.6 In this regard, the applicant has submitted that it will not directly or indirectly, provide any advise to Indian customers. Further it is submitted that all payments for purchase is made by Indian customers directly to US Stock Brokers
1.7 Considering the submissions of the applicant, the following is observed:
(a) SVC will have agreements with US Stock Broker and not with Indian customers
(b) SVC will provide services to US Company and US Stock Broker in order to facilitate purchase of foreign securities by Indian customers
(c) SVC will only facilitate account opening process of Indian customers for US Broker but will not provide any direct service including advice wrt investment by any Indian investor
(d) SVC will not receive any consideration from any Indian Investor
(e) SVC will receive trailing monthly commission from US Broker and fixed monthly retainer from US Company
1.8 It is stated that on the basis of the submission made by SVC, the proposed services by SVC i.e., creating and rebalancing stacks for a US Company which provides online platform for customers including Indian Customers to purchase and invest in foreign securities and receiving compensation for the same in the form of commission or fixed monthly retainer fee does not appear to be an activity for providing investment advice as envisaged under IA Regulations. Consequently, the proposed services to be provided by SVC shall not come under the purview of IA Regulations. Hence in the capacity of a SEBI Registered IA, SVC cannot provide the proposed services.