Informal Guidance – Centrum Broking

IMD/PMS/162090/2009                             May 04, 2009


Centrum Broking Pvt. Ltd.,

Centrum House, CST Road, Vidyanagari Marg, Kalina, Santacruz (East),

Mumbai – 400098

 Dear Sir,

 Sub: Request for Interpretive Letter under Securities and Exchange Board of India (Informal Guidance) Scheme, 2003 for guidance.

(1) This has reference to your letter dated February 04, 2009 seeking “Interpretative Letter” under the SEBI (Informal Guidance) Scheme 2003.

(2) Vide your aforementioned letter, it is inter alia submitted by you that –

  • As per regulation 16(8) of the SEBI (Portfolio Managers) Regulations, 1993 the portfolio manager shall not hold the listed securities belonging to the portfolio account, in its own name on behalf of its clients either by virtue of contract with clients or otherwise and as such the Portfolio Manager shall segregate each clients’ listed securities and keep them separately in separate Demat account of the client within six months of the commencement of the SEBI (Portfolio Managers)(Amendment) Regulations, 2008.
  • There is no clarity as to whether the funds can be maintained in a pooled manner and segregated client-wise in the back-office or the funds need to be maintained in client-wise bank accounts apart from individually segregating client-wise balances in the back-office.

(3) You have sought an “Interpretative Letter” on the issue as to whether as a SEBI registered Portfolio Manager, the funds of clients can be maintained in a pooled manner and segregated client-wise in the back office or the funds need to be maintained in separate client-wise bank accounts.

(4) Our comments on your queries are as under-

(a) As per regulation 15(1) of the SEBI (Portfolio Managers) Regulations, 1993, (hereinafter referred to as the ‘Regulations’) the discretionary portfolio manager shall individually and independently manage the funds of each client in accordance with the needs of the client which does not partake the character of Mutual Fund.

(b) Regulations 15(2A) of the Regulations mandates that the funds of client be maintained by the portfolio manager in a separate account in a scheduled commercial bank as part of the general responsibilities.

(c) Regulation 16(7) of the Regulations states that “the portfolio manager shall segregate each clients funds and securities and keep them separately from his own funds and securities and be responsible for safe keeping of clients funds and securities.

(d) From a purposive interpretation of regulation 15(2A) read with regulation 16(7) of the Regulations, it is clear that a portfolio manager is required to maintain segregation of each client’s funds by opening separate bank account.

(e) The requirement of segregation of clients’ assets is further emphasized by the scheme of the Regulations, according to which a portfolio management scheme cannot partake the character of a mutual fund and hence any pooling of clients’ assets is not permitted under the Regulations.

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

(6) Please note that this position is only with respect to the interpretation of the Securities and Exchange Board of India (Portfolio Managers) Regulations, 1993 and does not affect applicability of any Act, Rules or Regulations, Guidelines and Circulars administered by SEBI or any other authority or the provisions of the rules, regulations and bye laws or Listing Agreement of the stock exchange.

Yours faithfully,

Satya Ranjan Prasad