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SEBI Clarified the Regulations for RTAs For Investor Service Inquiries
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SEBI Circular

SEBI Clarified the Regulations for RTAs 

SEBI established streamlined requirements for RTAs to fulfill investor service requests, as well as norms for providing PAN, KYC data, and Nomination on November 3, 2021. From January 1, 2022, the new framework will be in effect. To ease your business further MUDS Management provides prime services related to SME IPO listing. We are India’s leading SME IPO consultants, on which you can trust upon. You can boost your business to heights you never imagined in just a few years with clear visibility on global level. In this article read more about new SME IPO 2021 regulations that made investors’ lives easy.

To promote simplicity of doing business, the capital markets regulator Securities and Exchange Board of India (SEBI) announced simplified requirements for registrars and share transfer agents (RTAs) handling investor service requests. The various norms, with respect to the captioned matter, shall be applicable as an ongoing measure to improve the ease of doing business for investors in the securities market, namely Common and simplified norms for processing any service request from the holder, pertaining to the captioned items, by the RTAs, Mandatory providing of PAN, KYC details, and Nomination by holders of physical securities, and Freezing of folios without valid PAN, KYC details, and Nomination by holders of physical securities

If the securities recipient’s signature in the RTA’s folio differs slightly from the current signature, the RTA will notify the holder by Speed post of the small signature discrepancy while executing the service request, giving the holder 15 days to submit a complaint, if any. If there are no objections, the service request will be processed. While progressing with the service, the RTA must verify the banker’s signature if the letter is returned undelivered or if there is a dispute.

According to the SEBI Circular, “in the event of a significant discrepancy between the holder’s signature in the RTA folio and the prevailing signature, or if the same is not obtainable with the RTA, the owner shall grant original canceled cheque and banker’s attestation of the signature as per Form ISR-2.”

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According to the circular of April 27, 2007, PAN is required for all securities market transactions, and it is also one of the papers required for verification of identification.

  1. In his Union Budget announcement for the fiscal year 2007-08, the Hon’ble Finance Minister suggested, among other things, to make PAN the single identity number for all participants in the securities market, with an alpha-numeric prefix or suffix to differentiate a specific type of account.
  2. In light of the aforementioned announcement, and in order to strengthen Know Your Client (KYC) norms by identifying every participant in the securities market with their respective PAN and ensuring a sound audit trail of all transactions, it has been decided that the PAN will be the sole identification number for all people involved transacting in the securities market, regardless of amount charged.
  3. In this respect, the intermediaries are recommended as follows:

3.1. to put in place the required infrastructure so that all of their clients’ individual databases and transactions are connected to the client’s PAN details, allowing for extensive analysis.

3.2. to provide the required infrastructure to enable access and queries based on PAN, allowing retrieval of all client information accessible, including transactions performed by them.

3.3. to collect copies of PAN cards issued by the Income Tax Department to their current and new clients and keep them in their records after comparing them to the originals.

3.4. to cross-check the above-mentioned information with the information on the Income Tax Department’s website, http://incometaxindiaefiling.gov.in/challan/enterpanforchallan.jsp.

  1. It is recommended that stock exchanges and depositories:

4.1. Establish the required infrastructure to enable PAN-based queries for getting details of all clients’/clients’ transactions in their separate systems.

4.2. Make the necessary changes to the relevant bye-laws, rules, and regulations to implement the foregoing decision as soon as possible.

4.3. bring the terms of this circular to the attention of the Exchange’s member brokers/clearing members and Depositories’ depository participants, as well as post them on the Internet.

4.4. In the Monthly Development Report, inform SEBI of the status of the execution of the terms of this circular.

  1. This circular is being issued in the exercise of powers conferred on the Securities and Exchange Board of India under Section 11 (1) of the Securities and Exchange Board of India Act, 1992, and Section 19 of the Depositories Act, 1996, to protect the interests of securities investors and to promote the development and regulation of the securities market.

As a result, it is underlined that all holders and claimants of physical securities are required to produce a PAN, and RTAs are required to check PAN data using the facility supplied by the Income Tax Department (ITD). The ITD has identified SEBI registered RTAs as acceptable organizations for validating PANs utilizing its ‘Online PAN Bulk Verification’ (PBV) instrument in this regard.

Additionally, the holder(s) / claimant(s) of securities held in physical mode are subject to the ‘Exemptions/clarifications to PAN’ set forth in clause D of Annexure – 1 to SEBI circular No. MIRSD/SE/Cir-21/2011 dated October 05, 2011 on Standardized Know Your Client (KYC) Prerequisites for the Securities Market.

On November 3, 2021, SEBI reduced the criteria for RTAs to meet investor service demands, as well as the rules for submitting PAN, KYC data, and Nomination. 

  1. The following regulations, with respect to the captioned topic, shall be applied as an ongoing step to improve the convenience of doing business for investors in the securities market:
  • RTAs must use common and simplified procedures for processing any service request from the holder relating to the mentioned goods.
  • Investor enquiries, complaints, and service requests are processed using an electronic interface.
  • Holders of tangible securities must provide their PAN, KYC data, and nomination;
  • Freezing of folios that do not have a valid PAN, KYC information, or nomination;
  • All holders of tangible securities must link their PAN and Aadhaar.
  1. Standardized, streamlined and shared criteria for handling investor service requests: RTAs are used by investors who possess assets in physical mode.
  1. Minor signature mismatch: If there is a slight disagreement between the securities holder’s signature in the RTA’s folio and the current signature, while executing the support ticket, the RTA will notify the holder via Speed post of a minor signature discrepancy, enabling the holder 15 days to register any concerns. The claim will be handled if there are no issues.
  2. Signature Card is not available or there is a major discrepancy in signatures: If there is a significant disparity between the holder’s signature in the RTA folio and the current signature, or if the signature is not accessible with the RTA, the holder / claimant must provide an original canceled check and a banker’s attestation of the signature as per Form ISR-2.
  3. Discrepancy in name: If there is a slight mismatch in name between any two sets of papers submitted by the holder/claimant for any service request, the RTA must collect one of the following documents to explain the difference in names, issued by any of the following:
    • Unique Identification Number (UID) (Aadhaar);
    • Valid Passport; Driving license;
    • Identity card / document with applicant’s photo,
    • PAN card with photograph;
    • Unique Identification Number (UID) (Aadhaar);
    • Unique Identification Number ( Marriage certificate;
    • Divorce decree;
    • Central / State Government and its Departments,
    • Statutory / Regulatory Authorities,
    • Public Sector Undertakings,
    • Scheduled Commercial Banks,
    • Public Financial Institutions;
  4. PAN is required for all securities market transactions, according to a circular issued April 27, 2007, and it is also one of the documents used to prove identification. The ITD has designated SEBI registered RTAs as suitable entities for verifying PANs using its ‘Online PAN Bulk Verification’ (PBV) tool.
  5. Affidavits will be replaced by self-attestation, and attestation / notarization will be replaced by self-attestation.
  6. Indemnity
  7. A form for requesting investor assistance may be found here.
  8. RTAs should update the PAN and KYC data across all folios of the holder controlled by them, following express authorisation for the same from the holder, as specified in Form ISR-1.
  9. The RTA should enable the holder / claimant to provide the aforementioned document/details in any of the following modes:
  10. a) through ‘In Person Verification’ (IPV): the RTA’s authorized person will check the investor’s original papers and save a copy(ies) with the IPV stamping with the date and initials.
  11. b) through self-attested and dated physical copies c) by electronic method with e-sign, as detailed later.
  12. Timeframes for registering, updating, and changing your PAN, KYC, and nomination: RTAs must respond to any of the aforementioned requests from the holder within seven working days after receiving the required papers and information.
  13. RTA contact information is displayed.
  14. RTA’s concerns were all made at the same time.

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SME IPO Listing Procedure and Regulations in India

Over the last five decades, small and medium-sized enterprises (SME) have evolved as a very lively and dynamic segment of the Indian economy. They not only help to create a large number of employment at a lower cost of capital than large corporations, but they also help to industrialize rural and underdeveloped areas, reducing regional imbalances and assuring a more equal distribution of income revenue and wealth. SME’s function as support units for larger businesses, and this sector contributes significantly to the country’s inclusive growth.

SME Access to Capital Markets

In India, the SME Capital Market is a dependable and efficient marketplace for bringing experienced investors and growing firms together. It allows experienced investors to join in rising businesses with promising growth prospects, creative corporate strategy, and a dedication to effective governance and investment opportunities.

SME Capital Market has developed tailored procedures and tools to assist potential issuers on their path to become publicly traded firms. The SME platform will allow legitimate and fast-growing enterprises with excellent governance standards to raise funding. It will be an appropriate venue for firms who are growing but aren’t yet large enough to be listed on the mainboard to obtain capital.

SME IPO Listing Criteria

Requirements of the Securities and Exchange Commission (SEBI)

  • The maximum paid-up capital after the offering will be Rs 25 crore.
  • Rs 1 lac (minimum application amount/trading lot)
  • A minimum IPO size of 25% of post-issue capital is required, as well as a minimum of 50 investors.
  • Market Making is required for three years, with a share inventory of 5% of the IPO. The total purchasing obligation is 25% of the IPO.
  1. BSE Financial Criteria
  • A minimum paid-up capital of Rs 10 crores is required.
  • By postal ballot, two-thirds of non-promoter shareholders approve.
  • Information Memorandum preparation and filing
  • Only SCORES are used to determine a person’s track record.
  1. NSE Financial Criteria
  • At least three years of positive cash accruals (EBDT) from activities for at least two fiscal years prior to the application
  • Having a Positive Net Worth

Benefits of an IPO for a Small Business 1. Functional Benefits

  • Capital and finance possibilities are readily available.
  • The ability to raise equity and receive preferential treatment in terms of the cost at which money may be raised is greatly facilitated by listing.
  • Reduced borrowing costs
  • Listing frequently leads to an increase in credit score, which allows for the raising of loans at a lower interest rate.
  • Stakeholders are at ease.
  • The comfort of stakeholders such as customers, lenders, and creditors is raised as a consequence of the listing, which leads to an enlarged order book, better-negotiated business conditions such as credit period, margin, and favorable contractual covenants, and so on.
  1. Value Creation Value Unlocking
  • Unlisted enterprises’ values are frequently frozen or not benchmarked. Companies that are listed on an exchange are able to uncover their true worth. Shares become a form of money that may be used for a variety of purposes, including M&A, ESOPs, collateral, and so on. One of the key benefits of the capital market is this.
  1. Currency Exchange Rates
  • Listed shares operate as money and may be used as collateral to raise cash since their value is established in the market. Listed securities can be used as a viable currency in mergers and acquisitions.
  1. Tax Advantages
  • There is no tax on a company’s stock investment.
  • According to the Finance Act of 2012, a firm is liable for tax on equity infusion if the equity shares are issued at a premium to the fair market value. If the shares are publicly traded, this tax does not apply.
  • There is no tax on the purchase of a troubled firm.
  • Investors are taxed when they buy shares in an unlisted firm for less than their net worth, but this tax is reduced if the shares are listed.
  • There is no tax on stock buybacks.
  • If the shares are listed, the 20% tax on share buybacks is not applied.
  1. Additional Advantages
  • Building a profile / Increasing visibility
  • Companies that are listed on the stock exchange get notoriety and are watched by investors and experts. The company’s listing serves as a platform for recognition and visibility.
  • Corporate Governance Strengthening
  • Companies that list on the stock exchange increase their internal governance structures, resulting in improved internal control and corporate governance.

Procedure for SMEs to Be Listed

  1. An IPO for a small business may be completed in 60 days if all documentation and permissions are received on time.
  2. Steps in the SME Listing Process
  3. Preferential Allotment Restructuring for Pre-IPO Capital
  4. Structuring for an Initial Public Offering (IPO)
  5. Shares are being dematerialized.
  6. Financials that have been restated by a peer-reviewed auditor
  7. Issue Pricing & Valuation
  8. Intermediaries are appointed when the draught prospectus is completed.
  9. Submission of a draught prospectus for clearance by the Exchange Exchange
  10. ROC Approval IPO Launch Receipt of Applications Filing of Prospectus with ROC
  11.  ROC Approval
  12. IPO Management
  13. IPO Closes Basis of Allocation
  14. BSE Approval to Basis of Allocation Refunds
  15. Allotment Listing & Market Making
  16. IPO Management
  17. IPO Closes Basis of Allocation
  18. BSE Approval to Basis of Allocation Refunds / Allotment Listing & Market Making

Summary

  • The following rules, with respect to the captioned topic, shall be applied as an ongoing step to improve the convenience of doing business for investors in the securities market:

1.1. RTAs must follow common and simplified rules when processing any service request from the holder relating to the mentioned items.

1.2. Investor enquiries, complaints, and service requests are processed using an electronic interface.

Holders of tangible securities must provide their PAN, KYC data, and nomination.

1.4. Freezing of folios that do not have a valid PAN, KYC information, or Nomination

1.5. All holders of tangible securities must link their PAN and Aadhaar.

Norms for handling investor service requests that are standardised, streamlined, and common

Investors who own stocks in physical mode interact with RTAs for I PAN registration, b) Nominee registration, c) Contact details (postal address, mobile phone, and e-mail), d) Bank data, and e) Signature.

  1. ii) Requests for:
  2. a) Duplicate securities certificates;
  3. b) Replacement/ Renewal/ Exchange of securities certificates;
  4. c) Consolidation of securities certificates;
  5. d) Sub-division/ Splitting of securities certificates;
  6. e) Consolidation of folios;
  7. f) Endorsement;
  8. g) Change of holder’s name
  9. h) Shift in status from minor to major, and from resident to non-resident, and vice versa
  10. i) Make a claim for an undeliverable securities certificate before it is transferred. j) Claim from Unclaimed Suspense (demat) Account, k) Transmission, and l) Transposition.

iii) Depository Participant (DP) Services for Demat and Remat

  1. Norms for processing investor service requests, including the aforementioned, are standardized, simplified, and made consistent across all service requests in this respect, as follows:

2.1. Minor signature mismatch

  1. a) If there is a slight disagreement between the securities holder’s signature in the RTA’s folio and the current signature, after processing the service request, the RTA will notify the holder via Speed post of a minor signature discrepancy, giving the holder 15 days to register any concerns. If there are no objections, the service request will be processed.
  2. b) If the letter is returned undelivered or there is an objection, the RTA must get signature verification from the banker before proceeding with the service request, as described above.

2.2. There is a significant disparity in signatures or the Signature Card is unavailable.

If there is a significant disparity between the holder’s signature in the RTA folio and the current signature, or if the signature is not accessible with the RTA, the holder / claimant must provide an original canceled check and a banker’s attestation of the signature as per Form ISR-2.

2.3. Name mismatch

  • a) In the event of a minor name discrepancy between any two sets of papers submitted by the holder/claimant for any service request, the RTA should collect any one of the following documents to explain the name difference:
  • UID stands for Unique Identification Number (Aadhaar)
  • Valid passport, driver’s license, PAN card, and identity card / document with applicant’s photo, granted by any of the following: Governments of the United States and its departments, Statutory and Regulatory Authorities, Public Sector Undertakings, Scheduled Commercial Banks, and Public Financial Institutions are all examples of public sector undertakings.
  • Certificate of Marriage
  • Divorce order
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