NISM Series III-A Securities Intermediaries Compliance (Non-Fund) Cert. Mock Test - 3

All registered intermediaries are required to obtain senior management approval for establishing business relationships with Politically Exposed Persons (PEPs).

As per the Conditions for Issuance of Offshore Derivative Instrument – Offshore derivative instruments are issued only by persons registered as Category I Foreign Portfolio Investor.

Provisions of the PMLA stipulate that every banking company, financial institution and intermediary shall maintain a record of all transactions, the nature and value of which may be prescribed. As per provisions of PMLA, intermediaries registered under SEBI Act, shall have to adhere to the provisions as given in the PMLA.

Bankers to an Issue mean a scheduled bank which carries out all or any of the following activities, namely: – Acceptance of application and application monies; – Acceptance of allotment or call monies; – Refund of application monies; – Payment of dividend or interest warrants.

The merchant banker(s) advises the Issuer Company on all matters related to the public issue.A site visit, if relevant, is also generally undertaken by the merchant banker(s) at the beginning of the diligence process. The objectives of the site visit are to get an appreciation of the business of the company, the manufacturing process, machinery and equipment, plant layout, environment issues etc.

Clearing Corporation / House is the intermediary which performs two important functions: a) aggregating transactions over a trading period, netting the positions to determine the liabilities of members and ensures movement of funds and securities to meet respective liabilities; and b) guarantee those trades, in the event of default by either buyer or seller.

Intermediaries shall submit the Cash Transactions Reports (CTR) for each month to Financial Intelligence Unit-India – FIU-IND by 15th of the succeeding month.

Each registered intermediary should adopt written procedures to implement the anti-money laundering provisions as envisaged under the PMLA. Such procedures should include the following three specific parameters which are related to the client due diligence process: (a) Policy for acceptance of clients (b) Procedure for identifying the clients (c) Transaction monitoring and reporting especially Suspicious Transactions Reporting (STR)

Interest-rate Derivatives are contracts which enable investors or borrowers to hedge against the risk of adverse interest-rate movement. These include interest-rate futures, interest-rate swaps, interest-rate options and Forward Rate Agreements. Global Depository Receipt is an instrument denominated in foreign currency that allows foreign investors to invest in shares of foreign companies which are listed and traded in the foreign country.

As per SEBI (Research Analysts) Regulations, 2014 – Research analyst shall maintain the following records: (i) research report duly signed and dated; (ii) research recommendation provided; (iii) rationale for arriving at research recommendation; (iv) record of public appearance. All records shall be maintained either in physical or electronic form and preserved for a minimum period of five years.

An intermediary may surrender the certificate of registration by making a request to the SEBI. SEBI, while disposing such request, may require the intermediary to satisfy SEBI as to the factors it deems fit, including but not limited to the following: i. the arrangements made by the person for maintenance and preservation of records and other documents required to be maintained under the relevant regulations; ii. redressal of investor grievances; iii. transfer of records, funds or securities of its clients; iv. the arrangements made by it for ensuring continuity of service to the clients; v. defaults or pending action, if any.

Financial Intelligence Unit – India (FIU-IND) was set up by the Government of India in 2004 as the central national agency responsible for receiving, processing, analyzing and disseminating information relating to suspect financial transactions.

The merchant banker(s) advises the Issuer Company on all matters related to the public issue, including but not limited to the activities mentioned in the inter-se allocation of responsibilities. It is the responsibility of the issuer company to appoint one or more merchant bankers, at least one of whom is the lead merchant banker and also appoint other intermediaries in consultation with the lead merchant banker, to carry out the obligations relating to the issue.

SEBI (Prohibition of Insider Trading) Regulations define an “insider” as any person who is connected with a company or who is in possession of or as having access to unpublished price sensitive information in respect of securities of a company

As per the SEBI operational guidelines for Foreign Portfolio Investors (FPI) – FPI applicant shall submit duly filled prescribed application form (Annexure B) to the Designated Depository Participant (DDP) supported by required documents and applicable fees. The application form should be duly signed with all signatures in original. Where the application form is incomplete, or lacks clarity, the applicant shall be advised by the DDP to clarify or furnish the desired information within a reasonable time.

Section 15G of the SEBI Act prescribes penalties for the following: a) When an insider acting on his/her own behalf or on behalf of another deals in securities of a body corporate listed on any stock exchange on the basis of any unpublished price-sensitive information b) When an insider communicates any unpublished price-sensitive information to any person, with or without his request for such information except as required in the ordinary course of business or under any law c) When an insider counsels, or procures for any other person to deal in any securities of any corporate body on the basis of unpublished price-sensitive information

The mission of the Insurance Regulatory and Development Authority of India (IRDA) is to regulate, promote and ensure orderly growth of the insurance sector. The powers and functions of the authority include – Regulating the investment of funds by insurance companies.

In cases of fraud or serious misconduct, SEBI has the authority to take disciplinary action against intermediaries registered with it. This includes suspending the registration temporarily or cancelling it permanently, depending on the severity of the violation. These powers help SEBI maintain market integrity and protect investors from fraudulent activities.

As per The SEBI (Prohibition of Insider Trading) Regulations – Price sensitive information is any information, relating to a company or its securities, directly or indirectly, that is not generally available which upon becoming generally available, is likely to materially affect the price of the securities and shall, ordinarily including but not restricted to, information relating to the following: – (i) financial results; (ii) dividends; (iii) change in capital structure; (iv) mergers, de-mergers, acquisitions, delistings, disposals and expansion of business and such other transactions; (v) changes in key managerial personnel.

As per Regulation 18A (1) Every stockbroker shall appoint a Compliance Officer who shall be responsible for monitoring the compliance of the Act, rules and regulations, notifications, guidelines, instructions and so on, issued by SEBI or the Central Government and for redressal of investors’ grievances. (2) The Compliance Officer shall immediately and independently report to SEBI any non-compliance observed by him

Where any intermediary fails to comply with any of the conditions of registration or contravenes any of the provisions of the securities laws, he will be issued a show cause notice by the designated authority. The designated member may, after considering the reply, if any, and providing the person with an opportunity of being heard, pass such order as appropriate, as expeditiously as possible. The designated member shall endeavor to pass the order within 120 days of the date of receipt of reply to the notice or hearing.

The Reserve Bank of India (RBI) is India’s central bank and is responsible for administering the country’s monetary policy. It regulates money supply, controls inflation, manages interest rates, and ensures financial stability. The Monetary Policy Committee (MPC) of RBI decides policy rates to maintain price stability and support economic growth.

Every underwriter shall pay thirteen lakh thirty three thousand and three hundred rupees as registration fees at the time of grant of certificate of registration.

The relationship between the Depository Participants (DPs) and the depository is governed by an agreement made between the two under the Depositories Act, 1996, SEBI [Depositories and Participants] Regulations, 2018 and the Bye laws of the Depository.

SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003 defines fraud as inclusive of any act, expression, omission or concealment committed to induce another person or his agent to deal in securities. There may or may not be wrongful gain or avoidance of any loss. The dealer is inducing Mr. Sunil to buy a security and will be considered as fraud.

Under the SEBI (Prohibition of Insider Trading) Regulations, 2015, the Compliance Officer must maintain records of all disclosures made by directors, partners, and designated persons regarding trading in securities for at least 5 years. This requirement ensures proper monitoring, transparency, and regulatory review of insider trading disclosures.

If the client does not co-operate with the credit rating agency so as to enable the credit rating agency to comply with its obligations, the credit rating agency shall carry out the review on the basis of the best available information or in the manner as specified by SEBI from time to time.

“Research analyst” means a person who is primarily responsible for, i. preparation or publication of the content of the research report; or ii. providing research report; or iii. making ‘buy/sell/hold’ recommendation; or iv. giving price target etc.

Generally an applicant has to do registration as a foreign portfolio investor as per the SEBI (Foreign Portfolio Investors) Regulations. However, an applicant incorporated or established in an International Financial Services Centre shall be deemed to be appropriately regulated.

Late payment of fees is not a parameter in determining the deterioration in financial health of the stock broker/ depository participant.

Section 23C of SCRA provides that if any stock broker or sub broker or a company whose securities are listed or proposed to be listed in a recognised stock exchange fails to redress the grievances of any investor after having been directed by SEBI or Stock Exchange, in writing, to do so within the stipulated time, he shall be liable to a penalty which shall not be less than one lakh rupees but which may extend to one lakh rupees for each day during which such failure continues subject to a maximum of one crore rupees.

The basic objective of SEBI is to: a. To protect the interest of investors in securities markets b. To promote the development of securities markets c. To regulate the securities markets

Section 19A of the Depositories Act lays down the penalties to be imposed for failure to furnish information, return etc. by any person who is required under this Act or any rules or regulation or bye-laws made thereunder; Failure in furnishing any information, document, books, returns or report to SEBI or filing any return within the time specified thereof, or filing of false, incorrect or incomplete information, return, report, books or other documents, shall make him liable to a penalty which shall not be less than one lakh rupees but which may extend to one lakh rupees for each day during which such failure continues subject to a maximum of one crore rupees.

Indian Depositories, in consultation with each other, shall develop a system to ensure that aggregate holding of DR holders along with their holding, if any, through offshore derivative instruments and holding as a Foreign Portfolio Investor belonging to the same investor group shall not exceed the limit on foreign holding under the FEMA and applicable SEBI Regulations. Indian Depositories shall coordinate among themselves and with Domestic Custodian to disseminate: (a) the outstanding Permissible Securities against which the DRs ( Depository Receipts ) are outstanding; and, (b) the limit up to which Permissible Securities can be converted to DRs.

As per the Code of Conduct for Merchant Bankers – A Merchant Banker should provide adequate freedom and powers to its compliance officer for the effective discharge of the compliance officer’s duties.

The Reserve Bank of India has directed the banks to accept e-KYC service as a valid process for KYC verification under Prevention of Money Laundering (Maintenance of Records) Rules, 2005. Therefore, personal verification of residential and office address is not mandatory.

As per the PMLA Act, the intermediaries are required to appoint a Principal officer who is responsible to discharge the legal obligations to report suspicious transactions to authorities.

As per the SEBI (Bankers to an Issue) Regulations : Banker to an Issue means a scheduled bank or such other banking company as may be specified by SEBI from time to time that carries out any of the following activities, including :— i. acceptance of application and application monies; ii. acceptance of allotment or call monies; iii. refund of application monies; iv. payment of dividend or interest warrants.

Serious Fraud Investigation Office (SFIO) – The Computer Forensic and Data Mining Laboratory (CFDML) was set up in 2013 to provide support and service to the officers of SFIO in their investigations. The laboratory is equipped with state-of- the- art tools for Computer (Media) Forensics and has adopted a quality system based on internationally accepted standards.

“Proxy Adviser” means any person who provides advice, through any means, to institutional investors or shareholders of a company, in relation to exercise of their rights in the company including recommendations on public offer or voting recommendation on agenda items. SEBI regulates the activity of proxy advisers in India under SEBI Research Analyst Regulations, 2014. Under these Regulations, such entities are required to register with SEBI and comply with the provisions pertaining to formation of internal policies and procedures, disclosures in reports etc., code of conduct, maintaining a record of voting recommendations.

As per the Securities Contract (Regulations) Rules, every member of a recognized stock exchange is required to maintain and preserve the books of account and documents for 5 years. However, some documents have to be maintained and preserved for only two years and they are – Member’s contract books showing details of all contracts entered into by the member with other members of the same exchange or counterfoils or duplicates of memos of confirmation issued to such other members. · Counterfoils or duplicates of contract notes issued to clients. · Written consent of clients in respect of contracts entered into as principals

The ‘Know your Client’ policy should clearly spell out the client identification procedure to be carried out at different stages i.e. while establishing the intermediary and client relationship, while carrying out transactions for the client or when the intermediary has doubts regarding the veracity or the adequacy of previously obtained client identification data.

Under the Code of Conduct for Bankers to an Issue, bankers must ensure proper handling of investor complaints. They must promptly address grievances, respond to investor inquiries efficiently, and guide investors on further steps if complaints remain unresolved. These responsibilities promote transparency, investor protection, and accountability in the securities issuance process.

The Reserve Bank of India is the central bank responsible for administering monetary policy in India. It regulates money supply, controls inflation, manages interest rates, and ensures financial stability. RBI also supervises banks and financial institutions, helping maintain an efficient and stable banking and financial system in the country.

Recurring registration fee for every three years is Rs.15,00,000.

Under the Prevention of Money Laundering Act, 2002, a person involved in money laundering may face rigorous imprisonment and a monetary penalty. The fine can extend up to Rs. 5 lakhs, depending on the nature and severity of the offence, reinforcing strict measures to deter financial crimes and protect the financial system.

 Incorrect net asset value disclosure can affect subscriptions and redemptions. Immediate correction, impact assessment, escalation, and compensation where required are essential. Compliance officers must ensure transparency, fair treatment of investors, and adherence to valuation and disclosure standards while maintaining complete documentation of corrective actions.