“Market Intermediary” means an underwriter, a margin provider, a credit rating agency, an investment manager or a clearing house.
“underwriter” means any person who in connection with a public issue of securities of a listed public company or a company which has applied for a listing guarantees to purchase unsubscribed securities of such company for a fee or commission or who negotiates with such company to purchase such securities in the event of the offer being not fully subscribed and includes any person who purchases such issue from the company specifically with a view to offering such securities to the public.
Registration of market intermediaries
Any person who is carrying on or who intends to carry on business as a market intermediary shall register with the Commission for such purpose.
An application for the purpose of registration under subsection (1) shall be made to the Commission in such form, together with such documents and such fee as may be prescribed by the Commission from time to time in that behalf.
Terms and conditions to be complied with for the registration of a Market Intermediary
No person shall be registered as a market intermediary unless he complies with the terms and conditions set out in Part V of the Schedule hereto.
Grant of Certificate
On receipt of an application for registration, the Commission having considered the particulars stated therein and where it appears necessary having given the applicant an opportunity of being heard, shall by written notice inform the applicant whether he is being registered as a market intermediary or not, and where he is registered as a market intermediary, issue him with a certificate of registration valid for a period of one year effective from the date of issue of such certificate. Every person issued with a certificate of registration is referred to in this Act as a “registered market intermediary”.
Renewal of Registration
A registered market intermediary may three months prior to the expiry of the registration make an application to the Commission in the prescribed form, together with the prescribed fee for a renewal of the registration.
The Securities and Exchange Commission of Sri Lanka (SEC) in an effort to streamline the licensing and registration process, has reviewed all documents required for the said purpose and made arrangements to simplify the applications, standardize the format of the affidavit and provide details of documents required under each title document to facilitate the licensing and registration process.
General Regulatory Standards Applicable To Registered Market Intermediaries
As at 29th September 2015
01. The Regulatory Standards set out herein shall apply to all Market Intermediaries registered under Section 19 A of the Securities and Exchange Commission of Sri Lanka Act No. 36 of 1987 (as amended) and shall be deemed as requirements or criteria to be complied with, in accordance with Part V to the Schedule of the Securities and Exchange Commission of Sri Lanka Act (the SEC Act). Every Market Intermediary as defined under Section 55 of the SEC Act shall be bound to comply with:
· the standards set out herein and any amendments or additions thereto;
· other terms and conditions contained in Part V to the Schedule of the SEC Act; and
· all directives issued and that may be issued as applicable to Market Intermediaries from time to time by the Commission.
02. No person shall engage in any activity of a Market Intermediary or hold himself out as doing so unless he is a holder of a Certificate of Registration issued by the Securities and Exchange Commission of Sri Lanka as a Market Intermediary belonging to the category of that regulated activity. 03. The SEC may waive compliance with any of the standards set out herein after having satisfied itself that the attendant circumstances justify such waiver.
04. A Registered Market Intermediary shall pay such registration fee in respect of each regulated activity in such manner as may be specified or prescribed.
Minimum Financial Requirement
05. No holder of a Certificate of Registration as a Market Intermediary shall carry on any regulated activity in respect of the registration without the written consent of the Commission if the minimum financial requirements as may be specified by the Commission are not met.
Code of Conduct for All Market Intermediaries
06. All Registered Market Intermediaries shall comply with all general or special directives issued to them by the Commission and must observe both the letter and spirit of the directives issued.
07. No Registered Market Intermediaries shall contravene any written law enacted for the protection of the members of the public against financial loss by dishonesty, incompetence or malpractice.
08. All Registered Market Intermediaries shall always furnish true information to the Commission.
09. All Registered Market Intermediaries shall not act fraudulently or dishonestly in the performance of the regulated activity and shall not engage in any business practices appearing to the Commission to be deceitful or oppressive or otherwise improper ( whether unlawful or not) or which reflect in the opinion of the Commission discredit on its or his method of conducting business.
10. No Registered Market Intermediaries shall engage or be associated with any other business practices in such a manner as to cast doubt on its or his competence and soundness of judgment.
11. All Registered Market Intermediaries shall always strive to act in the best interests of clients.
12. All Registered Market Intermediaries shall always strive to act efficiently, honestly and fairly.
13. All Registered Market Intermediaries shall ensure that all directors and individuals employed to carry on the registered activity shall be fit and proper persons as may be determined by the Commission and shall possess the requisite qualifications as required by the Commission.
14. All Registered Market Intermediaries shall maintain a register containing the names of the individuals referred in 13 above in such form and manner as may be specified by the Commission.
Dealing with Authorized Persons who carry out Supervision
15. Where the Commission appoints a person for purposes of supervising the compliance by a Market Intermediary in terms of the provisions of the SEC Act, the terms and conditions set out in Part V to the Schedule of the SEC Act and the criteria stipulated under this Directive, the Registered Market Intermediary shall;
(1) furnish the authorized person with any information that the authorized person may require to determine whether the Market Intermediary has complied with the provisions of the SEC Act (as amended) or with the terms and conditions set out in Part V to the Schedule of the SEC Act and the standards stipulated herein or under any other Directives which are applicable to Market Intermediaries; and
(2) take such steps as are necessary to ensure compliance with the provisions of the SEC Act, the terms and conditions set out in Part V to the Schedule of the SEC Act and the standards stipulated hereunder all other directives as may be applicable to the Market Intermediaries.
Duty to Furnish the Commission with Such Returns and Information as the Commission Requires
16. A Registered Market Intermediary shall furnish such returns and provide such information relating to its business as the Commission may require.
17. The Commission may specify that any information required herein shall be submitted within such period at such intervals in such manner or in such form as the Commission may specify and the Registered Market Intermediary shall comply with such requirement.
Keeping of Books and Furnishing of Returns
18. A registered Market Intermediary shall;
(1) maintain or cause to be maintained, such accounting records and other books as will sufficiently explain the transactions and financial position of its business and enable true and fair profit and loss accounts and balance sheets in keeping with the Sri Lanka Accounting Standards to be prepared from time to time;
(2) maintain or cause to be maintained such accounting records and other books in such a manner as will enable them to be conveniently and properly audited; and
(3) retain such accounting records or other books as may be required to be maintained by the Commission for a period of not less than 6 years.
Duty of Registered Market Intermediary, its Directors and Officers to Furnish Information
19. It shall be the duty of all Registered Market Intermediaries to furnish to an auditor or to an independent auditor appointed by the Commission;
(1) all the information within its or his knowledge or which it or he is capable of obtaining; or
(2) any information which the auditor or independent auditor requires to enable him to carry out his duties; and
(3) shall ensure that all the information which is furnished to the auditor or independent auditor as the case may be is not false or misleading in any material particular.
20. Where the Commission having considered that it is in the interests of the Registered Market Intermediary or those of its or his clients, appoints an independent auditor or such other person or a body of persons to examine, audit and report either generally or in relation to any particular matter, upon the books, accounts and records of and assets held by the Market Intermediary, it shall be the duty of such intermediary;
(1) to produce any books, accounts and records of and any assets held by the intermediary relating to his business; and
(2) shall answer all questions relevant to an examination and audit which are put to him by the independent auditor or such other person appointed by the Commission.
21. A Registered Market Intermediary with intent to defeat the purposes of 20 above or with intent to prevent delay or obstruct the carrying out of any examination shall not;
(1) destroy, conceal or alter any books or property relating to the business of the Market Intermediary; or
(2) send or attempt to send or conspire with any other person to send out of Sri Lanka any such books or any property of any description belonging to or in the disposition of or under the control of the Market Intermediary.
Notification on the Happening of Certain Events
22. Without prejudice to the generality of the duties imposed under Section 25 of the SEC Act, a Registered Market Intermediary shall on the occurrence of any one or more of the following events shall give to the Commission written notice, forthwith setting out the particulars of the event;
(1) if the Registered Market Intermediary is in the course of being wound up or otherwise dissolved whether within or outside Sri Lanka or ceases to carry on the business to which the registration relates;
(2) where the Market Intermediary has failed to comply with the provisions of the SEC Act, Part V to the Schedule of the SEC Act and the standards stipulated herein or any other Directive issued by the Commission from time to time;
(3) where any information or document furnished to the Commission is false or misleading; or there is any change in any information or document furnished to the Commission;
(4) where any execution against the Market Intermediary in respect of a judgment debt has been returned unsatisfied in whole or in part;
(5) where a receiver, liquidator or an equivalent person has been appointed in respect of any property of the Market Intermediary;
(6) where the Market Intermediary whether within or outside Sri Lanka has entered into a compromise or scheme of arrangement with its creditors being a compromise or scheme of arrangement that is still in operation;
(7) where the directors, or the chief executive officer has been convicted of any offence involving fraud or dishonesty or a violation of securities law within or outside of Sri Lanka; or
(8) becomes an un discharged bankrupt.
23. Where a Registered Market Intermediary ceases to carry on the business in all or any of the regulated activities to which the Certificate of Registration relates, shall return the Certificate of Registration to the Commission within fourteen days of the date of the cessation.
Surrender of Certificate of Registration
24.(1) Subject to subsection (2), below, a Registered Market Intermediary may surrender the Certificate of Registration by sending it to the Commission together with a written notice of its surrender.
(2) The surrender of a Certificate of Registration shall not take effect until the Commission is satisfied that adequate arrangements have been made to meet all the liabilities and obligations of the Registered Market Intermediary that are outstanding at the time when the notice of surrender was given by the Market Intermediary.
Revocation and Suspension of a Certificate of Registration of A Market Intermediary
25. A Certificate of Registration of a Market Intermediary shall be deemed to be revoked;
(1) if the holder of the Certificate of Registration is wound up or otherwise dissolved whether within or outside Sri Lanka; or
(2) in the case of an individual holder of a Certificate of Registration, if the individual dies.
26. The words and terms defined in the Securities and Exchange Commission of Sri Lanka Act No. 36 of 1987 as amended by Act No. 26 of 1991, Act No. 18 of 2003 and Act No. 47 of 2009 shall unless the context so requires have the same meaning assigned to it in the said Act. “Commission” means Securities and Exchange Commission of Sri Lanka; “Connected Party” means the parent, subsidiary or an associate company of such party; “Liquid Capital” means cash or investments which can be readily converted to cash such as bank/call deposits, re-purchase agreements with maturity of less than three months, commercial papers which are endorsed or guaranteed by a licensed commercial bank or licensed specialized bank with a term to maturity of less than three months and government issued securities with a term to maturity of one year or less; “Net Capital” means,
a. The aggregate value of;
1. Stated Capital;
2. Reserves; and
3. SEC approved subordinate debt or
b. Total assets minus total liabilities adjusted by deducting any other item as specified by the SEC from time to time.
“SEC” means the Securities and Exchange Commission of Sri Lanka; “SEC Act” means the Securities and Exchange Commission of Sri Lanka Act No.36 of 1987 as amended from time to time; “Single Client” in the context of a corporate body means the borrowing company its parent and subsidiary company and in the context of a natural person means the borrower, his/her spouse and dependent children.
STANDARDS FOR UNDERWRITERS
The criteria set out in this part shall be applicable to any person who:
a. is in connection with a public issue of securities of a company which has applied for a listing, guarantees to purchase unsubscribed securities of such company for a fee or commission; or
b. is in connection with a public issue of securities of a listed public company, guarantees to purchase unsubscribed securities of such company for a fee or commission; or
c. negotiates with a company as defined in paragraph (a) or (b) above to purchase such securities in the event of the offer being not fully subscribed; or
d. purchases such issue from the company specifically with a view to offering such securities to the public;
such person shall obtain registration as an ‘Underwriter’ with the SEC, prior to performing the functions mentioned above.
Fit and Proper criteria for directors and persons Dealing with Clients
(1) A Registered Underwriter shall not appoint an individual as a director or a person dealing with clients for and on behalf of an Underwriter, if such person has been:
(a) convicted by any Court of Law in Sri Lanka or abroad subsequent to a finding of guilt for the commission of any offence which involves fraud, deceit or dishonesty; or
(b) found to have committed or been connected with the commission of any act which involves fraud, deceit or dishonesty by any regulatory or supervisory authority;
i. established by law in Sri Lanka or abroad; or
ii. constituted under law as a commission of inquiry, tribunal or other similar body; or
iii. by any professional body which in the opinion of the SEC is of an established and credible stature; or
(c) where a commission of an offence by such person has been compounded in terms of Section 51 A of the SEC Act (as amended) during the past 3 years, preceding the date of the appointment; or
(d) found guilty of a capital market offence by a Court of Law in terms of the SEC Act the Securities Law of any other country;
unless the prior approval of the Commission is obtained for such appointment. The Commission on an application made under this provision by a Registered Underwriter, may grant approval for such person to be appointed notwithstanding the above said prohibition under exceptional circumstances.
01 (2) (a) A Registered Underwriter shall not allow an individual to continue as a director or a person dealing with clients, for a period as determined by the Commission, if such person, subsequent to his appointment as a director or a person dealing with clients has been;
(i) convicted by any Court of Law in Sri Lanka or abroad subsequent to a finding of guilt for the commission of any offence which involves fraud, deceit or dishonesty; or
(ii) found to have committed or been connected with the commission of any act which involves fraud, deceit or dishonesty by anybody with regulatory or supervisory authority;
a. established by law in Sri Lanka or abroad; or
b. constituted under law as a commission of inquiry, tribunal or other similar body; or
c. by any professional body which in the opinion of the SEC is of an established and credible stature; or
(iii) where a commission of an offence by such person has been compounded in terms of the SEC Act (as amended); or
(iv) found guilty of a capital market offence by a Court of Law in terms of the SEC Act or the Securities Law of any other country.
01 (2) (b) For the avoidance of doubt, the period in which a person described in 01 (2) (a) above shall be barred from functioning as a director or a person dealing with clients for and on behalf of a Registered Underwriter may be;
i. for a period of months or for a period of years with a right to reapply at the end of the said period; or
ii. a permanent bar from the industry; or
iii. for a period from acting in a supervisory capacity or from performing a particular duty;
depending on the gravity of the offence, the impact of such offence on the market or other factor which the Commission shall deem to be relevant considering the circumstances surrounding the commission of such offence.
Qualifications and Experience
02. Every Underwriter shall ensure that a minimum of two of its employees possess the qualifications and experience set out in sub clause (a) or (b) below.
i. Associate of the Institute of Chartered Accountants of Sri Lanka; or
ii. Associate of the Chartered Institute of Management Accountants; or
iii. Chartered Financial Analyst; or
iv. Associate of the Chartered Certified Accountants; or
v. Associate of the Chartered Certified Accountants; or
vi. Associate of the Institute of Bankers of Sri Lanka; or
vii. An equivalent or higher professional and/or academic qualification acceptable to the SEC
and active experience in the financial/Securities market for a minimum period of two years or substantive experience in underwriting.
(b) experience in the financial/securities market relating to underwriting for a minimum period of five years.
Experience for the stipulated duration under clauses (a) and (b) above per se will not fulfill the required qualification and the SEC shall consider the nature, scope and intensity of experience in determining its adequacy.
SEC Sanction Required for other Business
03. Business other than that of an Underwriter may be carried out only with the written approval of the SEC, unless such Underwriter is a licensed or a Registered Financial Institution regulated by the Central Bank of Sri Lanka.
Financial and Infrastructure Requirements
(a) Unless regulated as a licensed or Registered Financial Institution by the Central Bank of Sri Lanka, an Underwriter shall at all times maintain a minimum Net Capital stipulated by the Securities and Exchange Commission from time to time.
(b) All Underwriters shall obtain SEC approval on a case by case basis for any underwriting obligation prior to entering into any underwriting contract.
In considering the grant of approval the SEC shall require the Underwriter to demonstrate its financial capacity to meet a particular underwriting obligation.
SEC approval may be conditional on the Underwriter fulfilling further requirements as specified by the SEC. Such requirements will include those related to securing the Underwriter’s capacity to fulfill the financial obligations undertaken in addition to any other requirement as may be deemed to be relevant to the Commission having regard to a particular case.
(c) An Underwriter shall always maintain adequate financial human and other resources sufficient to carry out the business as an Underwriter.
Material Information and Contract
(a) An Underwriter shall execute a written contract prior to carrying out any business for and on behalf of a client containing all the terms and conditions agreed to by and between itself and the client.
(b) Such contract shall not be modified in any way other than in writing, with due notice to the Client.
Disclosure of Holding Companies/Parties
06. An Underwriter shall keep the SEC informed of the percentage holdings in it/by it, its parent/owning company(s), subsidiary company(s), associate company(s) and partnership(s) and of shareholders holding more than 20% or more of its equity.
07. An Underwriter shall provide the SEC with the information itemized below.
(i) A Financial Report’ prepared on a quarterly basis in conformity with the Sri Lanka Accounting Standards
(ii) The Financial Report shall be signed by a director and the Chief Executive Officer.
(b) A copy of the statement of audited accounts prepared annually in accordance with the Sri Lanka Accounting Standards shall be submitted to the SEC within a period of six months from the close of each financial year.
(c) An Underwriter shall provide the SEC with information in conformity with formats specified by the SEC from time to time.
Regulatory Compliance and Internal Controls
(a) An Underwriter shall have an internal compliance manual applicable to its directors and employees which sets out adequate compliance procedures and practices to ensure:
(i) that the directors and employees of the Underwriter do not contravene the provisions of the SEC Act, Part V to the Schedule of the SEC Act or the criteria set out herein; and
(ii) the consistent and fair implementation of its operational procedures and administrative processes.
(b) An Underwriter and its directors shall be responsible for due compliance with such internal compliance manual.
(c) An Underwriter shall give written instructions to the compliance officer to immediately inform the SEC in writing where any member of the staff or a director contravenes the provisions of the SEC Act, Part V to the Schedule of the SEC Act, the criteria set out herein or any other Directive issued by the Commission time to time.
(d) An Underwriter shall make an Annual Compliance Report signed by a director and its Chief Executive Officer confirming compliance with the SEC Act, Part V of the Schedule to the SEC Act, the criteria set out herein or any other Directive issued by the Commission from time to time and forward same to the SEC signed by a director and the Chief Executive Officer within 45 days after the closure of each financial year.
09. An Underwriter shall:
(a) establish and implement good business practices and follow just and fair principles in the conduct of business;
(b) comply with codes and best practices applicable to the activities of an Underwriter as may be issued by the SEC or specified by the SEC to be applicable;
(c) ensure that its relationships or activities create no conflict of interest between itself and its clients. In the event such conflict cannot be avoided there shall be full disclosure thereof to its clients and to the SEC;
(d) not make any statement either oral or written which would misrepresent;
• the services that the Underwriter is capable of performing or has rendered to other issuer company; or
• his underwriting commitment.
(e) not divulge to other issuers, press or any party any confidential information about his issuer company which has come to his knowledge and shall not deal in securities of the issuer company without making disclosure to the Board of Directors of the issuer company;
For the avoidance of doubt, an Underwriter in any event shall not dispose the securities of the issuer company whilst in possession of unpublished price sensitive information, relation to the issuer company.
(f) not willfully make an untrue statement or suppress any material information.
Client Information, Record Keeping and Confidentiality
(a) An Underwriter shall maintain the following records in its office:
(i) all subsisting agreements entered into by the Underwriter;
(ii) all agreements entered into by the Underwriter that have been concluded spanning a period of six years reckoned from the date of conclusion;
(iii) all transactions relating to clients including the identity of clients spanning the immediately preceding period of six years.
(b) An Underwriter shall have suitable information recording and retrieval systems and maintain such information for inspection by the SEC.
(c) An Underwriter shall ensure confidentiality of all information relating to clients including such client’s identity and transactions carried out for such client, unless and to the extent such disclosure is required by law.
11. An Underwriter shall ensure that the content in advertisements promoting its services is accurate and complete and does not have the capacity to mislead the public. 12.
(a) Underwriters shall ensure that the content in advertisements promoting its services as Underwriters are accurate and complete and does not have the capacity to mislead the public.
(b) Underwriters shall submit the contents of all advertisements for the perusal of the SEC at least 5 days prior to its publication in the media.
(c) Underwriters shall comply with any guidelines that may be issued by the Commission from time to time in respect of advertisements.