SEBI amends framework on market access through authorized persons

The Securities and Exchange Board of India (“SEBI”), vide its circular dated July 23, 2010, has eased the certification requirements for authorized persons of stock brokers. Authorised persons of stock brokers provide access to the trading platform of a stock exchange as agents of the stock broker. This circular is further to SEBI’s earlier circular dated November 06, 2009, wherein SEBI had prescribed the framework to govern market access through authorized persons of stock brokers (“Framework”).

Clause 4.1(f) of the Framework stipulated that in order to be eligible to be an authorized person, an individual required the certification, as applicable to approved user / sales personnel of the respective segment. Such certification was required to be validly maintained thereafter. In the new circular, SEBI has deleted Clause 4.1(f) of the Framework and has accordingly done away with the certification requirement. Instead, a new a new clause Clause 4.4 has been added to the Framework, which reads as follows:

“The approved users and/or sales personnel of Authorised Persons shall have the necessary certification of the respective segments at all points of time.”

The amended Framework ensures that the certification requirements are now in line with those applicable to stock brokers and sub-brokers.

SEBI allows stock exchanges settlement flexibility in futures and options

Securities and Exchange Board of India (“SEBI”) has, vide its circular dated July 15, 2010 (“Circular”), provided the stock exchanges with the flexibility to offer physical settlement and/or cash settlement for both stock options and stock future contracts. The Circular is further to SEBI’s earlier circulars, dated June 20, 2001 and November 2, 2001 dealing with settlement of stock options and future contracts. Currently, all derivatives contracts in India are settled in cash by paying the difference in the prices of contracts when it was bought and when it is settled.

The salient features of the Circular are provided as under:

1. The stock exchanges can offer:

a) cash settlement (settlement by payment of differences) for both stock options and stock futures; or

b) physical settlement (settlement by delivery of underlying stock) for both stock options and stock futures; or

c) cash settlement for stock options and physical settlement for stock futures; or

d) physical settlement for stock options and cash settlement for stock futures.

2. The concerned stock exchanges have been provided with the flexibility to introduce physical settlement in a phased manner; however such physical settlement must be completed within six months of execution of the securities contract.

3. The mechanism for settlement of stock options or stock futures shall be decided by the concerned stock exchanges in consultation with the depositories.

4. The risk management framework in the derivative market for single stock futures, which is applicable to the cash segment, as provided under the circular dated November 2, 2001 shall be applicable in case of expiry or exercise of physically settled stock derivatives.

5. The Circular provides that cash segment and equity derivative segment shall be separately settled.

6. The stock exchange that plans to introduce physical settlement of stock derivatives is required to:

a) put in place proper systems and procedures for smooth implementation of physical settlement;

b) make necessary amendments to the relevant bye-laws, rules and regulations for implementation of physical settlement; and

c) bring the provisions of the Circular to the notice of all categories of market participants, which includes the general public, and also to circulate the same on their websites.

7. The stock exchange interested in offering physical settlement of stock derivatives is required to obtain prior approval from SEBI. In order to obtain such prior approval, the stock exchange is required to submit a detailed framework for the mode of implementation of physical settlement of stock derivatives to SEBI. The Circular allows the flexibility to a stock exchange to adopt another mode of settlement for stock derivatives from the one that has been approved by SEBI, however prior permission of SEBI shall be required for doing the same.

8. Please note that this flexibility of settling both stock options and stock futures either physically or through cash is extended only to Bombay Stock Exchange and National Stock Exchange.

SEBI makes ASBA facility more accessible

The Securities and Exchange Board of India (“SEBI”), vide its circular dated June 13, 2010 (“Circular”), has mandated the stock exchanges to make available the Application Supported by Blocked Amount (“ASBA”) bid/application forms, on their respective website for downloading before opening a public issue. The provisions of this circular shall be applicable only on the public issues opening on or after July 19, 2010.

Such ASBA form will have a unique application number, which will be used for making ASBA applications during public issue. The Circular also requires the merchant banker to ensure that details such as company name, type of issue, issue opening date, issue closing date, price/price band, bid lot or other relevant details are provided to concerned stock exchanges two days prior to the date of opening of the public issue. This will facilitate the stock exchange to furnish all such details obtained from the merchant banker in the ASBA form, before publishing the same on its website.

Further, the stock exchange is required to make available the ASBA form on its website at least one day before opening of the public issue. The investors should also have online access to the soft copy of the abridged prospectus/prospectus of the public issue.

CENTRAL GOVERNMENT NOTIFIES LONG TERM INFRASTRUCTURE BONDS

Further to the insertion of Section 80 CCF in the Income Tax Act, 1961 by Finance Act, 2010, the central government vide its notification[1] dated July 9, 2010 (“Notification”) has specified characteristics of the long term infrastructure.

It may be noted that earlier this year vide Finance Act, 2010, Section 80 CCF was inserted in the Income Tax Act, 1961, which provides that the amount paid by the assessee towards subscription of the long term infrastructure bond (as specified by the central government) shall be deducted from the total income of the assessee. Section 80 CCF provides as follows:

“In computing the total income of an assessee, being an individual or a Hindu undivided family, there shall be deducted, the whole of the amount, to the extent such amount does not exceed twenty thousand rupees, paid or deposited, during the previous year relevant to the assessment year beginning on the 1st day of April, 2011, as subscription to long-term infrastructure bonds as may, for the purposes of this section, be notified by the Central Government.”

The conditions required to be fulfilled, in order to categorize a bond as a long term infrastructure bond (“Bond”) for the purposes of Section 80CCF of the Income Tax Act are, inter alia, as follows:

1. The name of the Bond should be “Long-term Infrastructure Bond”.

2. Such Bonds should have been issued by either of the Industrial Finance Corporation of India, Life Insurance Corporation of India, Infrastructure Development Finance Company Limited or a non-banking finance company classified as an Infrastructure Finance Company by the Reserve Bank of India.

3. The Bonds shall be issued for a limited period of the financial year 2010-11 and volumes of such issuance of Bonds shall not exceed twenty five percent of the incremental infrastructure investments made by the issuer during the financial year 2009-10.

4. Bonds shall have the minimum validity period of 10 years, further there shall be a minimum lock-in period of five years for the investor. After expiry of such lock-in period, the investor can sell the Bonds either through the secondary market or through a buyback facility, as may be specified by the issuer in the offer document. Further after the expiry of the lock-in period, the investor can pledge / lien / hypothecate Bonds for obtaining loans from scheduled commercial banks.

5. The yield of the bond will not be exceeding the yield on government securities of corresponding residual maturity, as reported by the Fixed Income Money Market and Derivatives Association of India, as on the last working day of the month immediately preceding the month of the issue of the bond.

The notification lastly provides that the proceeds from the issuance of such Bonds can be utilized by the issuer only for the purposes of ‘infrastructure lending’, as detailed by Reserve Bank of India under Guidelines on infrastructure lending dated February 04, 2004.

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[1]Notification No. 48/2010[F.No.149/84/2010-SO(TPL)], dated 9-7-2010.

RBI amends prudential norms for non-deposit accepting systematically important NBFCs

RBI has, vide Notification No. DNBS(PD).214/ CGM(US)-2010 dated July 09, 2010, amended the Non-Banking Financial (Non- Deposit Accepting or Holding) Companies Prudential Norms (Reserve Bank) Directions, 2007 (“Prudential Norms”). Third proviso to para 18 of the Prudential Norms has been amended as follows:

“Provided further that any systemically important non-deposit taking non-banking financial company not accessing public funds, either directly or indirectly, or not issuing guarantees may make an application to the Bank for an appropriate dispensation consistent with the spirit of the exposure limits”.

Prior to the amendment, the third proviso of para 18 read as follows:

“Provided further that any systemically important non-deposit taking non-banking financial company not accessing public funds, either directly or indirectly, may make an application to the Bank for an appropriate dispensation consistent with the spirit of the exposure limits.”

It may be noted that para 18 of the Prudential Norms prescribes certain ceilings on concentration of credit and investment. The pre-amendment third proviso to para 18 allowed NBFCs not accessing public funds to make an application for seeking dispensation from the application of the ceilings. RBI has noted that non-deposit taking systematically important NBFCs may be issuing guarantees, devolvement of which may require access to public funds. Therefore, third proviso has been amended to stipulate that only such NBFCs which do not access the public funds or issue guarantees may make an application for seeking dispensation from the applicability credit/ investment concentration norms.

RBI directs Banks and NBFCs to comply with guidelines on credit card operations

The Reserve Bank of India (“RBI”) has, vide its circular dated July 9, 2010 (“Circular”), directed the banks to strictly comply with guidelines contained in the Master Circular on credit card operations. It may be noted that the RBI had on July 1, 2010 notified the Master Circular on Credit Card Operations.

RBI has noted that the offices of the Banking Ombudsman and the RBI have been receiving several complaints from credit card holders regarding the credit card operations of the banks, especially with regard to excessive finance charges, issuance of unsolicited credit cards, unsolicited insurance policies and recovery of premium charges, charging of annual fee in spite of being offered as ‘free’ cards, issuance of loans over phone, disputes over wrong billing, settlement offers conveyed telephonically, non-settlement of insurance claims after the demise of the card holder, offensive calls, and difficulty in accessing the credit card issuers and the poor response from the call centres. The Circular has been issued to remind the banks and the NBFCs of the several guidelines issued by the RBI on the credit card operations. Banks and NBFCs have been cautioned that failure in adhering to the guidelines contained in the Master Circular, in its letter and spirit, will result in initiation of suitable penal action, including levy of monetary penalties, under the relevant statutory provision.

RBI has also reiterated the guidelines contained in its circular dated May 7, 2007 on ceiling rate of interest. Banks and NBFCs have been instructed to prescribe a ceiling rate of interest, including processing and other charges in respect of small value personal loans and loans similar in nature, including credit card dues. In addition, if banks and NBFCs charge interest rates which vary based on the payment / default history of the cardholder, they are required to be transparent in levying of such differential interest rates. Such differential rate of interest charged to various categories of customers must be publicized by the banks/ NBFCs through their website and other means. RBI has stipulated to the banks / NBFCs that they should indicate to the credit card holder upfront, the methodology of calculation of finance charges with illustrative examples, particularly in situations where only a part of the amount outstanding is paid by the customer.

Government amends Prevention of Money Laundering Rules

Government of India vide its notification No. 10/2010-E.S/F.No.6/8/2009-E.S. dated June 16, 2010, has amended the Prevention of Money-laundering (Maintenance of Records of the Nature and Value of Transactions, the Procedure and Manner of Maintaining and Time for Furnishing Information and Verification and Maintenance of Records of the Identity of the Clients of the Banking Companies, Financial Institutions and Intermediaries) Rules, 2005 (“PML Rules”). The salient amendments to the PML Rules are listed below:

1. The rules amending the PML Rules are called Prevention of Money-laundering (Maintenance of Records of the Nature and Value of Transactions, the Procedure and Manner of Maintaining and Time for Furnishing Information and Verification and Maintenance of Records of the Identity of the Clients of the Banking Companies, Financial Institutions and Intermediaries) Second Amendment Rules, 2010 (“Second Amendment Rules”).

2. Second Amendment Rules provide for insertion of an explanation in Rule 2(1)(g) of the PML Rules that defines the term ‘suspicious transaction’. The newly inserted Explanation is as follows:

"Explanation:- Transaction involving financing of the activities relating to terrorism includes transaction involving funds suspected to be linked or related to, or to be used for terrorism, terrorist act or by a terrorist, terrorist organisation or those who finance or are attempting to financing of terrorism."

3. Second Amendment Rules have substituted sub rules (1A), (1B) and (1C) of Rule 9 of PML Rules with newly provided sub-rules (1A), (1B) and (1C) of Rule 9. The substituted sub-rules are as follows:

"(1A) Every banking company, financial institution and intermediary, as the case may be, shall determine whether a client is acting on behalf of a beneficial owner, identify the beneficial owner and take all reasonable steps to verify his identity."

The new sub-rule (1A) requires the banking company/financial institution/intermediary to determine if a client is acting on his own behalf or in behalf of any other beneficial owner. If it is established that the client is acting on behalf of any other beneficial owner, the banking company/financial institution/intermediary is obligated to verify the identity of such ‘beneficial owner’.

"(1B) Every banking company, financial institution and intermediary, as the case may be, shall exercise ongoing due diligence with respect to the business relationship with every client and closely examine the transactions in order to ensure that they are consistent with their knowledge of the client, his business and risk profile and where necessary, the source of funds."

By substituting the new sub-rule (1B), the scope of the due diligence to be conducted on a client has been enhanced to include the source of funds of the client as well.

"(1C) No banking company, financial institution and Intermediary, as the case may be, shall allow the opening of or keep any anonymous account or account in fictitious names or account on behalf of other persons whose identity has not been disclosed or cannot be verified."

By inserting sub-rule (1C), the central government has further clarified that any account shall not be on behalf of any person, whose identity has not been verified.

4. Under Rule 9(1), the following sub-rule (1D) has also been inserted:

"(1D) When there are suspicions of money laundering or financing of the activities relating to terrorism or where there are doubts about the adequacy or veracity of previously obtained customer identification data, every banking company, financial institution and intermediary shall review the due diligence measures including verifying again the identity of the client and obtaining information on the purpose and intended nature of the business relationship, as the case may be."

As it appears from the above sub-rule (1D), the provision requires every banking company/financial institution/intermediary to revisit the due diligence process in case of a client, where there remains suspicions of money laundering/financing of the activities relating to terrorism, or where there are doubts about the adequacy of the previously obtained identification data.

5. Second Amendment Rules provides for an explanation to be inserted in the following Rule 10(3) of PML RulesRule 10(3) stipulates that records about the identity of clients shall be maintained for a period of ten years from the date of cessation of the transactions between the client and the banking company or financial institution or intermediary, as the case may be. The newly inserted explanation defines the terms ‘records of identity of clients’ and ‘cessation of the transactions’. Explanation as inserted is reproduced below:

"Explanation: For the purpose of this rule:-

(i) the expression 'records of the identity of clients' shall include records of the identification data, account files and business correspondence.

(ii) the expression 'cessation of the transactions' means termination of an account or business relationship."

SEBI amends the reporting requirement for FIIs

Securities and Exchange Board of India (“SEBI”) has, vide a circular dated June 29, 2010 (“New Circular”), modified the reporting obligations of the Foreign Institutional Investors (“FIIs”) in respect of the securities lent abroad by FIIs. It is pertinent to note that SEBI had, in a circular dated October 16, 2008 mandated the Foreign Institutional Investors (“FII”) to submit information about the quantity of the securities which they have lent to entities abroad i.e. to entities other than in the Indian securities market. Based on the information submitted by the FIIs, SEBI has been making available such information on its website twice a week.

The New Circular requires FIIs to submit the required information on a weekly basis (every Friday) as against on a daily basis. Accordingly, SEBI’s obligation to publicly disseminate the information on its website has been changed from twice a week to once a week (every Thursday).

The weekly reporting requirement of FIIs will be effective from July 02, 2010, the first such weekly report shall be submitted by July 09, 2010. Similarly, the first weekly public dissemination on the SEBI’s website shall be made on July 13, 2010.

In addition to the above, FIIs issuing participatory notes would be required to submit the following undertaking along with their weekly report:

“Any fresh short position shall be immediately reported to SEBI”

IRDA modifies guidelines on issuance/ renewal corporate agency licenses

IRDA has, vide a circular[1] dated June 28, 2010, specified additional guidelines for issuance and renewal of corporate agency. The additional conditions are as follows:

a) All insurance companies are required to fill and send a Checklist-cum-Certification Form (“Checklist”) to the IRDA, in respect of all fresh corporate licenses and the renewals of existing licenses. The Checklist format has been specified by the IRDA in the above circular.

b) The Checklist is required to be signed by the Corporate Compliance Officer of the insurance company (also designated as the Corporate Designated Person of the insurer).

c) The scanned copy (in .pdf document) of the Checklist is required to be emailed for processing to the IRDA at corp.agent@irda.gov.in.

d) The relevant supporting documents in respect of the Checklist are required to be maintained at the Corporate/ Head Office of the insurance company. Such documents shall also be made available to the IRDA as and when required for inspection.

e) The IRDA shall intimate its decision of approval or otherwise within seven working days of the receipt of the Checklist.

f) The Corporate Designated Person shall issue any fresh corporate agency license or renew an existing license only after obtaining the prior approval of the IRDA.

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[1] http://www.irdaindia.org/cor_agents/guideline_280610.htm

IRDA notifies structural changes in ULIPS

The Insurance Regulatory and Development Authority (“IRDA”) vide its circular[1] dated June 28, 2010 (“Circular”) has specified certain elements to be incorporated in all Unit Linked Insurance Plans (“ULIPs”). The circular applies to ULIPs offered for sale to the public from September 1, 2010. IRDA has further issued a guidance note[2] dated June 28, 2010 on ‘recent regulatory changes related to ULIPs’ (“Guidance Note”).

Through the Circular and the Guidance Note, IRDA has carried out the following structural changes:

1. Lock-in period for all ULIPs has been increased from three years to five years. The lock-in applies to top-up premiums also. During the lock-in period any form of residuary payments on the policies which are lapsed/surrendered/discontinued has been prohibited. Such payments can now be made only after the expiry of the lock-in period. This stipulation will have the effect of making ULIPs long term financial instruments, which will basically provide risk protection.

2. All regular premium/limited premium ULIPs shall have uniform/level paying premiums. Any additional payments shall be treated as single premium for the purposes of insurance cover. Further, all limited premium ULIPs, other than single premium products, shall have premium paying term of at least 5 years.

3. Overall charges on ULIPs are mandated to be evenly distributed throughout the lock-in period, to ensure that high front ending of expenses is eliminated.

4. Further, all unit linked products, other than pension and annuity products shall provide a mortality cover or a health cover thereby increasing the risk cover component in such products.

(i) The minimum mortality cover should be as follows:

Minimum Sum assured for age at entry of below 45 years	Minimum Sum assured for age at entry of 45 years and above
Single Premium (SP) contracts: 125 percent of single premium. Regular Premium (RP) including limited premium paying (LPP) contracts: 10 times the annualized premiums or (0.5 X T X annualized premium) whichever is higher. At no time the death benefit shall be less than 105 percent of the total premiums (including top-ups) paid.	Single Premium (SP) contracts: 110 percent of single premium Regular Premium (RP) including limited premium paying (LPP) contracts: 7 times the annualized premiums or (0.25 X T X annualized premium) whichever is higher. At no time the death benefit shall be less than 105 percent of the total premiums (including top-ups) paid.

(In case of whole life contracts, term (T) shall be taken as 70 minus age at entry)

(ii) The minimum health cover per annum should be as follows:

Minimum annual health cover for age at entry of below 45 years	Minimum annual health cover for age at entry of 45 years and above
Regular Premium (RP) contracts: 5 times the annualized premiums or Rs. 100,000 per annum whichever is higher. At no time the annual health cover shall be less than 105 percent of the total premiums paid.	Regular Premium (RP) contracts: 5times the annualized premiums or Rs. 75,000 per annum whichever is higher. At no time the annual health cover shall be less than 105 percent of the total premiums paid

5. All top-up premiums paid during the currency of the contract, except for pension/annuity products, must have insurance cover treating them as single premium, as per above table.

6. All unit linked pension and annuity products shall offer a minimum guaranteed return of 4.5 per cent per annum or as specified by IRDA from time to time, on the maturity date. Further, mortality and/or health cover could be offered by the insurers along with the pension/annuity products as riders, giving enough flexibility for the prospective policyholders to select covers of their choice.

7. In case of the unit linked pension and annuity products, the circular bars any partial withdrawal during the accumulation phase and the insurer is required to convert the accumulated fund value into an annuity at the vesting date. However, the insured will have an option to commute up to a maximum of one-third of the accumulated value as lump sum at the time of vesting. In the case of surrender, only a maximum of one-third of the surrender value can be commuted after the lock-in period. The remaining amount must be used to purchase an annuity.

8. With a view to smoothen the cap on charges, the capping been rationalized to ensure that the difference in yield is capped from the 5^th year onwards. This will not only reduce the overall charges on these products, but also smoothen the charge structure for the prospective policyholder. Therefore, after taking into account, the discontinuance/lapsation/surrender behavior of the policyholders following limits on the charges have been prescribed by IRDA starting from the 5^th policy anniversary:

Annualized Premiums Paid	Maximum reduction in yield (Difference between Gross and Net Yield (% pa))
5	4.00%
6	3.75%
7	3.50%
8	3.30%
9	3.15%
10	3.00%
11 and 12	2.75 %
13 and 14	2.50 %
15 and thereafter	2.25 %

9. The net reduction in yield for policies with term less than or equal to 10 years shall not be more than 3.00% at maturity and for policies with term above 10 years, the net reduction in yield at maturity cannot be more than 2.25%.

10. The maximum loan amount which can be sanctioned under any ULIP must not exceed 40% of the net asset value in those products, where equity accounts for more than 60% of the total share and must not exceed 50% of the net asset value of those products where debt instruments accounts for more than 60% of the total share.

Conclusion

The insurance cover on ULIPs, which has gone up to 10 times of the first-year premium compared to existing five times is a welcome move for the prospective policyholders. Further, the provision that provides for the guaranteed return for all unit linked pension/annuity products will protect the life time savings for the pensioners, from any adverse fluctuations at the time of maturity. However, in cases where the insurance companies are obliged to provide assured returns, they may be under pressure to divert bulk of their unit linked premiums towards debt and other secured instruments, which may consequently limit the equity linked upside for the unit holders.

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[1] http://www.irdaindia.org/ulips/CIRCULAR_ULIP%2028062010.pdf

[2] http://www.irdaindia.org/ulips/ulips_280610.htm

Government authorises IRDA to regulate ULIPs; amends Insurance and Securities laws

The President of India has recently promulgated the Securities and Insurance Laws (Validation and Amendment) Ordinance, 2010 (“Ordinance”) setting to rest the controversy surrounding the ULIPs. By means of the Ordinance, the Government has unequivocally supported the claim of the Insurance Regulatory and Development Authority (“IRDA”) to regulate ULIPs.

Through the Ordinance, following Explanation has been added in Section 2(11) of the Insurance Act, 1938

“Explanation.— For the removal of doubts, it is hereby declared that "life insurance business" shall include any unit linked insurance policy or scrips or any such instrument or unit, by whatever name called, which provides a component of investment and a component of insurance issued by an insurer referred to in clause (9) of this section.”

As a consequence, all forms of unit-linked insurance policies that contain a component of insurance shall now be considered as part of the life insurance business.

In addition, the Securities Contracts (Regulation) Act, 1956 (“SCRA”) and the Securities and Exchange Board of India Act, 1992 (“SEBI Act”) too have been amended to clarify that ULIPs shall not be construed as securities or collective investment schemes, including mutual funds. Following explanation has been inserted after Section 2(h)(id) of the SCRA:

‘Explanation.— For the removal of doubts, it is hereby declared that "securities" shall not include any unit linked insurance policy or scrips or any such instrument or unit, by whatever named called, which provides a combined benefit risk on the life of the persons and investment by such persons and issued by an insurer referred to in clause (9) of section 2 of the Insurance Act, 1938. (4 of 1938)’

Following explanation has been inserted after Section 12(1B) of the SEBI Act[1]:

"Explanation.- For the removal of doubts, it is hereby declared that, for the purposes of this section, a collective investment scheme or mutual fund shall not include any unit linked insurance policy or scrips or any such instrument or unit, by whatever name called, which provides a component of investment besides the component of insurance issued by an insurer."

It may be recalled that SEBI had assumed jurisdiction over ULIPs issued by the insurance companies primarily on two grounds, namely,

a) the ULIP schemes are akin to mutual funds, and hence are securities under the SEBI Act and SCRA. Section 2(h)(id) of the SCRA defined securities to include ‘units or any other instrument issued to investors under any mutual fund scheme’; and

b) under Section 12(1B) of the SEBI Act, no person is allowed to sponsor, carry on or cause to be carried on any venture capital fund, collective investment scheme, including mutual fund, unless the person obtains a certificate of registration from the SEBI.

The addition of the Explanations to the above two provisions has clarified the position that ULIPs are not units of mutual funds and, hence, are not securities. Therefore, SEBI will no longer be entitled to regulate ULIPs. The respective insertions in the Insurance Act, SEBI Act and the SCRA have been made with effect from April 9, 2010. Under the Ordinance, the ULIPs issued prior to April 9, 2010 too have also been validated, as if the same have been issued under proper authorization.

In the Ordinance, the Government has also provided for a mechanism whereby any dispute as to the jurisdiction of the regulatory bodies, namely SEBI, IRDA, Reserve Bank of India (“RBI”) and the Pension Fund Regulatory and Development Authority (“PFRDA”) shall be referred to a Joint Committee consisting of the Finance Minister, Finance Secretary, Secretary (Financial Services) and the chiefs of SEBI, IRDA, RBI and the PFRDA. The determination of the Joint Committee shall be binding on the regulators concerned. The RBI Act, 1934 has been amended to incorporate the joint mechanism by inserting Chapter IIIE (Section 45Y).

The Ordinance will remain valid for six months, prior to which it will need to be confirmed by the Parliament. If the Parliament fails to confirm the Ordinance, the Ordinance will lapse.

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[1] It may be noted that in the Ordinance there appears to be a typographical error in as much as the body of Section 5 of the Ordinance that amends SEBI Act states that the Explanation shall be inserted after sub-section (1B) of Section 2. There is no sub-section (1B) in Section 2. Our understanding that this is merely a typographical error is confirmed by the fact that the Heading of Section 5 clearly states that Section 12 of the SEBI Act is sought to be amended by Section 5 of the Ordinance. Also, Section 6 dealing with validation of past acts also refers to amended Section 12 of the SEBI Act.