Basics of Registrar and Transfer Agents (RTA) – Need | Role | Types

A Registrar and Transfer Agent (RTA) plays a critical role in the financial market, particularly in the handling of securities such as stocks, bonds, and mutual funds. Here's a detailed explanation:
Registrar
The registrar aspect of an RTA involves maintaining a detailed registry of the shareholders and bondholders for the companies and institutions that have issued securities. They are responsible for ensuring the accuracy of investor records and managing the process of transferring securities ownership. This includes recording changes in ownership, updating the issuer's register of members, and ensuring that all securities are correctly accounted for.
Transfer Agent
As a transfer agent, the RTA is responsible for facilitating the transfer of ownership of securities from one party to another. This includes processing and approving the paperwork involved in buying, selling, or transferring securities, issuing and canceling certificates to reflect changes in ownership, and dealing with lost, stolen, or destroyed certificates.

Table of Contents

1. Introduction
2. Investor Service Centre (ISC) and Official Point of Acceptance (OPA)
3. Qualified Registrar and Transfer Agents (QRTAs)
4. RTA and Depository Interface
5. Financial Information Provider to Account Aggregator Network
6. Industry Overview

Check out NISM X Taxmann's Registrars to an Issue and Share Transfer Agents – Mutual Funds which covers all important aspects of the Registrar and Transfer Agents (RTA) functioning in Mutual Funds. These include the basic understanding of the Indian securities markets, the role and function of RTA in mutual fund issuance and transaction process, and the regulatory environment in which the RTAs operate in India.

1. Introduction

Registrar & Transfer Agents (RTA) is an intermediary taking all the responsibilities of the back end process of the various financial and non-financial transactions for corporates and mutual funds. The RTA undertakes the responsibility of record keeping and maintenance of each and every transaction relevant to the corporate or fund house. Also, the registrar & transfer agents helps investors to get information about corporate actions.

The RTA has 2 distinct roles:

1. As a custodian of data: It acts as the repository of information of investor data.
2. As a facilitator and enabler of various financial and non-financial transactions: It helps investors in processing of both financial and non-financial transactions.

All the RTAs appointed by the corporates or mutual fund houses are registered with SEBI.
Some of the tasks handled by an RTA include:

• Security dematerialization
• Payout of dividend/interest
• Investor record keeping and share transfer
• Processing purchase and redemption transactions for a MF
• Inquiry handling via phone, mail & online
• Regulatory reporting
• Issuance of duplicate share certificate
• Investor Education and Protection Fund (IEPF) claim settlement
• Change of name/name deletion/transposition/transmission
• Signature and address change

As this workbook deals with the RTAs working for mutual funds, we will focus our discussion on RTAs servicing mutual funds only.

1.1 Need for Registrar and Transfer Agents (RTAs)

Every day a large number of transactions, like buying, selling or switching units are done by mutual fund investors. Some of the transactions are financial transactions, while others are non-financial in nature like a change in bank details, change in contact details or address, etc. Each such request needs to be recorded and maintained by the fund houses. Since most mutual funds may not want to invest in these processes nor do they have the expertise to handle these huge transactions on a professional manner, they outsource this work to the registrar and transfer agents (RTA). By outsourcing these back end activities, a fund house is able to focus on its core activities.

1.2 Types of Registrar and Transfer Agents (RTAs)

Broadly, there are 2 types of RTAs functioning in securities markets:

1. Those serving corporates and their investors; and
2. Those serving mutual funds, their investors and distributors.

The focus of this module is on the latter segment. The following are the ways RTAs help the different stakeholders in mutual funds:

• Mutual Fund Companies

1. Reduction in cost of maintenance of huge investor data.
2. RTA offices present in different cities serves as mutual fund offices.
3. Sending of consolidated account statements, consolidated transaction details, portfolio statements to investor on behalf of mutual fund companies.
4. Providing one point customer service to the customers of mutual fund companies.

• Distributors

1. Helps distributors to buy and sell mutual funds on behalf of their clients.
2. Helps distributors to get a consolidated statement of sales done by them in any given month.
3. Provides sales material (both physical and softcopy documents) such as investor forms and other required handouts to the distributors.

• Investors

1. Provides detailed information related to new offers, NAV of funds, pay-out of income distribution cum capital withdrawal (IDCW) or maturity details etc.
2. Makes servicing related forms and information easily available to the customers.
3. Processes customer service requests, both financial and non-financial in nature.
   Provides investors with consolidated statements periodically.

1.3 Role of Registrar and Transfer Agents (RTAs)

Record-keeping of Investor data
The RTA is the custodian of the investor data, both for a fund house or a corporate. RTAs are responsible to record and maintain data, both financial and non-financial, either in physical or in electronic form. RTAs ensure that the integrity of the data processing systems is maintained at all times and take necessary precautionary measures to ensure that the records are not lost, destroyed or tampered with and ensure that sufficient backup of records is available at all times at a different place.

If shares are held in electronic/demat format, the RTA will maintain the record of the depository and the depository shall maintain further record of the individual shareholder. In case of physical shares, all details of the investor are maintained by the RTA.

The Depositories Act makes a distinction between a registered owner and a beneficial owner. In case of shares held in demat form, the depository is the registered owner. The depository maintains its own records of the beneficial owners. When shares are transferred in electronic mode within the same depository, the beneficial owner changes but the registered owner does not change. The depository provides the details of the holdings of the beneficial owners electronically to the Issuer or its Registrar and Transfer Agents (RTA) as of the relevant record date/book closure for the purpose of corporate actions and distribution of corporate benefits.

In case of securities held in physical form, the registered owner and the beneficial owner are the same.

Corporate Actions

A corporate action is an event carried out by a company that materially impacts its stakeholders (e.g. shareholders or creditors). Common corporate actions include the payment of dividends, issue of bonus shares, stock splits, buy-back of shares, rights issue and mergers & acquisitions. Corporate actions are approved by the company’s shareholders and its board of directors.

In each of these, the RTA has a critical role to play:

1. Determining the beneficiaries of the Corporate action based on book closure and record date
2. Transfer of dividend through NEFT/RTGS. Dispatch of payment instruments in case bank details are not available
3. Credit of new shares to demat account of the investor in case of stock split or bonus
4. Reconciliation of funds with bankers in case of a rights issue.
5. Assistance to company for finalizing allotment and post allotment activities such as credit of shares to demat account of investor and refund of excess money if any.

General Operations

In case the shares/units are held in electronic mode (demat), the RTA provides the interface between the corporate/fund house, investor and the Depository; whereas, in case of shares/units held in traditional physical format, the RTA provides the interface between the corporate/fund house and the investor. The RTA is also responsible for conversion of physical securities to demat and vice versa (if needed under any circumstances). RTAs also accept grievance redressal requests from the investors and maintain detailed records of the same.

In case of winding-up of mutual fund schemes, such units can be listed and traded on a recognized stock exchange, providing investors an optional channel to exit. Initially, the trading of such units to be done in demat form. However, stock exchanges along with RTAs shall have a mechanism in place for trading and settlement of such units held in form of Statement of Accounts/Certificate (physical form).¹

2. Investor Service Centre (ISC) and Official Point of Acceptance (OPA)

RTAs have a wide network of branches across the country. These branches act as Investor Service Centers (ISCs) for the mutual fund houses serviced by the RTAs and thereby help in cost reduction. ISCs are the points of contact for all transactions and also facilitate sales proceeds of the fund house. ISCs are equipped with state- of-the-art infrastructure to allow easy access to information, products and services by the investors. Operations and customer interactions are facilitated by skilled and dedicated manpower to deliver quality service, customer satisfaction and maintain standards across branches.

Investors invest in multiple schemes offered by various fund houses and they further perform transactions (purchases/redemptions) on a continuous basis. As per SEBI guidelines, there is a cut-off time by when the investment has to be made to be eligible for that day’s NAV. So, to make multiple investments, an investor avails the services of RTAs to conduct all his transactions. RTAs act as a single window system to investors where all the work and transaction related to various mutual funds are carried out at the ease of the investor through various Investor Service Centres.

In addition to the ISC, which are usually managed by an RTA, a fund house may specify other locations as Official Point of Acceptance (OPA). Any transactions received at these locations are deemed to have been submitted to the fund house or RTA for processing.

Some of the main tasks undertaken by an ISC/OPA are:

• Providing sale necessities like forms for investors and distributors.
• Providing statutory documents such as Scheme information Document (SID) and Statement of Additional Information (SAI)
• Providing statement of account on regular basis to distributors and investors
• Providing information to investors regarding new offers, pay-out of IDCW, maturity dates, etc.
• Accepting all investor transactions such as purchase, redemption, switch etc.
• Accepting requests for non-financial transactions such as change in bank mandate, signature update, etc.

3. Qualified Registrar and Transfer Agents (QRTAs)

Market Infrastructure Institutions (MIIs) are those institutions (such as stock exchanges, depositories, clearing corporations, etc.) that are systemically important for the country’s financial development and serve as the infrastructure necessary for the securities market. Government has issued various Acts and SEBI has prescribed various Regulations from time to time for the smooth functioning of these MIIs.

SEBI constituted a Committee and held meeting in 2018 to review the regulations and relevant circulars pertaining to MIIs. The Committee also looked into the desirability of extending the MII framework to certain market intermediaries including Registrar and Transfer Agents (RTAs) servicing more than 2 crore folios. These RTAs are known as Qualified Registrar and Transfer Agents (QRTAs).

Given the large number of transactions handled by QRTAs, the Committee therefore recommended compliance of enhanced monitoring requirements through adoption and implementation of internal policy framework.

4. RTA and Depository Interface

Securities are created by the issuer (corporate/MF) through an IPO or NFO or other corporate actions. They may be held in physical form or electronic mode. Earlier, all securities were created in physical form. In recent times, electronic issuance is the norm. Further, an investor has an option to switch between physical and electronic mode.

SEBI has prescribed detail process of converting the physical securities to demat/electronic mode and vice versa. This process has to have strict protocols and process to ensure against creation of duplicate securities and any other fraud. Online real time interface between the RTA and depository is essential for the sanctity of this process.

Companies who wish to admit their securities into the electronic mode must obtain electronic connectivity with both depositories, NSDL and CDSL. Alternately, they may use the services of an RTA for the same. The cost for setting up RTA connectivity is significantly less without compromising in any manner on security and safety of the system. The centralized architecture also allows the RTAs to provide the companies with a real time status of the holdings of their shareholders/MF unitholders.

All leading RTAs are currently connected to both NSDL and CDSL and are providing services to a number of companies across the country. A company can also obtain direct in-house connectivity with CDSL, the procedure and the cost for doing so is similar to that of a RTA.

SEBI, vide its circular on ‘Appointment of common agency for share registry work’ dated December 27, 2002, has advised issuers that “all the work related to share registry in terms of both physical and electronic should be maintained at a single point i.e. either in-house by the company or by a SEBI registered R & T Agent”. Thus, a company may either keep the record keeping in-house, or outsource to an RTA, but not both.

The real time interface is important for:

• Converting physical securities to demat form
• Converting demat securities to physical form
• Creation of new securities due to an IPO, bonus issue or other corporate action
• Extinguishing the securities due to winding-up of company, actions under Insolvency and Bankruptcy code, merger of MF schemes, winding-up of a close ended scheme, etc.

5. Financial Information Provider to Account Aggregator Network²

Government of India introduced a financial data-sharing system amongst financial institutions through the Account Aggregator (AA) network. An Account Aggregator (AA) is a RBI regulated Non-Banking Finance Company (NBFC) that facilitates retrieval or collection of financial information, pertaining to a customer, from Financial Information Providers (FIP) on basis of explicit consent of the customer.

RBI has notified list of eligible entities who can act as FIPs. Out of the list, AMCs through their RTAs and the Depositories are specified as FIPs in the securities markets for sharing of information. The FIPs in the securities markets shall share the ‘Financial Information’ pertaining to securities markets, through the AA, only on receipt of a valid consent artefact (electronic consent as defined in RBI Master Guidelines) from the customer through the AA. Post verification of the consent artefact, the FIPs in the securities markets shall digitally sign the financial information and securely transmit the same to the AA.

The financial information shared through the Account Aggregator is not stored by the AA, and it shall not be the property of the AA. This information is not to be used in any other manner except for the purpose of providing it to the customer or consented Financial Information User (FIU).

6. Industry Overview

The two leading Registrar and Transfer Agents (RTA) companies in India that are servicing in the mutual fund segment are Computer Age Management Services (CAMS) and K Fin Technologies Private Limited (Kfintech).Both these companies are instrumental in the smooth functioning of the mutual fund companies in India. CAMS and Kfintech provide services to all fund houses.

Some key metrics about the RTA business in India are:

• On an average 12 Lakh transactions are handled daily. This includes triggered transactions such as SIP triggers, IDCW transactions etc.
• Daily average transaction value is Rs. 1,50,000 crore (approx).
• Approximately 10.34 crore live folios in various schemes are served by RTAs (as on March 31, 2022).
• RTAs have a pan India presence, operating in over 250 locations, and providing services to the MF investing community.

1. SEBI Circular No.: SEBI/HO/IMD/DF3/CIR/P/2020/086 dated May 20, 2020.
2. SEBI Circular No.: SEBI/HO/MRD/DCAP/P/CIR/2022/110 dated 19-Aug-2022 on Participation as Financial Information Providers in Account Aggregator framework.