SEBI registered investment adviser can’t provide services of creating or rebalancing ‘basket of foreign securities’, clarifies SEBI

SEBI/HO/IMD/DF1/OW/P/2021/32411/1, Dated 12-11-2021

The securities market regulator, SEBI in an interpretative letter under the SEBI (Informal Guidance) Scheme, 2003 has clarified that services of creation or rebalancing of foreign stacks by a SEBI registered Investment adviser doesn’t come under the purview of SEBI (Investment advisers) regulations, and therefore, can’t provide services of a creating or rebalancing of stacks incapacity of an Investment adviser.

SV Capital (SVC), an Investment Adviser registered with SEBI under the SEBI (Investment Advisers) Regulations, 2013 sought an interpretative letter under the informal guidance scheme.

SV Capital revealed that it was appointed by the US Company to execute the agreement with the US Stock Broker identified by the US Company under which, SV Capital was required to facilitate the purchase of foreign securities by customers through the Platform by providing the facilitation services described to the US Stock Broker.

It was sought by SV capital as to whether the service of creation and rebalancing of Stacks (a basket of foreign securities) for the US Company (which provides an online platform to Indian customers, to deal in foreign securities) based on certain predefined financial or qualitative criteria constitutes “investment advice” for the purpose of SEBI (Investment Advisers) Regulations, 2013?

SV Capital further sought an answer to a question as to whether the services provided by SV capital to US Company and US Stock Broker to facilitate the purchase of foreign securities i.e. securities listed on the overseas stock exchange through the platform constitute “distribution” services, given that SV Capital is not engaged by an intermediary or an issuer?

The SEBI replied that on the basis of submissions made by SVC, the proposed services by SVC, i.e., creating and rebalancing stacks for a US Company which provides an online platform for customers, including Indian Customers, to purchase and invest in foreign securities, and receiving compensation for the same in the form of commission or fixed monthly retainer does not appear to be an activity for providing ‘investment advice’ as envisaged under the IA Regulations. ‘’Consequently, the proposed services to be provided by SVC shall not come under the purview of IA Regulations. Hence, in the capacity of a SEBI registered investment adviser, SVC cannot provide the proposed services’’, said SEBI.

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