Market Intermediaries and Participants
This domain tests who may act in the market, what registration or authorisation they need, and where liability sits when something goes wrong. Questions frequently test the distinction between an intermediary and its agent.
Regulated intermediaries
- Stock brokers and authorised persons; clearing members; depository participants.
- Merchant bankers, underwriters, registrars and share transfer agents.
- Portfolio managers, investment advisers, research analysts.
- Credit rating agencies, custodians, asset management companies, AIFs and FPIs.
Core obligations
- Registration with SEBI under the relevant regulations; net worth and fit-and-proper criteria.
- Know-your-client and client due diligence; risk profiling for advisers.
- Segregation of client funds and securities from the intermediary's own assets.
- Code of conduct, fair dealing, grievance redressal and records.
- A broker is responsible for the acts of its authorised person acting within authority.
Worked example
An investor pays ₹2,00,000 to a broker's authorised person by cheque drawn in the broker's name. The authorised person misappropriates it. The broker is liable because the authorised person acts on the broker's behalf and the cheque was in the broker's name. If the investor had paid cash into the authorised person's personal account, the broker could dispute authority, though KYC and supervision failures may still attract SEBI action. Client funds must sit in a separate client account and cannot fund the broker's own trades.
Traps
- Treating an authorised person as an independent intermediary; authorisation is not registration.
- Assuming an unregistered adviser can charge a fee because the client is sophisticated.
- Ignoring segregation: commingling client funds is itself a violation.
- Confusing a merchant banker's due-diligence role with a guarantee of issue proceeds.