settlements with the US Securities and Exchange Commission (SEC) for charges of
carrying on brokerages services to institutional investors in the United States
(US) without registration under the US Securities Exchange Act of 1934 (the
Exchange Act). The SEC’s press release and the orders pertaining to the four
brokerages are available here.
carrying out activities in the US that required registration under the Exchange
Act, unless they were able to avail of exemptions. However, none of this was
obtained by the brokerages. As the SEC notes, “Section 15(a) of the Exchange
Act generally prohibits a broker or dealer from making use of the mails or any
instrumentality of interstate commerce to effect any transaction in, or to
induce or attempt to induce the purchase or sale of any security without being
registered with the [SEC] as a broker-dealer”. SEC charged the brokerages for
violation of this provision and the relevant rules.
carried out by the brokerages, which were said to contravene US securities
laws. These include:
Travel to the US to meet with US investors;
Contact with US investors through email and
Transmission of research reports on Indian
companies to US investors;
Purchase and sale of shares on Indian stock
exchanges on behalf of US investors;
Entering into commission sharing agreements with
US registered broker-dealers, and soliciting and providing brokerage services
Organizing and sponsoring investor conferences
in the US;
Participation as a broker in offerings of Indian
companies, including initial public offerings, follow-on public offerings and qualified
institutional placements (QIPs), which were carried predominantly in India but
with some shares being marketed and sold to US investors.
accepting or denying the findings of the SEC, the above discussion provides
some guidance as to the type of activities by Indian brokerages that could be
called into question by US securities laws.
standpoint would be for brokerages carrying out such activities to register
themselves with the SEC. This is particularly relevant given the effects of
globalization and the cross-border nature of the securities markets. Several
domestic Indian offerings of securities are extensively marketed to overseas
investors. Hence, compliance with securities laws in those jurisdictions
becomes important from a regulatory perspective. Given that both the
substantive laws and enforcement in the US are quite strong, we find instances
such as the present charges/settlements, but the same would apply in other
leading capital market jurisdictions as well.