On July 18, 2022, SEBI issued an informal guidance to Club Millionaire Financial Services Pvt. Ltd. (“Club Millionaire”) clarifying that the securities purchased by a client of a portfolio manager outside the Portfolio Management Services (“PMS”) arrangement will not be clubbed while determining limits under the SEBI (Substantial Acquisitions of Shares and Takeover) Regulations, 2011 ("SAST Regulations").
Club Millionaire, a registered portfolio manager, sought clarifications on whether a portfolio manager and its client, who is an acquirer, are Persons Acting in Concert (“PAC”) within the meaning of Regulation 2(1)(q) of SAST Regulations, and if a portfolio manager is accountable for the securities held by its client outside the PMS arrangement.
While clarifying the query, SEBI noted that under SAST Regulations, a portfolio manager and its client are deemed to be PAC, unless the contrary is established. Thus, for the purposes of determining whether any threshold limits are crossed, the portfolio manager and its clients are deemed to be PACs, and the shareholding of the clients and the portfolio manager (in its proprietary trading account) would be clubbed. However, SEBI clarified that when securities are purchased by clients outside of the PMS arrangement, a portfolio manager may not be a PAC with such clients and may not be held accountable for such securities.
It is not uncommon for clients to maintain multiple beneficiary accounts under a single PAN. Given that portfolio managers are rarely aware of the acquisition of shares made by their clients outside of the PMS arrangement, the informal guidance issued by SEBI comes as a relief. This is because if securities held outside the PMS arrangement are clubbed into the aggregate shareholding of PAC, it would be detrimental to portfolio managers as they would be compelled to ask for periodic confirmations from their clients and calculate shareholding percentages before any acquisition, in order to comply with the SAST Regulations.
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