Description

SEBI final order against DGS Capital Management for non-compliance with minimum net worth requirements, reporting obligations, and NISM certification requirements under Portfolio Managers Regulations.

Summary

SEBI issued a final order under Sections 11(1), 11(4), 11(4A), 11B(1), and 11B(2) of the SEBI Act, 1992 against DGS Capital Management Pvt. Ltd. (Registration No. INP000004870, PAN: AAFCD3473N), a SEBI registered Portfolio Manager since October 05, 2015. The order follows an examination for the period January 01, 2023 to December 31, 2024, revealing multiple non-compliances with PM Regulations including failure to maintain minimum net worth, submit mandatory reports, and meet NISM certification requirements.

Key Points

  • DGS Capital Management examined for violations during January 2023 to December 2024
  • Failed to maintain minimum net worth of INR 5 crores required by January 15, 2023 under PM Regulations
  • Failed to submit reports required under SEBI Master Circular for Portfolio Managers dated June 07, 2024
  • Non-compliance with NISM certification requirements under PM Regulations and SEBI Certification Regulations 2007
  • Interim order issued on February 17, 2025 directing compliance within 15 days
  • Prohibited from onboarding new clients and accepting additional funds/securities from existing clients until net worth requirement is met
  • Show cause notice issued for potential cancellation/suspension of registration

Regulatory Changes

No new regulatory changes introduced. The order enforces existing requirements under:

  • SEBI (Portfolio Managers) Regulations, 2020 - Regulation 9 read with 11(e) mandating minimum net worth of INR 5 crores
  • SEBI Master Circular for Portfolio Managers dated June 07, 2024 - reporting requirements
  • SEBI (Certification of Associated Persons in the Securities Markets) Regulations, 2007 - NISM certification requirements
  • SEBI (Intermediaries) Regulations, 2008 - Regulation 35 governing enforcement actions

Compliance Requirements

For DGS Capital Management:

  • Comply with minimum net worth requirement of INR 5 crores within 15 days from February 17, 2025
  • Prohibited from onboarding new clients until net worth compliance is achieved
  • Prohibited from accepting additional funds or securities from existing clients until net worth compliance
  • Must address NISM certification deficiencies for Principal Officer and associated persons
  • Must submit all pending reports as per PM Master Circular 2024

Potential Directions (Show Cause):

  • Transfer activities to another registered portfolio manager
  • Allow clients/investors to withdraw or transfer securities/funds without additional cost
  • Prohibition from accessing securities market or dealing in securities
  • Prohibition from association with any intermediary or capital market activity
  • Monetary penalty under Section 11B(2) and 11(4A) read with Section 15A(b) and 15HB of SEBI Act, 1992

For Other Portfolio Managers:

  • Maintain minimum net worth of INR 5 crores as per PM Regulations
  • Ensure timely submission of all regulatory reports
  • Ensure Principal Officers and associated persons hold valid NISM certifications

Important Dates

  • October 05, 2015: DGS Capital Management registered as Portfolio Manager
  • January 01, 2023 - December 31, 2024: Examination period
  • August 21, 2024: SEBI sought net worth and Principal Officer details
  • January 15, 2023: Deadline by which DGS was required to raise net worth to INR 5 crores (36 months from commencement of PM Regulations 2020)
  • February 17, 2025: Interim Order cum Show Cause Notice issued
  • 15 days from February 17, 2025: Deadline to comply with net worth requirement

Impact Assessment

Direct Impact:

  • DGS Capital Management faces potential suspension or cancellation of registration if non-compliance continues
  • Existing clients of DGS cannot add funds or securities to their portfolios during restriction period
  • No new client onboarding permitted until compliance achieved
  • Clients may need to transfer portfolios to another registered PM or withdraw investments

Market Impact:

  • Limited broader market impact as action is specific to one portfolio manager
  • Demonstrates SEBI’s strict enforcement of net worth and certification requirements for intermediaries
  • Serves as reminder to all registered Portfolio Managers to maintain continuous compliance with capital adequacy norms
  • May prompt other PMs to review their own net worth positions and reporting compliance

Regulatory Significance:

  • Reinforces importance of minimum net worth requirements for financial stability and client protection
  • Highlights SEBI’s focus on intermediary compliance and willingness to take stringent action
  • Establishes precedent for enforcement timeline and remedial measures for similar violations
  • Emphasizes need for proper principal officer certification and regulatory reporting discipline

Impact Justification

High severity enforcement action against a specific portfolio manager for regulatory violations. Limited broader market impact as it affects only DGS Capital Management and its clients. Important for compliance standards but not market-wide impact.