SEBI (Depositories and Participants) Regulations 2018

SEBI (Depositories and Participants) Regulations 2018 (Part 1)

Definition: The SEBI (Depositories and Participants) Regulations 2018 outline the requirements and guidelines for depository participants and depositories in India.
Details: The regulations cover various aspects, including registration, rights and obligations, record-keeping, and code of conduct for depository participants.

Key Concepts

Registration: Depository participants must register with SEBI and meet the required net worth criteria, which is rupees three crores within one year of notification and rupees five crores within two years.
Rights and Obligations: Depository participants must provide Basic Services Demat Account (BSDA) facility, enter into agreements with beneficial owners, and maintain separate accounts for each beneficial owner.
Record-Keeping: Depository participants must maintain records of all transactions, instructions, and statements of account, and preserve them for a minimum of 8 years.
Code of Conduct: Depository participants must adhere to a code of conduct that includes making efforts to protect investors' interests, rendering best possible advice, and maintaining high standards of integrity.
Default: Depository participants who contravene regulations, fail to furnish information, or do not cooperate with inspections may face action under the SEBI (Intermediaries) Regulations, 2008.
Pledge or Hypothecation: The depository participant must forward the application for pledge or hypothecation to the depository after verifying the availability of securities, and the depository shall create and record the pledge within 15 days.
Investor Grievances: Depository participants must redress investor grievances promptly, but not later than 21 calendar days from receipt of the grievance.
Compliance Officer: Depository participants must appoint a compliance officer to monitor compliance with regulations and report any non-compliance to SEBI.
Inspection: Depository participants must produce books, accounts, and records to the inspecting authority and furnish statements and information within a specified time period.

SEBI (Depositories and Participants) Regulations 2018 (Part 2)

Participant Obligations: A Participant shall not increase charges / fees for the services rendered without proper advance notice to the Beneficial Owners.
Fair Competition: A Participant shall not indulge in any unfair competition, which is likely to harm the interests of other Participants or investors or is likely to place such other Participants in a disadvantageous position while competing for or executing any assignment.
Client Information: A Participant shall not divulge to other clients, press or any other person any information about its clients which has come to its knowledge except with the approval / authorization of the clients or when it is required to disclose the information under the requirements of any Act, Rules or Regulations.
SEBI Cooperation: A Participant shall co-operate with SEBI as and when required.
Knowledge and Competency: A Participant shall maintain the required level of knowledge and competency and abide by the provisions of the Act, Rules, Regulations and circulars and directions issued by SEBI.
Record Keeping: A Participant shall take adequate and necessary steps to ensure that continuity in data and record-keeping is maintained and that the data or records are not lost or destroyed.
Internal Control: A Participant shall ensure that it has satisfactory internal control procedures in place as well as adequate financial and operational capabilities which can be reasonably expected to take care of any losses arising due to theft, fraud and other dishonest acts, professional misconduct or omissions.

Key concepts:

A Participant shall not make any untrue statement or suppress any material fact in any documents, reports, papers or information furnished to SEBI.
A Participant shall not neglect or fail or refuse to submit to SEBI or other agencies with which it is registered, such books, documents, correspondence, and papers or any part thereof as may be demanded / requested from time to time.
A Participant shall ensure that SEBI is promptly informed about any action, legal proceedings etc., initiated against it in respect of material breach or non-compliance by it, of any law, rules, regulations, directions of SEBI or any other regulatory body.
A Participant shall maintain a proper inward system for all types of mail received in all forms.
A Participant shall follow the maker-checker concept in all of its activities to ensure the accuracy of the data and as a mechanism to check unauthorized transactions.

Case Study: SEBI v/s Reliance Capital Ltd (RCL) highlights the importance of adhering to SEBI regulations and guidelines. The case involved RCL delegating its DP functions to RSL without prior approval from the depository, violating regulation 52 of the DP Regulations. RCL also failed to provide receipt of instruction from beneficial owners, violating regulation 42(2) and 42(3) of the DP Regulations.

Review Questions:

For an entity to function as a Depository Participant, it is mandatory for it to be registered with SEBI as a Depository Participant: (a) True
Every Depository Participant should put in place an adequate mechanism for (d) All of these (Reviewing, Monitoring, Evaluating) the internal accounting controls.
As per the SEBI (Depositories and Participants) Regulations, the records and documents should be reconciled by the Depository Participant with each depository on a (a) Daily basis.
As per the SEBI (Depositories and Participants) Regulations, a Depository Participant shall not increase charges / fees for the services rendered without proper advance notice to the Beneficial Owners: (a) True