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Depository Participant (DP) Business

Procedure for Establishment & Registration of a Depository with SEBI

The Depositories Act, 1996, has codified the essential features relating to the structure and functions of depositories along with the core of its rights and obligations. The act has delegated the task of formulating detailed procedural legislation to SEBI. SEBI has therefore issued the above-mentioned regulations in the same year. These Regulations deal in detail about the formation, registration, and obligations of:

 

 


Depositories

Depository Participants

It also prescribes the rights & obligations of the "Issuers" and that of "Beneficial Owners".

Procedure for Registration of a Depository by the sponsor

The sponsor of a depository is like the promoter of a public limited company. The term is defined in SEBI regulations aforesaid as "any person or persons who, acting alone or in combination with another person proposes to establish a depository and undertakes to perform the obligations of a sponsor under these regulations."

An application for the grant of a certificate of registration as a depository shall be made to SEBI by the sponsor accompanied by the fee specified and the draft bye-laws of the depository that is proposed to be set up. The sponsor should belong to one of the following categories.

a public financial institution;

a bank included for the time being in the Second Schedule to the Reserve Bank of India Act, 1934 (2 of 1934);

a foreign bank operating in India with the approval of the Reserve Bank of India;

a recognised stock exchange

a body corporate engaged in providing financial services where not less than seventy five percent of the equity capital is held by any of the institutions mentioned in sub-clause (i), (ii), (iii) or (iv) jointly or severally;

a body corporate constituted or recognised under any law for the time being in force in a foreign country for providing custodial, clearing or settlement services in the securities market and approved by the Central Government; or

an institution engaged in providing financial services established outside India and approved by the Central Government.

the applicant is a fit and proper person. When a person could be deemed as "fit and proper" is exhaustively described by SEBI in a separate regulation

The grant of a certificate of registration by SEBI to the sponsor is subject to the following further requirements
 

 

the depository shall pay the registration fee within fifteen days of receipt of intimation from the Board;

the depository shall comply with the provisions of the Act, the Depositories Ordinance, the bye-laws, agreements and the regulations governing depositories;

the depository shall not carry on any activity other than that of a depository unless the activity is incidental to the activity of the depository;

the sponsor shall, at all times, hold atleast fifty one per cent of the equity capital of the depository and the balance of the equity capital of the depository shall be held by its participants;

no participant shall at any time, hold more than five per cent of the equity capital of the depository;

no foreign entity individually or collectively either as a sponsor or as a participant or as a sponsor and participant together shall hold more than 20% of the equity capital of a depository.

Explanation: For the purpose of this regulation, a foreign entity shall mean a body corporate or an entity where more than 51% of its equity is held by persons who are not citizens of India.

 

 



if any information previously submitted by the depository or the sponsor to the Board is found to be false or misleading in any material particular, or if there is any change in such information, the depository shall forthwith inform the Board in writing;

the depository shall redress the grievances of the participants and the beneficial owners within thirty days of the date of receipt of any complaint from a participant or a beneficial owner and keep the Board informed about the number and the nature of redressals;

the depository shall make an application for commencement of business under regulation 14 within one year from the date of grant of certificate of registration under this regulation; and

the depository shall amend its bye-laws from time to time as may be directed by the Board.

Certificate of Commencement of Business
A depository, which has been granted a certificate of registration, shall make an application to SEBI for grant of certificate of commencement of business within one year. SEBI shall, before granting a certificate of commencement of business make a physical verification of the infrastructure facilities and systems established by the depository. After considering compliance of the following specified below and making physical verification, if the Board is satisfied that the depository is eligible to commence business as a depository, shall grant a certificate of commencement of business
 

 

The Board shall take into account for considering grant of certificate of commencement of business, all matters which are relevant to the efficient and orderly functioning of the depository and in

the depository has a net worth of not less than rupees one hundred crore;

the bye-laws of the depository have been approved by the Board;

the automatic data processing systems of the depository have been protected against unauthorised access, alteration, destruction, disclosure or dissemination of records and data;

the network through which continuous electronic means of communications are established between the depository, participants, issuers and issuers' agents is secure against unauthorised entry or access;

the depository has established standard transmission and encryption formats for electronic communications of data between the depository, participants, issuers and issuers' agents;

the physical or electronic access to the premises, facilities, automatic data processing systems, data storage sites and facilities including back up sites and facilities and to the electronic data communication network connecting the depository, participants, issuers and issuers' agents is controlled, monitored and recorded;

the depository has a detailed operations manual explaining all aspects of its functioning, including the interface and method of transmission of information between the depository, issuers, issuers' agents, participants and beneficial owners;

the depository has established adequate procedures and facilities to ensure that its records are protected against loss or destruction and arrangements have been made for maintaining back up facilities at a location different from that of the depository;

 


the depository has made adequate arrangements including insurance for indemnifying the beneficial owners for any loss that may be caused to such beneficial owners by the wrongful act, negligence or default of the depository or its participants or of any employee of the depository or participant; and

the grant of certificate of commencement of business is in the interest of investors in the securities market.

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