Depository participants knock SEBI door for enlarged role

K.Raghavendra Rao Mumbai | Updated on November 15, 2017

‘A legal framework is required to resolve this teething problem'

Depository participants have made a representation to stock market regulator SEBI to reconsider some of the responsibilities entrusted to depositories and depository participants (DP), said sources.

Analysts said that the existing regulation on depositories and DPs mandates them to deal only with securities pay-in and pay-out.

However, with the introduction of the new Qualified Foreign Investor (QFI) guidelines, the roles and responsibilities of the depository and DP have been extended beyond the original brief.

DPs are expected to do the know your customer (KYC) due diligence of a QFI; receive and remit foreign exchange; place buy and sell orders of securities on their behalf; ensure pay-in/pay-out of funds/securities on the designated day and also address all taxation related procedures.

In addition, they are also expected to ensure that the QFI uses only one demat account and one forex bank account; the shares held are free from all encumbrances and that the QFI does not issue P Notes to others and the like.

For monitoring and administering all this, DPs and depositories cannot charge anything.

Marketmen expect some amendments in regulations related to depositories and depository participants (DP) soon.

“It is a new evolution and a legal framework is required to resolve this teething problem,” said Mr. Pavan Kumar Vijay, MD, Corporate Professionals

In the absence of a legal framework, a DP and a depository cannot be pulled up for not having discharged their responsibilities said experts.

“In essence, what SEBI has time and again found difficult to do with respect to FIIs, the same is expected out of qualified depository participants (QDP). Ideally, the new category of QDPs should have been introduced by way of amendments to SEBI DP Regulations, which has not been done and some of the contemplated activities may go beyond the mandate of depository participants under DP Regulations and bye laws of the depositories,” said Mr. Tejesh Chitlangi of Finsec Law Advisors.

According to the Financial Action Task Force (FATF), the number of countries whose residents qualify to be a QFI is 36 (34 countries + two regional organisations) as the countries have to be fully compliant with the FATF standards on money laundering and terrorist financing.

In addition, only 80 countries have signed the multilateral memorandum of understanding of the International Organisation of Securities Commissions (IOSCO) regarding consultation, cooperation and exchange of information among market regulators.

Only six entities, Kotak Bank, HSBC, Deutsche Bank, Citibank NA, SBI SG Global securities services and India Infoline Limited qualify as a DP according to a list put up by SEBI. India Infoline is the only one to qualify as a DP in both NSDL and CDSL while the other five are qualified DPs of NSDL.


Published on January 17, 2012

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