On October 3, 2018, the Government of India published an important regulatory framework in The Gazette of India—the Securities and Exchange Board of India (Depositories and Participants) Regulations, 2018. This comprehensive set of rules, issued by SEBI under powers granted by the SEBI Act, 1992 and the Depositories Act, 1996, aims to strengthen the functioning, governance, and oversight of depositories and their participants in the Indian securities market.
Depositories such as NSDL and CDSL form the backbone of India’s dematerialised securities ecosystem. They ensure seamless holding, transfer, and settlement of securities electronically—reducing paperwork, enhancing transparency, and improving the efficiency of market transactions. The 2018 Regulations were designed to modernise this ecosystem through clearer definitions, stronger governance norms, and stricter compliance requirements.
Clarity Through Definitions
A major portion of the initial chapter focuses on defining key terms essential for interpreting the regulations. Words like applicant, associate, governing board, public interest director, and key management personnel are precisely laid out.
One significant definition is “change in control,” which varies depending on whether the entity is a listed or unlisted body corporate, or a non-corporate entity. This clarity prevents ambiguity in ownership transitions and ensures that any structural changes do not compromise investor protection or regulatory oversight.
Stricter Eligibility and Registration Requirements
The regulations make it clear that no entity may operate as a depository without SEBI registration. Applicants must submit detailed documentation, including draft by-laws and prescribed fees, and must fit within the eligible shareholder categories.
SEBI reserves the right to seek clarifications, demand personal representation, or reject an application if it does not meet the mandatory standards. Importantly, applicants must also qualify as “fit and proper persons,” emphasizing integrity, financial soundness, and competence.
Conditions for Grant of Registration
Once SEBI approves an applicant, the registration comes with stringent conditions:
- The depository must comply with all Acts, rules, and regulations.
- Shareholding of the applicant is locked in for five years, ensuring long-term commitment.
- A depository cannot undertake any non-incidental business activity without SEBI approval.
- It must address investor and participant complaints within 21 calendar days, reflecting SEBI’s strong focus on grievance redressal.
- Annual fees, monthly custody-charge contributions, and interest on delayed payments must be paid promptly.
These conditions collectively strengthen governance and ensure that depositories operate with transparency and accountability.
Commencement of Business
Registration isn’t the final step. Depositories must apply separately for a certificate of commencement of business within a year. SEBI again scrutinizes operational readiness, ensuring that essential systems, risk controls, and infrastructure are in place before the depository begins operations.
In summary, the SEBI (Depositories and Participants) Regulations, 2018 serve as a cornerstone for safeguarding the integrity of India’s capital market infrastructure. By tightening governance norms, enhancing transparency, and prioritizing investor protection, these regulations reinforce trust in the demat system and ensure India’s markets remain robust, efficient, and future-ready.