SECURITIES AND EXCHANGE BOARD OF INDIA
NOTIFICATION
Mumbai, the 28th February, 2023
SECURITIES AND EXCHANGE BOARD OF INDIA (DEPOSITORIES AND PARTICIPANTS) (AMENDMENT) REGULATIONS, 2023
No. SEBI/LAD-NRO/GN/2023/125.—In exercise of the powers conferred by section 30 of the Securities and Exchange Board of India Act, 1992 read with section 25 of the Depositories Act, 1996, the Board hereby makes the following regulations to further amend the Securities and Exchange Board of India (Depositories and Participants) Regulations, 2018 namely:—
1. These regulations may be called the Securities and Exchange Board of India (Depositories and Participants) (Amendment) Regulations, 2023.
2. They shall come into force on the one hundred and eightieth day from the date of their publication in the Official Gazette.
3. In the Securities and Exchange Board of India (Depositories and Participants) Regulations, 2018-
I. in regulation 2, sub-regulation (1),
i. clause (k) shall be substituted with the following, namely,-
“(k) “key management personnel” shall include:
i. any person appointed as the managing director or executive director; or
ii. a person serving as head of any department or vertical and directly reports to the managing director or to the directors on the governing board of the depository; or
iii. a person serving as head of a core function as specified under Fourth Schedule of these regulations; or
iv. a person who stands higher in hierarchy to the head of any department(s) handling core function(s) in the depository; or
v. reporting officials of key management personnel; or
vi. any person defined as a “key managerial personnel” under the Companies Act, 2013; or
vii. any other person who is key decision making authority at the level of the depository or its direct or indirect material subsidiaries, as identified by the managing director or its Nomination and Remuneration Committee:
Provided that in the case of a subsidiary of a depository that is regulated by a financial sector regulator; the norms specified by such a regulator may be considered for determining as to whether the person at the subsidiary is designated as a key management personnel.”
ii. after clause (k) and before clause (l), the following clause shall be inserted, namely,-
“(ka) “non-independent director” means a director elected or nominated by the shareholders who are neither depository participants nor their associates and agents;”
iii. clause (p) shall be omitted.
II. in regulation 7
i. clause c shall be renumbered as (c) (i).
ii. After clause (c) (i) the following shall be inserted
“(ii) An employee of a depository shall not simultaneously be an employee of any other company where the depository has invested.
(iii) A director, committee member or employee of a depository shall not receive any compensation or any other financial benefit from the companies where the depository has invested, other than fees and expenses related to the governing board and committee meetings.”
III. in regulation 24,
i. In clause (a) of sub-regulation (1), sub-regulation (3), sub-regulation (4), sub-regulation (5), sub-regulation (7), and sub-regulation (8), the words “shareholder directors” shall be substituted with the words and symbol “non-independent directors”.
ii. after sub-regulation (13), the following sub-regulation shall be inserted, namely,-
“(14) (a) The governing board of the depository shall comprise of directors having the requisite qualifications and experience in the areas of capital markets, finance and accountancy, legal and regulatory practice, technology, risk management, and management or administration:
Provided that the governing board of the depository shall comprise of at least one public interest director having the requisite qualification and experience in each of the areas of capital markets, finance and accountancy, legal and regulatory practice, and technology.
(b) The depository may also appoint directors having qualification and experience in other areas which may be specific to them:
Provided that the depository shall ensure that the governing board collectively comprises of directors with qualification and experience as specified at clause (a) above.”
IV. fter regulation 24, and before regulation 25, the following regulation shall be inserted, namely, – “Nominees of the Board on the governing board of a depository.
24A. The Board may appoint one or more persons not exceeding three in number, as director(s) on the governing board of any depository and such director(s) shall exercise the same powers as the other directors of the governing board.”
V. in regulation 25,
i. in sub-regulation (1) and sub-regulation (7) the words “shareholder directors” shall be substituted with the words and symbol “non-independent directors”.
ii. in sub-regulation (2), the words “nominated by” shall be substituted with the words “appointed with the prior approval of”.
iii. in sub-regulation (3),
a. the word “nominated” shall be substituted with the word “appointed”
b. in the first proviso, the words “nominated” shall be substituted with the words “appointed with the prior approval of the Board”
c. in the second proviso, the words “nominated” shall be substituted with the word “appointed” and the symbol “/” shall be substituted with the word “or”.
VI. in regulation 26, in sub-regulation (3), in second proviso, the words “of two terms not exceeding five years each” shall be substituted with the words “period of ten years”.
VII. in regulation 27,
i. The heading shall be substituted with the following, namely,-
“Code of Conduct for the governing board, directors, committee members and key management personnel”
ii. sub-regulation (1) shall be substituted with the following, namely,-
“(1) The governing board, directors, committee members and key management personnel of a depository shall abide by the Code of Conduct specified under Part- B of Third Schedule of these regulations.”
iii. sub-regulation (2) shall be omitted
iv. sub-regulation (4) shall be omitted.
VIII. regulation 29 shall be substituted with the following, namely,-
“Segregation of functions
29 (1) Every depository shall identify and segregate its functions into the following verticals:
(a) Critical Operations;
(b) Regulatory, Compliance, Risk Management and Investor Grievances; and
(c) Other functions including business development.
(2) The functions of the verticals under sub-regulation (1) above are provided at Fourth Schedule of these regulations.
(3) The functions under the verticals as provided at clause (a) and (b) of sub-regulation 1 shall be given higher priority by the depository over the functions under the vertical as provided at clause (c) of sub-regulation (1).
(4) Every depository shall periodically and objectively assess the adequacy of resources allocated to the first two verticals as specified in clause (a) and (b) of sub-regulation (1).
(5) Every depository shall adopt a “Chinese Wall” policy which separates the functions under vertical as provided at clause (b) of sub-regulation (1) from the functions of other verticals.
(6) The employees referred to in sub-regulation (5) shall not communicate any information concerning their activity to any one in other verticals and may be physically segregated from employees in other verticals including with respect to access controls:
Provided that in exceptional circumstances, employees from other verticals may be given confidential information on “need to know” basis, under intimation to the Compliance Officer.”
IX. in regulation 30,
i. in sub-regulation (1), the word “and” shall be substituted with the symbol “,” and after the words and symbol “sub-regulation (3)”, the words and symbol “and sub-regulation 3A” shall be inserted.
ii. in sub-regulation (2), in clause (a), after the words and symbol “committee;” the word “and” shall be inserted.
iii. in sub-regulation 2, clause (b)shall be omitted.
iv. in sub-regulation (3), clause (b) shall be omitted.
v. after sub-regulation (3), the following sub-regulation shall be inserted, namely,-“(3A) Investment Committee.”
vi. sub-regulation (4) shall be substituted with the following, namely,-
“(4) The composition, quorum and functions of the committees under sub-regulation (2), (3) and (3A) shall be in the manner as specified by the Board from time to time.”
X. after regulation 30 and before regulation 31, the following regulation shall be inserted, namely,-“Grievance Redressal Panel
30A. Every depository shall have Grievance Redressal Panel(s) to resolve investor grievances which shall function in the manner as may be specified by the Board.”
XI. in regulation 31, after sub-regulation (4), the following sub-regulations shall be inserted, namely,-
“(5) Every depository shall internally conduct annual evaluation of its performance and the performance of its statutory committees in such a manner as may be specified by the Board.
(6) Every depository shall also appoint an independent external agency to evaluate its performance and the performance of its statutory committees within such periodicity and in such a manner as may be specified by the Board.
(7) Every depository shall disclose, on their website, the agenda and minutes of its governing board meetings pertaining to regulatory, compliance, risk management and investor grievance areas, after approval of such minutes.
(8) If any director or key management personnel is or becomes aware of any act of wrongdoing at the depository and fails to report to its governing board or to the Board, such a person may be liable for action under these regulations, after providing him a reasonable opportunity of being heard.”
XII. in regulation 81, after sub-regulation (2), the following sub-regulation shall be inserted, namely,-
“(3) The compliance officer shall submit a report of any non-compliance of the Act, the Depositories Act, 1996, rules, regulations, circulars or directions issued thereunder and for the redressal of investors’ grievances, to the Board on a quarterly basis in the manner as may be specified by the Board.”
XIII. after regulation 81, and before regulation 82, the following regulation shall be inserted, namely, – “Appointment of the chief risk officer
81A. (1) Every depository shall appoint a chief risk officer to identify, monitor and initiate necessary steps to mitigate the risk associated with the functioning of a depository.
(2) The chief risk officer shall be responsible for the overall risk management of the depository and submit a report to the Board on half-yearly basis.”
XIV. after regulation 82 and before regulation 83, the following regulation shall be inserted, namely, – “Information and Data Sharing Policy
82A (1) Every depository and the company where the depository has invested shall lay down a framework for sharing and monitoring of data, including confidential and sensitive data.
(2) The policy framework shall contain:-
(a) means and manner of data sharing;
(b) types of data that can be shared;
(c) escalation matrix for data sharing;
(d) provisions to have a digital database for recording details of information shared along with recipients and reasons for sharing, etc.;
(e) mechanism to monitor the data shared, through use of technology, including periodic audits to ensure compliance with the policy framework; and
(f) accountability mechanism including fixing individual accountabilities for any breach of data sharing policy.”
XV. In Chapter IX, before regulation 84, the following regulation shall be inserted namely, – “ Power to call for information
83A. The Board may from time to time call for any information, documents or records from the depository or its governing board or any shareholder or applicant thereof and from depository participant.”
XVI. After Chapter IX and before Chapter X, the following Chapter shall be inserted namely, –
“CHAPTER IX-A
ENFORCEMENT
Power to issue directions and levy penalty by the Board
91A. (1) Without prejudice to exercise of its powers under the provisions of the Act, Depositories Act, 1996 and rules and regulations made thereunder, the Board may, either suo moto or on receipt of any information or during pendency of any inspection, inquiry or investigation or on completion thereof, in the interest of public or trade or investors or the securities market, issue such directions as it deems fit, including but not limited to any or all of the following:─
(a) directing a person holding equity shares or rights over equity shares in a depository in contravention of these regulations to divest his holding, in such manner as may be specified in the direction;
(b) directing transfer of any proceeds or securities to the Investor Protection Fund of a depository;
(c) debarring any depository, any shareholder of such depository, or any associate and agent of such shareholder, or any transferee of shares from such shareholder, or applicant(s), director(s) and key management personnel(s) of the depository from accessing the securities market and/or dealing in securities for such period as may be determined by the Board.
(2) The Board may take action against a depository, director, committee member, key management personnel, employee or any other person associated with the depository, for any contravention or abetting the contravention of these regulations, including the Code of Conduct specified under these regulations, provision of the Act, the Depositories Act, 1996, or any rules or regulations framed thereunder and any circulars or directions issued by the Board, either upon a reference or suo motu, as it deems fit, including but not limited to any or all of the following:—
(a) debarring a depository from introducing new products and services and restricting its existing activities, products and services, etc
(b) imposing such monetary penalty as may be determined by the Board on the depository, directors, committee members, key management personnel, employees or any other person associated with the depository.
(c) restricting any such person to attend meetings or otherwise participate or involve themselves in the functioning of the depository.
Explanation– For the removal of any doubt, it is clarified that the power of the Board to take appropriate action under sub-regulation (2) is without prejudice to the exercise of its powers under the provisions of the Act, the Depositories Act, 1996, and the rules and regulations made thereunder:
Provided that the Board while taking action under clauses (a) and (b) above shall have due regard to the factors, including but not limited to any or all of the following:-
(i) a mala fide intent; or
(ii) an act of commission or an act of omission; or
(iii) negligence, or
(iv) repeated instances of genuine decision making that went wrong.
(3) While adjudging the quantum of monetary penalty under the Act, the Board shall have due regard to the factors, including but not limited to any or all of the following:—
(a) the amount of disproportionate gain or unfair advantage, wherever quantifiable, made as a result of the default;
(b) the amount of loss caused to the depository or the securities market as a result of the default; and
(c) the repetitive nature of the default.”
XVII. regulation 94 shall stand omitted.
XVIII. regulation 95 shall stand omitted.
XIX. After regulation 96 and before regulation 97, the following shall be inserted namely,-
“Power to relax the strict enforcement of the regulations.
96A (1) The Board may suo motu or upon an application made by a depository, for reasons recorded in writing, grant relaxation from the strict compliance of any of the provisions of these regulations subject to such conditions as the Board deems fit to impose in the interests of investors in securities and the securities market, if the Board is satisfied that :
(a) the non-compliance is caused due to factors beyond the control of the entity; or
(b) the requirement is procedural or technical in nature.
(2) The depository making an application referred to under sub-regulation (1) shall pay a non-refundable fee of rupees one lakh payable by way of direct credit in the bank account through NEFT/ RTGS/ IMPS or online payment using the SEBI payment gateway or any other mode as may be specified by the Board from time to time.”
XX. in Second Schedule, in Part-C,
i. in clause (I), sub-clause (2) shall be substituted with the following, namely,-
“The depository, while recommending the name(s) of director, shall forward the above details to the Board, along with the minutes of the governing board meeting where the name(s) was approved, copy of the shareholder’s resolution (wherever applicable), and
a confirmation by the depository that they are fit and proper persons in terms of their fit and proper criteria, are not associated with any depository participant, trading member or clearing member in terms of regulation 24(9) read with regulation 2 (1) (c) of these regulations and compliance with the requirements specified in regulation 24 (14) .”
ii. in clause (III),
a. sub-clause (1) shall be substituted with the following, namely,-
“(1) The names of the public interest directors shall be forwarded to the Board after the approval of the governing board of the depository. The shareholders’ approval shall not be necessary. A minimum of two names shall be submitted to the Board for each vacancy of public interest directors, two months before such vacancy.”
b. in sub-clause (2), item (a) shall be substituted with the following, namely, – “(a) Qualifications as specified in regulation 24(14).”
c. n sub-clause (2), item (b) shall be omitted.
d. In sub-clause (3), the words and symbols “The depository may conduct familiarization programmes for newly appointed public interest directors and may also conduct annual training for every public interest director.” shall be omitted.
e. sub-clause (4) shall be substituted with the following, namely,-
“(4) In case of reappointment of the public interest director, the depository shall apply to the Board four months before the expiry of the term. In addition to the other requirements specified herein, the application for reappointment of the public interest director shall be accompanied with, their attendance details on meetings of various mandatory committees and on the governing board of the depository, performance review and the reasons for extension of term.”
f. sub-clause (5) shall be substituted with the following, namely,-
“(5) The existing public interest director, may continue holding the post for a maximum period of three months from the date of expiry of their term, or till a new public interest director is appointed, whichever is earlier, only if the governing board does not meet the mandatory regulatory requirements on its composition.”
iii. in clause (IV),
a. in the heading, the words “shareholder directors” shall be substituted with the words and symbol “non-independent directors.”
b. in sub-clause (1), the words “shareholder directors” shall be substituted with the words and symbol “non-independent directors”.
c. sub-clause (2) shall be substituted with the following, namely, –
“(2) The manner of election, appointment, tenure, resignation, vacation, etc. of a non-independent director shall be governed by the provisions applicable to shareholder directors under the Companies Act, 2013, save as otherwise specifically provided under these Regulations or circulars issued thereunder.”
iv. after clause (V), the following sub-clause shall be inserted, namely,-“(VI.) The depository shall provide at least seven days of training to all directors each year.”
XXI. in Second Schedule, in Part-D,
i. in clause 1(a), the words “not exceed one third of total pay” shall be substituted with the words “be within a range of 25% to 50% of total pay”.
ii. in clause 1(b), after the word “after” and before the words “three years”, the words “a minimum period of” shall be inserted.
XXII. in third Schedule,
i. PART-B, shall be substituted with the following, namely,-
“PART-B
[SEE REGULATION 27]
Code of Conduct for governing board, directors, committee members and key management personnel
I. Governing Board
The governing board of the depository shall –
(a) evaluate profitability margins of the depositories.
(b) ensure adequacy of resource allocation (both financial and human) towards regulatory compliances.
(c) focus on strategy, policy level issues and important matters and may review the day-to-day operational matters only in exceptional cases.
(d) oversee the critical operations including technology as well as the regulatory, risk management, compliance and investor grievance redressal functions of the depository.
(e) take the lead in succession planning for managing director and other key positions.
(f) play an active role in defining, establishing and documenting risk management framework, covering risk appetite or risk tolerance policy of the depository and ensure that the policy contains the following.
i. role of risk appetite in key processes
ii. clear quantitative metrics and thresholds to monitor performance of the depository’s risk appetite
iii. acceptability of breaches and trigger response(s), if any.
iv. zero tolerance for areas such as cyber security, system stability, surveillance, fair access, fraud or corruption, compliance, etc.
(g) make key stakeholders (executive and non-executive) aware of the use and value of risk appetite across the organization (including implications of breaches) and review and approve risk appetite metrics and thresholds periodically.
(h) ensure adequate independence of key functions such as regulatory and control functions (risk management, compliance and audit functions) such that;
i. regulatory and control functions have sufficient stature to perform their tasks effectively.
ii. regulatory and control functions operate independently and have appropriate direct access to the governing board of the depository and senior management.
iii. control functions are proactively involved in all relevant decisions and activities.
(i) Provide for three lines of defense construct where:
i. the first line of defense incorporates business units and support functions as it has the responsibility to own and manage risks associated with day to day operational activities.
ii. the second line of defense comprises various oversight functions, i.e., regulatory, risk management and compliance teams, and
iii. the third line of defense comprises the internal audit function.
(j) ensure that the roles and responsibilities of management in relation to three lines of defense are clearly specified and understood and that all employees are responsible for the regulatory, risk management and compliance outcomes.
(k) ensure a culture of effective communication and challenge (i.e., encourage alternate views or questions from individuals and groups) and value and respect it.
(l) ensure that any new product, service, revenue stream is examined by the concerned department of the depository from the compliance and risk management perspectives in addition to normal viability issues before approving the same.
(m) review periodically all existing products, services, revenue streams.
(n) shall meet, without the presence of the managing director and any other executive director, chief regulatory officer or compliance officer, the chief risk officer, the chief information security officer, the statutory auditor of the depository and any other person as determined by the public interest directors and non-independent directors to discuss important issues concerning the depository, on a periodic basis as specified by the Board.
(o) periodically review the frequency of meetings and agenda items of the governing board to ensure that the number of meetings is rationalized and all important issues are discussed.
(p) ensure that the agenda papers are approved by the chairman of the governing board.
(q) ensure that members of the governing board can place agenda item during their meeting.
(r) be responsible for monitoring compliance with the code of conduct by the members of the governing board of the depository.
(s) uphold a strong culture in the depository and promote the target culture from the top through behavior, actions and effective communication.
(t) communicate the guiding principles for institution’s target regulatory, compliance, risk and conduct culture.
(u) endeavor that the depository put in place key elements related to culture such as:
i. adequate training programs to help employees better understand expectations of behavior (for example, trainings on dilemmas);
ii. mechanisms to measure and track indicators related to culture at regular intervals;
iii. accountability mechanisms; and
iv. performance management mechanisms which take into account adherence to culture, conduct and behavior related dimensions.
II. Code of Conduct for Directors, Committee Members and key management personnel
A. Applicable to directors, committee members and key management personnel of Depository:
1. General Responsibility.
Every director, committee members and key management personnel of the depository shall—
(a) analyse and administer the depositories’ issues with professional competence, fairness, impartiality, efficiency and effectiveness;
(b) submit the necessary disclosures or statement of holdings or dealings in securities as required by the depository from time to time as per their Rules, Bye-laws or Articles of Association;
(c) unless otherwise required by law, maintain confidentiality and not divulge or disclose any information obtained in the discharge of their duty and no such information is used for personal gains;
(d) maintain the highest standards of personal integrity, truthfulness, honesty and fortitude in discharge of their duties in order to inspire public confidence and not engage in acts discreditable to their responsibilities;
(e) perform their duties in an independent and objective manner and avoid activities that may impair, or may appear to impair, their independence or objectivity or official duties;
(f) perform their duties with a positive attitude and constructively support open communication, creativity, dedication, and compassion;
(g) not engage in any act involving moral turpitude, dishonesty, fraud, deceit, or misrepresentation or any other act prejudicial to the administration of the depository;
(h) promote greater awareness and understanding of ethical responsibilities;
(i) in the conduct of their business, observe high standards of commercial honour and; just and equitable principles of trade;
(j) in their conduct in business life be exemplary which may set a standard for others;
(k) not use their position to give or get favours to or from the executive or administrative staff of the depository, technology or service providers and vendors or suppliers of the depository;
(l) not commit any act which will put the reputation of the depository in jeopardy;
(m) comply with the provisions of all applicable laws to the securities market;
(n) directors and key management personnel shall at all point of time comply with all the internal policies of the depository including their code of conduct. If there is a conflict between the code of conduct policy of the depository with those provided by the Board, then the policy issued by the Board shall prevail.
2. Regulatory Compliances.
Every director, committee member and key management personnel of the depository shall—
(a) ensure that the depository abides by all the applicable provisions of the Act, the Depositories Act, 1996, rules and regulations framed thereunder and the circulars, directions or any other instructions issued by the Board from time to time;
(b) ensure compliance at all levels so that the regulatory system does not suffer any breaches;
(c) ensure that the depository takes steps commensurate to honour the time limit stipulated by Board for corrective action.
3. Disclosures of Beneficial Interest.
All directors, committee members and key management personnel shall disclose to the governing board of depository, upon assuming office and during their tenure in office, whenever the following arises:—
(a) any fiduciary relationship of self and family members and directorship/ partnership of self and family members in any trading member or clearing member or depository participant or registrar and transfer agent;
(b) shareholding, in cases where the shareholding of the director/ key management personnel, directly or through his family exceeds 5 percent in any listed company or in other entities related to the securities markets;
(c) any other business interests.
4. Access to Information.
(a) There shall be prescribed channels through which information shall move and further there shall be audit trail of the same. Any retrieval of confidential documents or information shall be properly recorded.
(b) All such information, especially which is non-public and price sensitive, shall be kept confidential and not be used for any personal consideration or gain.
(c) Any information relating to the business or operations of the depository, which may come to the knowledge of directors or committee members or key management personnel during performance of their duties shall be held in strict confidence, shall not be divulged to any third party and shall not be used in any manner except for the performance of their duties.
(d) Directors shall call for information only as part of specific committees or as may be authorised by the governing board of depository.
5. Misuse of Position.
Directors or committee members or key management personnel shall not use their position to obtain business or any pecuniary benefit in the organization for themselves or family members.
B. Applicable to the Directors and Committee Members
1. Meetings and Minutes.
The directors and committee members of the depository shall—
(a) not participate in discussions on any subject matter in which any conflict of interest exists or arises, whether pecuniary or otherwise, and in such cases the same shall be disclosed and recorded in the minutes of the meeting;
(b) not encourage the circulation of agenda papers during the meeting, unless circumstances so require;
(c) ensure that minutes are recorded to capture all points of opinion comprehensively;
(d) offer their comments on the draft minutes and ensure that the same are incorporated in the final minutes;
(e) insist on the minutes of the previous meeting being placed for approval in subsequent meeting;
(f) endeavor to have the date of next meeting fixed at each governing board meeting and committee meetings respectively in consultation with other respective members of the governing board and committees;
(g) ensure that all important agendas placed before the governing board of depository and committees are deliberated in a timely manner;
(h) not support any decision in the meeting of the governing board of depository and the committees respectively which may adversely affect the interest of investors and shall report forthwith any such decision to the Board.
2. Role of the directors and committee members in the day to day functioning of the depository.
(a) The directors and committee members shall not interfere in the day to day functioning of the depositories and shall limit their role to decision making on policy issues and to issues as the governing board of depository may decide.
(b) The directors and committee members shall abstain from influencing the employees of the depositories in conducting their day to day activities.
(c) The directors and committee members shall not be directly involved in the function of appointment and promotion of employees unless specifically so decided by the governing board of depository.
3. Avoidance of Conflict of Interest.
(a) No Director or committee member of the depository shall participate in any decision making/adjudication in respect of any person/ matter in which he or she is in any way, directly or indirectly, concerned or interested.
(b) Conflict of interest in a matter, if any, shall be decided by the governing board of the depository.
4. Strategic Planning.
Every director and committee member of the depository shall—
(a) participate in the formulation and execution of strategies in the best interest of the depository and contribute towards pro-active decision making at the governing board level;
(b) give benefit of their experience and expertise to the depository and provide assistance in strategic planning and execution of decisions;
(c) place priority for redressing investor grievances and encouraging fair trade practice so that the depository becomes an engine for the growth of the securities market.
5. Disclosure of dealings in securities by Directors of the Depositories.
(a) All transactions or dealings in securities by the directors and their immediate relatives (as defined in Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 2015) shall be disclosed to the governing board of the depository.
(b) All directors shall also disclose the trading conducted by firms or corporate entities in which they hold twenty percent or more beneficial interest or hold a controlling interest, to the depository.
(c) The details including time period for disclosures stated above shall be provided by the depository, provided that the time period for disclosure shall not be later than fifteen days of the transaction/ dealing.
(d) Directors who are nominees of Government of India, its statutory bodies or Public Financial Institutions and are governed by their own codes shall be exempt from this requirement.
C. Applicable to public interest directors
(a) Public interest directors of the depositories shall endeavor to attend all the governing board meetings and they shall be liable to vacate office if they remain absent for three consecutive meetings of the governing board or do not attend seventy-five percent of the total meetings of the governing board in a calendar year.
(b) Public interest directors shall meet separately, at least once in six months to exchange views on critical issues. Public interest directors shall submit a report of such meeting to the Board and to the governing board of the depository within the time and manner as may be specified by the Board from time to time.
(c) Public interest directors shall identify important issues which may involve conflict of interest for the depository, or may have significant impact on the functioning of the depository, or may not be in the interest of securities market. The same shall be reported to the Board in a time bound manner as may be decided by the depository.
(d) Public interest directors shall have regular oversight on regulatory requirements and observations of Board’s inspection particularly on issues of governance standards, technology and cyber security and system audit and cyber security audit observations.
(e) Public interest directors should be proactive in identifying any issues concerning functioning of the depository and report the same to the Board. Public interest directors should ensure all regulatory communication or letter from the Board are placed before governing board with comments/report of managing director.
(f) Public interest directors shall put in place an evaluation mechanism to assess the performance of managing directors on a continuing basis in line with evaluation guidelines for public interest directors.
(g) Public interest directors shall ensure that appointments of managing director be held within specified timelines. Identification of key management personnel be closely scrutinized as per the laid down procedure and exceptions should be brought to the notice of the Board.
(h) Public interest directors should take proactive part in deliberations of different committees and steer their functioning.
(i) Adequacy of resource allocations (both financial & human) towards regulatory compliances to be ensured.
D. Applicable to Independent External Professionals
(a) Independent External Professionals shall not use or act on any sensitive information received in capacity as a member of the statutory committee for obtaining any undue benefit.
E. Applicable to key management personnel
(a) Managing director of the depository shall meet employees without the presence of other key management personnel (the heads of departments) to discuss important issues pertaining to depository
(b) Key management personnel of the depository shall disclose on a periodic basis as determined by the depository (which could be monthly), all their dealings in securities, directly or indirectly, to the governing board or regulatory oversight committee or Compliance Officer of depository.
(c) All transactions must be of an investment nature and not speculative in nature. Towards this end, all securities purchased must be held for a minimum period of sixty days before they are sold. In specific/ exceptional circumstances, however, sale can be effected anytime by obtaining pre-clearance from the compliance officer to waive this condition after recording in writing his satisfaction in this regard.
Explanation. – “securities” for the purpose of this code shall not include mutual fund units.”
v. PART C shall be omitted
vi. PART D shall be substituted with the following, namely-,
“PART-D
[See Regulation 17]
Code of Conduct for Depositories
A Depository shall:
(a) always abide by the provisions of the Act, Depositories Act, 1996, any Rules or Regulations framed thereunder, circulars, guidelines and any other directions issued by the Board from time to time.
(b) adopt appropriate due diligence measures.
(c) take effective measures to ensure implementation of proper risk management framework and good governance practices.
(d) take appropriate measures towards investor protection and education of investors.
(e) treat all its applicants/members in a fair and transparent manner.
(f) promptly inform the Board of violations of the provisions of the Act, the Depositories Act, 1996, rules, regulations, circulars, guidelines or any other directions by any of its issuer or issuer’s agent.
(g) take a proactive and responsible attitude towards safeguarding the interests of investors, integrity of depository’s systems and the securities market.
(h) endeavor for introduction of best business practices amongst itself and its members.
(i) act in utmost good faith and shall avoid conflict of interest in the conduct of its functions.
(j) not indulge in unfair competition, which is likely to harm the interests of any other Depository, their participants or investors or is likely to place them in a disadvantageous position while competing for or executing any assignment.
(k) segregate roles and responsibilities of key management personnel within the depository including
a. Clearly mapping legal and regulatory duties to the concerned position
b. Defining delegation of powers to each position
c. Assigning regulatory, risk management and compliance aspects to business and support teams
(l) be responsible for the acts or omissions of its employees in respect of the conduct of its business.
(m) monitor the compliance of the rules and regulations by the participants and shall further ensure that their conduct is in a manner that will safeguard the interest of investors and the securities market.
XXIII. Fourth Schedule shall be substituted with the following, namely,-:
“FOURTH SCHEDULE
Securities and Exchange Board of India (Depositories and Participants) Regulations, 2018
See regulation 2(k)(iii)
Core functions of the depository
1. For depositories the core and critical functions shall include but not limited to:
a. Vertical 1: Critical Operations
i. Provision for dematerialization of securities including holding and transfer of such securities;
ii. Record keeping of information related to dematerialized securities;
iii. IT infrastructure for core and critical functions;
iv. Business continuity plan and disaster recovery operations;
v. Cyber Security and cyber resilience framework.
b. Vertical 2: Regulatory, compliance, risk management and investor grievances.
i. Risk management;
ii. Surveillance and investigation;
iii. Participant registration;
iv. Issuer or securities admission;
v. Compliance;
vi. Inspection;
vii. Enforcement;
viii. Arbitration and grievance redressal mechanism;
ix. Investor protection and services.
c. Vertical 3: Other Functions including Business Development.
i. Sales;
ii. Marketing;
iii. Product Development;
iv. Finance.”
BABITHA RAYUDU, Executive Director
[ADVT.-III/4/Exty./667/2022-23]
Footnote:
2. The Securities and Exchange Board of India (Depositories and Participants) Regulations, 2018 were subsequently amended on, –
