The Securities and Exchange Board of India (SEBI) has issued the Second Amendment to the Depositories and Participants Regulations, 2018, effective from August 26, 2024. This amendment introduces Chapter VIIA, which imposes new restrictions on depositories and their agents concerning their associations with certain entities. Specifically, depositories are prohibited from having direct or indirect associations with persons providing advice or making performance claims related to securities unless those persons are registered with or permitted by SEBI. The amendment defines “association” broadly to include financial transactions, client referrals, and interactions of IT systems. The regulations also introduce the concept of a “specified digital platform” that must have mechanisms to prevent unauthorized activities related to securities. Furthermore, the amendment includes a provision allowing SEBI to take appropriate action, including sanctions, against any violations of these new restrictions. This update reflects SEBI’s ongoing efforts to strengthen regulatory oversight and maintain the integrity of the securities market.
SECURITIES AND EXCHANGE BOARD OF INDIA
NOTIFICATION
Mumbai, the 26th August, 2024
SECURITIES AND EXCHANGE BOARD OF INDIA (DEPOSITORIES AND PARTICIPANTS) (SECOND AMENDMENT) REGULATIONS, 2024
No. SEBI/LAD-NRO/GN/2024/200.— In exercise of the powers conferred by section 30 of the Securities and Exchange Board of India Act, 1992 (15 of 1992) read with section 25 of the Depositories Act, 1996 (22 of 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) (Second Amendment) Regulations, 2024.
2. They shall come into force on the date of their publication in the Official Gazette.
3. In the Securities and Exchange Board of India (Depositories and Participants) Regulations, 2018, after Chapter VII and before Chapter VIII, the following Chapter shall be inserted, namely,–
“CHAPTER VIIA
RESTRICTION IN DEALING WITH OTHER ENTITIES
Restriction in having association with certain persons
82B. (1) No depository or its agent, shall have any direct or indirect association, with another person who-
(i) provides advice or any recommendation, directly or indirectly, in respect of or related to a security or securities, unless the person is registered with or otherwise permitted by the Board to provide such advice or recommendation; or
(ii) makes any claim, of returns or performance expressly or impliedly, in respect of or related to a security or securities, unless the person has been permitted by the Board to make such a claim:
Provided that the provisions of this sub-regulation shall not apply in respect of an association through a specified digital platform.
(2) The depository shall ensure that any person associated with it or its agent does not engage in the activities mentioned in clauses (i) or (ii) of sub-regulation (1) without the necessary permission.
Explanation 1. – For the purposes of this regulation, the expression “association” shall mean-
(a) a transaction involving money or money’s worth;
(b) referral of a client;
(c)interaction of information technology systems;
(d) any other association of a similar nature or character.
Explanation 2. – For the purposes of this regulation, the expression “specified digital platform” shall mean a digital platform as specified by the Board, which has a mechanism in place to take preventive as well as curative action, to the satisfaction of the Board, to ensure that such a platform is not used for indulging in any activity as referred to in clause (i) or (ii) of sub-regulation (1).
Explanation 3. – For the removal of doubts, it is clarified that the term “another person” in this regulation shall not include a person who is engaged in investor education, provided that such a person does not, directly or indirectly, indulge in any activity as referred to in clause (i) or (ii) of sub-regulation (1) without the necessary permission.
82C. The Board may, in case of violation of any of the provisions of regulation 82B, take such action as it may deem fit including action under Chapter V of the Securities and Exchange Board of India (Intermediaries) Regulations, 2008.”
BABITHA RAYUDU, Executive Director
[ADVT.-III/4/Exty./441/2024-25]
Footnote:
1. The Securities and Exchange Board of India (Depositories and Participants) Regulations, 2018 were published in the Gazette of India on October 3, 2018 vide No. SEBI/LAD-NRO/GN/201 8/40.
2. The Securities and Exchange Board of India (Depositories and Participants) Regulations, 2018 were subsequently amended on, –
a. 4th June, 2019 by the Securities and Exchange Board of India (Depositories and Participants) (Amendment) Regulations, 2019 vide No. SEBI/LAD-NRO/GN/2019/20.
b. 21st February, 2020 by the Securities and Exchange Board of India (Depositories and Participants) (Amendment) Regulations, 2020 vide No. SEBI/LAD-NRO/GN/2020/04.
c. 17th April, 2020, by the Securities and Exchange Board of India (Regulatory Sandbox) (Amendment) Regulations, 2020, vide No. SEBI/LAD-NRO/GN/2020/10.
d. 5th May, 2021, by the Securities and Exchange Board of India(Payment of Fees and Mode of Payment) (Amendment) Regulations2021, vide No. SEBI/LAD-NRO/GN/202 1/23.
e. 3rd August, 2021, by the Securities and Exchange Board of India(Regulatory Sandbox) (Amendment) Regulations, 2021, vide No. SEBI/LAD-NRO/GN/202 1/30..
f. 13th August, 2021 by the Securities and Exchange Board of India (Depositories and Participants) (Amendment) Regulations, 2021vide No. SEBI/LAD-NRO/GN/202 1/43.
g. 26th October 2021 by the Securities and Exchange Board of India (Depositories and Participants) (Second Amendment) Regulations, 2021 vide No. SEBI/LAD-NRO/GN/2021/53.
h. 23rd February 2022 by the Securities and Exchange Board of India (Depositories and Participants) (Amendment) Regulations, 2022 vide No. SEBI/LAD-NRO/GN/2022/74.
i. 2nd March 2023 by the Securities and Exchange Board of India (Depositories and Participants) (Amendment) Regulations, 2023 vide No. SEBI/LAD-NRO/GN/2023/125.
j. 22nd August, 2023 by the Securities and Exchange Board of India (Depositories and Participants) (Second Amendment) Regulations, 2023 vide No. SEBI/LAD-NRO/GN/2023/147.
k. 10th May, 2024 by the Securities and Exchange Board of India (Depositories and Participants) (Amendment) Regulations, 2024 vide No. SEBI/LAD-NRO/GN/2024/173.
