भारतीय प्रततभूतत और वितिमय बोर् ड
Securities and Exchange Board of India
MASTER CIRCULAR
SEBI/HO/MRD/DP/CIR/P/118 October 25, 2019
To,
All Recognized Depositories
Dear Sir / Madam,
Subject: Master Circular for Depositories
1. Securities and Exchange Board of India (SEBI), from time to time, has
been issuing various circulars/directions to Depositories. In order to
enable the users to have an access to all the applicable
circulars/directions at one place, Master Circular for Depositories has
been prepared.
2. This Master Circular is a compilation of the relevant
circulars/communications issued by SEBI up to March 31, 2019 and
shall come into force from the date of its issue. References in the
circular to the Statutes/Regulations which now stand repealed, have
been suitably updated.
3. The Master Circular is a compilation of all the existing/applicable
circulars issued by Market Regulation Department of SEBI pertaining
to Depositories. Efforts have been made to incorporate applicable
provisions of existing circulars issued by other Departments of SEBI
relevant to Depositories.
4. In case of any inconsistency between the Master Circular and the
applicable circulars, the content of the relevant circular shall prevail.
1
भारतीय प्रततभूतत और वितिमय बोर् ड
Securities and Exchange Board of India
5. This Master Circular shall supersede previous Master Circular
SEBI/HO/MRD/DP/CIR/P/2016/134 dated December 15, 2016 and is
available on SEBI website at www.sebi.gov.in.
Yours faithfully
Amit Tandon
General Manager
2
भारतीय प्रततभूतत और वितिमय बोर् ड
Securities and Exchange Board of India
Table of Contents
Section - 1: Beneficial Owner (BO) Accounts
1.1 Opening of BO Account by non-body corporates
1.1.1 Proof of Identity (PoI)
1.1.2 Proof of Address (PoA)
1.1.3 Clarification on voluntary adaptation of Aadhaar based e-
KYC process
1.1.4 SARAL Account Opening Form for resident individuals
1.1.5 Clarifications with regard to KYC requirement for eligible
Foreign Investors
1.1.6 Acceptance of third party address as correspondence
address
1.2 Exemptions from and clarifications relating to mandatory requirement
of PAN
1.3 Simplification of demat account opening process
(DP-BO Rights and Obligation Document)
1.4 Opening of demat account in case of HUF
1.5 Operation of minor’s demat account
1.6 Facility for a Basic Services Demat Account (BSDA)
1.7 Change of Name in the Beneficial Owner (BO) Account
1.8 Fees/Charges to be paid by BO
1.9 Safeguards on transfer of securities in dematerialized mode
1.10 Delivery Instruction Slip (DIS) Issuance and Processing
1.11 Transmission of shares
1.12 SMS alerts for demat accounts operated by Power of Attorney
1.13 Exemption from sending quarterly statements of transactions by
depository participants (DPs) to clients in respect of demat accounts
with no transactions and no security balances
1.14 Discontinuation of sending transaction statements by depository
participants to clients
1.15 Exemption to Depository Participants (DPs) from providing hard
copies of transaction statements to BOs
1.16 Transfer of funds and securities from Clearing Member pool account to
BO Account
1.17 Consolidated Account Statement (CAS) for all securities assets
3
भारतीय प्रततभूतत और वितिमय बोर् ड
Securities and Exchange Board of India
1.18 Procedure for filing and redressal of investor grievances using
SCORES
Section - 2: Depository Participants (DP) Related
2.1 Online Registration Mechanism for Securities Market Intermediaries
2.2 Supervision of branches of depository participants
2.3 Incentivisation to Depositories Participants (DPs)
2.4 Implementation of the Multilateral Competent Authority Agreement
and Foreign Account Tax Compliance Act
2.5 Printing of Grievances Redressal Mechanism on Delivery Instruction
Form Book
2.6 Operationlisation of Central KYC Records Registry (CKYCR)
2.7 Recording of Non Disposal Undertaking(NDU) in the Depository
System
2.8 Cyber Security & Cyber Resilience framework for Depository
Participants
2.9 Reporting for Artificial Intelligence (AI) and Machine Learning (ML)
applications and systems offeredand usedby market intermediaries
2.10 Flashing a link to SCOREs on the dashboard of Demat Accounts
Section - 3: Issuer related
3.1 Charges to be paid by Issuers
3.2 Activation of International Securities Identification Number (ISIN) in
case of IPOs and additional issue of shares/ securities
3.3 Registrar and Share Transfer Agents
3.4 Mandatory admission of debt instruments on both the Depositories
3.5 Specifications related to International Securities Identification
Number (ISINs) for debt securities issued under the SEBI (Issue
and Listing of Debt Securities) Regulations, 2008.
3.6 American Depository Receipts (ADRs)/Global Depository Receipts
(GDRs)
3.7 Electronic Clearing System (ECS) facility
3.6.1 Use of ECS for refund in public/ rights issues
3.6.2 Usage of electronic payment modes for making cash payment to
the investors
4
भारतीय प्रततभूतत और वितिमय बोर् ड
Securities and Exchange Board of India
3.8 Withdrawal by issuers from the depository
3.9 Further issue of shares under Section 86 of Companies Act and
Companies (Issue of Share capital with Differential Voting Rights)
Rules, 2001
Section - 4: Depositories Related
4.1 Online Registration Mechanism and Filing System for Depositories
4.2 Activity schedule for depositories for T+2 rolling Settlement
4.3 Settlement of transactions in case of holidays
4.4 Deadline time for accepting non pay-in related instructions
4.5 Approval of amendments to Bye Laws / Rules of Stock Exchanges and
Depositories
4.6 Preservation of Records
4.7 Pledge of Shares through depository system
4.8 Foreign investments in infrastructure companies in securities markets
4.9 Designated e-mail ID for regulatory communication with SEBI
4.10 Designated e-mail ID for redressal of investor complaints
4.11 Redressal of complaints against Stock Exchanges and Depositories
through SEBI Complaints Redress System (SCORES)
4.12 Limitation period for filing an arbitration reference
4.13 Disclosure of investor complaints and arbitration details on Depository
website
4.14 Disclosure of regulatory orders and arbitration awards on Depository
website
4.15 Arbitration / Appellate Arbitration fees on the remanded back matter
for fresh arbitration proceedings
4.16 Establishment of connectivity by Clearing House / Clearing
Corporation (CH/CC) with the Depository – Clarification
4.17 Computing and monitoring of the Aggregate Value of Portfolio of
Securities (AVPS) of the BOs held in dematerialised form by Stock
Broker DPs
4.18 Rajiv Gandhi Equity Savings Scheme, 2012 (RGESS)
4.19 Principles of Financial Market Infrastructures (PFMIs)
4.20 Annual System Audit of Depositories
4.21 Exceptional Observation Reporting format for System Audit
Observation
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भारतीय प्रततभूतत और वितिमय बोर् ड
Securities and Exchange Board of India
4.22 Guidelines for Business Continuity Plan (BCP) and Disaster Recovery
(DR)
4.23 (Information Technology) IT Governance For Depositories
4.24 Guidelines for inspection of Depository Participants (DPs) by
Depositories
4.25 Activity of Demat of warehouse receipts
4.26 Voting rights in respect of securities held in pool account
4.27 Risk Management Policy at the Depositories
4.28 Outsourcing by Depositories
4.29 Cyber Security and Cyber Resilience framework of Depositories
4.30 Database for Distinctive Number (DN) of Shares
4.31 Ticker on Website - For Investor awareness
4.32 Separate mobile number/ email id for the clients of Depository
Participants (DPs)
4.33 Investor Protection Fund (IPF) of Depositories
4.34 Enhanced Supervision of Depository Participant
4.35 Amendment pursuant to comprehensive review of Investor Grievance
Redressal Mechanism
4.36 Digital Mode of Payment
4.37 Monitoring of Foreign Investment limits in listed Indian companies
4.38 Disclosure of performance of CRAs on Stock Exchange and
Depository website
4.39 Early Warning Mechanism to prevent diversion of client securities
4.40 Reporting for Artificial Intelligence(AI) and Machine Learning
(ML) applications and systems offered and used by Market
Infrastructure Institutions (MIIs)
4.41 Measures to expedite Dematerisation of securities
4.42 Capacity Planning Framework for the Depositories
4.43 Committees at Market Infrastructure Institutions (MIIs)
SCHEDULE
List of Circulars & Communications
6
भारतीय प्रततभूतत और वितिमय बोर् ड
Securities and Exchange Board of India
Section 1: Beneficial Owner (BO) Accounts
1.1 Opening of BO Account by non body corporates
1.1.1 Proof of Identity (PoI)
i. Permanent Account Number (PAN) to be the sole identification number
for all transactions in the securities market1
With effect from July 02, 2007, PAN is the sole identification number for all
transactions in the securities market, irrespective of the amount of
transaction. A copy of the PAN card with photograph may be accepted as
Proof of Identity. In this regard, intermediaries shall:-
a. Put necessary systems in place so that the databases of the clients and
their transactions are linked to the PAN details of the client.
b. Build necessary infrastructure to enable accessibility and query based
on PAN thereby enabling retrieval of all the details of the clients.
c. Collect copies of PAN cards issued to the existing as well as new clients
by the Income Tax Department and maintain the same in their record
after verifying with the original.
d. Cross-check the aforesaid details collected from their clients with the
details on the website of the Income Tax Department i.e.
http://incometaxindiaefiling.gov.in/challan/enterpanforchallan.jsp2.
List of documents admissible as Proof of Identity3
a. Unique Identification Number (UID) (Aadhaar)/ Passport/ Voter ID
card/ Driving license.
b. PAN card with photograph.
c. Identity card/ document with applicant’s Photo, issued by any of the
following: Central/State Government and its Departments,
1 Reference: Circular MRD/DoP/Cir-5/2007 dated April 27, 2007
2 Income Tax Department since changed the link for verification to:
https://incometaxindiaefiling.gov.in/e-Filing/Services/KnowYourPanLink.html
3 Reference: Circular MIRSD/SE/Cir-21/2011 dated October 05, 2011
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भारतीय प्रततभूतत और वितिमय बोर् ड
Securities and Exchange Board of India
Statutory/Regulatory Authorities, Public Sector Undertakings,
Scheduled Commercial Banks, Public Financial Institutions, Colleges
affiliated to Universities, Professional Bodies such as ICAI, ICWAI,
ICSI, Bar Council etc., to their Members; and Credit cards/Debit cards
issued by Banks.
d. e-KYC service launched by UIDAI shall also be accepted as a valid
process for KYC verification. The information containing the relevant
client details and photograph made available from UIDAI as a result of
e-KYC process shall be treated as a valid proof of Identity.4
e. With a view to bring about operational flexibility and in order to ease
the PAN verification process, the intermediaries may verify the PAN of
their clients online at the Income Tax website without insisting on the
original PAN card, provided that the client has presented a document
for Proof of Identity other than the PAN card.5
1.1.2 Proof of Address (PoA)6
List of documents admissible as Proof of Address:
(*Documents having an expiry date should be valid on the date of
submission.)
a. Passport/ Voters Identity Card/ Ration Card/ Registered Lease or Sale
Agreement of Residence/ Driving License/ Flat Maintenance bill/
Insurance Copy.
b. Utility bills like Telephone Bill (only land line), Electricity bill or Gas
bill - Not more than 3 months old.
c. Bank Account Statement/Passbook -- Not more than 3 months old.
d. Self-declaration by High Court and Supreme Court judges, giving the
new address in respect of their own accounts.
e. Proof of address issued by any of the following: Bank Managers of
Scheduled Commercial Banks/Scheduled Co-Operative
Bank/Multinational Foreign Banks/Gazetted Officer/Notary public/
elected representatives to the Legislative
Assembly/Parliament/Documents issued by any Govt. or Statutory
4 Reference: Circular SEBI/MIRSD/09/2013 dated October 08, 2013
5 Reference: Circular SEBI/MIRSD/01/2013 dated January 04, 2013
6Reference: Circular MIRSD/SE/Cir-21/2011 dated October 05, 2011
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भारतीय प्रततभूतत और वितिमय बोर् ड
Securities and Exchange Board of India
Authority.
f. Identity card/document with address, issued by any of the following:
Central/State Government and its Departments, Statutory/Regulatory
Authorities, Public Sector Undertakings, Scheduled Commercial Banks,
Public Financial Institutions, Colleges affiliated to Universities and
Professional Bodies such as ICAI, ICWAI, ICSI, Bar Council etc., to their
Members.
g. For FII/sub account, Power of Attorney given by FII/sub-account to the
Custodians (which are duly notarized and/or apostiled or
consularised) that gives the registered address should be taken.
h. The proof of address in the name of the spouse may be accepted.
i. Aadhaar Letter issued by UIDAI shall be admissible as Proof of
Address in addition to Proof of Identity.7
j. e-KYC service launched by UIDAI shall also be accepted as a valid
process for KYC verification. The information containing the relevant
client details and photograph made available from UIDAI as a result of
e-KYC process shall be treated as a valid proof of address.8
DP shall ensure that all documents pertaining to proof of identity and
proof of address are collected from all the account holders.9 Submission of
the aforesaid documents is the minimum requirement for opening a BO
Account. DPs must verify the copy of the aforementioned documents with
the original before accepting the same as valid. While opening a BO
Account, DPs shall exercise due diligence10 while establishing the identity
of the person to ensure the safety and integrity of the depository system.
1.1.3 Clarification on voluntary adaptation of Aadhaar based e-KYC process11
SEBI has enabled Aadhaar based e-KYC service offered by UIDAI for KYC
7Reference: Circular MIRSD/09/2012 dated August 13, 2012
8 Reference: Circular SEBI/MIRSD/09/2013 dated October 08, 2013
9 Reference: Circular MRD/DoP/Dep/Cir-29/2004 dated August 24, 2004
10 Reference: Point 5 of part II on ‘Customer Due Diligence’ of master circular no. ISD/AML/CIR-
1/2008 dated December 19, 2008
11 Reference: Circular SEBI/MIRSD/09/2013 dated October 08, 2013
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भारतीय प्रततभूतत और वितिमय बोर् ड
Securities and Exchange Board of India
verification. Intermediaries have sought clarifications from SEBI on certain
operational aspects of the same. It is clarified that for accessing the details
enabling client identification and authentication from UIDAI based on
client authorisation, on voluntary basis, intermediaries who utilize the
services of KYC Service Agencies (KSAs) would be registered as KYC User
Agencies (KUA) with UIDAI.12
i. For entering into account based relationship, the client may provide the
following information to the intermediary:
a) Name
b) Aadhaar number
c) Permanent Account Number (PAN)
ii. The above information can be provided by the client electronically
including through any web enabled device.
iii. The intermediary shall perform verification of the client with UIDAI
through biometric authentication (fingerprint or iris scanning). Mutual
Funds can also perform verification of the client with UIDAI through One
Time password (OTP) received on client’s mobile number or on e-mail
address registered with UIDAI provided, the amount invested by the
client does not exceed Rs. 50,000 per financial year per Mutual Fund and
payment for the same is made through electronic transfer from the client’s
bank account registered with that Mutual Fund.
iv. PAN of such client is to be verified from the income tax website.
v. After due validation of Aadhaar number provided by the client, the
intermediary (acting as KUA) shall receive the KYC information about the
client from UIDAI through KSA.
vi. The information downloaded from UIDAI shall be considered as sufficient
information for the purpose of KYC verification. The intermediary shall
upload this KYC information on the KRA system in terms of KRA
Regulations.
12 Reference: Circular: CIR/MIRSD/29/2016 dated January 22, 2016
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भारतीय प्रततभूतत और वितिमय बोर् ड
Securities and Exchange Board of India
vii. In case material difference is observed either in the name (as observed in
the PAN vis-a-vis Aadhaar) or photograph in Aadhaar is not clear, the
intermediary shall carry out additional due diligence and maintain a
record of the additional documents sought pursuant to such due
diligence.
viii. The records of KYC information so received shall be maintained by the
intermediary as per the SEBI Act, Regulations and various circulars issued
thereunder.
1.1.4 SARAL Account Opening Form for resident individuals13
i. It is gathered that a majority of new investors in the securities market
begin with participation in the cash segment without obtaining various
other facilities such as internet trading, margin trading, derivative trading
and use of power of attorney.
ii. The account opening process can be simplified for such individual
investors. With a view to encourage their participation, it is, therefore,
decided that such individual investors can open a trading account and
demat account by filling up a simplified Account Opening Form ('AOF')
termed as 'SARAL AOF' given at Annexure A. This form will be
separately available with the intermediaries and can also be downloaded
from the Exchanges' and Depositories' website. The investors who open
account through SARAL AOF will also have the option to obtain other
facilities, whenever they require, on furnishing of additional information
as per prescribed regulations/circulars.
iii. The standard set of documents viz. Rights and Obligations document,
Uniform Risk Disclosure Document and Guidance Note and documentary
proof related to identity and address as specified in SEBI Circulars dated
August 22, 2011 and October 5, 2011 shall continue to remain applicable. It
is further clarified that the provisions laid down under the PML Act, PML
Rules, SEBI Master Circular on AML dated December 31, 2010 and SEBI
Circular on AML dated March 12, 2014 shall also continue to remain
13 Reference Circular MIRSD/1/2015 dated March 04, 2015
11
भारतीय प्रततभूतत और वितिमय बोर् ड
Securities and Exchange Board of India
applicable for set of individual investors mentioned in paragraph (ii)
above.
iv. For these set of individual investors, it has been decided to simplify the
requirement of submission of ‘proof of address’. The matter has been
examined in the light of amendment to the PML Rules, 2005 and
accordingly, the requirement of submission of ‘proof of address’ is as
follows:
a. Henceforth, individual investor may submit only one documentary
proof of address (either residence/correspondence or permanent) while
opening a trading account and / or demat account or while undergoing
updation.
b. In case the proof of address furnished by the said investor is not the
address where the investor is currently residing, the intermediary may
take a declaration of the residence/correspondence address on which all
correspondence will be made by the intermediary with the investor. No
proof is required to be submitted for such correspondence/residence
address. In the event of change in this address due to relocation or any
other reason, investor may intimate the new address for correspondence
to the intermediary within two weeks of such a change. The residence/
correspondence address and any such change thereof may be verified by
the intermediary through ‘positive confirmation’ such as (i)
acknowledgment of receipt Welcome Kit/ dispatch of contract notes /
any periodical statement, etc. (ii) telephonic conversation; (iii) visits, etc.
1.1.5 Clarifications with regard to KYC requirement for eligible Foreign
Investors14
i. SEBI has received representations regarding operational issues in the
implementation of SEBI circulars No CIR/MIRSD/16/2011 dated August
22, 2011 and MIRSD/SE/Cir-21/2011 dated October 5, 2011 on know your
client norms for the securities market SEBI Circulars in case of foreign
14 Reference CIR MIRSD/11/2012 dated September 05, 2012 and CIR MIRSD/07/2013 dated
September 12, 2013
12
भारतीय प्रततभूतत और वितिमय बोर् ड
Securities and Exchange Board of India
investors viz. Foreign Institutional Investors, Sub Accounts and Qualified
Foreign Investors. In consultation with the Stock Exchanges, Depositories
and Intermediaries, certain clarifications are issued, as given in Annexure
A, with respect to these investors.
ii. Eligible foreign investors investing under Portfolio Investment Scheme
('PIS') route shall be classified as Category I, II and III as provided in
Annexure B. The intermediary shall follow risk based Know Your Client
norms. Accordingly, certain clarifications are hereby issued, as given in
Annexure C, based on the category of these investors.
iii. Eligible foreign investors investing under PIS route shall be subject to
KYC review as and when there is any change in material information /
disclosure.
Annexure A
Sr Relevant requirements on Clarifications for Foreign
No. KYC Form Investors viz. FIIs,
as per SEBI Circulars dated Sub Accounts and QFIs
August
22, 2011 and October 5, 2011
1. Authorized signatories list with If the client has authorized the
specimen signatures to be Global Custodian - an entity
submitted. regulated by an appropriate foreign
regulatory authority or Local
Custodian registered with SEBI as a
signatory by way of a Power of
Attorney ('PoA') to sign on its
behalf, such PoA may be accepted.
2. Intermediary has to get the The Global Custodian or the Local
KYC form filled from the Custodian may fill the KYC form, if
clients. authorized through the PoA.
3. PAN to be taken for individual Not applicable.
promoters holding control -
either directly or indirectly,
13
भारतीय प्रततभूतत और वितिमय बोर् ड
Securities and Exchange Board of India
Partners/Trustees, whole time
directors/two directors in
charge of day to day operations
and persons authorized to deal
in securities on behalf of
company/firm/others.
4. For foreign nationals, (allowed Proof of Identity document duly
to trade subject to RBI and attested by the entities authorized
FEMA guidelines), copy of for the same as per SEBI Circular
passport/PIO Card/OCI Card dated October 5, 2011 or authorised
is mandatory. signatories as mentioned at point 1
above may be adequate in lieu of
the passport copy.
5. For foreign entities, CIN is CIN no. is provided as an example
optional; and in the absence of and requires the client’s registration
DIN no. for the directors their number in its respective country. If
passport copy should be given. the foreign entity does not have
CIN, the equivalent registration
number of the entity may be
mentioned. If it does not have any
registration number, then SEBI
Registration number may be
mentioned.
In case the directors (as per point 3
above), of the client do not have an
equivalent of DIN in the client’s
respective jurisdiction, "Not
Applicable" may be stated. Copy of
the Passport may not be provided.
6. It shall be mandatory for all the In person verification is not
Intermediaries addressed in applicable for a non-individual
this circular to carry out In Client.
person verification of their
clients. In case of QFI – Individual Client,
IPV shall be carried out by SEBI
14
भारतीय प्रततभूतत और वितिमय बोर् ड
Securities and Exchange Board of India
registered intermediary as per SEBI
Circular dated August 22, 2011.
7. Copies of all the documents In the absence of originals for
submitted by the applicant verification, documents may be
should be self-attested and attested as per SEBI Circulars dated
accompanied by originals for August 22, 2011 and October 5,
verification. 2011 or authorised signatories as
In case the original of any mentioned at point 1 above.
document is not produced for
verification, then the copies
should be properly attested by
entities authorized for attesting
the documents, as per the list
mentioned in the circular dated
Aug 22, 2011.
8. A. Copy of the balance sheets A. Though it is not mandatory, the
for the last 2 financial years (to intermediaries shall carry out due
be submitted every year), diligence as per the PMLA and
annual gross income and net SEBI Master Circular on AML
worth details. about the financial position of the
client.
B. Copy of latest share holding
pattern including list of all B. List of beneficial owners with
those holding control, either shareholding or beneficial interest
directly or indirectly, in the in the client equal to or above 25%
company in terms of SEBI to be obtained. If Global Custodian
takeover Regulations, duly /Local Custodian provides an
certified by the company undertaking to submit these details,
secretary/Whole time then intermediary may take such
director/MD (to be submitted undertaking only. Any change in
every year). the list to be obtained based on risk
POI and POA of individual profile of the client.
promoters holding control -
either directly or indirectly.
9. Name, residential address, A. Not required if Global Custodian
photograph, POI and POA of /Local Custodian gives an
15
भारतीय प्रततभूतत और वितिमय बोर् ड
Securities and Exchange Board of India
Partners/Trustees, whole time undertaking to provide the
directors/two directors in following documents as and when
charge of day to day operations requested for by intermediary:
and individual promoters 1 A resolution from the Board of
holding control - either directly Directors and power of attorney
or indirectly. granted to its managers, officers
or employees to transact on its
behalf; and
2 An officially valid document in
respect of managers, officers or
employees holding an attorney
to transact on its behalf.
B. If Global Custodian/Local
Custodian does not provide such
undertaking as stated in A above,
intermediary shall take required
details from Foreign Investors.
10. Copy of SEBI registration Custodian shall verify the SEBI
certificate to be provided. registration certificate copy with
the originals or with the details
available on SEBI website and
provide duly certified copy of such
verified SEBI registration certificate
to the intermediary.
11. Every client has to provide the Annexure 3 to the circular dated
trading account related details, August 22, 2012 pertaining to
as required by Annexure 3 to trading account related details is
the SEBI circular dated August not applicable for FIIs and Sub
22, 2011. Accounts.
However, Intermediaries are
required to update details of any
action taken or proceedings
initiated against the entity by the
foreign regulators or SEBI/ Stock
exchanges.
16
भारतीय प्रततभूतत और वितिमय बोर् ड
Securities and Exchange Board of India
For QFI, the intermediary shall
collect the
following details from Annexure 3:
 Bank Account details
 Depository account
 Regulatory Actions as
mentioned above
12. Intermediary shall provide a Intermediary shall display these
set of all the executed standard documents prescribed by
documents to the client, free of SEBI on its web site, intimate the
charge. clients regarding the link and email
a copy of the same to the client.
13. Place of incorporation If place of incorporation is not
available, Intermediary should take
Registered office address/ principal
place of business of entity.
14. Date of commencement of Not applicable
business
15. Copies of the Memorandum If FII or Sub Account does not have
and Articles of Association and certificate of Incorporation or
certificate of incorporation Memorandum and Articles of
Association, then any reasonable
equivalent legal document
evidencing formation of entity may
be allowed.
16. Copy of the Board Resolution Not applicable.
for investment in securities
market.
Exemptions -
In case of Sovereign Wealth Fund, Foreign Governmental Agency, Central
bank, International or Multilateral organization and Central or State
17
भारतीय प्रततभूतत और वितिमय बोर् ड
Securities and Exchange Board of India
Government Pension Fund, the intermediary shall satisfy itself about their
status and thereafter, only provisions at point 9 above shall be applicable.
Further, these entities shall also be a part of KRA centralised system of
KYCs.
Annexure B
Category Eligible Foreign Investors
I. Government and Government related
foreign investors such as Foreign Central
Banks, Governmental Agencies,
Sovereign Wealth Funds, International/
Multilateral Organizations/ Agencies.
II. a) Appropriately regulated broad based
funds such as Mutual Funds,
Investment Trusts, Insurance /
Reinsurance Companies, Other Broad
Based Funds etc.
b) Appropriately regulated entities such
as Banks, Asset Management
Companies, Investment Managers/
Advisors, Portfolio Managers etc.
c) Broad based funds whose investment
manager is appropriately regulated.
d) University Funds and Pension Funds
e) University related Endowments
already registered with SEBI as
FII/Sub Account
III. All other eligible foreign investors
investing in India under PIS route not
eligible under Category I and II such as
Endowments, Charitable Societies/Trust,
18
भारतीय प्रततभूतत और वितिमय बोर् ड
Securities and Exchange Board of India
Foundations, Corporate Bodies, Trusts,
Individuals, Family Offices, etc.
Annexure C
Document Category – I Category – Category – III
Type II
Entity level Constitutive Required Required Required
Docs
Proof of Required Required Required
Address Power of Power of - Address
Attorney, Attorney, proof other
mentioning mentioning than
the address, the Power of
is address, Attorney
acceptable is should
as acceptable be submitted.
address as
proof address
proof
PAN Card Required Required Required
Financials Exempt Exempt Risk based
- Financial
data
sufficient.
SEBI Required Required Required
Registration
Certificate
Board Exempt Required Required
Resolution
KYC Form Required Required Required
Senior List Required Required Required
Management Proof Of Exempt Exempt Entity declares
(Whole Time Identity on
19
भारतीय प्रततभूतत और वितिमय बोर् ड
Securities and Exchange Board of India
Directors/ letterhead -
Partners/ full name,
Trustees/ nationality
etc.) and DoB OR
Photo-identity
proof'
Proof of Exempt Exempt Declaration on
Address letter head
Photographs Exempt Exempt Exempt
Authorized List & Required Required Required
Signatories Signatures - List of - List of GC
Global signatories
Custodian can be
('GC') given in
signatories case of
can be POA to GC
given in
case of POA
to
GC
Proof Of Not Not Not required
Identity required required
Proof of Not Not Not required
Address required required
Photographs Not Not Required
required required
Ultimate List Exempt Required Required
Beneficial - Can
Owner declare "no
('UBO') UBO
over 25%"
Proof Of Exempt Exempt Required
Identity
Proof of Exempt Exempt Exempt
Address
Photographs Exempt Exempt Exempt
20
भारतीय प्रततभूतत और वितिमय बोर् ड
Securities and Exchange Board of India
1.1.6 Acceptance of third party address as correspondence address15
i. SEBI has no objection to a BO authorizing the capture of an address of a
third party as a correspondence address, provided that the Depository
Participant (DP) ensures that all prescribed ‘Know Your Client’ norms are
fulfilled for the third party also. The DP shall obtain proof of identity and
proof of address for the third party. The DP shall also ensure that customer
due diligence norms as specified in Rule 9 of Prevention of Money
Laundering Rules, 2005 are complied with in respect of the third party.
ii. The depository participant should further ensure that the statement of
transactions and holding are sent to the BO’s permanent address at least
once in a year.
iii. However, the above provision shall not apply in case of PMS (Portfolio
Management Services) clients.
1.2 Exemptions from and clarifications relating to mandatory requirement of
PAN
1.2.1 Mandatory requirement of Permanent Account Number (PAN) 16
The demat accounts for which PAN details have not been verified are
“suspended for debit” until the same is verified with the Depository
Participant (DP). With effect from August 16, 2010 such PAN non-
compliant demat accounts were also "suspended for credit" other than the
credits arising out of automatic corporate actions. It was clarified that other
credits including credits from IPO/FPO/Rights issue, off-market
transactions or any secondary market transactions would not be allowed
into such accounts.
1.2.2 Central and State Government and officials appointed by Courts17
15 Reference: Circular CIR/MRD/DP/37/2010 dated December 14, 2010
16 Reference: Circular MRD/DP/22/2010 dated July 29, 2010
21
भारतीय प्रततभूतत और वितिमय बोर् ड
Securities and Exchange Board of India
PAN card may not be insisted upon in case of transactions undertaken on
behalf of Central Government and/or State Government and where
transactions are conducted by officials appointed by Courts e.g. Official
liquidator, Court receiver etc.18
However DPs, before implementing the above exemption, shall verify the
veracity of the claim of the organizations by collecting sufficient
documentary evidence in support of their claim for such an exemption.
1.2.3 Investors in Sikkim19
Investors residing in the state of Sikkim are exempted from the mandatory
requirement of furnishing PAN card details for their demat accounts.20 DPs
shall verify the veracity of the claim of the investors that they are residents
of Sikkim, by collecting sufficient documentary evidence in support of their
address
1.2.4 UN entities and multilateral agencies exempt from paying taxes/ filling
tax returns in India21
UN entities/ multilateral agencies exempt from paying taxes/filing tax
returns in India are also exempt from the mandatory requirement of
submitting their PAN card details, subject to the DPs collecting
documentary evidence in support of such claims.
1.2.5 FIIs/Institutional Clients22
Custodians shall verify the PAN card details of institutional clients with
the original PAN card and provide duly certified copies of such verified
17 Reference: Circular MRD/DoP/Cir-20/2008 dated June 30, 2008
18 Reference: Rule 114C (1)(c) of Income Tax Rules
19 Reference: Circular MRD/DoP/Dep/Cir-09/06 dated July 20, 2006
20 Reference: Hon’ble High Court of Sikkim judgment dated March 31, 2006
21 Reference Circular MRD/DoP/Dep/Cir-09/06 dated July 20, 2006
22 Reference Circular MRD/DoP/Dep/SE/Cir-13/06 dated September 26, 2006
22
भारतीय प्रततभूतत और वितिमय बोर् ड
Securities and Exchange Board of India
PAN details to the brokers. This requirement is applicable in respect of
institutional clients, namely, FIIs, MFs, VCFs, FVCIs, Scheduled
Commercial Banks, Multilateral and Bilateral Development Financial
Institutions, State Industrial Development Corporations, Insurance
Companies registered with IRDA and Public Financial Institution as
defined under section 4A of the Companies Act, 1956.
1.2.6 HUF, Association of Persons (AoP), Partnership Firm, unregistered
Trust, Registered Trust, Corporate Bodies, minors, etc.15
The BO account shall be in the name of natural persons, PAN card details
of the respective HUF, AoP, Partnership Firm, Unregistered Trust, etc
shall be obtained. The PAN number of Registered Trust, Corporate Bodies
and minors shall be obtained when accounts are opened in their
respective names.
1.2.7 Difference in maiden name and current name of investors. 15
DPs can collect the PAN card proof as submitted by the account holder
subject to the DPs verifying the veracity of the claim of such investors by
collecting sufficient documentary evidence in support of the identity of
the investors.23
1.2.8 NRI/PIOs24
Citizens of India residing outside India, foreign citizens and other persons
(like companies/ trusts/ firms) having no office of their own in India may
obtain PAN card based on the copy of their passport as ID proof and a
copy of passport/ bank account in the country of residence as address
proof, based on the Directorate of Income Tax (Systems) guidelines.25
1.2.9 Foreign Portfolio Investors26
23 Reference Circular MRD/DoP/Dep/Cir-29/2004 dated August 24, 2004
24 Reference Circular MRD/DoP/Dep/SE/Cir-17/06 dated October 27, 2006
25 Reference Income Tax (Systems) PAN Circular No. 4 dated October 11, 2006
26 Reference: Circular CIR/IMD/FPIC/123/2016 dated November 17, 2016
23
भारतीय प्रततभूतत और वितिमय बोर् ड
Securities and Exchange Board of India
PAN verification process at the time of account opening of FPIs, it is
decided that the intermediaries can verify the PAN of FPIs online from
website authorised by Income Tax department at the time of account-
opening for FPIs. However, FPIs need to provide the copy of PAN
card within 60 days of account-opening or before remitting funds out
of India, whichever is earlier to their intermediaries.
Central Board of Direct Taxes (CBDT) has recently introduced a
facility of E-PAN (electronic PAN card) vide press release dated April
11, 2017. Accordingly it is clarified that E-PAN issued by CBDT can also
be produced by FPI for KYC compliance.27
1.3 Simplification of demat account opening process28
i. SEBI has taken a number of steps in the recent past to simplify the
Account opening and KYC process in the securities markets. In
continuation of the efforts in the same direction, it has now been decided
in consultation with both the Depositories and Associations of stock
brokers and Depository Participants to further simplify and rationalize the
demat account opening process.
ii. The existing Beneficial Owner-Depository Participant Agreements shall be
replaced with a common document “Rights and Obligations of the
Beneficial Owner and Depository Participant”. The document annexed
herewith shall be mandatory and binding on all the existing and new
clients and depository participants. This will harmonize the account
opening process for trading as well as demat account. This will also
rationalise the number of signatures by the investor, which he is required
to affix at present on a number of pages.
iii. The Depository Participant shall provide a copy of Rights and Obligations
Document to the beneficial owner and shall take an acknowledgement of
27 Reference: Circular SEBI/HO/IMD/FIIC/CIR/P/2017/068 dated June 30, 2017
28 Reference Circular SEBI/MIRSD/ 12/2013 dated December 04, 2013
24
भारतीय प्रततभूतत और वितिमय बोर् ड
Securities and Exchange Board of India
the same. They shall ensure that any clause in any voluntary document
neither dilutes the responsibility of the depository participant nor it shall
be in conflict with any of the clauses in this Document, Rules, Bye-laws,
Regulations, Notices, Guidelines and Circulars issued by SEBI and the
Depositories from time to time. Any such clause introduced in the existing
as well as new documents shall stand null and void.
iv. In consultation with market participants, with a view to simplify the
account opening kit, SEBI has decided that Depository Participant shall
make available this document “Rights and Obligations of the Beneficial
Owner and Depository Participant” to the clients, either in electronic or
physical form, depending upon the preference of the client as part of
account opening kit. In case the documents are made available in
electronic form, Depository Participant shall maintain the logs of the
same. It is also reiterated that Depositories/Depository participant shall
continue to make the aforesaid document available on their website and
keep the clients informed about the same.29
ANNEXURE
Rights and Obligations of Beneficial Owner and Depository Participant as
prescribed by SEBI and Depositories
General Clause
1. The Beneficial Owner and the Depository participant (DP) shall be bound
by the provisions of the Depositories Act, 1996, SEBI (Depositories and
Participants) Regulations, 1996, Rules and Regulations of Securities and
Exchange Board of India (SEBI), Circulars/Notifications/Guidelines issued
there under, Bye Laws and Business Rules/Operating Instructions issued
by the Depositories and relevant notifications of Government Authorities
as may be in force from time to time.
29 Reference: Circular CIR/MIRSD/64/2016 dated July 12, 2016
25
भारतीय प्रततभूतत और वितिमय बोर् ड
Securities and Exchange Board of India
2. The DP shall open/activate demat account of a beneficial owner in the
depository system only after receipt of complete Account opening form,
KYC and supporting documents as specified by SEBI from time to time.
Beneficial Owner information
3. The DP shall maintain all the details of the beneficial owner(s) as
mentioned in the account opening form, supporting documents submitted
by them and/or any other information pertaining to the beneficial owner
confidentially and shall not disclose the same to any person except as
required by any statutory, legal or regulatory authority in this regard.
4. The Beneficial Owner shall immediately notify the DP in writing, if there is
any change in details provided in the account opening form as submitted
to the DP at the time of opening the demat account or furnished to the DP
from time to time.
Fees/Charges/Tariff
5. The Beneficial Owner shall pay such charges to the DP for the purpose of
holding and transfer of securities in dematerialized form and for availing
depository services as may be agreed to from time to time between the DP
and the Beneficial Owner as set out in the Tariff Sheet provided by the DP.
It may be informed to the Beneficial Owner that "no charges are payable
for opening of demat accounts”
6. In case of Basic Services Demat Accounts, the DP shall adhere to the
charge structure as laid down under the relevant SEBI and/or Depository
circulars/directions/notifications issued from time to time.
7. The DP shall not increase any charges/tariff agreed upon unless it has
given a notice in writing of not less than thirty days to the Beneficial
Owner regarding the same.
Dematerialization
26
भारतीय प्रततभूतत और वितिमय बोर् ड
Securities and Exchange Board of India
8. The Beneficial Owner shall have the right to get the securities, which have
been admitted on the Depositories, dematerialized in the form and manner
laid down under the Bye Laws, Business Rules and Operating Instructions
of the depositories.
Separate Accounts
9. The DP shall open separate accounts in the name of each of the beneficial
owners and securities of each beneficial owner shall be segregated and
shall not be mixed up with the securities of other beneficial owners and/or
DP’s own securities held in dematerialized form.
10. The DP shall not facilitate the Beneficial Owner to create or permit any
pledge and /or hypothecation or any other interest or encumbrance over
all or any of such securities submitted for dematerialization and/or held in
demat account except in the form and manner prescribed in the
Depositories Act, 1996, SEBI (Depositories and Participants) Regulations,
1996 and Bye-Laws/Operating Instructions/Busines Rules of the
Depositories.
Transfer of Securities
11. The DP shall effect transfer to and from the demat accounts of the
Beneficial Owner only on the basis of an order, instruction, direction or
mandate duly authorized by the Beneficial Owner and the DP shall
maintain the original documents and the audit trail of such authorizations.
12. The Beneficial Owner reserves the right to give standing instructions with
regard to the crediting of securities in his demat account and the DP shall
act according to such instructions.
Statement of account
13. The DP shall provide statements of accounts to the beneficial owner in
such form and manner and at such time as agreed with the Beneficial
Owner and as specified by SEBI/depository in this regard.
27
भारतीय प्रततभूतत और वितिमय बोर् ड
Securities and Exchange Board of India
14. However, if there is no transaction in the demat account, or if the balance
has become Nil during the year, the DP shall send one physical statement
of holding annually to such BOs and shall resume sending the transaction
statement as and when there is a transaction in the account.
15. The DP may provide the services of issuing the statement of demat
accounts in an Electronic mode if the Beneficial Owner so desires. The DP
will furnish to the Beneficial Owner the statement of demat accounts under
its digital signature, as governed under the Information Technology Act,
2000. However if the DP does not have the facility of providing the
statement of demat account in the electronic mode, then the Participant
shall be obliged to forward the statement of demat accounts in physical
form.
16. In case of Basic Services Demat Accounts, the DP shall send the transaction
statements as mandated by SEBI and/or Depository from time to time.
Manner of Closure of Demat account
17. The DP shall have the right to close the demat account of the Beneficial
Owner, for any reasons whatsoever, provided the DP has given a notice in
writing of not less than thirty days to the Beneficial Owner as well as to the
Depository. Similarly, the Beneficial Owner shall have the right to close
his/her demat account held with the DP provided no charges are payable
by him/her to the DP. In such an event, the Beneficial Owner shall specify
whether the balances in their demat account should be transferred to
another demat account of the Beneficial Owner held with another DP or to
rematerialize the security balances held.
18. Based on the instructions of the Beneficial Owner, the DP shall initiate the
procedure for transferring such security balances or rematerialize such
security balances within a period of thirty days as per procedure specified
28
भारतीय प्रततभूतत और वितिमय बोर् ड
Securities and Exchange Board of India
from time to time by the depository. Provided further, closure of demat
account shall not affect the rights, liabilities and obligations of either the
Beneficial Owner or the DP and shall continue to bind the parties to their
satisfactory completion.
Default in payment of charges
19. In event of Beneficial Owner committing a default in the payment of any
amount provided in Clause 5 & 6 within a period of thirty days from the
date of demand, without prejudice to the right of the DP to close the demat
account of the Beneficial Owner, the DP may charge interest at a rate as
specified by the Depository from time to time for the period of such
default.
20. In case the Beneficial Owner has failed to make the payment of any of the
amounts as provided in Clause 5&6 specified above, the DP after giving
two days notice to the Beneficial Owner shall have the right to stop
processing of instructions of the Beneficial Owner till such time he makes
the payment along with interest, if any.
Liability of the Depository
21. As per Section 16 of Depositories Act, 1996,
a. Without prejudice to the provisions of any other law for the time being
in force, any loss caused to the beneficial owner due to the negligence
of the depository or the participant, the depository shall indemnify
such beneficial owner.
b. Where the loss due to the negligence of the participant under Clause
(1) above, is indemnified by the depository, the depository shall have
the right to recover the same from such participant.
Freezing/ Defreezing of accounts
22. The Beneficial Owner may exercise the right to freeze/defreeze his/her
demat account maintained with the DP in accordance with the procedure
29
भारतीय प्रततभूतत और वितिमय बोर् ड
Securities and Exchange Board of India
and subject to the restrictions laid down under the Bye Laws and Business
Rules/Operating Instructions.
23. The DP or the Depository shall have the right to freeze/defreeze the
accounts of the Beneficial Owners on receipt of instructions received from
any regulator or court or any statutory authority.
Redressal of Investor grievance
The DP shall redress all grievances of the Beneficial Owner against the DP within
a period of thirty days from the date of receipt of the complaint.Authorized
representative
24. If the Beneficial Owner is a body corporate or a legal entity, it shall, along
with the account opening form, furnish to the DP, a list of officials
authorized by it, who shall represent and interact on its behalf with the
Participant. Any change in such list including additions, deletions or
alterations thereto shall be forthwith communicated to the Participant.
Law and Jurisdiction
25. In addition to the specific rights set out in this document, the DP and the
Beneficial owner shall be entitled to exercise any other rights which the DP
or the Beneficial Owner may have under the Rules, Bye Laws and
Regulations of the respective Depository in which the demat account is
opened and circulars/notices issued there under or Rules and Regulations
of SEBI.
26. The provisions of this document shall always be subject to Government
notification, any rules, regulations, guidelines and circulars/ notices issued
by SEBI and Rules, Regulations and Bye-laws of the relevant Depository,
where the Beneficial Owner maintains his/ her account, that may be in
force from time to time.
27. The Beneficial Owner and the DP shall abide by the arbitration and
conciliation procedure prescribed under the Bye-laws of the depository
30
भारतीय प्रततभूतत और वितिमय बोर् ड
Securities and Exchange Board of India
and that such procedure shall be applicable to any disputes between the
DP and the Beneficial Owner.
28. Words and expressions which are used in this document but which are not
defined herein shall unless the context otherwise requires, have the same
meanings as assigned thereto in the Rules, Bye-laws and Regulations and
circulars/notices issued there under by the depository and /or SEBI.
29. Any changes in the rights and obligations which are specified by
SEBI/Depositories shall also be brought to the notice of the clients at once.
30. If the rights and obligations of the parties hereto are altered by virtue of
change in Rules and regulations of SEBI or Bye-laws, Rules and
Regulations of the relevant Depository, where the Beneficial Owner
maintains his/her account, such changes shall be deemed to have been
incorporated herein in modification of the rights and obligations of the
parties mentioned in this document.
1.4 Opening of demat account in case of HUF30
It is noted that as per law, in case of HUF, shares can be held in the name
of Existing Karta on behalf of HUF. Therefore, HUF demat accounts can
be opened in the name of Existing Karta but not in the name of Deceased
Karta and HUF entity.
After examined the issues regarding difference in opening of HUF demat
account and procedure adopted in the event of death of Karta of HUF, it
has been decided that opening of HUF demat account and procedure
adopted in the event of death of Karta of HUF shall be as per the
following guidelines31:
1.1 Opening of HUF Demat Account
30 Reference: SEBI/ MRD/CDSL/ 149156 /2009 dated January 01, 2009
31 Reference: SEBI letter No. SEBI/HO/MRD/DP/OW/2016/25739/1 & 25740/1 dated September 14, 2016
31
भारतीय प्रततभूतत और वितिमय बोर् ड
Securities and Exchange Board of India
a) The Demat account shall be opened in the name of HUF entity as the
name of entity appears on the PAN Card. The PAN details of the
both the HUF entity and Karta of HUF shall be submitted to the
Depository Participant (DP)
1.2 Death of Karta
a) In the event of death of Karta of HUF, the name of the deceased
Karta in the Beneficial Owner (BO) account shall be replaced by the
new Karta appointed by the member of the HUF who in such a case
shall be senior most member of the family, except married daughters.
b) The new Karta shall submit the new list of members, a notarized
copy of death certificate of the deceased Karta and a no objection
from the surviving members of the HUF for him/her to act as Karta
of the HUF.
c) In the event of death of Karta of HUF, the existing BO account need
not to be closed and the same account may continue. The death of
Karta shall not mean that the securities lying in the BO account of the
HUF is deemed to have divided among coparceners as if the
partition has taken place.
1.3 Partition of HUF
a) A total or partial partition shall be recognized only if a claim to that
effect is made by one or more coparceners.
b) An intimation of a total or partial partition shall be accompanied by
a signed letter mentioning the names of the members and their
confirmation of a partition having taken place.
32
भारतीय प्रततभूतत और वितिमय बोर् ड
Securities and Exchange Board of India
c) In case of partial partition of the HUF, if desired by one or more
coparceners, the new Karta shall transfer shares to the said
coparceners who seek partition and the BO account of the HUF shall
continue. The account of such coparceners shall be treated as their
individual accounts.
d) In case of full partition of the HUF, the shares shall be divided
amongst all the coparceners in the manner specified by the applicant
subject to fulfillment of clause 1.3(b) above and the HUF account
shall cease to exist.
1.5 Operation of minor’s demat account32
Under [The] Hindu Minority and Guardianship Act, 1956, permission of
Court is required in the case of transfer by a natural guardian of
immovable property of a minor. However, shares are not immovable
properly. Section 2(7) of Sale of Goods Act, 1930 includes shares within
the definition of "goods''. Neither the Indian Contract Act nor the Sale of
Goods Act provide for transfer by sale or otherwise by guardian /natural
guardian of goods/movable property in the name of minor to the effect
that permission of court is required in the matter of such transfer. In the
case of accounts of minor in banks also, the guardian is entitled to open,
operate and even close the account also. The DP account can, therefore,
be operated by a natural guardian without any order from the court
though the same is neither expressly permitted nor prohibited.
1.6 Facility for a Basic Services Demat Account (BSDA)3334
32 Reference: SMDRP/NSDL/4615 /2000 dated March 13, 2000
33 Reference Circular CIR/MRD/DP/22/2012 dated August 27, 2012 and Modified vide Circular
CIR/MRD/DP/21/2014 dated July 01, 2014 and Circular CIR/MRD/DP/31/2014 dated
November 12, 2014
34 Modified vide Circular CIR/MRD/DP/20/2015 dated December 11, 2015
33
भारतीय प्रततभूतत और वितिमय बोर् ड
Securities and Exchange Board of India
1.6.1 All depository participants (DPs) shall make available a "Basic Services
Demat Account" (BSDA) with limited services as per terms specified
herein.
1.6.2 Eligibility: Individuals shall be eligible to opt for BSDA subject to the
following conditions-
i. All the individuals who have or propose to have only one demat
account where they are the sole or first holder.
ii. Individuals having any other demat account/s where they are not the
first holder shall be eligible for BSDA in respect of the single demat
account where they are sole or first holder.
iii. The individual shall have only one BSDA in his/her name across all
depositories.
iv. Value of securities held in the demat account shall not exceed Rupees
Two Lakhs at any point of time.
1.6.3 Option to open BSDA: The DP shall give option:
i. To open BSDA to all eligible individuals who open a demat account
after the date of applicability of this circular;
ii. To all the existing eligible individuals to convert their demat account
into BSDA on the date of the next billing cycle based on value of
holding of securities in the account as on the last day of previous
billing cycle.
iii. In order to facilitate the eligible individuals to avail the benefits of
BSDA, DPs are advised to convert all such eligible demat accounts into
BSDA unless such Beneficial Owners (BOs) specifically opt to continue
to avail the facility of a regular demat account.
1.6.4 Charges:
i. The charge structure may be on a slab basis as indicated below:
a. No Annual Maintenance Charges (AMC) shall be levied, if the
value of holding is upto Rs. 50,000.
b. For the value of holding from Rs 50,001 to Rs 200,000, AMC not
exceeding Rs 100 may be charged.
34
भारतीय प्रततभूतत और वितिमय बोर् ड
Securities and Exchange Board of India
ii. The value of holding shall be determined by the DPs on the basis of the
daily closing price or NAV of the securities or units of mutual funds,
as the case may be. Where such price is not available the last traded
price may be taken into account and for unlisted securities other than
units of mutual funds, face value may be taken in to account. The
value of suspended securities may not be considered for the purpose
of determining eligibility of demat account as BSDA.
iii. If the value of holding in such BSDA exceeds the prescribed criteria at
any date, the DPs may levy charges as applicable to regular accounts
(non BSDA) from that date onwards.
iv. The DPs shall assess the eligibility of the BOs at the end of the current
billing cycle and convert eligible demat accounts into BSDA.
1.6.5 Services for Basic Services Demat Accounts:
i. Transaction statements:
a. Transaction statements shall be sent to the BO at the end of each
quarter. If there are no transactions in any quarter, no transaction
statement may be sent for that quarter.
b. If there are no transactions and no security balance in an account,
then no further transaction statement needs to be provided.
c. Transaction statement shall be required to be provided for the
quarter in which the account became a zero balance account.
ii. Holding Statement:
a. DP shall send atleast one annual physical statement of holding to
the stated address of the BO in respect of accounts with no
transaction and nil balance even after the account has remained in
such state for one year. The DP shall inform the BO that the
dispatch of the physical statement may be discontinued if the
account continues to remain zero balance even after one year.
b. One annual statement of holding shall be sent in respect of
remaining accounts in physical or electronic form as opted for by
the BO.
35
भारतीय प्रततभूतत और वितिमय बोर् ड
Securities and Exchange Board of India
iii. Charges for statements: Electronic statements shall be provided free of
cost. In case of physical statements, the DP shall provide at least two
statements free of cost during the billing cycle. Additional physical
statement may be charged at a fee not exceeding Rs.25/- per statement.
iv. All BOs opting for the facility of BSDA, shall register their mobile
number for availing the SMS alert facility for debit transactions.
v. At least Two Delivery Instruction Slips (DIS) shall be issued at the time
of account opening.
vi. All other conditions as applicable to regular demat accounts, other
than the ones mentioned in this circular shall continue to apply to basic
services demat account.
1.6.6 Rationalisation of services with respect to regular accounts.
In partial modification of the earlier directions, the following
rationalisation measures shall be available for regular demat accounts:
i. Accounts with zero balance and nil transactions during the year: DP
shall send atleast one annual physical statement of holding to the
stated address of the BO in respect of accounts with no transaction and
nil balance even after the account has remained in such state for one
year. The DP shall inform the BO that if no Annual Maintenance
Charge (AMC) is received by the DP, the dispatch of the physical
statement may be discontinued for the account which continues to
remain zero balance even after one year.
ii. Accounts which become zero balance during the year: For such
accounts, no transaction statement may be sent for the duration when
the balance remains nil. However, an annual statement of holding shall
be sent to the BO.
36
भारतीय प्रततभूतत और वितिमय बोर् ड
Securities and Exchange Board of India
iii. Accounts with credit balance: For accounts with credit balance but no
transactions during the year, half yearly statement of holding for shall
be sent to the BO.
1.7 Change of Name in the Beneficial Owner (BO) Account35
1.7.1 In order to simplify the procedure of change of name in individual
Beneficial Owner’s (BO) account, it has been decided that an individual
BO may be allowed to change his/ her name, subject to the submission of
following documents at the time of change of name of the individual in
the BO account.
i. In case of change in name on account of marriage following documents
shall be submitted:
Marriage Certificate or copy of Passport showing husband’s name or
publication of name change in official gazette.
ii. In case of change in name on account of reasons other than marriage
Publication of name change in official gazette.
In case of change of name of an individual residing in the State of
Karnataka and Punjab, for reasons other than marriage, the same may
be allowed for the individual in the BO account subject to the
submission of following documents36:
a) Request letter for change of name;
b) Sworn affidavit executed before the Notary Public/ Magistrate of
First Class/ Executive Magistrate mentioning the reason for change
of name and his complete address;
c) Paper publication in one local newspaper and one national
newspaper; and
d) KYC in changed name
iii. In case of change in father’s name:
Publication of name change in official gazette.
35 Reference Circular CIR/MRD/DP/27/2012 dated November 01, 2012
36 Reference: Circular CIR/MRD/DP/158/2018 dated December 27, 2018
37
भारतीय प्रततभूतत और वितिमय बोर् ड
Securities and Exchange Board of India
1.7.2 The Depository Participants (DPs) shall collect the self-attested copies of
above documents and maintain the same in their records after verifying
with the original document.
1.8 Fees/Charges to be paid by BO
1.8.1 Account opening, custody and credit of securities37
With effect from February 1, 2005
i. No investor shall pay any charge towards opening of a Beneficial Owner
(BO) Account except for statutory charges as applicable;
ii. No investor shall pay any charge for credit of securities into his/her BO
account; and
iii. No custody charge shall be levied on any investor who is opening a BO
account.
1.8.2 Account Closure38
No Account closure charges shall be levied on BO on the closure of any
account.
1.8.3 Inter Depository Transfer39
Inter-depository transfer of shares does not attract Stamp duty and it does
not require compliance with section 108 of the Companies Act 1956.
1.8.4 Transfer of a BO Account40
With effect from January 09, 2006
37 Reference Circular MRD/DoP /SE/Dep/Cir-4/2005 dated January 28, 2005
38 Reference Circular D&CC/FITTC/CIR - 12/2002 dated October 30, 2002
39 Reference Circular SMDRP/Policy/Cir-29/99 dated August 23, 1999
40 Reference Circular MRD/DoP/Dep/Cir-22 /05 dated November 9, 2005
38
भारतीय प्रततभूतत और वितिमय बोर् ड
Securities and Exchange Board of India
No charges shall be levied by a depository on any DP and by a DP on any
BO when the BO transfers all the securities lying in his account to another
branch of the same DP or to another DP under the same depository or
another depository, provided the BO Account(s) at transferee DP and at
transferor DP are one and the same, i.e. identical in all respects. In case the
BO Account at transferor DP is a joint account, the BO Account at
transferee DP should also be a joint account in the same sequence of
ownership.
1.8.5 Account Maintenance Charges collected upfront on annual/ half yearly
basis on demat accounts41
i. In the event of closing of the demat account or shifting of the demat
account from one DP to another, the AMC collected upfront on
annual/half yearly basis by the DP, shall be refunded by the DP to the BO
for the balance of the quarter/s. For instance, in case annual AMC has
been paid by the BO and if the BO closes/shifts his account in the first
quarter, he shall be refunded the amount of the balance 3 quarters i.e.
3/4th of the AMC. Likewise, if a BO closes/shifts his account in the third
quarter, he shall be refunded the amount for the balance one quarter i.e.
1/4th of the AMC.
ii. For the purpose of the above requirement the year shall begin from the
date of opening of the account in quarterly rests.
iii. The above requirements shall be applicable to all existing and new
accounts held with DPs which collect annual/half yearly upfront AMC. It
is clarified that the above requirements shall not be applicable to those
DPs who collect quarterly/ monthly AMC.
41 Reference Circular MRD/DP/20/2010 dated July 1, 2010
39
भारतीय प्रततभूतत और वितिमय बोर् ड
Securities and Exchange Board of India
1.8.6 Dissemination of tariff/charge structure of DPs on the website of
depositories 42
i. DPs shall submit to their depository the tariff/charge structure every year,
latest by 30th April, and also inform the depository the changes in their
tariff/charge structure as and when they are effected with a view to
enabling the BOs to have a comparative analysis of the tariff/charge
structure of various DPs.
ii. For this purpose depositories shall put in place necessary systems and
procedures including formats, periodicity, etc. for collection of necessary
data from the DPs and dissemination of the same on their website which
would enable the investors to have a comparative analysis of the
tariff/charge structure of various DPs.
1.9 Safeguards to address the concerns of the investors on transfer of
securities in dematerialized mode43
Following safeguards shall be put in place to address the concerns of the
investors arising out of transfer of securities from the BO Accounts:
i. The depositories shall give more emphasis on investor education
particularly with regard to careful preservation of Delivery Instruction
Slip (DIS) by the BOs. The Depositories may advise the BOs not to leave
“blank or signed” DIS with the Depository Participants (DPs) or any other
person/entity.
ii. The DPs shall not accept pre-signed DIS with blank columns from the
BO(s).
iii. If the DIS booklet is lost / stolen / not traceable by the BO, then the BO
shall immediately intimate the DP in writing about the loss. On receipt of
such intimation, the DP shall cancel the unused DIS of the said booklet.
42 Reference Circular MRD/Dep/Cir- 20/06 dated December 11, 2006
43Reference Circular SEBI/MRD/Dep/Cir-03/2007 dated February 13, 2007 and Circular
SEBI/MRD/Dep/Cir-03/2008 dated February 28, 2008
40
भारतीय प्रततभूतत और वितिमय बोर् ड
Securities and Exchange Board of India
iv. The DPs shall not issue more than 10 loose DIS to one accountholder in a
financial year (April to March). The loose DIS can be issued only if the
BO(s) come in person and sign the loose DIS in the presence of an
authorised DP official
v. The DP shall also ensure that a new DIS booklet is issued only on the
strength of the DIS instruction request slip (contained in the previous
booklet) duly complete in all respects, unless the request for fresh booklet
is due to loss, etc., as referred to in clause (c) above
vi. The DPs shall put in place appropriate checks and balances with regard to
verification of signatures of the BOs while processing the DIS.
vii. The DPs shall cross check with the BOs under exceptional circumstances
before acting upon the DIS.
viii. The DPs shall mandatorily verify with a BO before acting upon the DIS, in
case of an account which remained inactive i.e., where no debit
transaction had taken place for a continuous period of 6 months,
whenever all the ISIN balances in that account (irrespective of the number
of ISINs) are transferred at a time. However, in case of active accounts,
such verification may be mandatory only if the BO account has 5 or more
ISINs and all such ISIN balances are transferred at a time. The authorized
official of the DP verifying such transactions with the BO, shall record the
details of the process, date, time, etc., of the verification on the instruction
slip under his signature.
1.10 Delivery Instruction Slip (DIS) Issuance and Processing44
Standardization of DIS
i. Depositories shall ensure that the DIS is standardized across all DPs in
terms of:
44 Circular SEBI/MRD/DOP/01/2014 dated January 07, 2014
41
भारतीय प्रततभूतत और वितिमय बोर् ड
Securities and Exchange Board of India
a. Serial Numbering of Delivery Instruction Slips so as to enable system
level checks by the depositories.
b. Layout and size of DIS so as to facilitate scanning and easy
retrievability of records
ii. The DIS must bear a pre-printed serial number, DP ID, and a pre-
printed/pre stamped Beneficial Owner (BO) ID. The depositories shall
prescribe a standard method of serial numbering and ensure that serial
numbers issued by a DP are unique within the DP-ID.
iii. DPs shall ensure that
a. same DIS shall not be used for giving both market and off-market
instructions
b. a single DIS shall not be used for transactions with multiple execution
dates.
Monitoring of DIS
iv. Upon issuance of DIS booklets or loose slips to BO, the DPs shall make
available immediately the following details of the DIS to the depository
system electronically:
a. the DIS serial number
b. BO ID
c. date of issuance, and
d. any other relevant details as decided by the depository
v. At the time of execution of DIS, DPs shall enter the serial number of DIS in
the depository system for validation. The depositories shall make
provisions in their systems to facilitate the same.
vi. In respect of all the transfer instructions on a DIS, Depositories shall
validate the serial number of DIS and shall ensure that no instructions
accompanied by a used DIS or unissued DIS are processed.
Scanning of DIS
42
भारतीय प्रततभूतत और वितिमय बोर् ड
Securities and Exchange Board of India
vii. DPs shall scan every DIS executed during a day along with all
Annexures/ Computer printouts, if any, by the end of the next working
day in the manner specified by the depository.
viii. The depositories shall ensure that their DPs have adequate infrastructure,
systems and processes to implement scanning, storage and transfer of the
scanned DIS in the manner specified by the depositories.
ix. The depositories shall ensure that the systems set up by the DPs maintain
proper records of all scanned DIS images including audit trails for
changes made, if any and put in place adequate checks and procedures to
prevent unauthorized changes to scanned DIS.
x. Depositories shall utilize the archived scanned images for off-site
inspection.
xi. Provisions of this circular shall not be applicable for the instructions
received from the clients by the DPs electronically in a manner approved
by the Depository.
xii. Once a new DIS booklet is issued to a BO as per provisions of this
circular, old DIS issued to such a BO shall not be accepted by the DP. A
period of one month may be given for receipt of DIS by the BOs. The DPs
may accept old DIS during this transit period.45 All DIS issued prior to
this circular shall be phased out within a period of 2 years from the date
of this circular. The measures listed above under the head 'Monitoring of
DIS' shall be made applicable to the DIS issued as per the provisions of
this circular.
1.11 Transmission of shares46,47
1.11.1 In cases of transmission of shares of a deceased security holder, where
the shareholding in the BO account of the deceased member, as
45 Reference: CIR/MRD/DP/22/2014 dated July 04, 2014
46 Reference: MRD/DoP/Dep/VM/182963/2009 dated November 12, 2009
47 Reference: CIR/MIRSD/10/2013 dated October 28, 2013
43
भारतीय प्रततभूतत और वितिमय बोर् ड
Securities and Exchange Board of India
calculated on the date of application for transmission, is within the
threshold limit of Rupees Five lakh in value, the DPs shall not insist on
additional documents other than any one or more of the documents
mentioned below.
i. Affidavit – to the effect of the claim of legal ownership of the shares
ii. Deed of indemnity – indemnifying the depository and DP
iii. NOC from other legal heir(s), wherever applicable, along with the Claim
Form/TRF and copy of death certificate duly notarized/ attested by a
Gazetted officer or Family Settlement Deed as an alternate to the NOC
duly executed by all the legal heirs of the deceased Beneficial Owner,
provided that:
a. The Family Settlement Deed clearly vests the securities in favour of
the person seeking transmission in his/ her name.
b. Vesting of securities in favour of the person seeking transmission in
his/ her name is not contingent upon any other onerous conditions in
such Family Settlement Deed.
Note: If the division of shares as per the Family Settlement Deed is
amongst more than one person, then the Family Settlement Deed can
be considered as an NOC for transmission of shares to each legal heirs
applying for transmission. However, if DPs still have problems in
comprehending the contents of the Family Settlement Deed, they
should refer the matter to Depositories for necessary advice on case-to-
case basis.
1.11.2 DP(s) shall automatically open new account in the name of the surviving
members(s), in the same order as in the original account, on an
application by the surviving member(s) based on existing documents
required as per the KYC norms. Submission of new account opening
form shall not be insisted upon.
44
भारतीय प्रततभूतत और वितिमय बोर् ड
Securities and Exchange Board of India
1.11.3 A uniform time frame of 7 days, after receipt of all requisite documents,
shall be prescribed for processing of Transmission requests.
1.11.4 In case of multiple successors, NOC of non-applicants shall be recorded
on the TRF of the applicant instead of insisting separate TRF from each of
the successors.
1.11.5 Nomination facility shall be encouraged by the Depositories specifically
targeting BOs who have not opted for nomination. As regards new
accounts, it shall be provided for at the account opening stage itself. In
case the person (both an existing and new account holder) is not
interested to nominate, then such person would have to give a positive
declaration to that effect.
1.11.6 The depositories may permit upto three nominees with respect to a
demat account.48
1.11.7 In case of transmission of securities held in physical mode:
i. Where the securities are held in single name with a nominee,
STAs/issuer companies shall follow the standardized documentary
requirement as given in Annexure A.
ii. Where the securities are held in single name without a nominee, the
STAs/issuer companies shall follow, in the normal course, the simplified
documentation as given in Annexure A, for a threshold limit of Rs.
2,00,000 (Rupees Two lakh only) per issuer company. However, the
Issuer companies, at their discretion, may enhance the value of such
securities.
1.11.8 The timeline for processing the transmission requests for securities held
in dematerialized mode and physical mode shall be 7 days and 21 days
respectively, after receipt of the prescribed documents.
48 Reference: SEBI Letter No. MRD//DP/OW/23881/2015 dated August 24, 2015 regarding multiple
nominations in demat accounts
45
भारतीय प्रततभूतत और वितिमय बोर् ड
Securities and Exchange Board of India
1.11.9 To improve the awareness of nomination facility, all Registrars to an
Issue and Share Transfer Agents shall publicize nomination as an
additional right available to investors, while sending communications to
the investors.
1.11.10In terms of Securities and Exchange Board of India (Listing
Obligations and Disclosure Requirements) (Sixth Amendment)
Regulations, 2018,succession certificate or probate of will or will or
letter of administration or court decree, as may be applicable in terms of
Indian Succession Act, 1925 has been prescribed as documentary
requirement for transmission of securities held in physical mode.49
1.11.11With regard to transmission of securities held in dematerialized mode,
the same is dealt in terms of bye laws of the Depositories. In order to
harmonize the procedures for transmission of securities in dematerialized
mode with that of transmission of securities in physical mode, it has been
decided that transmission of securities held in dematerialized mode shall
be dealt in line with Securities and Exchange Board of India (Listing
Obligations and Disclosure Requirements) (Sixth Amendment)
Regulations, 2018.
49 Reference Circular SEBI/HO/MIRSD/DOP/CIR/P/2019/05 dated January 04, 2019
46
भारतीय प्रततभूतत और वितिमय बोर् ड
Securities and Exchange Board of India
Annexure A
Documentary requirement for securities held in physical mode
1 For securities held in single name with a nominee:
i. Duly signed transmission request form by the nominee.
ii. Original or Copy of death certificate duly attested by a Notary Public or
by a Gazetted Officer.
iii. Self attested copy of PAN card of the nominee. (Copy of PAN card may be
substituted with ID proof in case of residents of Sikkim after collecting address
proof)
2 For securities held in single name without a nominee, following additional
documents may be sought:
i. Affidavit made on appropriate non judicial stamp paper – to the effect of
identification and claim of legal ownership to the securities
ii. For value of securities upto Rs. 2,00,000 (Rupees Two lakh only) per issuer
company as on date of application, one or more of the following
documents:
a. No objection certificate [NOC] from all legal heir(s) who do not object to
such transmission (or) copy of Family Settlement Deed duly notarized or
attested by a Gazetted Officer and executed by all the legal heirs of the
deceased holder.
b. Indemnity made on appropriate non judicial stamp paper – indemnifying
the STA/Issuer Company.
iii. For value of securities more than Rs. 2,00,000 (Rupees Two lakh only) per
issuer company as on date of application:
a. Succession certificate (or) Probate of will (or) Letter of Administration (or)
Court decree.
End of Annexure A
47
भारतीय प्रततभूतत और वितिमय बोर् ड
Securities and Exchange Board of India
1.12 SMS alerts for demat accounts operated by Power of Attorney50
Subscription to SMS Alert facility for depository accounts operated
through Power of Attorney (POA) would be mandatory except in case of
accounts held by non-individuals, foreign nationals, and NRIs.
1.13 Exemption from sending quarterly statements of transactions by
depository participants (DPs) to clients in respect of demat accounts with
no transactions and no security balances51
i. SEBI has provided exemption to Depository Participants from sending
quarterly transaction statements to the clients in respect of demat accounts
with no transactions and no security balances subject to the following
conditions:
a. Client is informed in advance that it will not be receiving Transaction
Statements for such accounts till there are any transactions or
security holdings in the demat account.
b. KYC and PAN requirement in respect of all such depository accounts
are complied.
c. No Annual Maintenance Charges are levied for such an account.
d. Information which is required to be disseminated by Participants by
way of a note in the Transaction Statements will be required to be
communicated to such Clients separately.
e. The Internal Auditor of the Participant shall comment in its internal
audit report on compliance of the aforesaid requirements.
ii. Further, depository may like to consider whether, DPs should send a
consolidated Transaction Statements for the entire financial year in case of
the BOs to whom quarterly Transaction Statements are not sent.
50 Reference: SEBI/MRD/DEP/VM/169784 /09 dated July 15, 2009
51 Reference: MRD/CDSL/VM/155773/2009 dated February 27, 2009,
MRD/DoP/NSDL/VM/168994 /2009 dated July 07, 2009 and MRD/CDSL/VM/168989 /2009
dated July 07, 2009
48
भारतीय प्रततभूतत और वितिमय बोर् ड
Securities and Exchange Board of India
1.14 Discontinuation of sending transaction statements by depository
participants to clients52
SEBI allowed discontinuation of sending transaction statements by
depository participants to clients subject to the following conditions:
i. Transaction statements were returned undelivered on three consecutive
occasions.
ii. The depository participant (DP) maintains proof that the transaction
statements were returned undelivered.
iii. The transaction statements were returned undelivered for the reasons
which clearly establish that the client no longer resides at the given
address (i.e. party shifted, etc.) and not for other reasons (i.e.
residence/office closed, address incorrect, address incomplete, etc.).
iv. The DP informs such clients through alternative means (such as outbound
call, SMS or email) that their transaction statements are returned
undelivered and they need to communicate the proper (new) address.
v. The DP ensures that on receipt of request for address modification from
the client as per the stipulated procedure, the dispatch of transaction
statements is immediately started. Further, the DP ensures that
transaction statements that were not delivered and dispatched due to
discontinuation are also dispatched immediately without any additional
cost to the clients.
1.15 Exemption to Depository Participants (DPs) from providing hard copies
of transaction statements to BOs53
DPs are permitted to provide transaction statements and other documents
to the BOs under Digital signature, as governed under the Information
Technology Act, 2000, subject to the DP entering into a legally enforceable
arrangement with the BO for the said purpose. While such practice in the
aforesaid manner shall be deemed to be in compliance of the provisions of
the Regulation 60 of SEBI (Depositories & Participants) Regulations, 2018;
52 Reference: MRD/NSDL/VM/158886 /2009 dated March 30, 2009
53 Reference Circular MRD/DoP/Dep/Cir-27/2004 dated August 16, 2004
49
भारतीय प्रततभूतत और वितिमय बोर् ड
Securities and Exchange Board of India
if the BO is still desirous of receiving statements in hard copy, DPs shall
be duty bound to provide the same.
1.16 Transfer of funds and securities from Clearing Member pool account to
BO Account54
i. Clearing members shall transfer the funds and securities from their
respective pool account to the respective beneficiary account of their
clients within 1 working day after the pay-out day. The securities lying in
the pool account beyond the stipulated period shall attract a penalty at the
rate of 6 basis point per week on the value of securities. The penalty so
collected by the depositories shall be credited to a separate account with
the depository and earmarked for defraying the expenses in connection
with the investors’ education and awareness programs conducted by the
depository.
ii. The securities lying in the pool account beyond the above period shall not
be eligible either for delivery in the subsequent settlement(s) or for
pledging or stock lending purpose, until the same are credited to the
beneficiary accounts.
iii. The securities lying in the Clearing member’s pool account beyond the
specified time period shall be identified based on the settlement number.
The clearing corporation/houses of the stock exchanges shall provide the
settlement-wise details of securities to the depositories and the
depositories shall maintain the settlement-wise records for the purpose.
iv. Further, stock exchanges shall execute direct delivery of securities to the
investors. Clearing corporation/clearing house (CC/CH) shall ascertain
from each clearing member, the beneficial account details of their
respective clients due to receive pay out of securities. Based on this, the
CC/CH shall send pay out instructions to the depositories so that the
client receives pay out of securities directly to the extent of instructions
received from the respective clearing members. To the extent of
54Reference Circular SMDRP/Policy/Cir-05/2001 dated February 1, 2001 & Circular
SEBI/MRD/Policy/AT/Cir-19/2004 dated April 21, 2004
50
भारतीय प्रततभूतत और वितिमय बोर् ड
Securities and Exchange Board of India
instruction not received, the securities shall be credited to the CM pool
account.
1.17 Consolidated Account Statement (CAS) for all securities assets55
i. Pursuant to the Interim Budget announcement in 2014 to create one record
for all financial assets of every individual, it has been decided to enable a
single consolidated view of all the investments of an investor in Mutual
Funds (MF) and securities held in demat form with the Depositories.
ii. The Depositories and the Asset Management Companies (AMCs)/ MF-
RTAs shall put in place systems to facilitate generation and dispatch of
single Consolidated Account Statements (CAS) for investors having MF
investments and holding demat accounts. AMCs/ RTAs shall share the
requisite information with the Depositories on monthly basis to enable
generation of CAS.
iii. Consolidation of account statement shall be done on the basis of PAN. In
case of multiple holding, it shall be PAN of the first holder and pattern of
holding. Based on the PANs provided by the AMCs/MF-RTAs, the
Depositories shall match their PAN database to determine the common
PANs and allocate the PANs among themselves for the purpose of
sending CAS. For PANs which are common between depositories and
AMCs, the Depositories shall send the CAS. In other cases (i.e. PANs with
no demat account and only MF units holding), the AMCs/ MF-RTAs shall
continue to send the CAS to their unit holders as is being done presently
in compliance with the Regulation 36(4) of the SEBI (Mutual Funds)
Regulations.
iv. In case investors have multiple accounts across the two depositories, the
depository having the demat account which has been opened earlier shall
be the default depository which will consolidate details across
depositories and MF investments and dispatch the CAS to the investor.
However, option shall be given to the demat account holder by the default
depository to choose the depository through which the investor wishes to
receive the CAS.
55 Circular CIR/MRD/DP/31/2014 dated November 12, 2014
51
भारतीय प्रततभूतत और वितिमय बोर् ड
Securities and Exchange Board of India
v. The CAS shall be generated on a monthly basis. The AMCs /MF-RTAs
shall provide the data with respect to the common PANs to the
depositories within three days from the month end. The depositories shall
then consolidate and dispatch the CAS within ten days from the month
end.
vi. Where statements are presently being dispatched by email either by the
Mutual Funds or by the Depositories, CAS shall be sent through email.
However, where an investor does not wish to receive CAS through email,
option shall be given to the investor to receive the CAS in physical form at
the address registered in the Depository system.
vii. A proper grievance redressal mechanism shall be put in place by the
depositories and the AMCs/MF-RTAs which shall also be communicated
to the investors through CAS. AMCs/MF-RTAs would be accountable for
the authenticity of the information provided through CAS in respect of
MF investments and timely sharing of such information with
Depositories. The Depositories would be responsible for the timely
dispatch of CAS to the investors serviced by them and the demat account
information.
viii. The depositories and the AMCs/ MF-RTAs shall ensure data integrity and
confidentiality in respect of the shared information. The depositories shall
utilise the shared data only for the purpose of providing CAS and shall
not share the same with their Depository Participants. Where Depositories
are required to share such information with unregulated entities like third
party printers, the depositories shall enter into necessary data
confidentiality agreements with them.
ix. The CAS shall be implemented from the month of March 2015 with
respect to the transactions carried out during the month of February 2015.
x. If an investor does not wish to receive CAS, an option shall be given to the
investor to indicate negative consent. Depositories shall accordingly
inform investors in their statements from the month of January 2015 about
the facility of CAS and give them information on how to opt out of the
facility if they do not wish to avail it.
52
भारतीय प्रततभूतत और वितिमय बोर् ड
Securities and Exchange Board of India
xi. Where such an option is exercised, the concerned depository shall inform
the AMC/MF-RTA accordingly and the data with respect to the said
investor shall not be shared by the AMC/MF-RTA with the depository.
xii. If there is any transaction in any of the demat accounts of the investor or
in any of his mutual fund folios, then CAS shall be sent to that investor on
monthly basis. In case there is no transaction in any of the mutual fund
folios and demat accounts then CAS with holding details shall be sent to
the investor on half yearly basis. However, in case of demat accounts with
nil balance and no transactions in securities and in mutual fund folios, the
requirement to send physical statement shall be applicable as specified at
para 1.6.5 and 1.6.6 of this chapter.
xiii. Further, the holding statement dispatched by the DPs to their BOs with
respect to the dormant demat accounts with balances shall also be
dispatched half-yearly.
xiv. The dispatch of CAS by the depositories to BOs would constitute
compliance by the Depository Participants with requirement under
Regulation 60 of SEBI (Depositories and Participants) Regulations, to
provide statements of account to the BOs as also compliance by the MFs
with the requirement under Regulation 36(4) of SEBI (Mutual Funds)
Regulations.
1.18 Procedure for filing and redressal of investor grievances using SCORES56
i. Investors who wish to lodge a complaint on SCORES are requested to
register themselves on www.scores.gov.in by clicking on “Register here”.
While filing the registration form, details like Name of the investor, PAN,
Contact details, Email id, Aadhaar card number (optional), CKYC ID
(optional) etc. (Annexure A) may be provided for effective
communication and speedy redressal of the grievances. Upon successful
registration, a unique user id and a password shall be communicated
to the investor through an acknowledgement email / SMS.
56 Reference Circular SEBI/HO/OIAE/IGRD/CIR/P/2018/58 dated March 28, 2018
53
भारतीय प्रततभूतत और वितिमय बोर् ड
Securities and Exchange Board of India
ii. An investor shall use login credentials for lodging complaint on SCORES
(“Login for registered user” section). Details on how to lodge a complaint
on SCORES is at Annexure B.
iii. The complainant may use SCORES to submit the grievance directly
to companies / intermediaries and the complaint shall be forwarded to
the entity for resolution. The entity is required to redress the grievance
within 30 days, failing which the complaint shall be registered in SCORES
iv. Presently, the limitation period for filing an arbitration reference with
stock exchanges is three year. In line with the same and in order to
enhance ease, speed &accuracy in redressal of investor grievance, the
investor may lodge a complaint on SCORES within three years from the
date of cause of complaint, where;
Investor has approached the listed company or registered intermediary
for redressal of the complaint and,
The concerned listed company or registered intermediary rejected the
complaint or,
The complainant does not receive any communication from the listed
company or intermediary concerned or,
The complainant is not satisfied with the reply given to him or
redressal action taken by the listed company or an intermediary.
Annexure A
Details to be provided while registering on SCORES with effect from
August 01, 2018:
i. Name of the complainant*
ii. Pan Number*
iii. Aadhaar Number (Optional)
iv. CKYCID(Optional)
v. DP id & Client Id
vi. Postal address for communication*
vii. Contact number –Mobile* : Landline
54
भारतीय प्रततभूतत और वितिमय बोर् ड
Securities and Exchange Board of India
viii. Email id* –For receipt of acknowledgement letter / updates of
complaints on SCORES.
ix. Bank account details –To facilitate direct credit of benefits to
investor.
x. Client id as given by Broker / Stock Exchange.
Note: * are mandatory fields.
Annexure B
How to lodge a complaint on SCORES with effect from August 01, 2018.
SCORES Portal
http://www.scores.gov.in/
CLICK
User Registration
(Under “Register Here”)
Press submit to complete the registration.
An Email/ SMS informing User ID and Password will be sent to investor.
CLICK
(As per nature of complaint)
Login to SCORES and Click on
“Complaint Registration”
Enter
Details like Period of cause of event, Date of grievance taken up with the entity,
address of direct complaint to the entity, Share certificate number / folio number etc.
TY PE
Complaint details in brief
(1000 charcters)
55
भारतीय प्रततभूतत और वितिमय बोर् ड
Securities and Exchange Board of India
Upload supporting documents (upto 2 MB in PDF format)
CLICK
Add
Enter Character shown in image
CLICK
Submit
Complaint Registration Number is generated and sent to email id and to mobile
number of the complainant.
Section 2: Depository Participants Related
2.1 Online Registration Mechanism for Securities Market Intermediaries57
i. SEBI Intermediary Portal (https://siportal.sebi.gov.in)has been
operationalized for the intermediaries to submit all the
registration applications online. The SEBI Intermediary Portal includes
online application for registration, processing of application,
grant of final registration, application for surrender / cancellation,
submission of periodical reports, requests for change of name / address
/ other details etc.
ii. All applications for registration / surrender / other requests shall be
made through SEBI Intermediary Portal only. The application in
respect of stock brokers / sub-broker and depository participants
57 Reference Circular No. SEBI/HO/MIRSD/MIRSD1/CIR/P/2017/38 dated May 02, 2017
56
भारतीय प्रततभूतत और वितिमय बोर् ड
Securities and Exchange Board of India
shall continue to be made through the Stock Exchanges and
Depositories respectively.
iii. The applicants will be separately required to submit relevant
documents viz. declarations / undertakings, in physical form, only
for records without impacting the online processing of applications for
registration.
iv. Where applications are made through the Stock Exchanges / Depositories,
the hard copy of the applications made by their members shall be
preserved by them and shall be made available to SEBI, as and when
called for.
2.2 Supervision of branches of DPs58
v. To ensure compliance with Regulation 63 of the SEBI (Depositories and
Participants) Regulations, 2018, and Clause 19 of the Code of Conduct for
Participants contained in the Third Schedule to the Regulations the DP
shall ensure that it has satisfactory internal control procedure in place,
inclusive of their branch offices. DPs are therefore required in terms of
these provisions to put in place appropriate mechanisms to ensure that
their branches are carrying on the operations in compliance with the
applicable regulations, bye-laws, etc. DPs are also required to put in place
suitable internal control systems to ensure that all branches exercise due
diligence in opening accounts, complying with KYC requirements, in
ensuring systems safety in complying with client instructions, manner of
uploading client instructions, in verifying signatures and maintaining
client records, etc. DPs shall also ensure that the branches are suitably
integrated.
vi. Depositories shall examine the adequacy of the above mechanisms during
their inspections of DPs. The Depositories shall also carry out surprise
inspections/ checks of the DP branches apart from the regular inspection
58Reference Circular MIRSD/DPS-III/Cir-9/07 dated July 3, 2007
57
भारतीय प्रततभूतत और वितिमय बोर् ड
Securities and Exchange Board of India
of the DPs. Depositories shall also put in place appropriate mechanisms
for monitoring opening of branches by DPs.
2.3 Incentivisation to Depositories Participants (DPs)59
i. In order to compensate the DPs towards the cost of opening and
maintaining Basic Services Demat Accounts (BSDA), the depositories shall
pay an incentive of Rs. 100/- for every new BSDA opened by their
participants in other than the top 15 cities. The name of the top 15 cities is
given in following table:
Top 15 Cities
Sr. Name of the City
No.
1. MUMBAI
2. DELHI
3. AHMEDABAD
4. BANGALORE
5. CHENNAI
6. PUNE
7. KOLKATA
8. THANE
9. HYDERABAD
10. SURAT
11. JAIPUR
12. VADODARA
13. SECUNDARABAD
14. RAJKOT
15. INDORE
ii. The incentive shall be provided at the end of the financial year only with
respect to the new BSDA opened during the financial year and which
displayed at least one credit in the account during the Financial Year.
59 Reference Circular CIR/MRD/DP/18/2015 dated December 09, 2015
58
भारतीय प्रततभूतत और वितिमय बोर् ड
Securities and Exchange Board of India
iii. Further to the above, in order to incentivize the DPs to promote holdings
in the BSDA, the depositories may pay an amount of Rs. 2 per folio per
ISIN to the respective depository participant (DP), in respect of the ISIN
positions held in Basic Service Demat Accounts (BSDA). This incentive
may be provided with respect to all the BSDA in the depository system.
iv. The reimbursement to DPs shall be made on an annual basis at the end of
the financial year. The depositories shall set aside 20% of the incremental
revenue received from the Issuers to manage the aforementioned
incentive schemes. Any surplus after reimbursement of DPs may be
utilized by the depositories to incentivize the DPs for promoting financial
inclusion, encouraging investors to hold Mutual Fund Units in demat
account and familiarizing the investors on the OFS mechanism, etc.
v. The incentive scheme may be reviewed after a period of two years.
2.4 Implementation of the Multilateral Competent Authority Agreement and
Foreign Account Tax Compliance Act60
i. It is brought to the attention of all the intermediaries that India has joined
the multilateral competent Authority Agreement (MCAA) on Automatic
Exchange of Financial Account Information on June 3, 2015. In terms of
the MCAA, all countries which are a signatory to the MCAA, are obliged
to exchange a wide range of financial information after collecting the same
from financial institutions in their country/jurisdiction.
ii. Further, on July 9, 2015 the Governments of India and United States Of
America (USA) have signed an agreement to improve International tax
compliance and to implement the Foreign Account Tax Compliance Act
(FATCA) in India. The USA has enacted FATCA in 2010 to obtain
information on accounts held by U.S taxpayers in other countries. As per
the aforesaid agreement, foreign financial institutions (FFIs) in India will
be required to report tax information about U.S account
60 Circular No. CIR/MIRSD/2/2015 dated August 26, 2015
59
भारतीय प्रततभूतत और वितिमय बोर् ड
Securities and Exchange Board of India
holders/taxpayers directly to the Indian Government which will, in turn,
relay that information to the U.S Internal Revenue Services (IRS).
iii. For implementation of the MCAA and agreement with USA, the
Government of India has made necessary legislative changes to section
285BA of the Income-tax Act, 1961. Further the Government of India has
notified Rules 114F to 114H (herein after referred as “the Rules”) under
the Income Tax Rules, 1962 and form No. 61B for furnishing of statement
of reportable account as specified in the Rules. The Rule is available at
http://www.incometaxindia.gov.in/communications/notification/notific
ation%20no.%2062%20dated%2007-08-2015.pdf
iv. All registered intermediaries are advised to take necessary steps to ensure
compliance with the requirements specified in the aforesaid Rules after
carrying out necessary due diligence.
2.5 Printing of Grievances Redressal Mechanism on Delivery Instruction
Form Book 61
To promote investor awareness regarding mechanism for redressing
investor grievances, the information placed below shall be printed on the
inside back cover of the Delivery Instruction Form (DIF) Book issued by
all Depository Participants.
In case you have grievances against a listed company or intermediary registered
with SEBI, you should first approach the concerned company or intermediary
against whom you have grievance. If you are not satisfied with their response,
you may approach SEBI or other regulatory bodies. You can approach SEBI for
following type of grievances.
Listed Companies Brokers and stock exchanges
 Refund / Allotment/ Bonus/ Dividend/  Stock Brokers
61 Circular No. SEBI/MRD/DP/25/2012 dated September 21, 2012
60
भारतीय प्रततभूतत और वितिमय बोर् ड
Securities and Exchange Board of India
Rights/ Redemption/ Interest  Sub brokers
 Prelisting offer documents (shares)  Portfolio managers
 Prelisting offer documents (debentures  Stock exchanges
and bonds)
 Delisting of Securities
 Buyback of Securities
 Takeover and Restructuring
 Corporate Governance and Listing
conditions
Registrar and Transfer Agents Other entities
Collective Investment Schemes
Mutual Funds Debenture Trustees
Merchant Bankers
Depository and Depository Participants Bankers to Issue
Credit Rating Agencies
Information to SEBI: Custodian of Securities
 Price Manipulation Foreign Institutional Investors
 Insider trading Underwriters
Venture Capital Funds
KYC Registration Agency(KRA)
Alternative Investment Fund
You can file your complaints online at http://scores.gov.in or alternately send
your complaints to Office of Investor Assistance and Education of SEBI at
Mumbai or Regional Offices at the following addresses:
Address of SEBI Offices
 Office of Investor Assistance and Education, SEBI Bhavan,
Plot No.C4-A, 'G' Block, Bandra Kurla Complex, Bandra (E), Mumbai 400
051 Tel: 022-26449188 / 26449199 (http://scores.gov.in)
 SEBI, Northern Regional Office, 5th Floor, Bank of Baroda Building, 16,
Sansad Marg, New Delhi -110001 Tel: 011-23724001-05 (sebinro@sebi.gov.in)
61
भारतीय प्रततभूतत और वितिमय बोर् ड
Securities and Exchange Board of India
 SEBI, Eastern Regional Office, L&T Chambers, 3rd Floor, 16, Camac Street,
Kolkata - 700 016 Tel: 033-23023000. (sebiero@sebi.gov.in)
 SEBI, Southern Regional Office, 7th Floor, Overseas Towers, 756-L, Anna
Salai Chennai 600 0102 -24674000/ 24674150 (sebisro@sebi.gov.in)
 SEBI, Ahmedabad Regional Office, Unit No: 002, Ground Floor, SAKAR I,
Near Gandhigram Railway Station, Opp. Nehru Bridge Ashram Road,
Ahmedabad - 380 009 Tel : 079-26583633-35 (sebiaro@sebi.gov.in)
For more information visit our website - http://scores.gov.in
2.6 Operationlisation of Central KYC Records Registry (CKYCR)62
1. Government of India has authorized the central Registry of Securitization
and Asset Reconstruction and Security interest of India (CERSAI), set
up under sub-section (1) of Section 20 of Securitisation and Reconstruction
of Financial Assets and Enforcement of Security Interest Act, 2002, to act as,
and to perform the functions of, the Central KYC Records Registry under
the PML Rules 2005, including receiving, storing, safeguarding and
retrieving the KYC records in digital form of a client.
2. As per the 2015 amendment to PML (Maintenance of Records) Rules, 2005
(the rules), every reporting entity shall capture the KYC information for
sharing with the Central KYC Records Registry in the manner mentioned in
the Rules, as per the KYC template for „individuals‟ finalised by CERSAI.
3. Accordingly, the KYC template finalised by CERSAI shall be used by the
registered intermediaries as Part I of AOF for individuals. The KYC
template for “individuals” and the “Central KYC Registry Operating
Guidelines 2016” for uploading KYC records on CKYCR finalised by
CERSAI. In this regard, it is clarified that the requirement for
Permanent Account Number (PAN) would continue to be mandatory
62 Reference Circular CIR/MIRSD/ 66 /2016 dated July 21, 2016
62
भारतीय प्रततभूतत और वितिमय बोर् ड
Securities and Exchange Board of India
for completing the KYC process.
2.7 Recording of Non Disposal Undertaking (NDU) in the Depository
System63
SEBI (Substantial Acquisition of Shares and Takeovers) Regulations,
2011, requires promoters of a company to disclose details of their
encumbered shares including NDUs by promoters which are
covered under the scope of disclosures of 'Encumbrances'. It has
been observed that some shareholders, primarily promoters, enter
into non-disposal agreements/ non-disposal undertaking (NDU) for
borrowing funds from various lenders. NDUs are typically
undertakings given by a shareholder not to transfer or otherwise
alienate the securities and are in the nature of negative lien given in
favour of another party, usually a lender.
i. Depositories shall develop a separate module/ transaction type in their
system for recording NDUs.
ii. Both parties to the NDU shall have a demat account with the same
depository and be KYC compliant.
iii. Pursuant to entering the NDU, the Beneficial Owner (BO) along with the
other party shall make an application through the participant (where the
BO holds his securities) to the depository, for the purpose of recording the
NDU transaction.
iv. The application shall necessarily include details of BO ID, PAN,
email-id, signature(s), name of the entity in whose favor such NDU is
entered and the quantity of securities. Such entity in whose favor
NDU is entered shall also authorize the participant of the BO holding
the shares, to access the signatures as recorded in that entity’s demat
account.
v. The participant after being satisfied that the securities are available for
NDU shall record the NDU and freeze for debit the requisite quantity
of securities under NDU in the depository system.
vi. The depositories shall make suitable provisions for capturing the details of
BO ID and PAN of the entity in whose favor such NDU is entered by the
participant. The depositories shall also make available to the said
63 Reference circular number CIR/MRD/DP/56/2017 dated June 14, 2017
63
भारतीय प्रततभूतत और वितिमय बोर् ड
Securities and Exchange Board of India
participant, the details of authorized signatories as recorded in the
demat account of the entity in whose favor such NDU is entered.
vii. On creation of freeze in the depository system, the depository/ participant
of the BO holding shares, shall inform both parties of the NDU
regarding creation of freeze under NDU.
viii. The depositories shall make suitable provisions for capturing the
details of company/ promoters if they are part of the NDU.
ix. In case if the participant does not create the NDU, it shall intimate the
same to the parties of the NDU along with the reasons thereof.
x. Once the freeze for debits is created under the NDU for a particular
quantity of shares, the depository shall not facilitate or effect any
transfer, pledge, hypothecation, lending, rematerialisation or in any
manner alienate or otherwise allow dealing in the shares held under NDU
till receipt of instructions from both parties for the cancellation of NDU.
xi. The entry of NDU made as per para 4.34 (v) above may be cancelled
by the depository/participant of the BO through unfreeze of specified
quantity if parties to the NDU jointly make such application to the
depository through the participant of the BO.
xii. On unfreeze of shares upon termination/ cancellation of NDU, the
depository shall inform both parties of the NDU in the form and manner
agreed upon at the time of creating the freeze. The unfreeze shall be
effected in the depository system after a cooling period of 2 clear
business days but no later than 4 clear business days.
xiii. The freeze and unfreeze instructions executed by the Participant for
recording NDUs will be subject to 100% concurrent audit.
xiv. The DPs shall not facilitate or be a party to any NDU outside the
depository system as outlined herein.
2.8 Cyber Security & Cyber Resilience framework for Depository
Participant64
i. Rapid technological developments in securities market have
highlighted the need for maintaining robust cyber security and
cyber resilience framework to protect the integrity of data and guard
against breaches of privacy.
64 Reference circular SEBI/HO/MIRSD/CIR/PB/2018/147 dated December 03, 2018
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भारतीय प्रततभूतत और वितिमय बोर् ड
Securities and Exchange Board of India
ii. Since depository participants perform significant functions in
providing services to holders of securities, it is desirable that these
entities have robust cyber security and cyber resilience framework in
order to provide essential facilities and perform systemically critical
functions relating to securities market.
iii. Accordingly, after discussions with Exchanges, Depositories and
Stock Brokers’ and Depository Participants’ associations, a framework on
cyber security and cyber resilience has been designed, which is placed
at Annexure 1. The framework would be required to be complied by all
Depository Participants registered with SEBI.
Annexure -1
1. Cyber-attacks and threats attempt to compromise the Confidentiality,
Integrity and Availability (CIA)of the computer systems, networks and
databases (Confidentiality refers to limiting access of systems and
information to authorized users, Integrity is the assurance that the
information is reliable and accurate, and Availability refers to
guarantee of reliable access to the systems and information by
authorized users). Cyber security framework includes measures, tools
and processes that are intended to prevent cyber-attacks and improve
cyber resilience. Cyber Resilience is an organization’s ability to
prepare and respond to a cyber-attack and to continue operation
during, and recover from, a cyber-attack.
Governance
2. As part of the operational risk management framework to manage
risk to systems, networks and databases from cyber-attacks and
threats, Depository Participants should formulate a comprehensive
Cyber Security and Cyber Resilience policy document encompassing
the framework mentioned hereunder. In case of deviations from the
suggested framework, reasons for such deviations, technical or
otherwise, should be provided in the policy document.
The policy document should be approved by the Board / Partners /
Proprietor of the Stock Broker / Depository Participants. The policy
document should be reviewed by the aforementioned group at least
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भारतीय प्रततभूतत और वितिमय बोर् ड
Securities and Exchange Board of India
annually with the view to strengthen and improve its Cyber Security
and Cyber Resilience framework.
3. The Cyber Security Policy should include the following process to
identify, assess, and manage Cyber Security risk associated with
processes, information, networks and systems:
a. ‘Identify’ critical IT assets and risks associated with such assets.
b. ‘Protect’ assets by deploying suitable controls, tools and measures.
c. ‘Detect’ incidents, anomalies and attacks through appropriate
monitoring tools/processes.
d. ‘Respond’ by taking immediate steps after identification of the
incident, anomaly or attack.
e. ‘Recover’ from incident through incident management and other
appropriate recovery mechanisms.
4. The Cyber Security Policy of Stock Brokers trading through APIs
based terminal / Depository Participants should consider the
principles prescribed by National Critical Information Infrastructure
Protection Centre (NCIIPC) of National Technical Research
Organization (NTRO), Government of India (titled ‘Guidelines for
Protection of National Critical Information Infrastructure’) and
subsequent revisions, if any, from time to time.
5. Stock Brokers trading through APIs based terminal / Depository
Participants may refer to best practices from international standards
like ISO 27001, COBIT 5, etc., or their subsequent revisions, if any,
from time to time.
6. Depository Participants should designate a senior official or
management personnel (henceforth, referred to as the “Designated
Officer”) whose function would be to assess, identify, and reduce
security and Cyber Security risks, respond to incidents, establish
appropriate standards and controls, and direct the establishment and
implementation of processes and procedures as per the Cyber
Security Policy.
7. The Board / Partners / Proprietor of the Depository Participants shall
constitute an Technology Committee65 comprising experts. This
Technology Committee should on a half yearly basis review the
65 Reference Circular CIR/HO/MIRSD/DOS2/CIR/PB/2019/038 dated March 15, 2019 - in Para 7, the
words “Internal Technology Committee” stands replaced as “Technology Committee”.
66
भारतीय प्रततभूतत और वितिमय बोर् ड
Securities and Exchange Board of India
implementation of the Cyber Security and Cyber Resilience policy
approved by their Board / Partners / Proprietor, and such review
should include review of their current IT and Cyber Security and Cyber
Resilience capabilities, set goals for a target level of Cyber Resilience,
and establish plans to improve and strengthen Cyber Security and
Cyber Resilience. The review shall be placed before the Board /
Partners / Proprietor of the Stock Brokers / Depository Participants
for appropriate action.
8. Depository Participants should establish a reporting procedure to
facilitate communication of unusual activities and events to the
Designated Officer in a timely manner.
9. The Designated officer and the technology committee of the Depository
Participants should periodically review instances of cyber-attacks, if
any, domestically and globally, and take steps to strengthen Cyber
Security and cyber resilience framework.
10. Depository Participants should define responsibilities of its employees,
outsourced staff, and employees of vendors, members or participants
and other entities, who may have privileged access or use systems /
networks of Depository Participants towards ensuring the goal of Cyber
Security.
Identification
11. Depository Participants should identify critical assets based on their
sensitivity and criticality for business operations, services and data
management. To this end, Depository Participants should maintain up-to-
date inventory of its hardware and systems and the personnel to
whom these have been issued, software and information assets
(internal and external), details of its network resources, connections
to its network and data flows.
12. Depository Participants should accordingly identify cyber risks (threats
and vulnerabilities) that it may face, along with the likelihood of such
threats and impact on the business and thereby, deploy controls
commensurate to the criticality.
Protection
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भारतीय प्रततभूतत और वितिमय बोर् ड
Securities and Exchange Board of India
Access controls
13. No person by virtue of rank or position should have any intrinsic
right to access confidential data, applications, system resources or
facilities.
14. Any access to Depository Participants systems, applications, networks,
databases, etc., should be for a defined purpose and for a defined
period. Depository Participants should grant access to IT systems,
applications, databases and networks on a need-to-use basis and
based on the principle of least privilege. Such access should be for the
period when the access is required and should be authorized using strong
authentication mechanisms.
15. Depository Participants should implement an access policy which
addresses strong password controls for users’ access to systems,
applications, networks and databases. Illustrative examples for this are
given in Annexure C.
16. All critical systems of the Depository Participant accessible over the
internet should have two-factor security (such as VPNs, Firewall controls
etc.)
17. Depository Participants should ensure that records of user access to
critical systems, wherever possible, are uniquely identified and
logged for audit and review purposes. Such logs should be maintained
and stored in a secure location for a time period not less than two (2)
years.
18. Depository Participants should deploy controls and security measures to
supervise staff with elevated system access entitlements (such as
admin or privileged users) to Stock Broker/ Depository Participant’s
critical systems. Such controls and measures should inter-alia include
restricting the number of privileged users, periodic review of
privileged users’ activities, disallow privileged users from accessing
systems logs in which their activities are being captured, strong
controls over remote access by privileged users, etc.
19. Employees and outsourced staff such as employees of vendors or
service providers, who may be given authorized access to the
Depository Participants critical systems, networks and other computer
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भारतीय प्रततभूतत और वितिमय बोर् ड
Securities and Exchange Board of India
resources, should be subject to stringent supervision, monitoring and
access restrictions.
20. Depository Participants should formulate an Internet access policy to
monitor and regulate the use of internet and internet based services
such as social media sites, cloud-based internet storage sites, etc.
within the Depository Participant’s critical IT infrastructure.
21. User Management must address deactivation of access of privileges of
users who are leaving the organization or whose access privileges have
been withdrawn.
Physical Security
22. Physical access to the critical systems should be restricted to
minimum and only to authorized officials. Physical access of
outsourced staff/visitors should be properly supervised by ensuring at
the minimum that outsourced staff/visitors are accompanied at all times
by authorized employees.
23. Physical access to the critical systems should be revoked immediately if
the same is no longer required.
24. Depository Participants should ensure that the perimeter of the critical
equipments room, if any, are physically secured and monitored by
employing physical, human and procedural controls such as the use
of security guards, CCTVs, card access systems, mantraps, bollards, etc.
where appropriate.
Network Security Management
25. Depository Participants should establish baseline standards to facilitate
consistent application of security configurations to operating systems,
databases, network devices and enterprise mobile devices within their
IT environment. The LAN and wireless networks should be secured
within the Depository Participants’ premises with proper access controls.
26. For algorithmic trading facilities, adequate measures should be taken to
isolate and secure the perimeter and connectivity to the servers running
algorithmic trading applications.
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भारतीय प्रततभूतत और वितिमय बोर् ड
Securities and Exchange Board of India
27. Depository Participants should install network security devices, such as
firewalls, proxy servers, intrusion detection and prevention systems (IDS)
to protect their IT infrastructure which is exposed to the internet, from
security exposures originating from internal and external sources.
28. Adequate controls must be deployed to address virus / malware /
ransomware attacks. These controls may include host / network /
application based IDS systems, customized kernels for Linux, anti-virus
and anti-malware software etc.
Data security
29. Critical data must be identified and encrypted in motion and at rest by
using strong encryption methods. Illustrative measures in this regard are
given in Annexure A and B.
30. Depository Participants should implement measures to prevent
unauthorized access or copying or transmission of data / information
held in contractual or fiduciary capacity. It should be ensured that
confidentiality of information is not compromised during the process of
exchanging and transferring information with external parties. Illustrative
measures to ensure security during transportation of data over the
internet are given in Annexure B.
31. The information security policy should also cover use of devices such as
mobile phones, faxes, photocopiers, scanners, etc., within their critical IT
infrastructure, that can be used for capturing and transmission of sensitive
data. For instance, defining access policies for personnel, and network
connectivity for such devices etc.
32. Depository Participants should allow only authorized data storage
devices within their IT infrastructure through appropriate validation
processes.
Hardening of Hardware and Software
33. Depository Participants should only deploy hardened hardware /
software, including replacing default passwords with strong passwords
and disabling or removing services identified as unnecessary for the
functioning of the system.
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भारतीय प्रततभूतत और वितिमय बोर् ड
Securities and Exchange Board of India
34. Open ports on networks and systems which are not in use or that can be
potentially used for exploitation of data should be blocked and measures
taken to secure them.
Application Security in Customer Facing Applications
35. Application security for Customer facing applications offered over the
Internet such as IBTs (Internet Based Trading applications), portals
containing sensitive or private information and Back office applications
(repository of financial and personal information offered by Brokers to
Customers) are paramount as they carry significant attack surfaces by
virtue of being available publicly over the Internet for mass use. An
illustrative list of measures for ensuring security in such applications is
provided in Annexure C.
Certification of off-the-shelf products
36. Depository Participants should ensure that off the shelf products being
used for core business functionality (such as Back office applications)
should bear Indian Common criteria certification of Evaluation Assurance
Level 4. The Common criteria certification in India is being provided by
(STQC) Standardisation Testing and Quality Certification (Ministry of
Electronics and Information Technology). Custom developed / in-house
software and components need not obtain the certification, but have to
undergo intensive regression testing, configuration testing etc. The scope
of tests should include business logic and security controls.
Patch management
37. Depository Participants should establish and ensure that the patch
management procedures include the identification, categorization and
prioritization of patches and updates. An implementation timeframe for
each category of patches should be established to apply them in a timely
manner.
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भारतीय प्रततभूतत और वितिमय बोर् ड
Securities and Exchange Board of India
38. Depository Participants should perform rigorous testing of security
patches and updates, where possible, before deployment into the
production environment so as to ensure that the application of patches do
not impact other systems.
Disposal of data, systems and storage devices
39. Depository Participants should frame suitable policy for disposal of
storage media and systems. The critical data / Information on such
devices and systems should be removed by using methods such as crypto
shredding / degauss / Physical destruction as applicable.
40. Depository Participants should formulate a data-disposal and data-
retention policy to identify the value and lifetime of various parcels of
data.
Vulnerability Assessment and Penetration Testing (VAPT)
41. Depository Participants should regularly conduct vulnerability
assessment to detect security vulnerabilities in their IT environments
exposed to the internet.
42. Depository Participants with systems publicly available over the internet
should also carry out penetration tests, at-least once a year, in order to
conduct an in-depth evaluation of the security posture of the system
through simulations of actual attacks on its systems and networks that are
exposed to the internet.
In addition, Depository Participants should perform vulnerability
scanning and conduct penetration testing prior to the commissioning of a
new system that is accessible over the internet.
43. In case of vulnerabilities discovered in off-the-shelf products (used for
core business) or applications provided by exchange empanelled vendors,
Depository Participants should report them to the vendors and the
exchanges in a timely manner.
44. Remedial actions should be immediately taken to address gaps that are
identified during vulnerability assessment and penetration testing.
Monitoring and Detection
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भारतीय प्रततभूतत और वितिमय बोर् ड
Securities and Exchange Board of India
45. Depository Participants should establish appropriate security monitoring
systems and processes to facilitate continuous monitoring of security
events / alerts and timely detection of unauthorised or malicious
activities, unauthorised changes, unauthorised access and unauthorised
copying or transmission of data / information held in contractual or
fiduciary capacity, by internal and external parties. The security logs of
systems, applications and network devices exposed to the internet should
also be monitored for anomalies.
46. Further, to ensure high resilience, high availability and timely detection of
attacks on systems and networks exposed to the internet, Stock Brokers /
Depository Participants should implement suitable mechanisms to
monitor capacity utilization of its critical systems and networks that are
exposed to the internet, for example, controls such as firewalls to monitor
bandwidth usage.
Response and Recovery
47. Alerts generated from monitoring and detection systems should be
suitably investigated in order to determine activities that are to be
performed to prevent expansion of such incident of cyber-attack or
breach, mitigate its effect and eradicate the incident.
48. The response and recovery plan of the Depository Participants should
have plans for the timely restoration of systems affected by incidents of
cyber-attacks or breaches, for instance, offering alternate services or
systems to Customers. Stock Brokers / Depository Participants should
have the same Recovery Time Objective (RTO) and Recovery Point
Objective (RPO) as specified by SEBI for Market Infrastructure Institutions
vide SEBI circular CIR/MRD/DMS/17/20 dated June 22, 2012 as
amended from time to time
49. The response plan should define responsibilities and actions to be
performed by its employees and support / outsourced staff in the event of
cyber-attacks or breach of Cyber Security mechanism.
50. Any incident of loss or destruction of data or systems should be
thoroughly analyzed and lessons learned from such incidents should be
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भारतीय प्रततभूतत और वितिमय बोर् ड
Securities and Exchange Board of India
incorporated to strengthen the security mechanism and improve recovery
planning and processes.
51. Depository Participants should also conduct suitable periodic drills to test
the adequacy and effectiveness of the aforementioned response and
recovery plan.
Sharing of Information
52. Quarterly reports containing information on cyber-attacks and threats
experienced by Depository Participants and measures taken to mitigate
vulnerabilities, threats and attacks including information on bugs /
vulnerabilities / threats that may be useful for other Depository
Participants should be submitted to Depositories.
Training and Education
53. Depository Participants should work on building Cyber Security and basic
system hygiene awareness of staff (with a focus on staff from non-
technical disciplines).
54. Depository Participants should conduct periodic training programs to
enhance knowledge of IT / Cyber Security Policy and standards among
the employees incorporating up-to-date Cyber Security threat alerts.
Where possible, this should be extended to outsourced staff, vendors etc.
55. The training programs should be reviewed and updated to ensure that the
contents of the program remain current and relevant.
Systems managed by vendors
56. Where the systems (IBT, Back office and other Customer facing
applications, IT infrastructure, etc.) of a Stock Brokers / Depository
Participants are managed by vendors and the Stock Brokers / Depository
Participants may not be able to implement some of the aforementioned
guidelines directly, the Depository Participants should instruct the
vendors to adhere to the applicable guidelines in the Cyber Security and
Cyber Resilience policy and obtain the necessary self-certifications from
them to ensure compliance with the policy guidelines.
74
भारतीय प्रततभूतत और वितिमय बोर् ड
Securities and Exchange Board of India
Systems managed by MIIs
57. Where applications are offered to customers over the internet by MIIs
(Market Infrastructure Institutions), for eg.: NSE’s NOW, BSE’s BEST etc.,
the responsibility of ensuring Cyber Resilience on those applications
reside with the MIIs and not with the Depository Participant. The
Depository Participant is exempted from applying the aforementioned
guidelines to such systems offered by MIIs such as NOW, BEST, etc.
Periodic Audit
58. The Terms of Reference for the System Audit of Stock Brokers specified
vide circular no. CIR/MRD/DMS/34/2013 dated November 06, 2013,
shall accordingly stand modified to include audit of implementation of the
aforementioned areas.
59. The Depository Participants and Type I Stock Brokers ( as defined in
CIR/MRD/DMS/34/2013 dated November 06, 2013) shall arrange to
have their systems audited on an annual basis by a CERT-IN empanelled
auditor or an independent CISA/CISM qualified auditor to check
compliance with the above areas and shall submit the report to Stock
Exchanges / Depositories along with the comments of the Board /
Partners / Proprietor of Stock Broker/ Depository Participant within three
months of the end of the financial year.
Annexure A
Illustrative Measures for Data Security on Customer Facing
Applications
1. Analyse the different kinds of sensitive data shown to the Customer on
the frontend application to ensure that only what is deemed absolutely
necessary is transmitted and displayed.
2. Wherever possible, mask portions of sensitive data. For instance, rather
than displaying the full phone number or a bank account number, display
only a portion of it, enough for the Customer to identify, but useless to an
unscrupulous party who may obtain covertly obtain it from the
Customer’s screen. For instance, if a bank account number is “123 456
789”, consider displaying something akin to “XXX XXX 789” instead of the
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भारतीय प्रततभूतत और वितिमय बोर् ड
Securities and Exchange Board of India
whole number. This also has the added benefit of not having to transmit
the full piece of data over various networks.
3. Analyse data and databases holistically and draw out meaningful and
“silos” (physical or virtual) into which different kinds of data can be
isolated and cordoned off. For instance, a database with personal financial
information need not be a part of the system or network that houses the
public facing websites of the Stock Broker. They should ideally be in
discrete silos or DMZs.
4. Implement strict data access controls amongst personnel, irrespective of
their responsibilities, technical or otherwise. It is infeasible for certain
personnel such as System Administrators and developers to not have
privileged access to databases. For such cases, take strict measures to limit
the number of personnel with direct access, and monitor, log, and audit
their activities. Take measures to ensure that the confidentiality of data is
not compromised under any of these scenarios.
5. Use industry standard, strong encryption algorithms (eg: RSA, AES etc.)
wherever encryption is implemented. It is important to identify data that
warrants encryption as encrypting all data is infeasible and may open up
additional attack vectors. In addition, it is critical to identify the right
personnel to be in charge of, and the right methodologies for storing the
encryption keys, as any compromise to either will render the encryption
useless.
6. Ensure that all critical and sensitive data is adequately backed up, and
that the backup locations are adequately secured. For instance, on servers
on isolated networks that have no public access endpoints, or on-premise
servers or disk drives that are off-limits to unauthorized personnel.
Without up-to-date backups, a meaningful recovery from a disaster or
cyber-attack scenario becomes increasingly difficult.
76
भारतीय प्रततभूतत और वितिमय बोर् ड
Securities and Exchange Board of India
Annexure B
Illustrative Measures for Data Transport Security
1. When an Application transmitting sensitive data communicates over the
Internet with the Stock Brokers’ systems, it should be over a secure,
encrypted channel to prevent Man- In-The-Middle (MITM) attacks, for
instance, an IBT or a Back office communicating from a Customer’s web
browser or Desktop with the Stock Brokers’ systems over the internet, or
intra or inter organizational communications. Strong transport encryption
mechanisms such as TLS (Transport Layer Security, also referred to as
SSL) should be used.
2. For Applications carrying sensitive data that are served as web pages over
the internet, a valid, properly configured TLS (SSL) certificate on the web
server is mandatory, making the transport channel HTTP(S).
3. Avoid the use of insecure protocols such as FTP (File Transfer Protocol)
that can be easily compromised with MITM attacks. Instead, adopt secure
protocols such as FTP(S), SSH and VPN tunnels, RDP (with TLS) etc.
Annexure C
Illustrative Measures for Application Authentication Security
1. Any Application offered by Stock Brokers to Customers containing
sensitive, private, or critical data such as IBTs, SWSTs, Back office etc.
referred to as “Application” hereafter) over the Internet should be
password protected. A reasonable minimum length (and no arbitrary
maximum length cap or character class requirements) should be enforced.
While it is difficult to quantify password “complexity”, longer
passphrases have more entropy and offer better security in general. Stock
Brokers should attempt to educate Customers of these best practices.
2. Passwords, security PINs etc. should never be stored in plain text and
should be one-way hashed using strong cryptographic hash functions
(e.g.: bcrypt, PBKDF2) before being committed to storage. It is important
to use one-way cryptographic hashes to ensure that stored password
hashes are never transformed into the original plaintext values under any
circumstances.
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भारतीय प्रततभूतत और वितिमय बोर् ड
Securities and Exchange Board of India
3. For added security, a multi-factor (e.g.: two-factor) authentication scheme
may be used (hardware or software cryptographic tokens, VPNs,
biometric devices, PKI etc.).
In case of IBTs and SWSTs, a minimum of two-factors in the
authentication flow are mandatory.
4. In case of Applications installed on mobile devices (such as smartphones
and tablets), a cryptographically secure biometric two-factor
authentication mechanism may be used.
5. After a reasonable number of failed login attempts into Applications, the
Customer’s account can be set to a “locked” state where further logins are
not possible until a password and authentication reset is performed via an
out-of-band channel validation, for instance, a cryptographically secure
unique link that is sent to the Customer’s registered e-mail, a random OTP
(One Time Password) that is sent as an SMS to the Customer’s registered
mobile number, or manually by the Broker after verification of the
Customer’s identity etc.
6. Avoid forcing Customers to change passwords at frequent intervals which
may result in successive, similar, and enumerated passwords. Instead,
focus on strong multi-factor authentication for security and educate
Customers to choose strong passphrases. Customers may be reminded
within reasonable intervals to update their password and multi-factor
credentials, and to ensure that their out-of-band authentication reset
information (such as e-mail and phone number) are up-to-date.
7. Both successful and failed login attempts against a Customer’s account
may be logged for a reasonable period of time. After successive login
failures, it is recommended that measures such as CAPTCHAs or rate-
limiting be used in Applications to thwart manual and automated brute
force and enumeration attacks against logins.
78
भारतीय प्रततभूतत और वितिमय बोर् ड
Securities and Exchange Board of India
2.9 Reporting for Artificial Intelligence (AI) and Machine Learning (ML)
applications and systems offered and used by market intermediaries66
Background
1. There is increasing usage of AI (Artificial Intelligence) and ML
(Machine Learning) as product offerings by market intermediaries and
participants (eg: “robo advisors”) in investor and consumer facing
products. SEBI is conducting a survey and creating an inventory of the
AI / ML landscape in the Indian financial markets to gain an in-depth
understanding of the adoption of such technologies in the markets and to
ensure preparedness for any AI / ML policies that may arise in the future.
2. As most AI / ML systems are black boxes and their behavior cannot be
easily quantified, it is imperative to ensure that any advertised
financial benefit owing to these technologies in investor facing financial
products offered by intermediaries should not constitute to
misrepresentation
Scope definition
3. Any set of applications / software / programs / executable /
systems (computer systems) –cumulatively called application and
systems,
1. that are offered to investors (individuals and institutions) by
market intermediaries to facilitate investing and trading,
OR
2. to disseminate investments strategies and advice,
OR
3. to carry out compliance operations / activities,
where AI / ML is portrayed as a part of the public product offering or
under usage for compliance or management purposes, is included in
the scope of this circular. Here, “AI” / “ML” refers to the terms
“Artificial Intelligence” and “Machine Learning” used as a part of
the product offerings. In order to make the scope of this circular
inclusive of various AI and ML technologies in use, the scope also
66 Reference Circular SEBI/HO/MIRSD/DOS2/CIR/P/2019/10 dated Jan 04, 2019
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भारतीय प्रततभूतत और वितिमय बोर् ड
Securities and Exchange Board of India
covers Fin-Tech and Reg-Tech initiatives undertaken by market
participants that involves AI and ML
4. Technologies that are considered to be categorized as AI and ML
technologies in the scope of this circular, are explained in Annexure B.
Regulatory requirements
5. All registered Stock Brokers / Depository Participant offering or using
applications or systems as defined in Annexure B, should participate in
the reporting process by completing the AI / ML reporting form
(see Annexure A).
6. With effect from quarter ending March 2019, registered Stock Brokers /
Depository Participant using AI / ML based application or system as
defined in Annexure B, are required to fill in the form(Annexure A) and
make submissions on quarterly basis within 15 calendar days of the
expiry of the quarter.
7. Stock Exchanges and Depositories have to consolidate and compile a
report, on AI / ML applications and systems reported by registered
Stock Brokers/ Depository Participants in the reporting format
(Annexure C) on quarterly basis. The said report (Annexure C) shall be
submitted in soft copy only at AI_SE@sebi.gov.in (for Stock Exchange) /
AI_DEP@sebi.gov.in (for Depositories)to SEBI within 30 calendar days
of the expiry of the quarter, starting from quarter ending March 2019.
Annexure A - Form to report on AI and ML technologies – To be submitted
quarterly
Intimation to Stock Exchange / Depository for the use of the AI and ML
application and systems
SNo. Head Value
1 Entity SEBI registration number
2 Registered entity category
3 Entity name
4 Entity PAN no.
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भारतीय प्रततभूतत और वितिमय बोर् ड
Securities and Exchange Board of India
5 Application / System name
6 Date from when the Application / System was
used
7 Type of area where AI or ML is used <order execution /
Advisory services / KYC /
AML / Surveillance /
compliance/others (please
specify in 256 characters)>
7.a Does the system involve order initiation, routing <Yes / NO>
and execution?
7.b Does the system fall under discretionary <Yes / NO>
investment or Portfolio management activities?
7.c Does the system disseminate investment or <Yes / NO>
trading advice or strategies?
7.d Is the application/system used in area of Cyber <Yes / NO>
Security to detect attacks
7.e What claims have been made regarding AI and <free text field>
ML
Application / System – if any?
8 What is the name of the Tool / Technology that is <free text field>
categorized as AI and ML system / Application
and
submissions are declared vide this response
9 How was the AI or ML project implemented <Internally / through
solution
provider / Jointly with a
solution
provider or third party>
10 Are the key controls and control points in your <free text field>
AI or ML application or systems in accordance
to circular of SEBI that mandate cyber security
control requirements
11 Is the AI / ML system included in the system <Yes / NO / NA>
audit, if applicable?
12 Describe the application / system and how it <free text field>
uses
AI / ML as portrayed in the product offering
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भारतीय प्रततभूतत और वितिमय बोर् ड
Securities and Exchange Board of India
13 What safeguards are in place to prevent <free text field>
abnormal
behavior of the AI or ML application / System
Annexure B–Systems deemed to be based on AI and ML technology
Applications and Systems belonging but not limited to following
categories or a combination of these:
1. Natural Language Processing (NLP), sentiment analysis or text mining
systems that gather intelligence from unstructured data –In this case, Voice to
text, text to intelligence systems in any natural language will be considered in
scope. Eg: robo chat bots, big data intelligence gathering systems.
2. Neural Networks or a modified form of it –In this case, any systems that uses
a number of nodes (physical or software simulated nodes) mimicking
natural neural networks of any scale, so as to carry out learning from
previous firing of the nodes will be considered in scope. Eg: Recurrent
Neural networks and Deep learning Neural Networks
3. Machine learning through supervised, unsupervised learning or a
combination of both. –In this case, any application or systems that carry
out knowledge representation to form a knowledge base of domain, by
learning and creating its outputs with real world input data and deciding
future outputs based upon the knowledge base. Eg: System based on Decision
tree, random forest, K mean, Markov decision process, Gradient boosting
Algorithms.
4. A system that uses statistical heuristics method instead of procedural
algorithms or the system / application applies clustering or
categorization algorithms to categorize data without a predefined set of
categories
5. A system that uses a feedback mechanism to improve its parameters
and bases it subsequent execution steps on these parameters.
6. A system that does knowledge representation and maintains a knowledge
base
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भारतीय प्रततभूतत और वितिमय बोर् ड
Securities and Exchange Board of India
Annexure C –Consolidated Quarterly Reporting Form
Consolidated Quarterly report to SEBI of all registered intermediaries with
Stock Exchange/ Depositories using AI and ML application and systems for
the Quarter Ended DD/MM/YYYY
To be filled if System Audit is
applicable
If system audit report is If system audit report
submitted by entity later is submitted with
than “date used from” adverse remarks and
Stock
Exchange/Depositorie
s is entitled
to inspect the entity
Does system Is there Was the entity If
Entity Type of area
Ent Ent Applica Dat
registr where AI or ML audit report any inspected in inspect
ity ity tion e
ati on is used
na PA / use comply to adverse past 1 year ed was
numb
me N Sy d
er circular no comment any
no. stem fro
SEBI/HO/MI in the irregula
name m
RS
System rity
audit noted
report
D/DOS2/CIR
/P
/2019/10
dated January
4, 2019 of SEBI
<order <Yes / NO/> <Yes / <Yes / NO> <Yes /
execution /
NO/> NO>
Advisory
services / KYC
/ AML /
Surveillance /
compliance/ot
hers (please
83
भारतीय प्रततभूतत और वितिमय बोर् ड
Securities and Exchange Board of India
specify in 256
characters)>
Add separate rows for each system or application.
2.10 Flashing a link to SCOREs on the dashboard of Demat Accounts67
1. A study was conducted under aegis of Quality Council of India (QCI) to
understand some of the root causes of grievances / complaints on
securities market related issues lodged on Centralised Public Grievance
Redressal and Monitoring System (CPGRAMS) portal and the measures
suggested to address the issues included providing a link to SCORES
portal within Demat/Trading Account Dashboard of the Clients/
investors to make it easier to lodge grievances.
2. The suggestion has been examined and it has been decided to implement
the same. Accordingly, stock exchanges and depositories are advised to
issue necessary directions to stock brikers/depository participants to
ensure that the Demat / Trading Account Dashboard of clients / investors
provides a link to SCORES portal.
67 Reference: SEBI letter MIRSD2/DB/AEA/OW/2018/7292 dated March 07, 2018
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भारतीय प्रततभूतत और वितिमय बोर् ड
Securities and Exchange Board of India
SECTION 3: Issuer Related
3.1 Charges paid by Issuers 68,69
i. With effect from April 27, 2011 depositories may levy and collect the
charges towards custody from the issuers, on the basis of average no. of
folios (ISIN position) during the previous financial year, as per the
details given below:
ii. Issuers to pay @ Rs.11.00 (*) per folio (ISIN position) in the respective
depositories, subject to a minimum as mentioned below:
Nominal value of admitted Annual Custodial Fee
securities (Rs.) payable by a Issuer to each
Depository (Rs.) (*)
Upto 5 crore 9,000
Above 5 crore and upto 10 crore 22,500
Above 10 crore and upto 20 crore 45,000
Above 20 crore 75,000
* Plus service tax as applicable
iii. The average no. of folios (ISIN positions) for an Issuer may be arrived at
by dividing the total number of folios for the entire financial year by the
total number of working days in the said financial year.
iv. Temporary ISIN shall not be considered for the purpose of computing the
annual issuer charges.
v. If the issuer fails to make the payment, Depositories may charge penal
interest subject to a maximum of 12% per annum.
68 Reference Circular MRD/DoP/SE/Dep/Cir-2/2009 dated February 10, 2009 and Circular
SEBI/MRD/SE/DEP/Cir-4/2005 dated January 28, 2005
69 Reference Circular CIR/MRD/ DP/05/2011 dated April 27, 2011 and Circular
CIR/MRD/DP/18/2015 dated December 09,2015
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भारतीय प्रततभूतत और वितिमय बोर् ड
Securities and Exchange Board of India
3.2 Activation of ISIN in case of IPO and additional issue of shares/
securities
Depositories shall activate the ISINs only on the date of commencement of
trading on the stock exchanges in case of IPOs for both the equity and
debt securities.70
i. Further, in order to curtail the transfer of additional issue of shares/
securities including by way of further public offerings, rights issue,
preferential allotment, bonus issue etc of the listed company, prior to
receipt of final listing / trading approval, the depositories shall devise a
mechanism so that such new securities created shall be frozen till the time
final listing/ trading permission is granted by the exchange.71
ii. In order to achieve the above, the Depositories are advised to allot such
additional shares/securities under a new temporary ISIN which shall be
kept frozen. Upon receipt of the final listing/ trading permission from the
exchange for such additional shares/ securities, the shares/securities
credited in the new temporary ISIN shall be debited and the same would
get credited in the preexisting ISIN for the said security. Thereafter, the
additional securities shall be available for trading.
iii. The stock exchanges are advised to provide the details to the depositories
whenever final listing / trading permission is given to securities. Further,
in case of issuance of equity shares by a company, listed on multiple stock
exchanges, the concerned stock exchanges shall synchronize their effective
dates of listing / trading approvals and intimate the same to depositories
in advance.34
70 Reference Circular SEBI/MRD/DEP/Cir-2/06 dated January 19, 2006 and Circular
CIR/MRD/DP/ 21 /2012 dated August 02, 2012
71 Reference Circular CIR/MRD/DP/24/2012 dated September 11, 2012
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भारतीय प्रततभूतत और वितिमय बोर् ड
Securities and Exchange Board of India
3.3 Registrar and Share Transfer Agent
3.3.1 Appointment of a single agency for share registry work72
All work related to share registry pertaining in terms of both physical and
electronic shares shall be maintained at a single point i.e. either in-house by the
company or by a SEBI registered Registrar and Transfer Agent.
3.3.2 Inter-Depository transfers73
In case of inter-Depository transfers of securities, the Registrars shall
communicate the confirmation of such transfers within two hours, failing
which such transfers shall be deemed to have been confirmed. The
Registrars shall not reject inter-Depository transfers except where
i. A Depository does not have adequate balance of securities in its account
or
ii. there is mismatch of transfer requests from the Depositories.
3.3.3 Common Registrars and Share Transfer agents74
Every company shall appoint the same Registrars and Share Transfer
agents for both the depositories.
3.3.4 Dematerialisation requests 75
i. Registrars and Share Transfer agents shall accept partial
dematerialisation requests and will not reject or return the entire
dematerialization request where only a part of the request had to be
rejected. In cases where a DP has already sent information about
dematerialisation electronically to a Registrar but physical shares have
not yet been delivered, the Registrar shall accept the demat request and
72 Reference Circular D&CC/FITTC/Cir-15/2002 dated December 27, 2002
73 Reference Circular no. SMDRP/Policy/Cir-28/99 dated August 23, 1999
74 Reference Circular SMDRP/Policy/Cir-28/99 dated August 23, 1999
75 Reference: D&CC/ 1099 / 2002 dated November 01, 2002
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भारतीय प्रततभूतत और वितिमय बोर् ड
Securities and Exchange Board of India
carry out dematerialization on an indemnity given by the DP and proof
of dispatch of document given by DP.
ii. It is clarified that the above provision shall be applicable to all the
securities like scrips, bonds, debentures, debenture stock or other
marketable securities eligible to be held in dematerialised form in a
depository as defined in Regulation 42 of the SEBl (Depository and
Participants) Regulations, 2018.
3.4 Mandatory admission of debt instruments on both the Depositories76
Debt instruments shall necessarily be admitted on both the Depositories.
3.5 Specifications related to International Securities Identification
Number (ISINs) for debt securities issued under the SEBI (Issue
and Listing of Debt Securities) Regulations, 200877
3.5.1 International Securities Identification Number (ISINs):
3.5.1.1 A maximum number of 17 International Securities Identification
Numbers (ISINs) maturing in any financial year shall be
allowed. Additionally 12 ISINs shall also be available for the
issuance of the capital gains tax debt securities by the
authorized issuers under section 54EC of the Income Tax Act 1961
on private placement basis.
3.5.1.2 Out of 17 ISINs maturing in a financial year, the bifurcation of
ISINs shall be as under:
i. A maximum of 12 ISINs maturing per financial year shall be
allowed only for plain vanilla debt securities. Further, within
these 12 ISINs, the issuer can issue both secured and
unsecured debt securities
ii. A maximum of 5 ISINs (i.e. for structured debt securities
such as debt securities with call and/or put option, etc.)
maturing per financial year shall be allowed only for
76Reference Circular D&CC/FITTC/Cir-13/2002 dated November 1, 2002 and Circular
MRD/DoP/SE/Dep/Cir-36/04 dated October 27, 2004
77 Reference Circular CIR/IMD/DF-1/67/2017 dated June 30,2017
88
भारतीय प्रततभूतत और वितिमय बोर् ड
Securities and Exchange Board of India
structured products/market linked debt securities issued
under the SEBI circular Cir/IMD/DF/17/2011dated
September 28, 2011, relating to issue and listing of
structured/market linked debt securities.
3.5.1.3 An issuer issuing only structured/market linked debt securities,
may utilise the entire bucket of 12 ISINs in a financial year only for
structured/market linked debt securities. However, in such a
scenario, the additional 5 ISINs as mentioned in paragraph 3.5.1.2ii
above shall not be available to an issuer for utilization, either
for structured debt securities or for plain vanilla debt securities.
3.5.1.4 In case of structured /market linked debt securities which have
embedded options viz. call and/or put option, the maturity of
ISINs shall be reckoned on basis of original maturity date of
debt securities.
For e.g. if a structured debt securities having maturity of 5
years , which is callable after 3 years and thereafter every year
until its redemption, then the debt securities shall be grouped in
the bucket of 5 years maturity period which is its original maturity
period even though it may be callable after a period of 3 years.
3.5.1.5 The provisions of this circular shall be applicable for debt
securities issued in the financial year (FY) 2017-18 i.e. after the
date of this circular and shall not be applicable to the ISINs
maturing in respect of the debt securities issued prior to the FY
2017-18. However, post FY 2017-18, whatever issuances are made
by the issuer, the issues shall be grouped and consolidated under
the ISIN maturing in the same FY.
3.5.2 Exemptions from applicability of ISINs:
The following classes of debt securities issued for raising regulatory
capital are exempted from the applicability of provisions of this circular:
3.5.2.1 Tier II bonds issued by Housing Finance Companies (HFCs),
the maturity period of which is not less than five years issued as
per “Master Circular-The Housing Finance Companies (NHB)
Directions, 2010” dated July 01, 2016;
89
भारतीय प्रततभूतत और वितिमय बोर् ड
Securities and Exchange Board of India
3.5.2.2 Tier II bonds issued by the standalone Primary dealers, with
minimum maturity of five years issued as per “Standalone
primary Dealers (Reserve Bank) Directions, 2016”dated August
25, 2016;
3.5.2.3 Subordinated debt issued by insurance companies, which is
either perpetual or the maturity period of which is not less
than ten years for life, general and reinsurance companies and
seven years for health insurance companies issued as per the
“IRDAI (Other forms of Capital) Regulations, 2015” dated
November 13, 2015;
3.5.2.4 Additional Tier 1 bonds, which are perpetual, issued by banks
under Basel III norms and Tier II bonds, having minimum
maturity period of five years, issued by banks under the Basel
III norms as per the “Master Circular-Basel III Capital
Regulations” dated July 01, 2015.
3.5.2.5 Bonds issued by banks to raise resources for lending to long term
infrastructure sub-sectors and affordable housing, which have a
minimum maturity of seven years issued as per RBI circular dated
July 15, 2014 on “Issue of Long Term bonds by banks-Financing
of infrastructure and affordable housing”.
3.5.2.6 Perpetual debt instrument issued by Systemically Important Non-
Deposit taking Non-Banking Financial Companies issued as per
RBI circular dated October 29, 2008 on “Enhancement of NBFCs’
capital raising option for capital adequacy purposes”;
3.5.2.7 Tier II bonds issued by Non-Systemically Important Non-Deposit
taking Non-Banking Financial Company issued as per RBI“
Master Direction-Non-Banking Financial Company-Non-
Systemically important Non-deposit taking Company (Reserve
Bank) Directions, 2016”dated September 01, 2016.
3.5.3 Mechanism for honouring debt obligations arising out of capping of
ISINs :
3.5.5.1 An issuer may honour its debt obligations/liabilities, arising
out of such ISIN restriction, in the manner as deemed
feasible to them i.e. the issuer can make staggered repayments or
bullet maturity re-payments or in any other manner deemed so.
90
भारतीय प्रततभूतत और वितिमय बोर् ड
Securities and Exchange Board of India
3.5.5.2 An issuer may offer different type of payment options to different
category of investors subject to such disclosures being made in the
information memorandum in order to manage their asset liability
mismatch.
For e.g. an insurance company may be offered staggered
redemption, however mutual fund may be offered bullet payment.
3.5.5.3 Also, in case of any modification in terms or structure of the issue
viz. change in terms of payment, change in interest pay-out
frequency etc. the issuer may make such modification by
following procedure as has been laid out in Regulation 59 of the
SEBI (Listing Obligations and Disclosure Requirements)
Regulations, 2015.
3.5.5.4 Record Date: There may be cases where multiple record dates
would arise on account of staggered payment or other cases viz.
frequency of payment etc. In such a case, when announcing
multiple record dates, the issuer has to disclose clearly to the
stock exchanges the basis of payment to the investors viz. pro-rata,
first cum basis etc.
3.5.4 Time limit for carrying out necessary changes to the Articles of
Association (AOA)/charter/constitution of the issuer:
In order to comply with the provisions of clause (a) of Regulation 20A of
the SEBI (ILDS) regulations, the issuer shall have a time period of six
months from the date of this circular to make an enabling provision in its
Articles of Association to carry out consolidation and re-issuance of debt
securities.
3.5.5 Reporting and Monitoring:
3.5.5.1 Issuers:
i. All the issuers who have made private placement of debt
securities under the SEBI (Issue and Listing of Debt Securities)
Regulations, 2008, shall within fifteen working days of issue of
this circular submit a statement containing data in the format
as prescribed below:
91
भारतीय प्रततभूतत और वितिमय बोर् ड
Securities and Exchange Board of India
Name ISIN Issuance Maturity Coupon Payment Embedded Amount Amount
of number date date rate frequency option if issued outstanding
the any
issuer
ii. Also, an issuer shall within fifteen working days from the end of
every half year, submit a statement, to the recognized stock
exchange, where its debt securities are listed, as well as to the
depository containing data in the format as prescribed above.
iii. In case there is any modification in terms or structure of the issue
viz. change in terms of payment, change in interest pay-out
frequency etc.as specified in paragraph 3.5.5.3 above, the issuer
shall, forthwith, inform the same to the depository.
iv. An issuer shall within thirty working days from end of six months
from the date of this circular submit a confirmation certificate to
Stock Exchanges with respect to compliance with para 3.5.4
above.
3.5.5.2 Depositories:
i. Upon receipt of the report as specified in paragraph 3.5.5.1ii
and 3.5.5.1iii above, the depository shall upload the same on
the centralized database for corporate bonds/debentures as
per SEBI circular CIR/IMD/DF/17/2013 dated October 22, 2013 as
well as the Integrated trade Repository for corporate bonds.
ii. The RSE shall within five working days of the expiry of the
period as specified in paragraph 3.5.5.1ii above, send the
reports received by it to the depositories for the purposes of
their reconciliation.
iii. The depositories shall thereafter within five working days of
receipt of reports from the recognised stock exchanges, send a
status report to the latter regarding utilization of ISINs by the
issuers.
92
भारतीय प्रततभूतत और वितिमय बोर् ड
Securities and Exchange Board of India
Based on the queries and representations received from time to time,
certain clarifications are issued:78
i. It is clarified that structured products/market linked debt
securities as mentioned in paragraph 3.5.1.2ii of the master
circular refer to the structured products/market linked
debentures as per the SEBI circular Cir/IMD/DF/17/2011 dated
September 28, 2011.
ii. With respect to paragraph 3.5.1.3 of the master circular, it is
clarified that in case of debt securities, where call and/or put
option is exercised, the issuer, if so desires, may issue additional
debt securities for the balance period viz. remaining period of
maturity of earlier debt securities. For example, if an issuer has
issued debt securities in the month of August 2017 having
maturity period of three years and callable after one year, then in
such a scenario if the call option is exercised in the month of
August 2018, then for the balance two years period viz (September
2018-August 2020) the issuer may issue additional debt securities
maturing in August 2020, under the same ISIN.
Provided that the aforesaid additional issue shall be subject to
the condition that the aggregate count of outstanding ISINs
maturing in the financial year in which the original issue ofdebt
securities (bearing call and/or put option) is due for expiring,
shall not exceed the prescribed limit of ISINs.
iii. With respect to paragraph 3.5.1.5 of the master circular, it is
clarified that for all the debt securities issued in the financial year
(FY) 2017-18 on or after July 01, 2017, all the ISINs corresponding
to these issues, maturing in any financial year, shall adhere to the
limit of 12/5 ISINs.
iv. Additionally, it may be noted that in case of conversion of partly
paid debt securities to fully paid debt securities, such
conversion shall not be counted as an additional ISIN under
paragraph 3.5.1.2 of the master circular.
78 Reference circular CIR/DDHS/P/59/2018 dated March 28, 2018
93
भारतीय प्रततभूतत और वितिमय बोर् ड
Securities and Exchange Board of India
v. With respect to Paragraph 3.5.2 of the master circular, it is
clarified that the exemption as granted under paragraph 3.5.2.5 of
the master circular shall also be available to All India Term
Lending and Refinancing Institutions (AITLRI) as notified by RBI
and Infrastructure Debt Funds registered as Non-Banking
Finance Companies subject to them issuing debt securities with
minimum five years maturity.
vi. All the exemption from the applicability of ISIN circular, as
have been outlined in paragraph 3.5.2 of the master circular and
paragraph v above shall be available only till June 30, 2020 and
shall not continue beyond that period. Thus, no exemption
from the applicability of ISIN circular shall be available to any
issuer for debt securities issued on or after July 01, 2020.
It is further clarified that for the class of entities, mentioned in
paragraph 3.5.2 of the master circular and paragraph v above, for
whom exemption is available, the said exemption shall be
applicable only from paragraph 3.5.1 and 3.5.3 of the master
circular.
vii. With respect to paragraph 3.5.3 of the master circular, it is
clarified that the issuer shall, while making an issue of debt
securities, disclose upfront in the Information
Memorandum/Disclosure Document that further issuances may
be made under the same ISIN. However, if such a disclosure is not
made by the issuer then compliance shall have to be made with
regulation 59 of the SEBI (Listing Obligations and
Disclosure Requirements) Regulations, 2015.
viii. With respect to paragraph 3.5.5.1ii of the master circular, it is
clarified that the statement to be submitted to the stock
exchanges shall be submitted half yearly on the basis of the
financial year i.e. latest by April 15 and October 15 of each financial
year.
94
भारतीय प्रततभूतत और वितिमय बोर् ड
Securities and Exchange Board of India
3.6 American Depository Receipts (ADRs) / Global Depository Receipts
(GDRs)
3.6.1 Delivery of underlying shares of GDRs/ADRs in dematerialised form79
Underlying shares of GDRs/ADRs shall be compulsorily delivered in
dematerialised form. Pursuant to RBI directions in this regard, a non-
resident holder of ADRs/GDRs issued by a company registered in India,
on surrender of such ADRs/GDRs, can acquire the underlying shares
when such shares are released by the Indian Custodian of the ADR/GDR
issue. Further, the company whose shares are so released, or a Depository
shall enter in the register or books, wherein such securities are registered
or inscribed, an address outside India of the non-resident holder of shares.
3.6.2 Tracking of underlying shares of GDRs/ADRs80
To ensure easy tracking of the underlying shares released on conversion of
the “depositories receipts” all such shares shall be credited to a separate
Depository Receipts (DRs) account of the respective investor. In this
regard, Depositories shall ensure that the following information is
provided to the domestic custodian holding the underlying shares on a
regular basis:
i. Total number of shares at the beginning of the month
ii. Number of shares transferred into the account (credited) during the
month
iii. Number of shares transferred out of the account (debited) during the
month.
iv. Balance at the end of the month.
This service can be availed of only by foreign investors other than the
OCBs.
79 Reference Circular SMDRP/Policy/Cir-9/99 dated May 6, 1999
80Reference Circular D&CC/FITTC/Cir-09/2002 dated July 4, 2002 and Circular
D&CC/FITTC/Cir-10/2002 dated September 25, 2002
95
भारतीय प्रततभूतत और वितिमय बोर् ड
Securities and Exchange Board of India
3.7 Electronic Clearing System (ECS) facility
3.7.1 Use of ECS for refund in public/ rights issues.81
For locations where facility of refund through ECS is available details of
applicants shall be taken directly from the database of the depositories in
respect of issues made completely in dematerialised form. Accordingly,
DPs shall maintain and update on real time basis the MICR (Magnetic Ink
Character Recognition) code of Bank branch of BOs and other bank details
of the applicants in the database of depositories. This is to ensure that the
refunds through ECS are made in a smooth manner and that there are no
failed/wrong credits.
3.7.2 Updation of bank accounts details, MICR code and IFSC of bank
branches by Depository Participants (DPs)82
i. It has been informed by RBI that they have been receiving complaints
from managers to the issues that the funds routed through the electronic
mode are getting returned by destination banks because of incorrect or old
account numbers provided by beneficiary account holders.
ii. RBI has stated that Investors will have to ensure through their DPs that
bank account particulars are updated in master record periodically, to
ensure that their refunds, dividend payments etc. reach the correct
account, without loss of time. RBI has also suggested incorporation of
Indian Financial System Code (IFSC) of customer's bank branches apart
from 9 digit MICR code; since IFSC of bank's branches is used for
remittance through National Electronic Funds Transfer (NEFT).
iii. It is advised that necessary action be taken in this matter to ensure that
correct account particulars of investors are available in the database of
depositories.
81Reference Circular SEBI/MRD/DEP/Cir-3/06 dated February 21, 2006 and circular
SEBI/CFD/DIL/DIP/29/2008/01/02 dated February 1, 2008
82 Reference: MRD/DEP/PP/123624 /2008 dated April 23, 2008
96
भारतीय प्रततभूतत और वितिमय बोर् ड
Securities and Exchange Board of India
3.8 Withdrawal by issuers from the depository83
i. As regards voluntary withdrawal by issuers from the depository, it is
informed that listed companies may not be allowed to withdraw from the
depository system unless they delist their securities from the stock
exchanges.
ii. As regards companies under liquidation are concerned, it is informed that
deactivation of the ISIN may be only done in cases where companies have
been liquidated. In other cases where companies are being liquidated,
deactivation of ISIN resulting in total freezing may not be desirable as it
will disallow investors to hold shares in dematerialized form
3.9 Further issue of shares under Section 86 of Companies Act and Companies
(Issue of Share capital with Differential Voting Rights) Rules, 200184
In all cases of shares issued by companies under Section 86(a) (ii) of
Companies Act and Companies (Issue of Share Capital with Differential
Voting Rights) Rules, 2001, separate ISIN may be allotted to differentiate
such shares from ordinary shares.
83 Reference: MRD/DoP/NSDL/VM/ 162378 /2009 dated May 06, 2009
84 Reference: MRD/DoP/MC/141442 /2008 dated October 17, 2008
97
भारतीय प्रततभूतत और वितिमय बोर् ड
Securities and Exchange Board of India
SECTION - 4: Depositories Related
4.1 Online Registration Mechanism and Filing system for Depositories85
i. In order to ease the process of application for recognition /
renewal, reporting and other filings in terms of Securities and
Exchange Board of India (Depositories and Participants) Regulations,
1996 and other circulars issued from time to time, SEBI has introduced
a digital platform for online filings related to Depositories.
ii. All applicants desirous of seeking registration as a Depository in terms
of Regulation 3 of the Securities and Exchange Board of India
(Depositories and Participants) Regulations, 1996, shall now submit
their applications online, through SEBI Intermediary Portal at
https://siportal.sebi.gov.in.
iii. The applicants would be required to upload scanned copy of relevant
documents such as any declaration or undertaking or notarised copy
of documents as may be prescribed in Securities and Exchange Board of
India (Depositories and Participants) Regulations 1996, and keep hard
copy of the same to be furnished to SEBI whenever required.
iv. Further, all other filings including Annual Financial Statements and
Returns, Monthly Development Report, Rules, Bye-laws, etc., shall also
be submitted online.
v. The aforesaid online registration and filing system for
Depositories is operational. Recognised Depositories are advised to note
the same for immediate compliance.
vi. Link for SEBI Intermediary Portal is also available on SEBI
website –www.sebi.gov.in. In case of any queries and clarifications, users
may refer to the manual provided in the portal or contact the SEBI Portal
helpline on 022-26449364 or may write at portalhelp@sebi.gov.in.
4.2 Activity schedule for depositories for T+2 rolling Settlement86
i. The activity schedule for T+2 Rolling Settlement is as under:
85 Reference Circular SEBI/HO/MRD/DSA/CIR/P/2018/1 dated January 29, 2018
86Reference Circular DCC/FITTC/Cir-19/2003 dated March 4, 2003 and Circular
MRD/DoP/SE/Dep/Cir-18/2005 dated September 2, 2005
98
भारतीय प्रततभूतत और वितिमय बोर् ड
Securities and Exchange Board of India
Sr. Day Time Description of activity
No.
1 T Trade Day
By 1.00 pm Completion of custodial confirmation of
trades to CC/CH. (There is no separate
extended time limit for late confirmations).
2 T+1
By 2.30 pm Completion of process and download
obligation files to brokers/ custodians by the
CC/CH.
By 11.00 am Pay-in of securities and funds.
3 T+2
By 1.30 pm Pay-out of securities and funds.
ii. All Depositories shall adhere to the aforementioned activity schedule to
implement T+2 rolling settlement. DPs shall adhere to the designated
activities within the prescribed time limits as under:
a. DPs shall accept instructions for pay-in of securities from clients in the
physical form atleast upto 4 p.m. and in electronic form atleast upto 6
p.m. on T+1.
b. DPs shall complete execution of pay-in instructions latest by 10:30 a.
m. on T+2.
c. Depositories shall download the processed pay-in files to the Exchange
/ Clearing House / Clearing Corporation latest by 11:00 a.m. on T+2.
d. Pay-out of securities by the Exchange / Clearing House / Clearing
Corporation to the Depositories shall be executed by 1:30 p.m. on T+2.
e. Pay-out of securities shall be completed by the Depositories by 2:00
p.m. on T+2.
iii. All instructions received by the DPs shall have an execution date, which
may be either a current date or a future date. Instructions shall be valid till
the pay-in deadline or till 'end of day' (EOD) of the execution date,
whichever is earlier. DPs shall ensure that the validity period of
instructions is brought to the notice of the client while accepting the
instructions. In case the client account does not have sufficient balance
before pay-in deadline or till EOD, such instructions shall fail.
99
भारतीय प्रततभूतत और वितिमय बोर् ड
Securities and Exchange Board of India
4.3 Settlement of transactions in case of holidays87
Due to lack of uniformity of holidays and force majeure conditions which
necessitate sudden closure of one or more Stock Exchanges and banks in a
particular state, result in situations where multiple settlements have to be
completed by the Stock Exchanges on the working day immediately
following the day(s) of the closure of the banks. Accordingly the Stock
Exchanges/Depositories are advised to follow the guidelines and adhere
to the time line.
i. The Stock Exchanges shall clear and settle the trades on a sequential basis
i.e., the pay-in and the pay-out of the first settlement shall be completed
before the commencement of the pay-in and pay-out of the subsequent
settlement/s.
ii. The cash/securities pay out from the first settlement shall be made
available to the member for meeting his pay-in obligations for the
subsequent settlement/s.
iii. Further, in-order to meet his pay-in obligations for the subsequent
settlement, the member may need to move securities from one depository
to another. The Depositories shall, therefore, facilitate the inter-depository
transfers within one hour and before pay-in for the subsequent settlement
begins.
iv. The Stock Exchanges/Depositories shall follow a strict time schedule to
ensure that the settlements are completed on the same day.
v. The Clearing Corporation/Clearing House of the Stock Exchanges shall
execute Auto DO facility for all the settlements together, so as to make the
funds and the securities available with the member on the same day for all
the settlements, thereby enabling the availability of the funds/securities at
the client level by the end of the same day.
4.4 Deadline time for accepting non pay-in related instructions88
87 Reference Circular SEBI/MRD/Policy/AT/Cir- 19/2004 dated April 21, 2004
88 Reference: MRD/VSS/ARR/ 12255/2004 dated June 10, 2004
100
भारतीय प्रततभूतत और वितिमय बोर् ड
Securities and Exchange Board of India
i. The depositories are advised that any overrun of the time specified for
'spot delivery contract' in the SCRA would result in the contract becoming
illegal under section 16 of the SCRA (unless it is put through the stock
exchange). The DP-BO agreement cannot add anything to or subtract
anything from this position. However, it should be the responsibility of
the DP to ensure that the client's contract is not rendered illegal on
account of delayed execution of the delivery instruction.
ii. Keeping the hardships to change all the existing DP-BO agreements to
enforce the above into consideration, it is advised that suitable bye laws
can be made under section 26(2)(e) and (d) of Depositories Act, 1996 for
imposing such obligation on the DPs. Therefore, it is advised to
amend/insert bye laws which should expressly provide that the DPs shall
execute the non pay-in related instructions on the same day or on the next
day of the instruction. Further, pending such amendment, suitable
instructions may be issued to DPs to adhere to such time limit.
iii. The above clause may be suitably incorporated in the DP-BO agreement
while opening new accounts.
4.5 Approval of amendments to Bye Laws / Rules of Stock Exchanges and
Depositories89
i. Depositories and exchanges shall submit the following information while
seeking SEBI approval for amendment to Bye Laws/ Rules/ Regulations
and amendments thereto:
a. The objective/purpose of amendments.
b. Whether the amendment is consequential to any directive/circulars/
guidelines from SEBI/ Government and the details thereof.
c. Whether such amendments necessitate any consequential amendments
to any other Bye Laws/ Rules/ Regulations.
89 Reference Circular LGL/Cir-2/2003 dated February 19, 2003
101
भारतीय प्रततभूतत और वितिमय बोर् ड
Securities and Exchange Board of India
d. The proceedings of the Governing Board or Governing Council, as the
case may be, wherein these proposed amendments were approved by
the Exchanges/ Depositories.
e. If documents other than Bye Laws/ Rules/ Regulations are sent for
approval, the justification and need for forwarding the same to SEBI,
indicating whether it forms a part of any Bye Law/ Rule/ Regulation.
ii. Further, all Exchanges shall ensure that requests for dispensation of the
requirement of pre-publication shall be accompanied with proper
justification and indicate how the public interest or interest of trade shall
be served by such dispensation of pre-publication.
4.6 Preservation of Records90
i. Depositories and Depository Participants are required to preserve the
records and documents for a minimum period of 5 year.
ii. Depositories and DPs shall preserve respective original forms of
documents either in physical form or an electronic record, copies of which
have been taken by CBI, Police or any other enforcement agency during
the course of their investigation till the trial is completed.
4.7 Pledge of Shares through depository system91
i. Section 12 of the Depositories Act and Regulation 79 of the SEBI
(Depositories and Participants) Regulations, 2018 along with the relevant
Bye Laws of the Depositories clearly enumerate the manner of creating
pledge. It is felt that there is a need to communicate to the BOs that any
procedure followed other than as specified under the aforesaid provisions
of law shall not be treated as pledge.
ii. In order to clarify the same, the depositories are advised to issue a
communiqué to the DPs advising them to inform BOs about the procedure
90Reference Circular SEBI/MRD/DEP/Cir-24/05 dated December 22, 2005, circular
SEBI/MRD/SE/Cir-16/2005 dated August 04, 2005 and circular MRD/DoP/DEP/Cir-20/2009
dated December 9, 2009
91 Reference: MRD/DoP/MAS – OW/16723/2010 dated August 17, 2010
102
भारतीय प्रततभूतत और वितिमय बोर् ड
Securities and Exchange Board of India
for pledging of shares held in demat form as enumerated in the relevant
sections of the Depositories Act and SEBI (Depositories and Participants)
Regulations, 2018. Depositories may also advise DPs that an off-market
transfer of shares leads to change in ownership and cannot be treated as
pledge. Further, this issue may also be taken up in the investor awareness
programs wherein the manner of creation of pledge can be effectively
communicated to the BOs directly.
4.8 Foreign investments in infrastructure companies in securities markets92
i. Pursuant to Government of India Policy, foreign investments in
infrastructure companies in the securities markets, namely Stock
Exchanges, Depositories and Clearing Corporations shall be as under:
a. Foreign investment shall be allowed in such companies up to 49% with
a separate Foreign Direct Investment (FDI) cap of 26% and Foreign
Institutional Investment (FII) cap of 23%;
b. FDI shall be allowed with specific prior approval of FIPB;
c. FII shall be allowed only through purchases in the secondary market;
d. FII shall not seek and will not get representation on the Board of
Directors;
e. No foreign investor, including persons acting in concert, will hold
more than 5% of the equity in these companies.
ii. The aforesaid limits for foreign investment in respect of recognised Stock
Exchanges shall be subject to 5% shareholding limit as prescribed under
the Securities Contracts (Regulation) (Manner of Increasing and
Maintaining Public Shareholding in Recognised Stock Exchanges)
Regulations, 2006.
4.9 Designated e-mail ID for regulatory communication with SEBI93
92 Reference Circular MRD/DSA/SE/Dep/Cust/Cir-23/06 dated December 22, 2006
93 Reference Circular MIRSD/DPS- III/Cir-23/08 dated July 25, 2008
103
भारतीय प्रततभूतत और वितिमय बोर् ड
Securities and Exchange Board of India
Depositories shall create a designated e-mail id for regulatory
communication and inform it to SEBI. This e-mail id shall be exclusive and
shall not be person-centric.
4.10 Designated e-mail ID for redressal of investor complaints94
i. Depositories and registered DPs shall designate an exclusive e-mail ID for
the grievance redressal division/compliance officer exclusively for
registering investor complaints.
ii. The designated email ID and other relevant details shall be prominently
displayed on the websites and in the various
materials/pamphlets/advertisement campaigns initiated by the
Depositories and DPs for creating investor awareness.
4.11 Redressal of complaints against Stock Exchanges (SEs) and Depositories
through SEBI Complaints Redress System (SCORES).95
i. The complaints received by SEBI against SEs and Depositories shall be
electronically sent through SCORES. Depositories are advised to view the
pending complaints at http://scores.gov.in/admin and submit the Action
Taken Report (ATR) along with supporting documents electronically in
SCORES. Updation of action taken shall not be possible with physical
ATRs. Hence, submission of physical ATR shall not be accepted for
complaints lodged in SCORES.
ii. The SEs and Depositories shall do the following:
a. indicate a contact person in case of SCORES, who is an employee
heading the complaint services division/cell/department. Contact
detail (i.e. phone no., email id, postal address) of the said contact
person be made widely available for e.g. on the websites of
Depositories.
94 Reference Circular MRD/DoP/Dep/SE/Cir-22/06 dated December 18, 2006
95 Reference Circular CIR/MRD/ICC/16/2012 dated June 15, 2012
104
भारतीय प्रततभूतत और वितिमय बोर् ड
Securities and Exchange Board of India
b. address/redress the complaints within a period of 15 days upon
receipt of complaint through SCORES96. In case additional information
is required from the complainant, the same shall be sought within 7
days from the receipt of the complaint through SCORES. In such case,
the period of 15 days will be counted upon the receipt of additional
information.
c. maintain a monthly record of the complaints which are not
addressed/redressed within 15 days from the date of receipt of the
complaint/information, alongwith the reason for such pendency.
d. Upload/update the ATR on the SCORES. Failure to do so shall be
considered as non-redressal of the complaint and the complaint shall
be shown as pending.
4.12 Limitation period for filing an arbitration reference97
i. It is decided that the limitation period for filing an arbitration reference
shall be governed by the law of limitation, i.e., The Limitation Act, 1963.
The modified limitation period shall also be applicable to cover inter alia
the following cases:
a. where the limitation period (in terms of Limitation Act 1963) have not
yet elapsed and the parties have not filed for arbitration with the
depository,
OR
b. where the arbitration application was filed but was rejected solely on
the ground of delay in filing within the earlier limitation period; and
the limitation period (in terms of Limitation Act 1963) have not yet
elapsed.
96 Reference Circular SEBI/HO/MIRSD/MIRSD6/CIR/P/2017/20 dated March 10, 2017 –replaced sentence
from “within 7 days of receipt on SCORES” to “within 7 days from the receipt of the complaint through
SCROES”
97 Reference Circular CIR/MRD/DP/4/2011 dated April 7, 2011
105
भारतीय प्रततभूतत और वितिमय बोर् ड
Securities and Exchange Board of India
4.13 Disclosure of investor complaints and arbitration details on Depository
website 98
Depositories shall disclose the details of complaints lodged by Beneficiary
Owners (BO’s)/ investors against Depository Participants (DPs) in their
website. The aforesaid disclosure shall also include details pertaining to
arbitration and penal action against the DPs.
The format for the reports for the aforesaid disclosure consists of the
following reports:
i. Report 1A: Complaints received against DPs during 2009-10
ii. Report 1B: Redressal of Complaints received against DPS during 2008-09
iii. Report 1C: Redressal of Complaints received against DPs during 2009-10
iv. Report 2A: Details of Arbitration Proceedings (where Investor is a party)
during 2008-09:
v. Report 2B: Details of Arbitration Proceedings (where Investor is a party)
during 2009-10
vi. Report 3A: Penal Actions against DPs during 2008-09
vii. Report 3B: Penal Actions against DPs during 2009-10
viii. Report 4A: Redressal of Complaints lodged by investors against Listed
Companies during 2008 -09
ix. Report 4B: Redressal of Complaints lodged by investors against Listed
Companies during 2009 -10
98 Reference Circular SEBI/MRD/ OIAE/ Dep/ Cir- 4/2010 dated January 29, 2010
106
भारतीय प्रततभूतत और वितिमय बोर् ड
Securities and Exchange Board of India
Report 1A: Complaints received against Depository Participants (DPs)# during 2009-10: Updated on mmm dd yyyy (to
be updated weekly) (In excel sheet)
Sl. Details of Complaint Status of Complaint
No. Date of Name of Type of SEBI Ref. Name of Status** Status Date of Name of Date of
Receipt Complainant Complaint* No. (if DP Date## Filing Arbitrator(s) Arbitration
applicable Arbitration Award
1
2
3
107
भारतीय प्रततभूतत और वितिमय बोर् ड
Securities and Exchange Board of India
N
# including against its authorized persons, employees, etc.
## Status date is the date of resolution/reference to arbitration/finding it non-actionable. If under process, it is the date of
updation of this sheet. */** As per Table 1
108
भारतीय प्रततभूतत और वितिमय बोर् ड
Securities and Exchange Board of India
Report 1B: Redressal of Complaints received against Depository Participants (DPs) during 2008-09: Updated on mmm
dd yyyy (to be updated every quarter) (In excel sheet)
Sl. Nam Status of No. of No. of Of the Complaints received during 2008-09
No e of DP BOs Compl No. of Complaints
. the (active/ accounts aints Resolved Non Arbitr Pending No. of Decide Decided Pending
DP inactive/ at the receive through action ation for Arbitrat d by by for
in process beginnin d the able** Advis redressal ion the Arbitrat Redressal
of g of the against Depositor ed with filed by Arbitr ors in with
terminatio year the DP y Depositor BOs ators favour of Arbitrator
n * y the BOs s
/withdraw
al)
1
2
3
109
भारतीय प्रततभूतत और वितिमय बोर् ड
Securities and Exchange Board of India
N
Total
*including against its authorized persons, employees, etc.
**Non actionable means the complaint that are incomplete / outside the scope of Depository
(Arrange the DPs in descending number of complaints filed against them during the period)
110
भारतीय प्रततभूतत और वितिमय बोर् ड
Securities and Exchange Board of India
Report 1C: Redressal of Complaints received against Depository Participants (DPs) during 2009-10: Updated on mmm dd yyyy
(to be updated every quarter) (In excel sheet)
Sl. Nam Status of No. of No. of Of the Complaints received during 2008-09
No e of DP BOs Compla No. of Complaints
. the (active/ account ints Resolved Non Arbitr Pending No. of Decide Decided Pending
DP inactive/ in s at the receive through action ation for Arbitrat d by by for
process of beginni d the able** Advis redressal ion the Arbitrat Redressal
termination ng of against Depositor ed with filed by Arbitr ors in with
/withdraw the year the DP y Depositor BOs ators favour of Arbitrator
al) * y the BOs s
1
2
3
N
- 111 -
भारतीय प्रततभूतत और वितिमय बोर् ड
Securities and Exchange Board of India
*including against authorized persons, employees, etc.
**Non actionable means the complaint that are incomplete / outside the scope of Depository
(Arrange the DPs in descending number of complaints filed against them during the period)
- 112 -
भारतीय प्रततभूतत और वितिमय बोर् ड
Securities and Exchange Board of India
Report 2A: Details of Arbitration Proceedings (where BO is a party) during 2008-09: Updated on mmm dd yyyy (to be updated
every quarter) (In excel sheet)
Sl. Name of No. of No. of Awards in No. of No. of No. of cases pending for redressal at the end
No. Arbitrato Award favor of BOs Awards Awards of period
r s appealed Implemente
Passed d
Filed by Filed by Pending For more For more than
DP BO than 6 3 months, but
months less than 6
months
1
2
3
- 113 -
भारतीय प्रततभूतत और वितिमय बोर् ड
Securities and Exchange Board of India
N
Tota
l
(In case of panel of arbitrators, the cases / awards would appear against every member of the panel)
(Arrange the arbitrators in descending number of awards passed by them during the period)
Report 2B: Details of Arbitration Proceedings (where BO is a party) during 2009-10: Updated on mmm dd yyyy (to be updated
every quarter) (In excel sheet)
Sl. Name of No. of No. of No. of No. of No. of cases pending for redressal at the end of
No. Arbitrator Awards Awards in Awards Awards period
Passed favor of BOs appealed Implemented
Filed Filed Pending For more than For more than 3
by by 6 months months, but less
DP BO than 6 months
1
2
3
- 114 -
भारतीय प्रततभूतत और वितिमय बोर् ड
Securities and Exchange Board of India
N
Total
(In case of panel of arbitrators, the cases / awards would appear against every member of the panel)
(Arrange the arbitrators in descending number of awards passed by them during the period)
- 115 -
भारतीय प्रततभूतत और वितिमय बोर् ड
Securities and Exchange Board of India
Report 3A: Penal Actions against Depository Participants (DPs) during 2008-09: Updated on mmm dd yyyy (to be updated every
quarter) (in excel sheet)
Sl. Name Registration No. of Action against DP, its authorized person and employees together
No. of DP No. Complaints No. of Penal Orders issued Monetary Penalties No. of Arbitration
received levied (Rs. lakh) Awards issued
For complaints For others For For against DP
complaints others
1
2
3
N
- 116 -
भारतीय प्रततभूतत और वितिमय बोर् ड
Securities and Exchange Board of India
Report 3B: Penal Actions against Depository Participants (DPs) during 2009-10: Updated on mmm dd yyyy (to be updated every
quarter) (in excel sheet)
Sl. Name Registration No. of Action against DP, its authorized person and employees together
No. of DP No. Complaints No. of Penal Orders issued Monetary Penalties No. of Arbitration
received levied (Rs. lakh) Awards issued
For complaints For others For For against DP
complaints others
1
2
3
N
- 117 -
भारतीय प्रततभूतत और वितिमय बोर् ड
Securities and Exchange Board of India
Report 4A: Redressal of Complaints lodged by investors against Listed Companies during 2008 -09: Updated on mmm dd yyyy
(to be updated every quarter) (In excel format)
Sl. No. Name of the Company No. of Complaints
Received Redressed through Non-Actionable* Pending for Redressal with Depository
Depository
1
2
3
- 118 -
भारतीय प्रततभूतत और वितिमय बोर् ड
Securities and Exchange Board of India
N
Total
*Non actionable means the complaint that are incomplete / outside the scope of Depository
(Arrange the companies in descending number of complaints filed against them during the period)
Report 4B: Redressal of Complaints lodged by investors against Listed Companies during 2009 -10: Updated on mmm dd yyyy
(to be updated every quarter) (In excel format)
Sl. No. Name of the Company No. of Complaints
Received Redressed through Non-Actionable* Pending for Redressal with Depository
Depository
1
2
3
- 119 -
भारतीय प्रततभूतत और वितिमय बोर् ड
Securities and Exchange Board of India
N
Total
*Non actionable means the complaints that are incomplete / outside the scope of Depository
(Arrange the companies in descending number of complaints filed against them during the period)
- 120 -
भारतीय प्रततभूतत और वितिमय बोर् ड
Securities and Exchange Board of India
Table 1 A
Type Details
Type I Account Opening Related
I a Denial in opening an account
I b Account opened in another name than as requested
I c Non receipt of Account Opening Kit
I d Delay in activation/ opening of account
I e Non Receipt of copy of DP Client Agreement/Schedule A of
Charges
Type II Demat/Remat Related
II a Delay in Dematerialisation request processing
II b Delay in Rematerialisation request processing
II c Delay in/ Non-Receipt of Original certificate after demat
rejection
II d Non Acceptance of demat/remat request
Type III Transaction Statement Related
III a Delay in/ Non-Receipt of Statements from DP
III b Discrepancy in Transaction statement
Type IV Improper Service Related
IV a Insistence on Power of Attorney in its favour
IV b Deactivation/ Freezing/ Suspension related
IV c Defreezing related
IV d Transmission Related
IV e Pledge Related
IV f SMS Related
IV g Non-updation of changes in account (address/
signatories/bank details/ PAN/ Nomination etc.)
Type V Charges Related
V a Wrong/ Excess Charges
V b Charges paid but not credited
V c Charges for Opening/closure of Account
Type VI Delivery Instruction Related (DIS )
VI a Non acceptance of DIS for transfer
121
भारतीय प्रततभूतत और वितिमय बोर् ड
Securities and Exchange Board of India
VI b Delay in/ non Execution of DIS
VI c Delay in Issuance / Reissuance of DIS Booklet
Type VII Closure
VII a Non closure/ delay in closure of account
VII b Closure of a/c without intimation by DP
Type VIII Manipulation/ Unauthorised Action
VIII a Unauthorised Transaction in account
VIII b Manipulation
VIII c Unauthorised changes in account (address/ signatories/bank
details/PAN etc.)
Type IX Company/ RTA related
IX a Action – Cash
IX b Action – Non–Cash
IX c Initial Public Offer/ Follow-on Public Offer Related
Type X Others
** Status
Type Description
I Non actionable
I a Complaint incomplete
I b Outside the scope of Depository
I c Pertains to non-responding company.
II Resolved
III Under Process
IV Referred to Arbitration
V Forwarded to Company/RTA for appropriate action.
122
भारतीय प्रततभूतत और वितिमय बोर् ड
Securities and Exchange Board of India
4.14 Disclosure of regulatory orders and arbitration awards on Depository
website 99
Depositories shall post all their regulatory orders and arbitration awards
issued since April 1, 2007. Further, all regulatory orders and arbitration
awards as and when issued shall be posted on their website immediately.
4.15 Arbitration / Appellate Arbitration fees on the remanded back matter
for fresh arbitration proceedings100
1. It has been observed that in cases remanded by court of law, the stock
exchanges/depositories are directed to undertake arbitration/appellate
arbitration proceedings again. In some cases, the clients/investors are
liable to pay the arbitration fees again, even when the same has been paid
by them for the initial arbitration/appellate arbitration proceedings.
2. It has been decided that in such cases where the arbitration/appellate
arbitration matter has been remanded by the Court to the stock
exchanges/depositories, the arbitration/appellate arbitration fees/deposit
payable by the client shall be borne by such stock exchange/depository.
4.16 Establishment of connectivity by Clearing House / Clearing Corporation
(CH/CC) with the Depository – Clarification101
i. On examination of the provisions of Regulations 35(a) and 45 of the SEBI
(Depositories and Participants) Regulations, 2018, it is advised that
registration of a CC/CH of a stock exchange as a DP with SEBI is not
mandatory and a pre-requisite for it to obtain connectivity with the
depositories. However, if the CC/CH of a stock exchange desires to
function as any other "Depository Participant", i.e. to open BO accounts
for investors or clearing member account, registration as DP with SEBI is
mandatory.
ii. In view of the above, Depositories are advised to provide continuous
electronic means of communication / connectivity to the CH/CC of the
Exchanges without insisting for a mandatory registration as DP with SEBI
with a condition that such entities would not be permitted to open BO
accounts for investors or clearing member account.
99 Reference Circular SEBI/MRD/ DP/ 19/2010 dated June 10, 2010
100 Reference : SEBI letter SEBI/MRD/ICC/OW/P/2018/27066/1 dated September 25, 2018
101 Reference: MRD/DoP/ Dep/82334 /2006 dated December 14, 2006
123
भारतीय प्रततभूतत और वितिमय बोर् ड
Securities and Exchange Board of India
4.17 Computing and monitoring of the Aggregate Value of Portfolio of
Securities (AVPS) of the BOs held in dematerialised form by Stock Broker
DPs
i. For the purpose of computing the AVPS of the beneficial owners held in
dematerialised form under Regulation 35(a)(viii) of SEBI (Depositories
and Participant) Regulations, 2018, the securities held by bank and
financial institutions as well as promoters holdings of a company held in
dematerialised form, may be excluded102.
ii. In view of the potential risk to the system and also to maintain the
integrity of the market, the depositories are advised to develop an
appropriate systemic alert in the depository system, so as to enable the
system to generate and convey automatic alerts to those SBDPs that reach
a pre-determined level of exposure. These alerts would serve as
forewarnings to the SBDPs to the fact that they are approaching their
respective maximum exposure limits. [Note: For this purpose, the
depositories may monitor the value of securities with its SBDPs on an
"end of the day" basis.]103
4.18 Rajiv Gandhi Equity Savings Scheme, 2012 (RGESS)104
i. Vide notification 51/2012 dated November 23, 2012, Department of
Revenue, Ministry of Finance (MoF) has notified the Rajiv Gandhi Equity
Savings Scheme (RGESS), 2012. The notification is available on the website
of Income Tax Department under section “Notifications”.
ii. With regard to implementation of the MoF notification, the following is
clarified:
a. For RGESS eligible close-ended Mutual Funds schemes, advice given
by AMCs to the depository for extinguishment of units of close ended
schemes upon maturity of the scheme shall be considered as settled
through depository mechanism and therefore RGESS compliant.
b. AMCs shall disclose that the concerned RGESS eligible Exchange
Traded Funds and Mutual Fund schemes is in compliance with the
102 Reference: SMDRP/RKD /NSDL/2494 /98 dated November 18, 1998, SMDRP/CDSL / 18300
/2000 dated November 16, 2000
103 Reference: MRD/DRK/SU/16034/2003 dated August 22, 2003
104 Reference Circular CIR/MRD/DP/32/201 dated December 06, 2012
124
भारतीय प्रततभूतत और वितिमय बोर् ड
Securities and Exchange Board of India
provisions of RGESS guidelines notified by Ministry of Finance vide
notification no. 51/2012 F. No. 142/35/2012-TPL dated November 23,
2012, in Scheme Information Document (SID), in case of new fund
offer, or by way of addendum, in case of existing RGESS eligible
Exchange Traded Funds and Mutual Fund schemes.
c. Section 6(c) of the notification states that the eligible securities brought
into the demat account will automatically be subject to lock-in during
the first year, unless the new investor specifies otherwise and for such
specifications, the new retail investors shall submit a declaration in
Form B indicating that such securities are not to be included within the
above limit of investment. It is clarified that such declaration shall be
submitted by an investor to its Depository Participant within a period
of one month from the date of transaction.
d. For transactions undertaken by investors through their RGESS
designated demat account, Depositories may seek necessary
transactional details from stock exchanges viz. Actual Trade value,
Trading date, Settlement number, etc, for the purpose of enforcing
lock-in and for generating reports mandated vide MoF notification on
RGESS. On receipt of such request from depositories, stock exchanges
shall provide the details to depositories on an immediate basis. It shall
also be ensured that a uniform file structure is used by stock exchanges
and depositories for such intimation of transaction details.
e. With regard to point 3(ix) (a) & (b) of RGESS notification, depositories
may seek confirmation, as applicable, from stock exchanges.
f. With regard to the securities held in the RGESS designated account,
treatment of the corporate actions shall be as given at Annexure A.
iii. Stock exchanges shall furnish list of RGESS eligible stocks / ETFs / MF
schemes on their website. Further, the list shall also be forwarded to the
depositories at monthly intervals and whenever there is any change in the
said list. For this purpose, Mutual Funds / AMCs shall communicate list
of RGESS eligible MF schemes / ETFs to the stock exchanges.
125
भारतीय प्रततभूतत और वितिमय बोर् ड
Securities and Exchange Board of India
Annexure A
Treatment of corporate actions
(i) Involuntary corporate actions: In case of corporate actions where investors has
no choice in the matter, for example: demerger of companies, etc, the compliance
status of RGESS demat account shall not change.
(ii) Voluntary corporate actions: In case of corporate actions where investors has
the option to exercise his choice and thereby result in debit of securities, for
example: buy-back, etc, the same shall be considered as a sale transaction for the
purpose of the scheme.
Consolidated list of ‘corporate actions’
Sr. Corporate Action Classification (Involuntary or
No. Voluntary)
1 Amalgamation Involuntary
2 Scheme of Arrangement Involuntary
3 Reduction of Capital Involuntary
4 Bonus issue Involuntary
5 Buy Back of Shares Voluntary (Involuntary in case
of court intervention)
6 Stock Split Involuntary
7 Consolidation of Shares Involuntary
8 Conversion of Partly Paid up Involuntary
9 Dividend [Final/ Interim/ Special] Involuntary
10 Exchange of Share Certificate Involuntary
[Name change]
11 Rights Issue Voluntary
12 Conversion (compulsory)* Involuntary
13 Conversion (optionally)* Involuntary
14 Redemption Involuntary (voluntary, if there
is option to continue with
revised terms)
15 Dividend on Mutual Fund Involuntary
16 Redemption of Mutual Fund Involuntary on maturity
(voluntary, if there is option to
shift between different
scheme(s) or on account of exit
126
भारतीय प्रततभूतत और वितिमय बोर् ड
Securities and Exchange Board of India
option due to change in
fundamental attributes of
scheme)
* Considering any conversion into equities (e.g.: Conversion of warrants into
equities)
End of Annexure A
127
भारतीय प्रततभूतत और वितिमय बोर् ड
Securities and Exchange Board of India
Annexure B – Illustration of lock-in period in RGESS
I. RGESS lock-in period if investments are brought in at once
Second
First year
Fixed year of Account
of flexible
Nov lock in flexible is
lock-in
23, begins Nov lock-in Nov converte
begins. Nov 23
2012 Ends on 23, begins 23, d into an
Ends on , 2014
Rs. Novembe 2013 Ends on 2015 ordinary
Novembe
50,000 r 22, Novembe demat
r 22,
2013 r 22, account
2014
2015
Applicable Applicable
financial year financial year
for compliance for compliance
128
भारतीय प्रततभूतत और वितिमय बोर् ड
Securities and Exchange Board of India
Annexure B – Illustration of lock-in period in RGESS
I. RGESS lock-in period if investments are brought are in installments
Period of Flexible lock-in
Period of Fixed lock-in
Fixed lock-in One year of Flexible Second year of
ends lock-in ends Flexible lock-in ends
March 11, 2013
Third set of
Rs. 10,000;
Securities 1 year
RGESS portfolio may
January 15, 2013
change during this period
Second set
of Securities
Rs. 30,000; 1 year 1 months
24days
November 23, 2012
First set of
Securities
Rs. 10,000; 1 year 3 months 16 days
March 10, March 10, March 10,
2014 2015 2016
Applicable finaaanacaiaa l year for
compliance will be 2014-15
ApApplpicliacbalbel efi nfiannacnicaila flo yre ar for
cocmomplpialinacnec ew willi lbl eb e2 021051-51-61 6
129
भारतीय प्रततभूतत और वितिमय बोर् ड
Securities and Exchange Board of India
4.19 Principles of Financial Market Infrastructures (PFMIs)105
Background
i. To promote and sustain an efficient and robust global financial
infrastructure, the Committee on Payments and Settlement Systems
(CPSS) and the International Organization of Securities Commissions
(IOSCO) published the Principles for financial market infrastructures1
(PFMIs) on April 2012. They replace the three existing sets of international
standards set out in the Core Principles for Systemically Important
Payment Systems (CPSIPS); the Recommendations for Securities
Settlement Systems (RSSS); and the Recommendations for Central
Counterparties (RCCP). CPSS and IOSCO have strengthened and
harmonised these three sets of standards by raising minimum
requirements, providing more detailed guidance and broadening the
scope of the standards to cover new risk-management areas and new
types of FMIs.
ii. The PFMIs comprise of 24 principles (Annex 1) for Financial Market
Infrastructure to provide for effective regulation, supervision and
oversight of FMIs. They are designed to ensure that the infrastructure
supporting global financial markets is robust and well placed to withstand
financial shocks.
iii. Full, timely and consistent implementation of the PFMIs is fundamental to
ensuring the safety, soundness and efficiency of key FMIs and for
supporting the resilience of the global financial system. In addition, the
PFMIs play an important part in the G20's mandate that all standardized
over-the-counter (OTC) derivatives should be centrally cleared. Global
central clearing requirements reinforce the importance of strong
safeguards and consistent oversight of derivatives CCPs in particular.
Financial Market Infrastructure (FMI)
iv. The Principles apply to systematically important financial market
infrastructures entities such as Central Counterparty (CCP), Central
105 Reference Circular SEBI/MRD/DRMNP/26/2013 dated September 04, 2013
130
भारतीय प्रततभूतत और वितिमय बोर् ड
Securities and Exchange Board of India
Securities Depository (CSD)/ Securities Settlement System (SSS), Payment
and Settlement systems, and Trade Repository (TR) which are responsible
for providing clearing, settlement and recording of monetary and other
financial transactions. The principles are international standards set forth
to –
a. Enhance safety and efficiency in payment, clearing, settlement, and
recording arrangements,
b. Reduce systemic risk.
c. Foster transparency and financial stability and
d. Promote protection of participants and investors.
v. Financial Market Infrastructure (FMI) are critically important institutions
responsible for providing clearing, settlement and recording of monetary
and other financial transactions. The different categories of FMIs, as
identified under PFMIs, are listed below -
Payment Systems (PSS)
A payment system is a set of instruments, procedures, and rules for the
transfer of funds between or among participants. The system includes the
participants and the entity operating the arrangement. Payment systems
are typically based on an agreement between or among participants and
the operator of the arrangement, and the transfer of funds is effected using
an agreed-upon operational infrastructure.
Central Securities Depositories (CSD)
Central securities depository provides securities accounts, central
safekeeping services, and asset services, which may include the
administration of corporate actions and redemptions, and plays an
important role in helping to ensure the integrity of securities issues (that
is, ensure that securities are not accidentally or fraudulently created or
destroyed or their details changed). A CSD can hold securities either in
physical form (but immobilised) or in dematerialised form (that is, they
exist only as electronic records). A CSD may maintain the definitive
record of legal ownership for a security; in some cases, however, a
separate securities registrar will serve this notary function.
131
भारतीय प्रततभूतत और वितिमय बोर् ड
Securities and Exchange Board of India
Securities Settlement Systems (SSS)
A securities settlement system enables securities to be transferred and
settled by book entry according to a set of predetermined multilateral
rules. Such systems allow transfers of securities either free of payment or
against payment. When transfer is against payment, many systems
provide delivery versus payment (DvP), where delivery of the security
occurs if and only if payment occurs. An SSS may be organised to provide
additional securities clearing and settlement functions, such as the
confirmation of trade and settlement instructions.
Central Counterparties (CCP)
A central counterparty interposes itself between counterparties to
contracts traded in one or more financial markets, becoming the buyer to
every seller and the seller to every buyer and thereby ensuring the
performance of open contracts. A CCP becomes counterparty to trades
with market participants through novation, an open-offer system, or
through an analogous legally binding arrangement. CCPs have the
potential to significantly reduce risks to participants through the
multilateral netting of trades and by imposing moreeffective risk controls
on all participants. For example, CCPs typically require participants to
provide collateral (in the form of initial margin and other financial
resources) to cover current and potential future exposures. CCPs may also
mutualise certain risks through devices such as default funds. As a result
of their potential to reduce risks to participants, CCPs also can reduce
systemic risk in the markets they serve.
Trade Repositories (TR)
A trade repository is an entity that maintains a centralised electronic
record (database) of transaction data. TRs have emerged as a new type of
FMI and have recently grown in importance, particularly in the OTC
derivatives market. By centralising the collection, storage, and
dissemination of data, a well designed TR that operates with effective risk
controls can serve an important role in enhancing the transparency of
transaction information to relevant authorities and the public, promoting
financial stability, and supporting the detection and prevention of market
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भारतीय प्रततभूतत और वितिमय बोर् ड
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abuse. An important function of a TR is to provide information that
supports risk reduction, operational efficiency and effectiveness, and cost
savings for both individual entities and the market as a whole. Such
entities may include the principals to a trade, their agents, CCPs, and
other service providers offering complementary services, including central
settlement of payment obligations, electronic novation and affirmation,
portfolio compression and reconciliation, and collateral.
Adoption of Principles of Financial Market Infrastructures
vi. All CPSS and IOSCO members are required to strive to adopt the PFMIs
and implement them in their respective jurisdictions.
vii. SEBI as a member of IOSCO is committed to the adoption and
implementation of the new CPSS-IOSCO standards of PFMIs in its
regulatory functions of oversight, supervision and governance of the key
financial market infrastructures under its purview.
viii. Depositories and Clearing Corporations regulated by SEBI are FMIs in
terms of the criteria described above. These systemically important
financial infrastructures provide essential facilities and perform
systemically critical functions in the market and shall hence be required to
comply with the principles of financial market infrastructures specified by
CPSS-IOSCO as applicable to them. The list of SEBI regulated FMIs is
provided in Annexure 2.
ix. All FMIs in the securities market shall be monitored and assessed against
the PFMIs on a periodic basis.
Annexure 1
Principles for financial market infrastructures
General Organisation
Principle 1: Legal basis
133
भारतीय प्रततभूतत और वितिमय बोर् ड
Securities and Exchange Board of India
An FMI should have a well-founded, clear, transparent, and enforceable
legal basis for each material aspect of its activities in all relevant
jurisdictions.
Principle 2: Governance
An FMI should have governance arrangements that are clear and
transparent, promote the safety and efficiency of the FMI, and support the
stability of the broader financial system, other relevant public interest
considerations, and the objectives of relevant stakeholders.
Principle 3: Framework for the comprehensive management of risks
An FMI should have a sound risk-management framework for
comprehensively managing legal, credit, liquidity, operational, and other
risks. Credit and liquidity risk management.
Principle 4: Credit risk
An FMI should effectively measure, monitor, and manage its credit
exposures to participants and those arising from its payment, clearing,
and settlement processes. An FMI should maintain sufficient financial
resources to cover its credit exposure to each participant fully with a high
degree of confidence. In addition, a CCP that is involved in activities with
a more-complex risk profile or that is systemically important in multiple
jurisdictions should maintain additional financial resources sufficient to
cover a wide range of potential stress scenarios that should include, but
not be limited to, the default of the two participants and their affiliates
that would potentially cause the largest aggregate credit exposure to the
CCP in extreme but plausible market conditions. All other CCPs should
maintain additional financial resources sufficient to cover a wide range of
potential stress scenarios that should include, but not be limited to, the
default of the participant and its affiliates that would potentially cause the
largest aggregate credit exposure to the CCP in extreme but plausible
market conditions.
Principle 5: Collateral
134
भारतीय प्रततभूतत और वितिमय बोर् ड
Securities and Exchange Board of India
An FMI that requires collateral to manage its or its participants’ credit
exposure should accept collateral with low credit, liquidity, and market
risks. An FMI should also set and enforce appropriately conservative
haircuts and concentration limits.
Principle 6: Margin
A CCP should cover its credit exposures to its participants for all products
through an effective margin system that is risk-based and regularly
reviewed.
Principle 7: Liquidity risk
An FMI should effectively measure, monitor, and manage its liquidity
risk. An FMI should maintain sufficient liquid resources in all relevant
currencies to effect same- day and, where appropriate, intraday and
multiday settlement of payment obligations with a high degree of
confidence under a wide range of potential stress scenarios that should
include, but not be limited to, the default of the participant and its
affiliates that would generate the largest aggregate liquidity obligation for
the FMI in extreme but plausible market conditions.
Settlement
Principle 8: Settlement finality
An FMI should provide clear and certain final settlement, at a minimum
by the end of the value date. Where necessary or preferable, an FMI
should provide final settlement intraday or in real time.
Principle 9: Money settlements
An FMI should conduct its money settlements in central bank money
where practical and available. If central bank money is not used, an FMI
should minimise and strictly control the credit and liquidity risk arising
from the use of commercial bank money.
Principle 10: Physical deliveries
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भारतीय प्रततभूतत और वितिमय बोर् ड
Securities and Exchange Board of India
An FMI should clearly state its obligations with respect to the delivery of
physical instruments or commodities and should identify, monitor, and
manage the risks associated with such physical deliveries.
Central securities depositories and exchange-of-value settlement systems
Principle 11: Central securities depositories
A CSD should have appropriate rules and procedures to help ensure the
integrity of securities issues and minimise and manage the risks
associated with the safekeeping and transfer of securities. A CSD should
maintain securities in an immobilised or dematerialised form for their
transfer by book entry.
Principle 12: Exchange-of-value settlement systems
If an FMI settles transactions that involve the settlement of two linked
obligations (for example, securities or foreign exchange transactions), it
should eliminate principal risk by conditioning the final settlement of one
obligation upon the final settlement of the other.
Default management
Principle 13: Participant-default rules and procedures
An FMI should have effective and clearly defined rules and procedures to
manage a participant default. These rules and procedures should be
designed to ensure that the FMI can take timely action to contain losses
and liquidity pressures and continue to meet its obligations.
Principle 14: Segregation and portability
A CCP should have rules and procedures that enable the segregation and
portability of positions of a participant’s customers and the collateral
provided to the CCP with respect to those positions.
General business and operational risk management
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भारतीय प्रततभूतत और वितिमय बोर् ड
Securities and Exchange Board of India
Principle 15: General business risk
An FMI should identify, monitor, and manage its general business risk
and hold sufficient liquid net assets funded by equity to cover potential
general business losses so that it can continue operations and services as a
going concern if those losses materialise. Further, liquid net assets should
at all times be sufficient to ensure a recovery or orderly wind-down of
critical operations and services.
Principle 16: Custody and investment risks
An FMI should safeguard its own and its participants’ assets and
minimise the risk of loss on and delay in access to these assets. An FMI’s
investments should be in instruments with minimal credit, market, and
liquidity risks.
Principle 17: Operational risk
An FMI should identify the plausible sources of operational risk, both
internal and external, and mitigate their impact through the use of
appropriate systems, policies, procedures, and controls. Systems should
be designed to ensure a high degree of security and operational reliability
and should have adequate, scalable capacity. Business continuity
management should aim for timely recovery of operations and fulfillment
of the FMI’s obligations, including in the event of a wide-scale or major
disruption.
Access
Principle 18: Access and participation requirements
An FMI should have objective, risk-based, and publicly disclosed criteria
for participation, which permit fair and open access.
Principle 19: Tiered participation arrangements
An FMI should identify, monitor, and manage the material risks to the
FMI arising from tiered participation arrangements.
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भारतीय प्रततभूतत और वितिमय बोर् ड
Securities and Exchange Board of India
Principle 20: FMI links
An FMI that establishes a link with one or more FMIs should identify,
monitor, and manage link-related risks.
Efficiency
Principle 21: Efficiency and effectiveness
An FMI should be efficient and effective in meeting the requirements of its
participants and the markets it serves.
Principle 22: Communication procedures and standards
An FMI should use, or at a minimum accommodate, relevant
internationally accepted communication procedures and standards in
order to facilitate efficient payment, clearing, settlement, and recording.
Transparency
Principle 23: Disclosure of rules, key procedures, and market data
An FMI should have clear and comprehensive rules and procedures and
should provide sufficient information to enable participants to have an
accurate understanding of the risks, fees, and other material costs they
incur by participating in the FMI. All relevant rules and key procedures
should be publicly disclosed.
Principle 24: Disclosure of market data by trade repositories
A TR should provide timely and accurate data to relevant authorities and
the public in line with their respective needs.
End of Annexure 1
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भारतीय प्रततभूतत और वितिमय बोर् ड
Securities and Exchange Board of India
Annexure 2
1. Clearing Corporations
a. Indian Clearing Corporation Ltd. (ICCL)
b. Metropolitan Clearing Corporation of India Ltd. (MCCIL)
c. National Securities Clearing Corporation Ltd. (NSCCL)
2. Depositories
a. Central Depository Services Ltd. (CDSL)
b. National Securities Depository Ltd (NSDL)
End of Annexure 2
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भारतीय प्रततभूतत और वितिमय बोर् ड
Securities and Exchange Board of India
4.20 Annual System Audit of Depositories 106
i. The depositories should annually conduct System Audit as per the
System Audit Framework. The system audit framework encompasses
the System Audit Process, Auditor Selection Norms, Terms of
Reference (TOR), and Audit Report Guidelines as per the annexure
below.
ii. The Systems Audit Reports and Compliance Status should be placed
before the Governing Board of the depositories and the system audit
report along with comments of depositories should be communicated
to SEBI. Further, along with the audit report, depositories are advised
to submit a declaration from the MD / CEO certifying the security and
integrity of their IT Systems.
Annexure
System Audit Framework
Audit Process
Following steps would be repeated annually to ensure that the process is
comprehensive & effective:
1. The Audit shall be conducted according to the Norms, Terms of References
(TOR) and Guidelines issued by SEBI.
106 Circular No. CIR/MRD/DMS/13/2011 dated November 29, 2011
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भारतीय प्रततभूतत और वितिमय बोर् ड
Securities and Exchange Board of India
2. Stock Exchange / Depository (Auditee) may negotiate and the board of the
Stock Exchange / Depository shall appoint the Auditors based on the
prescribed Auditor Selection Norms and TOR. The Auditors can perform a
maximum of 3 successive audits. The proposal from Auditor must be
submitted to SEBI for records.
3. Audit schedule shall be submitted to SEBI at-least 2 months in advance, along
with scope of current audit & previous audit.
4. The scope of the Audit may be extended by SEBI, considering the changes
which have taken place during last year or post previous audit report
5. Audit has to be conducted and the Audit report be submitted to the Auditee.
The report should have specific compliance / non-compliance issues,
observations for minor deviations as well as qualitative comments for scope
for improvement. The report should also take previous audit reports in
consideration and cover any open items therein.
6. The Auditee management provides their comment about the Non-
Conformities (NCs) and observations. For each NC, specific time-bound
(within 3 months) corrective action must be taken and reported to SEBI. The
auditor should indicate if a follow-on audit is required to review the status of
NCs. The report along with Management Comments shall be submitted to
SEBI, within 1 month of completion of the audit.
7. Follow-on audit, if any, has to be scheduled within 3 months of the Audit to
ensure that the corrective actions have been taken.
8. If follow-on audit is not required, the Auditee management has to submit a
report of actions taken and evidence of corrections to the Auditors & SEBI
within 3 months. This report should include updated Issue-Log to indicate
the corrective actions taken, verified by the auditors.
Auditor Selection Norms
1. Auditor must have minimum 3 years of experience in IT audit of Securities
Industry participants e.g. stock exchanges, clearing houses, depositories etc.
The audit experience should have covered all the Major Areas mentioned
under SEBI's Audit Terms of Reference (TOR).
2. The Auditor must have experience in / direct access to experienced resources
in the areas covered under TOR. It is recommended that resources employed
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भारतीय प्रततभूतत और वितिमय बोर् ड
Securities and Exchange Board of India
shall have relevant industry recognized certifications e.g. CISA (Certified
Information Systems Auditor) from ISACA, CISM (Certified Information
Securities Manager) from ISACA, GSNA (GIAC Systems and Network
Auditor), CISSP (Certified Information Systems Security Professional) from
International Information Systems Security Certification Consortium,
commonly known as (ISC)2.
3. The Auditor should have IT audit/governance frameworks and processes
conforming to industry leading practices like CobiT.
4. The Auditor must not have any conflict of interest in conducting fair,
objective and independent audit of the Exchange / Depository. It should not
have been engaged over the last three years in any consulting engagement
with any departments / units of the entity being audited.
The Auditor may not have any cases pending against its previous auditees,
which fall under SEBI's jurisdiction, which point to its incompetence and/or
unsuitability to perform the audit task.
Terms of Reference (ToR)
1. General Controls for Data Center Facilities - It must include
> Application access - Segregation of duties, Database & Application access
etc.
> Maintenance access - Vendor engineers.
> Physical access - Permissions, logging, exception reporting & alerts.
> Environmental controls - Fire protection, AC monitoring etc.
> Fault resolution mechanism.
> Folder sharing and Back-up controls - Safeguard critical information on
local desktops
> Incidences of violations in last year & corrective actions taken
2. Software Change Control - It must include
> User awareness
> Processing of new feature request
> Fault reporting / tracking mechanism & process for resolutions
> Testing of New releases / Bug-fixes - Testing process (automation level)
> Version Control - History, Change Management process etc.
> Development / Test/ Production environment - Segregation
> New release in Production - Promotion, Release note approvals
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भारतीय प्रततभूतत और वितिमय बोर् ड
Securities and Exchange Board of India
> Production issues / disruptions reported during last year & corrective
actions taken.
3. Data communication / Network controls - It must include
> Network Administration - Redundancy, Monitoring, breakdown
resolution etc.
> WAN Management - Connectivity provisions for business continuity.
> Encryption - Router based as well as during transmission
> Connection Permissions - Restriction on need to have basis
> Fallback mechanism - Dial-up connections controls etc.
> Hardware based Signing Process
> Incidences of access violations in last year & corrective actions taken
4. Security Controls - General office infrastructure - It must include
> Security Policy & quality of implementation of the same
> LAN security control and monitoring
> OS & Database Security controls & monitoring
> Internet connection controls - Firewall protection, Intrusion Detection
System, Access rights and privileges.
> Virus protection - Controls to mitigate the Virus attacks / Outbreaks.
> Secured (digitally signed) e-mail with other entities like SEBI, other
partners
> Email Archival Implementation
> Incidences of security violations in last year & corrective actions taken.
5. Access policy and controls
6. Electronic Document controls
7. General Access controls
8. Performance audit - It must include
> Comparison of changes in transaction volumes since previous audit
> Review of systems (hardware, software, network) performance over
period
> Review of the current volumes against the last Performance Test
performed
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भारतीय प्रततभूतत और वितिमय बोर् ड
Securities and Exchange Board of India
9. Business Continuity / Disaster Recovery Facilities - It must include
> BCP manual, including Business Impact Analysis, Risk Assessment
and DR process
> Implementation of policies
> Back-up procedures and recovery mechanism using back-ups.
> Storage of Back-up (Remote site, DRS etc.)
> Redundancy - Equipment, Network, Site etc.
> DRS installation and Drills - Management statement on targeted
resumption capability (in terms of time required & extent of loss of data)
> Evidence of achieving the set targets during the DRS drills in event of
various disaster scenarios.
> Debrief / review of any actual event when the DR/BCP was invoked
during the year
10. IT Support & IT Asset Management - It must include
> Utilization monitoring - including report of prior year utilization
> Capacity planning - including projection of business volumes
> IT (S/W, H/W & N/W) Assets, Licenses & maintenance contracts
> Insurance
> Disposal - Equipment, Media, etc.
11. Entity Specific Software
12. Any other Item
> Electronic Waste Disposal
> Based upon previous Audit report as well as any other specific
information given by SEBI
Audit Report Guidelines
The Audit report should have explicit coverage of each Major Area mentioned in
the TOR, indicating any Nonconformity (NCs) or Observations (or lack of it).
For each section - auditors should also provide qualitative input about ways to
improve the process, based upon the best practices observed. The report should
also include tabulated data to show NCs / Observations for each Major Area in
TOR. Fully detailed report should be submitted, along with an Executive
Summary in tabulated form including following information:
Issue Log Column Description Responsibility
Heading
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भारतीय प्रततभूतत और वितिमय बोर् ड
Securities and Exchange Board of India
Major Area Major area/relevant clause in Terms of Auditor
Reference against which compliance is being
audited
Description of Describe the findings in sufficient detail, Auditor
Finding/ referencing any accompanying evidence (e.g.
Observation
procedure annual, interview notes, reports etc.)
Reference Reference to the section in detailed report – Auditor
where full background information about the
findings are available
Process/ Unit Process or unit where the audit is conducted Auditor
and the finding pertains to
Category of Findings Major/Minor Nonconformity, Observation, Auditor
Suggestion etc.
Audited By Which Auditor covered the findings Auditor
Root Cause Analysis A detailed analysis on the cause of the Auditee
nonconformity
Remediation The action (to be) taken to correct the Auditee
nonconformity
Target Completion The date by which remedial action must be/will Auditor/
Date for Remedial be completed Auditee
Action
Status Status of finding on reporting date (open/close) Auditor/
Auditee
Verified By Auditing personnel (upon verification that Auditor
finding can be closed)
Closing Date Date when finding is verified and can be closed Auditor
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भारतीय प्रततभूतत और वितिमय बोर् ड
Securities and Exchange Board of India
The Executive Summary should also include an overall comment from the
Auditors to indicate if a follow-on audit is required and the time lines of
respective corrective action for non conformities. Further, along with the audit
report, the Stock Exchange / Depository shall also submit a declaration from
the MD / CEO certifying the integrity and security of IT Systems.
4.21 Exceptional Observation Reporting format for System Audit
Observation107
In this context, it has been decided that Stock Exchanges, Clearing
Corporations and Depositories (MIIs) shall:
a. Submit information with regards to exceptional major non-
compliances (NCs) / minor NCs observed in the system audit as per
Annexure – A.
b. Categorically highlight those observations /NCs/ Suggestions pointed
out in the System Audit (Current and Previous) which are not yet
complied with.
The aforesaid information is to be duly certified by the Compliance Office,
for the previous/ last and current system audits conducted. Information
as sought in Annexure – A should also be provided for all future System
Audits conducted along with the System Audit report submitted to SEBI.
Annexure – A
Exceptional Observation Reporting Format
Note: MIIs are expected to submit following information with regards
to exceptional major/minor NCs observed in the System Audit. MIIs
should also categorically highlight those observation /NCs/ Suggestions
pointed out in the System Audit (Current and Previous) which are not
yet complied with.
I. For Preliminary Audit
Audit ObserDescri Depart StatusRisk Audit AudRoot ImpaCorre Deadlin ManagemeWhether
Period vation ption ment /NaturRating of TOR ited Caus ct ctive e for the nt response similar
of e of Findings Claus By e Anal Actio Correcti in case of observati
Findin Findi as per e Anal ysis n ve acceptance on was
107 Reference no. SEBI letter OW/00000/04961/2017/1 dated May 11, 2017
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भारतीय प्रततभूतत और वितिमय बोर् ड
Securities and Exchange Board of India
g ngs Auditor ysis Propo Action of associate observed
sed by Risks in any of
Audit the
or previous
3 audits
Description of relevant table heads
1. Audit Period - This indicated the period of audit
2. Description of Finding / Observation – Description of findings in
sufficient details, referencing any accompanying evidence.
3. Status / Nature of Findings – The category can be specified for example:
a. Non-Compliant (Major/ minor)
b. Work in progress
c. Observation
d. Suggestion
4. Risk Rating of Findings – A rating has to been given for each of the
observations based on their impact and severity to reflect the risk
exposure, as well as suggested priority for action.
Rating Description
HIGH Weakness in control those represent exposure to the
organization or risks that could lead to instances of
noncompliance with the requirement of TORs. These risks
need to be addressed with utmost priority.
MEDIUM Potential weakness in controls, which could develop into an
exposure or issues that represent areas of concern and may
impact internal controls. These should be addressed
reasonably promptly.
LOW Potential weakness in controls, which in combination with
other weakness can develop into an exposure. Suggested
improvements for situations not immediately/directly
affecting controls.
5. Audit TOR Clause –The TOR clause corresponding to this observation.
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भारतीय प्रततभूतत और वितिमय बोर् ड
Securities and Exchange Board of India
6. Root cause Analysis – A detailed analysis on the cause of the non –
conformity
7. Impact Analysis – An analysis of the likely impact on the operations /
activity of the organization
8. Corrective Action – The action taken to correct the non-conformity.
II. For Follow on / Follow up System Audit
Prelimi Prelimi Prelimina Prelim Prelimi Curre Curr Revise Deadlin Reason for
nary nary ry inary nary nt ent d e for the delay in
Audit Audit Observati Status Correcti Findi Statu Correc Revised implement
Date Period on ve ngs s tive Correcti ation /
Number Action Action ve Complianc
as , if any Action e
propose
d by
Auditor
Description of relevant table heads
1. Preliminary Status – The original finding as per the preliminary System
Audit Report
2. Preliminary Corrective Action – The original corrective action as
prescribed in the preliminary System Audit Report
3. Current Findings - The current finding w.r.t. the issue.
4. Current Status - Current status of the issue viz compliant, non-compliant,
Work In Progress (WIP)
5. Revised Corrective Action – The revised corrective action prescribed
w.r.t. the non-compliant/WIP issues
4.22 Guidelines for Business Continuity Plan (BCP) and Disaster Recovery
(DR) 108 and 109
108 Circular No. CIR/MRD/DMS/12/2012 dated April 13, 2012 and clarification issued vide
Circular No. CIR/MRD/ DMS/17/2012 dated June 22, 2012
109 Reference Circular SEBI/HO/MRD/DMS1/CIR/P/2019/43 dated March 26, 2019 - extant framework
re-examined and modified
148
भारतीय प्रततभूतत और वितिमय बोर् ड
Securities and Exchange Board of India
i. The stock exchanges, clearing corporations and depositories(collectively
referred as Market Infrastructure Institutions –MIIs)should have in place
BCP and DRS so as to maintain data and transaction integrity.
ii. Apart from DRS, stock exchanges and clearing corporations should also
have a Near Site (NS) to ensure zero data loss whereas, the
depositories should also ensure zero data loss by adopting a suitable
mechanism.
iii. The DRS should preferably be set up in different seismic zones and in
case due to certain reasons such as operational constraints, change of
seismic zones, etc., minimum distance of 500 kilometer shall be ensured
between PDC and DRS so that both DRS and PDC are not affected by the
same disaster
iv. The manpower deployed at DRS / NS should have similar expertise as
available at PDC in terms of knowledge / awareness of various
technological and procedural systems and processes relating to all
operations such that DRS / NS can function at short notice,
independently. MIIs should have sufficient number of trained staff at
their DRS so as to have the capability of running live operations
from DRS without involving staff of the primary site.
v. Configuration of DRS / NS with PDC
a) Hardware, system software, application environment, network and
security devices and associated application environments of DRS / NS
and PDC should have one to one correspondence between them.
b) MIIs should endeavor to develop systems that do not require
configuration changes at the end of trading members/ clearing
members/ depository participants for switchover from the PDC to
DRS. Further, MIIs should test such switchover functionality by
conducting unannounced 2 day live trading session from its DRS. This
would help to gauge the state of readiness of various other processes
and procedure relating to business continuity and disaster recovery
that may not get tested in a planned exercise.
c) MIIs should have Recovery Time Objective (RTO) and Recovery Point
Objective (RPO) not more than 4 hours and 30 minutes, respectively.
d) The time taken to define/ establish/ declare a disaster should not be
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भारतीय प्रततभूतत और वितिमय बोर् ड
Securities and Exchange Board of India
more than 2 hours and the total RTO including the time taken to
declare an incident as disaster should not be more than 4 hours.
Further, RTO shall be calculated from the occurrence of disaster and
not from the time an incident is declared a disaster.
e) Solution architecture of PDC and DRS / NS should ensure high
availability, fault tolerance, no single point of failure, zero data loss,
and data and transaction integrity.
f) Any updates made at the PDC should be reflected at DRS / NS
immediately (before end of day) with head room flexibility without
compromising any of the performance metrics.
g) Replication architecture, bandwidth and load consideration between
the DRS / NS and PDC should be within stipulated RTO and ensure
high availability, right sizing, and no single point of failure.
h) Replication between PDC and NS should be synchronous to ensure
zero data loss. Whereas the one between PDC and DR and between NS
and DR may be asynchronous.
i) Adequate resources (with appropriate training and experience) should
be available at all times to handle operations on a regular basis as well
as during disasters.
vi. DR Drills / Testing
a) DR drills should be conducted on quarterly basis. In case of exchanges,
these drills should be closer to real life scenario (trading days) with
minimal notice to DR staff involved.
b) During the drills, the staff based at PDC should not be involved in
supporting operations in any manner.
c) The drill should include running all operations from DRS for at least 1
full trading day.
d) Before DR drills, the timing diagrams clearly identifying resources at
both ends (DRS as well as PDC) should be in place.
e) The results and observations of these drills should be documented and
placed before the Governing Board of Stock Exchange / Depositories.
Subsequently, the same along with the comments of the Governing
Board should be forwarded to SEBI within a month of the DR drill.
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भारतीय प्रततभूतत और वितिमय बोर् ड
Securities and Exchange Board of India
f) The system auditor while covering the BCP - DR as a part of mandated
annual system audit should check the preparedness of the MII to shift
its operations from PDC to DRS unannounced and should also
comment on documented results and
observations of DR drills.
g) Live’ trading sessions from DR site shall be scheduled for at least
two consecutive days in every six months. Such live trading sessions
from the DRS shall be organized on normal working days (i.e. not on
weekends / trading holidays).The stock exchange/ clearing
corporation shall ensure that staff members working at DRS have the
abilities and skills to run live trading session independent of the PDC
staff.
h) Stock exchanges and clearing corporations shall include a scenario of
intraday shifting from PDC to DR during the mock trading
sessions in order to demonstrate its preparedness to meet RTO/RPO
as stipulated above.
i) MII should undertake and document Root Cause Analysis (RCA)
of their technical/ system related problems in order to identify the
causes and to prevent reoccurrence of similar problems.
vii. BCP - DR Policy Document
a) Stock exchanges, clearing corporations and depositories, depending
upon their line of business shall decide the definition of ‘Disaster’
which requires them to move from the PDC to DRS and include the
same in the BCP-DR Policy. The above policy shall be approved by the
respective Governing Boards of MIIs.
b) The BCP - DR policy of stock exchanges and depositories should be
well documented covering all areas as mentioned above including
disaster escalation hierarchy.
c) The stock exchanges should specifically address their preparedness in
terms of proper system and infrastructure in case disaster strikes
during business hours.
d) Depositories should also demonstrate their preparedness to handle
any issue which may arise due to trading halts in stock exchanges
e) The policy document and subsequent changes / additions / deletions
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should be approved by Governing Board of the Stock Exchange /
Depositories and thereafter communicated to SEBI.
f) In case a MII desires to lease its premise at the DRS to other entities
including to its subsidiaries or entities in which it has stake, the MII
should ensure that such arrangements do not compromise
confidentiality, integrity, availability, targeted performance and
service levels of the MII’s systems at the DRS. The right of first use of
all the resources at DRS including network resources should be with
the MII. Further, MII should deploy necessary access controls to
restrict access (including physical access) of such entities to its critical
systems and networks.
viii. Considering the above, stock exchanges and depositories are advised to
submit their BCP - DR policy to SEBI within 3 months from the date of
this circular. Further, they should also ensure that point 1 (vi) (f)
mentioned above is also included in scope of system audit.
4.23 (Information Technology) IT Governance For Depositories110
i. SEBI constituted the Depository System Review Committee (DSRC) to
undertake a comprehensive review of the Indian depository system. Based
on the recommendations of DSRC, following guidelines are issued to
strengthen the information Technology (IT) governance framework of
depositories.
ii. Depositories shall formulate an IT strategy committee at the Board level
of depository to provide insight and advice to the Board in various areas
that may include:
a. Developments in IT from a business perspective.
b. The alignment of IT with the business direction.
c. The availability of IT resources to meet strategic objectives.
d. Competitive aspects of IT Investments.
e. Alignment of the IT architecture to the organization needs and its
approval.
f. Setting priorities and milestones.
110 Reference: MRD/DMS/03/2014 dated January 21, 2014
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iii. Depositories shall formulate an executive level IT Steering Committee to
assist the IT Strategy Committee in Implementation of IT strategy. The IT
steering committee shall comprise of representatives from IT, Human
Resources (HR), Legal and various business functions as felt appropriate.
iv. The Depositories shall formulate an IT strategy document and an
Information Security policy which should be approved by the Board and
reviewed annually.
v. The Depositories shall create an Office of Information Security and
designate a senior official as Chief Information Security Officer (CISO)
whose work would be to assess, identify and reduce information
technology (IT) risks, respond to incidents, establish appropriate
standards and controls, and direct the establishment and implementation
of policies and procedures.
vi. SEBI has laid down Guidelines for Business Continuity Plan (BCP) and
Disaster Recovery (DR) for stock exchange and depositories vide circular
CIR/MRD/DMS/12/2012 dated April 13, 2012 and
CIR/MRD/DMS//17/2012 dated June 22, 2012. In Addition to the
requirements of the aforementioned circulars, depositories shall designate
a senior official as the head of BCP function.
4.24 Guidelines for inspection of Depository Participants (DPs) by
Depositories111
i. Depository System Review Committee (DSRC) was constituted by SEBI to
undertake a comprehensive review of the depository system of Indian
Securities market.
ii. As a first measure, DSRC has reviewed framework adopted by the
depositories with regard to the inspection of depository participants
(DPs). Considering the recommendations of the committee, it has been
decided that depositories shall ensure the following while inspecting their
DPs.
111 Reference Circular SEBI/MRD/DMS/05/2014 dated February 07, 2014
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Inspection Areas and Sample Size
iii. For conducting inspection of DPs, depositories shall inspect the areas as
mentioned in Annexure - I. During inspection, depositories shall cover
implementation of circulars / guidelines issued by SEBI and guidelines /
operating instructions / directions by depositories in respect of these
areas. In addition, Depositories may include such other areas as felt
appropriate.
iv. For the purpose of determining the size of sample, depositories shall be
guided by 'Adaptive Sample Size determination methodology' as
mentioned at Annexure - II.
Categorization / Risk Rating of DPs
v. For the purpose of computing total risk score of DPs, depositories shall be
guided by “DP Rating Model / Categorization” as mentioned at
Annexure – III.
vi. Depositories should periodically undertake risk - impact analysis for each
of the inspection areas, assign appropriate risk weightage, calculate risk
scores for each DPs in the lines mentioned below.
a. Risk Weightage: Depositories shall assign risk weights for each of
inspection areas after taking into consideration following factors:
1. Operational risks in each of the inspection areas.
2. Category of DPs (such as stock broker DPs, bank DP, etc)
3. Size of Operation
4. Repetitive violations
5. IT Security and BCP
6. Complaints received and redressed
b. Quantitative Score Calculation: Depositories shall arrive at a
Quantitative Risk Score for each inspection area by multiplying
percentage of non-compliance to the sample size with the
corresponding assigned risk weight.
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c. Qualitative Score Calculation: Depositories shall arrive at a Qualitative
Risk Score for each qualitative area by multiplying the score assigned
by inspection team to DP with corresponding assigned risk weight.
d. Total DP Risk Score shall be the summation of quantitative and
qualitative scores assigned to the DP.
e. Depositories shall suitably normalize the scales of the qualitative and
quantitative scores in arriving at the Total DP risk score.
vii. Depositories shall categorize their DPs as 'High Risk', 'Medium to High
Risk', 'Medium Risk', and 'Low Risk' DPs based on the percentile of risk
score.
DP Risk Rating / Percentile of Risk Score
Categorization
High ≥ 80
Medium-High 46-79
Medium 21-45
Low ≤ 20
viii. After arriving at the risk rating / categorization as mentioned above, for
subsequent inspections, depositories shall use the DP risk rating/
categorization to decide on the frequency of inspection of DPs
ix. Apart from the above, depositories may undertake specific purpose
inspections for DPs which score high in the specific inspection areas as
mentioned at Annexure - I.
x. Depositories shall jointly inspect DPs which are registered with both
depositories to have better control over DPs, avoid duplicity of
manpower, time and cost and also to reduce the possibility of regulatory
arbitrage, if any. Depositories shall share the risk rating / categorization
of common DPs with each other. For the purpose of determining sample
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size and frequency of the joint inspection of such common DPs, the higher
risk categorization assigned by any of the Depository shall prevail.
Annexure –I
List of Inspection Areas
1. Depositories shall inspect the areas mentioned at para 2 below during
inspection of DPs with regards to any
1.1. Circulars / Guidelines issued by SEBI on the areas mentioned below.
1.2. Guidelines / Operating Instructions / Directions from depositories on
the areas mentioned below.
2. In case there are built in system checks at the depository that ensure
compliance of any of the inspection areas / sub –areas with regard to point
1.1 and 1.2 above, the depository may decide on the including the same
during the inspection of DPs
Inspection Areas
A. Account Opening / KYC Documents
A.1. Account Opening forms
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A.2. KYC Documents
A.2.1. PAN Verification
A.2.2. In-person verification
A.2.3. Forwarding of Documents to KYC Registration Agency (KRA)
A.3. Proof of Identity (POI)
A.4. Proof of Address
A.5. Correspondence Address
A.6. Authorized Signatories
A.7. Completeness / Validation of data entered into DPM with data
provided in the Account Opening forms
A.8. Minor BO / Joint / HUF accounts
A.9. Account Activation
A.10. PMS Accounts
A.11. Nomination
A.12. Any other area as may be specified by the depository
B. Basic Service Demat Account (BSDA)
B.1. Procedures and Checks pertaining to BSDA
B.2. Any other area as may be specified by the depository
C. Client Data Modification (CDM)
C.1. Procedure for CDM
C.2. Any other area as may be specified by the depository
D. Demat / Remat / Conversion /Reconversion request
D.1. Procedure for receiving/processing requests pertaining to Demat /
Remat / Conversion /Reconversion request
D.2. Procedure for forwarding requests pertaining to Demat / Remat /
Conversion /Reconversion request to RTA / issuer
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D.3. Arrangement for Safekeeping of Security / Share Certificates
D.4. Tracking of demat requests
D.5. Rejection of above requests attributable to DPs
D.6. Checks pertaining to processing of Demat / Remat / Conversion /
Reconversion request
D.7. Any other area as may be specified by the depository
E. Delivery Instruction Slip (DIS)
E.1. Issuance of DIS
E.2. Inventory Control of DIS
E.3. First Instruction Slip Booklet
E.4. Requisition Slip
E.5. Procedure for Loose DIS
E.6. Depository specific areas
E.7. Verification of DIS
E.8. Procedure for accepting DIS
E.9. Time Stamping and related Areas
E.10. Accepting DIS by Fax
E.11. Accepting DIS in form of Annexure
E.12. Completeness of DIS
E.13. Accepting DIS in electronic form
E.14. Procedure for Verification of DIS
E.15. Signature Verification
E.16. Corrections / Cancellations to DIS
E.17. Blocking of used / executed / lost / misplaced / Stolen DIS
E.18. Procedure for processing of DIS
E.19. Any other area as may be specified by the depository
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F. Transaction
F.1. Checks pertaining to setting up / processing of transactions
F.2. Future dated transactions
F.3. Transfer of all ISINs of BO account having 5 or more ISINs
F.4. Any other area as may be specified by the depository
G. Transaction Statement (TS)
G.1. Validation of TS
G.2. Maintenance of records of TS
G.3. Issuance of TS to BOs
G.4. Any other area as may be specified by the depository
H. Compliance under Prevention of Money Laundering Act, 2002 (PMLA)
H.1. Compliance with PMLA Act, 2002 and SEBI Guidelines on areas such
as Customer due diligence, suspicious transaction monitoring ,
reporting and record keeping
H.2. Appointment of Principal officer as required under PMLA Act,2002
H.3. Mechanism to deal with alerts provided by Depository
H.4. Suspicious Transactions reports to FIU
H.5. Any other area as may be specified by the depository
I. Maintenance of record and documents
I.1. Information regarding place(s) of record keeping
I.2. Outsourcing of record keeping activities
I.3. Any other area as may be specified by the depository
J. Service Centre Opening and closing/ modification of service centers
J.1. Procedure for Opening /Closure of Service centers
J.2. Details of Service centre on Depository website
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भारतीय प्रततभूतत और वितिमय बोर् ड
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J.3. Qualified persons at service centers
J.4. Any other area as may be specified by the depository
K. Information Technology areas
K.1. Hardware, Software and Network requirements / configurations
K.2. Logical and Physical restrictions / safeguards
K.3. IT Security
K.4. Procedure for alteration of parameters / configurations
K.5. Redundancy
K.6. Any other area as may be specified by the depository
L. Power of Attorney (POA)
L.1. Documents executed
L.2. Maintenance of POA Register
L.3. Clauses of POA
L.4. Registration of BO for SMS Alert facility for POA
L.5. Any other area as may be specified by the depository
M. Inter Depository Transfers (IDT)
M.1. Processing of IDT
M.2. Checks pertaining to IDT
M.3. Any other area as may be specified by the depository
N. Account Transfer
N.1. Procedure followed for account transfer
N.2. Checks pertaining to Account transfer
N.3. Waiver claimed for inter depository transfer
N.4. Any other area as may be specified by the depository
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भारतीय प्रततभूतत और वितिमय बोर् ड
Securities and Exchange Board of India
O. Transmission
O.1. Procedure followed for transmission
O.2. Checks pertaining to Transmission
O.3. Waiver Claimed for inter depository transfer
O.4. Any other area as may be specified by the depository
P. Pledge / Unpledge
P.1. Procedure followed for Pledge / Unpledge
P.2. Checks pertaining to Pledge / Unpledge
P.3. Any other area as may be specified by the depository
Q. Freeze / Unfreeze
Q.1. Freeze facility
Q.2. Procedure followed for Freeze
Q.3. Checks pertaining to freeze
Q.4. Any other area as may be specified by the depository
R. Miscellaneous areas
R.1. Investor Grievance
R.2. Forms for various activities
R.3. Execution of any supplementary agreement/ Letter of Confirmation
R.4. Submission of Internal Audit / Concurrent Audit / Net worth
Certificate
R.5. Submission of Annual Financial Statement
R.6. Outsourcing of Activities
R.7. Closure / transfer of Balances
R.8. Submission of Information sought by Depositories specifically through
Circulars / Letters.
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Securities and Exchange Board of India
R.9. Half Yearly Compliance
R.10. Any other area as may be specified by the depository
S. Status of compliance for deviations / observations noted in last inspection
T. Complaints
T.1. Account Opening
T.2. Demat / Remat
T.3. Transaction Statement
T.4. Improper Service
T.5. Charges
T.6. Delivery Instruction Related ( DIS )
T.7. Closure
T.8. Manipulation / Unauthorized Action
T.9. Monthly report for client complaints
T.10. Other Complaints
Annexure –II
Adaptive Sample Size Determination methodology
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1. Sample Size for inspection area of 'Account Opening'
 The sample selection for account opening shall cover all categories of
clients such as individuals, HUF, Corporate, FIIs etc.
 Base sample size: 5% of Account Opening Forms (AOFs) or 150 AOFs
whichever is higher, with a maximum cap of 1000 accounts.
 Final Sample Size: The final sample size shall also be dependent on past
rating / categorization of DP. The following multipliers shall be used to
determine the final sample size for the current inspection. In case the total
number of instances / cases is less than the final sample size, then 100% of
the samples shall be verified.
DP Rating / Categorization Multiplier
High risk 3
Medium High risk 2
Medium risk 1.5
Low risk 1
 The selected sample shall maintain the proportion of new accounts
opened in each category, except for Account Opening Forms (AOF)
relating to FIIs where it shall be checked on a 100% basis.
2. Sample Size for inspection area relating to DIS
 Base sample size: 10% of total DIS processed or 200 processed DIS
whichever is higher, with a maximum cap of 1000 DIS.
 Final Sample Size: The sample size shall also be dependent on rating /
categorization of DP. The following multipliers shall be used to determine
the final sample size for the current inspection. In case the total number of
instances / cases is less than the final sample size, then 100% of the
samples shall be verified.
DP Rating / Categorization Multiplier
High risk 3
Medium High risk 2
Medium risk 1.5
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भारतीय प्रततभूतत और वितिमय बोर् ड
Securities and Exchange Board of India
Low risk 1
 Out of total intra depository instructions to be verified, the percentage of
on and off market instructions would be in the ratio of 1/3 and 2/3.
 DIS issuance sample size shall be 5% of the total samples verified for DIS.
3. Sample Sizes for inspection areas of 'Demat / Remat request' and 'Pledge /
Unpledge'
 5% of Demat / Remat request processed or 100 requests whichever is
higher with a maximum cap of 500 such requests.
 5% of Pledge / Unpledge request processed or 100 requests whichever is
higher with a maximum cap of 500 such requests.
4. Sample Size for inspection area of 'Client Data Modification',
'Miscellaneous areas' and 'Other depository specific requirements'
 Base Sample Size
o Address change = 50
 Samples from Urban, Semi Urban and Rural Areas shall be equally
represented if available.
o Nomination Change = 25
o Signature change = 100
o Addition / Deletion / Modification of POA = 100
o Freeze / Unfreeze = 50
o Bank Details Change = 100
o PAN modification = 100
o Account closure initiated by clients = 25
o Closure initiated by DPs = 25
o Demat rejection = 30
o Transactions = 25
o Change in e-mail Id = 25
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भारतीय प्रततभूतत और वितिमय बोर् ड
Securities and Exchange Board of India
o Change in mobile number = 25
o Change in SMS flag = 50
o Change in standing instruction flag = 50
o Transmission = 50% of total transmission cases
o Previous compliance = 100% of total samples
o Final sample size shall be arrived at after multiplying with the
respective multiplier corresponding to the DP Risk rating /
categorization as given below. In case the total number of instances /
cases is less than the final sample size, then 100% of the samples shall
be verified.
DP Rating/ Categorisation Multiplier
High risk 3
Medium High risk 2
Medium risk 1.5
Low risk 1
5. Other Aspects
 A uniform Base sample size of 100 shall be adopted in case of all other
activities. In case the total number of samples is less than 100, then 100%
of the samples shall be verified.
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भारतीय प्रततभूतत और वितिमय बोर् ड
Securities and Exchange Board of India
Annexure-III
DP Rating / Categorization Model
I. Quantitative Score Calculation: Specific weights shall be assigned to each
area as decided by each depository. The Total Quantitative Score shall be
the summation of all individual inspection scores.
Table: Indicative Table for calculation of Quantitative Score
Sr No Inspection Areas Weight B = No of Inspection
(A) Instances Score
divided by
Sample size
IS = A*B
A. Inspection Area 1
A.1. Inspection Sub Area A 1
A.2. Inspection Sub Area 2
Total Score for Inspection Area 1
B. Inspection Area 2
B.1. Inspection Sub Area B 1
B.2. Inspection Sub Area B 2
B.3. Inspection Sub Area B 3
Total Score for Inspection Area 2
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भारतीय प्रततभूतत और वितिमय बोर् ड
Securities and Exchange Board of India
Depositories shall include all inspection areas and sub areas, as per
Annexure –I (List of Inspection Areas) of this circular, in the above model
to arrive at the Quantitative Score for a DP.
Table: Indicative Table for calculation of Quantitative Score for Complaints
Received
Sr No Type and Nature of Weight (Number of Inspection
Complaint (A) Complaints Score
redressed) /
Number of
IS = A*B
Complaints
received)
T Complaints
T.1 Complaint Sub Area 1
T.2 Complaint Sub Area 2
Total Score for Complaints
Quantitative Score = Σ (Scores of Inspection Areas including Total score for
Complaints)
II. Qualitative Score Calculation: Specific weights shall be assigned to each
area as decided by depository. The Total Qualitative Score shall be the
summation of all area scores.
Point on the
Area
scale of 1 to 10.
Sr. Weight score
Qualitative Factors [10 being the
No (A) =(A) *
Worst]
(B)
(B)
1 Ownership and Governance
2 IT security and Business Continuity
3 Regulatory / procedural Compliance
Automation of systems and processes
4
for critical activities
5 Quality of Management
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भारतीय प्रततभूतत और वितिमय बोर् ड
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6 Financial Status / profitability of DPs
Pending enquires / Penalties imposed
7 by SEBI / Depositories on DP
operations
8 Complaints redressal
Adverse findings of other activities (eg.
9
Broking / custodian / banks etc)
Total Qualitative Score = Σ (Area Scores)
Following indicative factors shall be taken into account for arriving at above
mentioned qualitative score:
(a) Ownership and Governance
1. Constitution of Board of DP – Number of promoter directors,
Independent Directors etc.
2. Role of non-executive directors / Independent directors.
(b) Quality of Management
1. Experience, Fit and Proper and Qualification of Key Personnel.
2. Existence of Succession planning for top management especially in
control functions.
3. Chinese walls between the activities in terms of manpower, resources
etc.
4. Training and development of employees.
5. Adequacy of staff strength.
6. Compliance level of previous inspection observations/ directions of
regulatory bodies
(c) IT security and Business Continuity
1. High Availability.
2. Appropriate Interconnected Architecture.
3. Appropriate Recovery Time Objective (RTO) and Recovery Point
Objective (RPO) and near “Zero Data Loss”.
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भारतीय प्रततभूतत और वितिमय बोर् ड
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4. Periodic drills that simulate the real life disaster scenarios on a regular
basis.
5. Technological glitches in the past period and remedies taken.
6. Information security.
7. Upgradation of technology
(d) Financial Status / profitability of DPs
1. The net-worth of the DPs (whether reducing or increasing from
previous years)
2. Net Profits of DPs operations.
(e) Complaints redressal
1. Complaint redressal system
2. Percentage of complaints pending and resolved.
(f) Other adverse findings
1. Actions taken by Stock exchange and SEBI / RBI with respect to other
activities
2. Actions taken by other depository.
III. Total Score = Qualitative Score + Quantitative Score
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भारतीय प्रततभूतत और वितिमय बोर् ड
Securities and Exchange Board of India
4.25 Activity of Demat of warehouse receipts112
The aforesaid activity is not in compliance with Regulation 42 of SEBI
(D&P) Regulations, 2018 and therefore depositories cannot carry out this
activity. Depositories are therefore advised to take suitable steps in this
regard, either to hive-off or to discontinue the activity.
4.26 Voting rights in respect of securities held in pool account113
It was informed that the corporate benefits availed by the clearing
member, clearing corporation and intermediaries shall be held in trust on
behalf of beneficiary owners. Therefore, the clearing member, clearing
corporation as well as the intermediaries cannot have voting rights in
respect of securities held in the pool account.
112 Reference: MRD/DP/SG-OW/202/2012 and MRD/DP/SG-OW/203/2012 dated January 4,
2012
113 Reference: SMDRP/NSDL/26563/2001 dated April 10, 2001
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भारतीय प्रततभूतत और वितिमय बोर् ड
Securities and Exchange Board of India
4.27 Risk Management Policy at the Depositories114
i. The depositories are advised to establish a clear, comprehensive and
well documented risk management framework which shall include the
following:
a) an integrated and comprehensive view of risks to the depository
including those emanating from participants, participants' clients
and third parties to whom activities are outsourced etc.;
b) list out all relevant risks, including technological, legal, operational,
custody and general business risks and the ways and means to
address the same;
c) the systems, policies and procedures to identify, assess, monitor and
manage the risks that arise in or are borne by the depository ;
d) the depository's risk-tolerance policy;
e) responsibilities and accountability for risk decisions and decision
making process in crises and emergencies.
ii. The Depositories shall put in place mechanism to implement the Risk
Management Framework through a Risk Management Committee which
shall be headed by a Public Interest Director115. The responsibilities of
the said Committee shall include the following:
a) It shall meet periodically in order to continuously identify, evaluate
and assess applicable risks in depository system through various
sources such as investors complaints, inspections, system audit etc.;
b) It shall suggest measures to mitigate risk wherever applicable;
c) It shall monitor and assess the adequacy and effectiveness of the risk
management framework and the system of internal control;
d) It shall review and update the risk management framework
periodically.
114 Reference: CIR/MRD/DP/1/2015 dated January 12, 2015
115 Reference: SEBI/HO/MRD/DOP2DSA2/CIR/P/2019/13 dated January 10, 2019
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भारतीय प्रततभूतत और वितिमय बोर् ड
Securities and Exchange Board of India
The Board of the depository shall approve the Risk Management Framework and
the Chief Risk Officer shall have access to the Board. The CRO shall be
responsible, accountable and answerable to the board on overall risk
management issues.
4.28 Outsourcing by Depositories116
Based on recommendations by DSRC, the depositories are advised to
ensure the following:
i. Depositories shall formulate and document an outsourcing policy duly
approved by their Board based on the guidelines given below and the
principles outlined in the SEBI circular CIR/MIRSD/24/2011 dated
December 15, 2011.
Core activities of Depositories
ii. Core and critical activities of depositories shall not be outsourced. The
core activities of the depositories shall include but not limited to the
following:
a) Processing of the applications for admission of Depository
Participants (DPs), Issuers and Registrar & Transfer Agents (RTAs).
b) Facilitating Issuers/RTAs to execute Corporate Actions.
c) Allotting ISINs for securities.
d) Maintenance and safekeeping of Beneficial Owner’s data.
e) Execution of settlement and other incidental activities for pay-in/
pay-out of securities.
f) Execution of transfer of securities and other transactions like
pledge, freeze, etc.
g) Provision of internet based facilities for access to demat accounts
and submitting delivery instructions.
h) Ensuring continuous connectivity to DPs, RTAs, Clearing
Corporations and other Depository.
i) Monitoring and redressal of investor grievances.
j) Inspection of DPs and RTAs.
116 Reference: CIR/MRD/DP/19/2015 dated December 09, 2015
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भारतीय प्रततभूतत और वितिमय बोर् ड
Securities and Exchange Board of India
k) Surveillance Functions.
l) Compliance Functions.
iii. Core IT (Information Technology) support infrastructure / activities
for running the core activities of depositories shall not be outsourced
to the extent possible.
Due Diligence
iv. The depositories shall conduct appropriate due diligence in selecting
the third party to whom activity is proposed to be outsourced and
ensure that only reputed entities having proven high delivery
standards are selected.
Risk Management & Monitoring
v. Depositories shall ensure that outsourced activities are further
outsourced downstream only with the prior consent of the depository
and with appropriate safeguards including proper legal
documentation/ agreement.
vi. Depositories shall ensure that risk impact analysis is undertaken
before outsourcing any activity and appropriate risk mitigation
measures like back up/ restoration system are in place.
vii. An effective monitoring of the entities selected for outsourcing shall be
done to ensure that there is check on the activities of outsourced entity.
Depositories shall strive to automate their processes and workflows to
the extent possible which shall enable real time monitoring of
outsourced activities.
Audit
viii. The outsourcing policy document shall act as a reference for audit of
the outsourced activities. Audit of implementation of risk assessment
and mitigation measures listed in the outsourcing policy document
and outsourcing agreement/ service level agreements pertaining to IT
systems shall be part of System Audit of Depositories.
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4.29 Cyber Security and Cyber Resilience framework of Depositories117
i. SEBI as a member of IOSCO has adopted the Principles for Financial
Market Infrastructures (PFMIs) laid down by CPMI-IOSCO and has
issued guidance for implementation of the principles in the securities
market.
ii. Principle 17 of PFMI that relates to management and mitigation of
‘Operational risk’ requires that systemically important market
infrastructures institutions “should identify the plausible sources of
operational risk, both internal and external, and mitigate their impact through
the use of appropriate systems, policies, procedures, and controls. Systems
should be designed to ensure a high degree of security and operational
reliability and should have adequate, scalable capacity. Business continuity
management should aim for timely recovery of operations and fulfilment of the
FMI’s obligations, including in the event of a wide-scale or major disruption.”
iii. Depositories (hereafter referred as Market Infrastructure Institutions or
MIIs) are systemically important market infrastructure institutions. As
part of the operational risk management, these MIIs need to have
robust cyber security framework to provide essential facilities and
perform systemically critical functions relating to trading, clearing and
settlement in securities market.
iv. In view of the above, SEBI along with the Technical Advisory
Committee (TAC) engaged in detailed discussions with MIIs to
develop necessary guidance in the area of cyber security and cyber
resilience.
v. Based on the consultations and recommendations of Technical
Advisory Committee TAC, it has been decided to lay down the
framework placed at Annexure below that MIIs would be required to
comply with regard to cyber security and cyber resilience.
117 Reference: Circular CIR/MRD/DP/13/2015 dated July 06, 2015
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Annexure
1. Cyber attacks and threats attempt to compromise the Confidentiality,
Integrity and Availability (CIA) of the computer systems, networks and
databases.118 Cyber security framework include measures, tools and processes
that are intended to prevent cyber attacks and improve cyber resilience. Cyber
Resilience is an organisation’s ability to prepare and respond to a cyber attack
and to continue operation during, and recover from, a cyber attack.
Governance
2. As part of the operational risk management framework to manage risk to
systems, networks and databases from cyber attacks and threats, MII should
formulate a comprehensive cyber security and cyber resilience policy document
encompassing the framework mentioned hereunder. The policy document
should be approved by the Board, and in case of deviations from the suggested
framework, reasons for such deviations should also be provided in the policy
document. The policy document should be reviewed by the MII’s Board atleast
annually with the view to strengthen and improve its cyber security and cyber
resilience framework.
3. The cyber security and cyber resilience policy should include the
following process to identify, assess, and manage cyber security risk associated
with processes, information, networks and systems.
a. ‘Identify’ critical IT assets and risks associated with such assets,
b. ‘Protect’ assets by deploying suitable controls, tools and measures,
c. ‘Detect’ incidents, anomalies and attacks through appropriate
monitoring tools / processes,
d. ‘Respond’ by taking immediate steps after identification of the
incident, anomaly or attack,
118 Confidentiality refers to limiting access of systems and information to authorized users,
Integrity is the assurance that the information is reliable and accurate, and Availability refers to
guarantee of reliable access to the systems and information by authorized users
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e. ‘Recover’ from incident through incident management, disaster
recovery and business continuity framework.
4. The Cyber security policy should encompass the principles prescribed by
National Critical Information Infrastructure Protection Centre (NCIIPC) of
National Technical Research Organisation (NTRO), Government of India in the
report titled ‘Guidelines for Protection of National Critical Information
Infrastructure’ and subsequent revisions, if any, from time to time.
5. MII should also incorporate best practices from standards such as ISO
27001, ISO 27002, COBIT 5, etc., or their subsequent revisions, if any, from time
to time.
6. MII should designate a senior official as Chief Information Security Officer
(CISO) whose function would be to assess, identify and reduce cyber security
risks, respond to incidents, establish appropriate standards and controls, and
direct the establishment and implementation of processes and procedures as per
the cyber security and resilience policy approved by the Board of the MII.
7. The Standing Committee on Technology119 of the stock exchanges,
clearing corporations and the depositories should on a quarterly basis review the
implementation of the cyber security and resilience policy approved by their
Boards, and such review should include review of their current IT and cyber
security and resilience capabilities, set goals for a target level of cyber resilience,
and establish a plan to improve and strengthen cyber security and cyber
resilience.
8. MII should establish a reporting procedure to facilitate communication of
unusual activities and events to CISO or to the senior management in a timely
manner.
9. The aforementioned committee and the senior management of the MII,
including the CISO, should periodically review instances of cyber attacks, if any,
119Refer SEBI Circulars SMD/POLICY/Cir-2/98 dated January 14, 1998
SEBI/HO/MRD/DOP2DSA2/CIR/P/2019/13 dated January 10, 2019
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domestically and globally, and take steps to strengthen cyber security and cyber
resilience framework.
10. MII should define responsibilities of its employees, outsourced staff, and
employees of vendors, members or participants and other entities, who may
have access or use systems / networks of MII, towards ensuring the goal of cyber
security.
Identify
11. MII should identify critical assets based on their sensitivity and criticality
for business operations, services and data management. To this end, MII should
maintain up-to-date inventory of its hardware and systems, software and
information assets (internal and external), details of its network resources,
connections to its network and data flows.
12. MII should accordingly identify cyber risks (threats and vulnerabilities)
that it may face, alongwith the likelihood of such threats and impact on the
business and thereby, deploy controls commensurate to the criticality.
13. MII should also encourage its third-party providers, such as service
providers, stock brokers, depository participants, etc. to have similar standards
of Information Security.
Protection
Access Controls
14. No person by virtue of rank or position should have any intrinsic right to
access confidential data, applications, system resources or facilities.
15. Any access to MII’s systems, applications, networks, databases, etc.,
should be for a defined purpose and for a defined period. MII should grant
access to IT systems, applications, databases and networks on a need-to-use basis
and based on the principle of least privilege. Such access should be for the period
when the access is required and should be authorized using strong
authentication mechanisms.
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16. MII should implement strong password controls for users’ access to
systems, applications, networks and databases. Password controls should
include a change of password upon first log-on, minimum password length and
history, password complexity as well as maximum validity period. The user
credential data should be stored using strong and latest hashing algorithms.
17. MII should ensure that records of user access are uniquely identified and
logged for audit and review purposes. Such logs should be maintained and
stored in encrypted form for a time period not less than two (2) years.
18. MII should deploy additional controls and security measures to supervise
staff with elevated system access entitlements (such as admin or privileged
users). Such controls and measures should inter-alia include restricting the
number of privileged users, periodic review of privileged users’ activities,
disallow privileged users from accessing systems logs in which their activities
are being captured, strong controls over remote access by privileged users, etc.
19. Account access lock policies after failure attempts should be implemented
for all accounts.
20. Employees and outsourced staff such as employees of vendors or service
providers, who may be given authorised access to the MII’s critical systems,
networks and other computer resources, should be subject to stringent
supervision, monitoring and access restrictions.
21. Two-factor authentication at log-in should be implemented for all users
that connect using online / internet facility.
22. MII should formulate an Internet access policy to monitor and regulate the
use of internet and internet based services such as social media sites, cloud-based
internet storage sites, etc.
23. Proper ‘end of life’ mechanism should be adopted to deactivate access
privileges of users who are leaving the organization or who access privileges
have been withdrawn.
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Physical security
24. Physical access to the critical systems should be restricted to minimum.
Physical access of outsourced staff / visitors should be properly supervised by
ensuring at the minimum that outsourced staff / visitors are accompanied at all
times by authorised employees.
25. Physical access to the critical systems should be revoked immediately if
the same is no longer required.
26. MII should ensure that the perimeter of the critical equipments room are
physically secured and monitored by employing physical, human and
procedural controls such as the use of security guards, CCTVs, card access
systems, mantraps, bollards, etc. where appropriate.
Network Security Management
27. MII should establish baseline standards to facilitate consistent application
of security configurations to operating systems, databases, network devices and
enterprise mobile devices within the IT environment. The MII should conduct
regular enforcement checks to ensure that the baseline standards are applied
uniformly.
28. MII should install network security devices, such as firewalls as well as
intrusion detection and prevention systems, to protect its IT infrastructure from
security exposures originating from internal and external sources.
29. Anti-virus software should be installed on servers and other computer
systems. Updation of Anti-virus definition files and automatic anti-virus
scanning should be done on a regular basis.
Security of Data
30. Data-in motion and Data-at-rest should be in encrypted form by using
strong encryption methods such as Advanced Encryption Standard (AES), RSA,
SHA-2, etc.
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31. MII should implement measures to prevent unauthorised access or
copying or transmission of data / information held in contractual or fiduciary
capacity. It should be ensured that confidentiality of information is not
compromised during the process of exchanging and transferring information
with external parties.
32. The information security policy should also cover use of devices such as
mobile phone, faxes, photocopiers, scanners, etc. that can be used for capturing
and transmission of data.
33. MII should allow only authorized data storage devices through
appropriate validation processes.
Hardening of Hardware and Software
34. Only a hardened and vetted hardware / software should be deployed by
the MII. During the hardening process, MII should inter-alia ensure that default
passwords are replaced with strong passwords and all unnecessary services are
removed or disabled in equipments / software.
35. All open ports which are not in use or can potentially be used for
exploitation of data should be blocked. Other open ports should be monitored
and appropriate measures should be taken to secure the ports.
Application Security and Testing
36. MII should ensure that regression testing is undertaken before new or
modified system is implemented. The scope of tests should cover business logic,
security controls and system performance under various stress-load scenarios
and recovery conditions.
Patch Management
37. MII should establish and ensure that the patch management procedures
include the identification, categorization and prioritisation of security patches.
An implementation timeframe for each category of security patches should be
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established to implement security patches in a timely manner.
38. MII should perform rigorous testing of security patches before
deployment into the production environment so as to ensure that the application
of patches do not impact other systems.
Disposal of systems and storage devices
39. MII should frame suitable policy for disposals of the storage media and
systems. The data / information on such devices and systems should be removed
by using methods viz. wiping / cleaning / overwrite, degauss and physical
destruction, as applicable.
Vulnerability Assessment and Penetration Testing (VAPT)
40. MII should regularly conduct vulnerability assessment to detect security
vulnerabilities in the IT environment. MII should also carry out periodic
penetration tests, atleast once in a year, in order to conduct an in-depth
evaluation of the security posture of the system through simulations of actual
attacks on its systems and networks.
41. Remedial actions should be immediately taken to address gaps that are
identified during vulnerability assessment and penetration testing.
42. In addition, MII should perform vulnerability scanning and conduct
penetration testing prior to the commissioning of a new system which offers
internet accessibility and open network interfaces.
Monitoring and Detection
43. MII should establish appropriate security monitoring systems and
processes to facilitate continuous monitoring of security events and timely
detection of unauthorised or malicious activities, unauthorised changes,
unauthorised access and unauthorised copying or transmission of data /
information held in contractual or fiduciary capacity, by internal and external
parties. The security logs of systems, applications and network devices should
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also be monitored for anomalies.
44. Further, to ensure high resilience, high availability and timely detection of
attacks on systems and networks, MII should implement suitable mechanism to
monitor capacity utilization of its critical systems and networks.
45. Suitable alerts should be generated in the event of detection of
unauthorized or abnormal system activities, transmission errors or unusual
online transactions.
Response and Recovery
46. Alerts generated from monitoring and detection systems should be
suitably investigated, including impact and forensic analysis of such alerts, in
order to determine activities that are to be performed to prevent expansion of
such incident of cyber attack or breach, mitigate its effect and eradicate the
incident.
47. The response and recovery plan of the MII should aim at timely
restoration of systems affected by incidents of cyber attacks or breaches. The
recovery plan should be in line with the Recovery Time Objective (RTO) and
Recovery Point Objective (RPO) specified by SEBI.
48. The response plan should define responsibilities and actions to be
performed by its employees and support / outsourced staff in the event of cyber
attacks or breach of cyber security mechanism.
49. Any incident of loss or destruction of data or systems should be
thoroughly analyzed and lessons learned from such incidents should be
incorporated to strengthen the security mechanism and improve recovery
planning and processes.
50. MII should also conduct suitable periodic drills to test the adequacy and
effectiveness of response and recovery plan.
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Sharing of information
51. Quarterly reports containing information on cyber attacks and threats
experienced by MII and measures taken to mitigate vulnerabilities, threats and
attacks including information on bugs / vulnerabilities / threats that may be
useful for other MIIs, should be submitted to SEBI.
52. Such details as are felt useful for sharing with other MIIs in masked and
anonymous manner shall be shared using mechanism to be specified by SEBI
from time to time.
Training
53. MII should conduct periodic training programs to enhance awareness
level among the employees and outsourced staff, vendors, etc. on IT / Cyber
security policy and standards. Special focus should be given to build awareness
levels and skills of staff from non-technical disciplines.
54. The training program should be reviewed and updated to ensure that the
contents of the program remain current and relevant.
Periodic Audit
55. The Terms of Reference for the System Audit of MII specified vide circular
CIR/MRD/DMS/13/2011 dated November 29, 2011 shall be accordingly
modified to include audit of implementation of the aforementioned areas.
Cyber Security Operation Center (C-SOC)120
1. Recognizing the need for a robust Cyber Security and Cyber Resilience
framework at Market Infrastructure Institutions (MIIs), i.e., Stock Exchanges,
Clearing Corporations and Depositories, vide SEBI Circular
CIR/MRD/DP/13/2015 dated July 06, 2015, a detailed regulatory framework
on cyber security and cyber resilience was prescribed.
120 Reference circular CIR/MRD/CSC/148/2018 dated December 07, 2018
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2. With the view to further strengthening the aforesaid framework, particularly
in respect of monitoring of cyber threats and cyber resiliency, the matter was
discussed with SEBI’s Technical Advisory Committee (TAC), SEBI’s High
Powered Committee on Cyber Security (HPSC-CS) and the MIIs.
3. Accordingly, it has been decided that MIIs shall have a Cyber Security
Operation Center (C-SOC) that would be a 24x7x365 set-up manned by
dedicated security analysts to identify, respond, recover and protect from
cyber security incidents.
4. The C-SOC shall function in accordance with the framework specified in SEBI
Circular CIR/MRD/DP/13/2015 dated July 06, 2015. Illustrative list of broad
functions and objectives to be carried out by a C-SOC are mentioned
hereunder:
4.1. Prevention of cyber security incidents through proactive actions:
a) Continuous threat analysis,
b) Network and host scanning for vulnerabilities and breaches,
c) Countermeasure deployment coordination,
d) Deploy adequate and appropriate technology at the perimeter to
prevent attacks originating from external environment and internal
controls to manage insider threats. MIIs may implement necessary
controls to achieve zero trust security model.
4.2. Monitoring, detection, and analysis of potential intrusions / security
incidents in real time and through historical trending on security-relevant
data sources.
4.3. Response to confirmed incidents, by coordinating resources and directing
use of timely and appropriate countermeasures.
4.4. Analysis of the intrusions / security incidents (including Forensic
Analysis and Root Cause Analysis) and preservation of evidence.
4.5. Providing situational awareness and reporting on cyber security status,
incidents, and trends in adversary behavior to appropriate organizations
including to CERT- In and NCIIPC.
4.6. Engineer and operate network defense technologies such as Intrusion
Detection Systems (IDSes) and data collection / analysis systems.
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4.7. MIIs to adopt security automation and orchestration technologies in C-
SOC to automate the incident identification, analysis and response as per
the defined procedures.
5. Further to the above, the C-SOC of MII shall, at the minimum, undertake the
following activities:
5.1. In order to detect intrusions / security incidents in real time, the C-SOC
should monitor and analyze on a 24x7x365 basis relevant logs of MII’s
network devices, logs of MII’s systems, data traffic, suitable cyber
intelligence (intel) feeds sourced from reliable vendors, inputs received
from other MIIs, inputs received from external agencies such as CERT-In,
etc. The cyber intelligence (intel) feeds may include cyber news feeds,
signature updates, incident reports, threat briefs, and vulnerability alerts.
5.2. To this end, appropriate alert mechanisms should be implemented
including a comprehensive dashboard, tracking of key security metrics
and provide for cyber threat scorecards.
5.3. The C-SOC should conduct continuous assessment of the threat
landscape faced by the MII including undertaking periodic VAPT
(Vulnerability Assessment and Penetration Testing).
5.4. The C-SOC should have the ability to perform Root Cause Analysis,
Incident Investigation, Forensic Analysis, Malware Reverse Engineering,
etc. to determine the nature of the attack and corrective and/or
preventive actions to be taken thereof.
5.5. The C-SOC should conduct periodic (at the minimum quarterly) cyber
attack simulation to aid in developing cyber resiliency measures. The C-
SOC should develop and document mechanisms and standard operating
procedures to recover from the cyber-attacks within the stipulated RTO
of the MII. The C-SOC should also document various scenarios and
standard operating procedures for resuming operations from Disaster
Recovery (DR) site of MII.
5.6. The C-SOC should conduct periodic awareness and training programs at
the MII and for its members / participants / intermediaries with regard
to cyber security, situational awareness and social engineering.
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5.7. The C-SOC should be capable to prevent attacks similar to those already
faced. The C-SOC should also deploy multiple honey pot services which
are dynamic in characteristics to avoid being detected as honey pot by
attackers.
6. As building an effective C-SOC requires appropriate mix of right people,
suitable security products (Technology), and well-defined processes and
procedures (Processes), an indicative list of areas that MIIs should consider
while designing and implementing a C-SOC are as follows:
6.1. The MII shall ensure that the governance and reporting structure of the
C-SOC is commensurate with the risk and threat landscape of the MII.
The C-SOC shall be headed by the Chief Information Security Officer
(CISO) of the MII. The CISO shall be designated as a Key Managerial
Personnel (KMP) and relevant provisions relating to KMPs in the SEBI
Securities Contracts (Regulation) (Stock Exchanges and Clearing
Corporations) Regulations, 2012 and the subsequent circulars issued by
SEBI relating to KMPs, shall apply to the CISO.
6.2. While the CISO is expected to work closely with various departments of
MIIs, including MII’s Network team, Cyber Security team and
Information Technology (IT) team, etc., the reporting of CISO shall be
directly to the MD & CEO of the MII.
6.3. The roles and responsibilities of CISO may be drawn from Ministry of
Electronics and IT notification No. 6(12)/2017-PDP-CERT-In dated March
14, 2017.
6.4. The C-SOC should deploy appropriate technology tools of adequate
capacity to cater to its requirements. Such tools shall, at the minimum,
include Security Analytics Engine, Malware detection tools, Network and
User Traffic Monitoring and Behavior Analysis systems, Predictive Threat
Modelling tools, Tools for monitoring of System parameters for critical
systems / servers, Deep Packet Inspection tools, Forensic Analysis tools,
etc.
6.5. Each MII is advised to formulate a Cyber Crisis Management Plan
(CCMP) based on its architecture deployed, threats faced and nature of
operations. The CCMP should define the various cyber events, incidents
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and crisis faced by the MII, the extant cyber threat landscape, the cyber
resilience envisaged, incident prevention, cyber crisis recognition,
mitigation and management plan. The CCMP should be approved by the
respective Standing Committee on Technology / IT- Strategy Committee
of the MIIs and the governing board of the MII. The CCMP should also be
reviewed and updated annually.
6.6. The C-SOC should have well-defined and documented processes for
monitoring of its systems and networks, analysis of cyber security threats
and potential intrusions / security incidents, usage of appropriate
technology tools deployed by C-SOC, classification of threats and attacks,
escalation hierarchy of incidents, response to threats and breaches, and
reporting (internal and external) of the incidents.
6.7. The C-SOC should employ domain experts in the field of cyber security
and resilience, network security, data security, end-point security, etc.
6.8. The MIIs are also advised to build a contingent C-SOC at their respective
DR sites with identical capabilities w.r.t. the primary C-SOC in line with
the SEBI Circular CIR/MRD/DMS/12/2012 dated April 13, 2012 read
with SEBI Circular CIR/MRD/DMS/17/2012 dated June 22, 2012.
Additionally, the MIIs should perform monthly live-operations from their
DR-C-SOC.
6.9. The C-SOC should document the cases and escalation matrices for
declaring a disaster.
7. In view of the feedback received from MIIs, it has been decided that MIIs may
choose any of the following models to set-up their C-SOC :
i. MII’s own C-SOC manned primarily by its internal staff,
ii. MII’s own C-SOC, staffed by a service provider, but supervised by a full
time staff of the MII. (Refer to 7.3)
iii. C-SOC that may be shared by the MII with its group entities (that are
also SEBI recognized MIls),
iv. C-SOC that may be shared by the MII with other SEBI recognized MII(s).
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7.1. The responsibility of cyber security of an MII, adherence to business
continuity and recovery objectives, etc. should lie with the respective MII,
irrespective of the model adopted for C-SOC.
7.2. The respective risk committee(s) of the MII should evaluate the risks of
outsourcing the respective activity.
7.3. The MII may outsource C-SOC activities in line with the guidelines as
given in Annexure-A.
8. A report on the functioning of the C-SOC, including details of cyber-attacks
faced by the MII, major cyber events warded off by the MII, cyber security
breaches, data breaches should be placed on a quarterly basis before the
board of the MII.
9. The system auditor of the MII shall audit the implementation of the aforesaid
guidance in the annual system audit of the MII. The Scope and/or Terms of
Reference (ToR) of the annual system would accordingly be modified to
include audit of the implementation of the aforementioned areas.
10. Further, in continuation to the requirement specified at para 52 of the
Annexure A to the aforementioned SEBI Circular dated July 06, 2015, the C-
SOC shall share relevant alerts and attack information with members /
participants / intermediaries of the MII, other MIIs, external cyber response
agencies such as CERT-In, and SEBI.
11. MIIs are directed to take necessary steps to put in place appropriate systems
and processes for implementation of the circular, including necessary
amendments to the relevant bye-laws, rules and regulations, if any, within six
months from the date of the circular. In case wherein a MII currently has a C-
SOC set-up that is different from that mentioned at para 7(i) - 7(iv), such MIIs
are directed to adopt and transit to one of the models mentioned at para 7(i) -
7(iv) within a period of one year from the date of issuance of this circular.
Annexure A
1. Level of support definitions for outsourcing/in-house are as follows:
1.1. Security Analyst Level 1 (L1): This function may be mostly outsourced
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a) Monitoring SIEM Solution console for identifying the security events
generated by the log sources integrated with SIEM tools.
b) Identification of security events that are false +ve before qualifying
event as an incident.
c) Identify the exceptions which are identified as an event (e.g. VA
scanning performed by SEBI appointed 3rd party which may be
identified as port scanning attack) .
d) Perform first level event analysis before qualifying the incidents.
e) Qualifying the event as an incident using Knowledgebase.
f) Escalating exceptions & Events to L2 level.
g) Log Incident tickets in service management tool and assign it to the
respective team.
h) Follow-up for the closure of the incident tickets generated.
1.2. Security Analyst Level 2 (L2): Combination of Outsource / In-House
(a) Exception Analysis.
(b) Analysis of extended events.
(c) Confirmation of False +ve & update Knowledge Base.
(d) Qualify Incident & provide mitigation suggestions.
(e) Escalate incident to next level.
(f) Update /configuration correlation rules after approval.
1.3. Security Analyst Level 3 (L3): Combination of Outsource / In-House
(a) Analysis of escalated Incidents.
(b) Define correlation rules.
(c) Analysis of impact on SIEM over all correlation rules and operations for
the correlation rules suggested by Level 2 Analyst.
(d) Approve correlation rules after the impact analysis.
(e) Perform impact analysis before deployment of correlation rules.
(f) Perform impact analysis for update and upgrade of SIEM & Advance
security solutions components.
(g) Define Mitigation suggestions for newly identified incidents.
(h) Approve the reports before sharing with others.
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1.4. SOC Manager (L4) : In-house
(a) Lead and manage Security Operations Centre.
(b) Provide strategic directions to SOC team and organization for security
posture improvements.
(c) To identify key contacts for incident escalation and change
management activities.
(d) Ensure compliance to SLA.
(e) Ensure process adherence and process improvisation to achieve
operational objectives.
(f) Revise and develop processes to strengthen the current Security
Operations.
(g) Responsible for team and vendor management.
(h) Responsible for overall use of resources and initiation of corrective
action where required for Security Operations Center.
(i) Escalate to the other IT Infra. Management teams or application
maintenance teams, as necessary.
(j) Overall responsibility for delivery of in scope activities as a part of this
engagement.
(k) Point of contact for problem escalation and reporting.
1.5. Security Subject Matter Expert for Security technologies: In-house with
reliance on external expertise
(a) Subject Matter Expert (SME) for SIEM and Advance security solutions.
(b) Assist you with troubleshooting steps to be performed by you in order
to re-establish connectivity between the SIEM System and SEBI’s
locations.
(c) Provide software-level management for the SIEM System components;
(d) Verify data collection and log continuity;
(e) Manage user access including user and group permissions updates;
(f) Review application performance, capacity, and availability make
recommendations as appropriate;
(g) Review SIEM System disk space usage;
190
भारतीय प्रततभूतत और वितिमय बोर् ड
Securities and Exchange Board of India
(h) Verify time synchronization among SIEM System components;
(i) Perform archival management and retrieval per change management
process;
(j) Provide problem determination / problem source identification for the
SIEM System, consisting of creating tickets & tracking progress of Open
tickets
(k) Managing tickets to resolution / closure, in accordance with the
processes as defined in the Integrated and Transition vendor
announcements & manage SIEM System update alerts;
(l) Install application patches and software updates in order to improve
performance, or enable additional functionality
Illustrative Training Requirements Security Analyst Level 1 (L1):
1) SEC401: Security Essentials Bootcamp Style
https://www.sans.org/event/cyber-defence-canberra-
2018/course/security-essentials-bootcamp-style
2) SEC301: Introduction to Cyber Security
https://www.sans.org/course/introduction-cyber-security
Security Analyst Level 2 (L2):
1) SEC542: Web App Penetration Testing and Ethical Hacking
https://www.sans.org/event/cyber-defence-canberra-2018/course/web-
app-penetration-testing-ethical-hacking
2) SEC566: Implementing and Auditing the Critical Security Controls -In-
Depth
https://www.sans.org/private-training/course/implementing-auditing-
critical-security-controls
3) SEC575: Mobile Device Security and Ethical Hacking
https://www.sans.org/private-training/course/mobile-device-security-
ethical-hacking
Security Analyst Level 3 (L3):
191
भारतीय प्रततभूतत और वितिमय बोर् ड
Securities and Exchange Board of India
1) SEC504: Hacker Tools, Techniques, Exploits, and Incident Handling
https://www.sans.org/event/cyber-defence-canberra-
2018/course/hacker-techniques-exploits-incident-handling
2) FOR508: Advanced Digital Forensics, Incident Response, and Threat
Hunting
https://www.sans.org/event/digital-forensics-summit-
2018/course/advanced-incident-response-threat-hunting-training
3) SEC501: Advanced Security Essentials -Enterprise Defender
https://www.sans.org/private-training/course/advanced-security-
essentials-enterprise-defender
4) MGT414: SANS Training Program for CISSP® Certification
https://www.sans.org/course/sans-plus-s-training-program-cissp-
certification-exam
SOC Manager (L4):
1) Cyber Security Specialist
http://www.leaderquestonline.com/it-career-training/cybersecurity-
specialist/
2) Managing Security Operations: Detection, Response, and Intelligence
https://www.sans.org/event/rocky-mountain-2018/course/managing-
security-operations-detection-response-and-intelligence
3) SIEM with Tactical Analytics
https://www.sans.org/private-training/course/siem-with-tactical-
analytics
4) SEC511: Continuous Monitoring and Security Operations
https://www.sans.org/course/continuous-monitoring-security-
operations
5) SEC599: Defeating Advanced Adversaries -Implementing Kill Chain
Defenses
https://www.sans.org/course/defeating-advanced-adversaries-kill-chain-
defenses
192
भारतीय प्रततभूतत और वितिमय बोर् ड
Securities and Exchange Board of India
4.30 Database for Distinctive Number (DN) of Shares121
1. Share capital reconciliation of the entire issued capital of the company by
the issuer or its agent is a mandatory requirement under Regulation 75 of
the SEBI (Depositories & Participants) Regulations, 2018.
2. In order to ensure centralised record of all securities, including both
physical and dematerialised shares, issued by the company and its
reconciliation thereof, the Depositories are advised to create and maintain
a database of distinctive numbers (DN) of equity shares of listed
companies with details of DN in respect of all physical shares and overall
DN range for dematerialised shares.
3. The DN database shall make available, information in respect of issued
capital, such as DN Range, number of equity shares issued, name of stock
exchange where the shares are listed, date of in-principle listing / final
trading approval / dealing permission, shares held in physical or demat
form, date of allotment, shares dematerialized under temporary (frozen)
ISIN (International Securities Identification Number) or Permanent
(active) ISIN etc., at one place.
4. Based on consultations with the Depositories and Stock Exchanges, the
following guidelines are given for the operationalisation of the DN
database -
4.1. Instructions to the Depositories
4.1.1. The depositories shall create and maintain a database to
capture DN in respect of all physical equity shares and overall DN
range for dematerialised equity shares issued by listed companies.
4.1.2. The depositories shall provide an interface to the Stock
Exchange, Issuers/RTAs for online updation and to the DPs for
online enquiry. The same shall be released for live updates latest
by September 30, 2015.
121 Reference: Circular CIR/MRD/DP/10/2015 dated June 05, 2015
193
भारतीय प्रततभूतत और वितिमय बोर् ड
Securities and Exchange Board of India
4.1.3. The database shall include the following information -
i. Distinctive Numbers (From) vii. Trading start date
ii. Distinctive Numbers (To) viii. Physical/demat
iii. Number of Equity shares ix. Date of allotment and date
of issue (date of credit to BO
account)
iv. Name of stock exchange x. ISIN along with name of
company
v. Date of in-principle listing xi. Nature of ISIN [Temporary
(Frozen) or Permanent
approval
(Active)]
vi. Date of final trading approval
/ dealing permission
4.1.4. The depositories shall ensure that the database maintained
by them is continuously updated and synchronised. The initial
synchronisation may be in batch mode and shall thereafter shift to
online mode.
4.1.5. The Depositories, in co-ordination with the Stock Exchanges,
having nationwide trading terminals and the Issuers/RTAs, shall
facilitate the process of populating the database with details of
equity share capital and the corresponding DN information as on
September 30, 2015.
4.2. Instructions to the Stock Exchanges
4.2.1. The Stock Exchanges shall provide the following
information of all companies listed on the concerned Stock
Exchange as on September 30, 2015 -
194
भारतीय प्रततभूतत और वितिमय बोर् ड
Securities and Exchange Board of India
i. Total number of equity shares (A) for which final trading
approval / dealing permission has been granted.
ii. Total number of equity shares (B) for which in-principle listing
approval has been granted but final trading approval / dealing
permission is pending.
iii. Total number of equity shares comprising the paid-up capital
i.e. (A+B).
4.2.2. The Stock Exchanges shall use the interface provided by the
Depositories for the following -
i. In respect of companies where the final trading approval /
dealing permission was awaited as on September 30, 2015,
consequent to update of DN information by Issuers/RTAs, the
stock exchange shall validate the DN information updated by
the Issuer/RTA and update the date of ‘in-principle’ listing
approval, date of final trading approval / dealing permission
and trading start date [as per point nos. (v), (vi) and (vii) of
5.1.3], immediately upon granting of such permissions.
ii. In respect of further issue of shares by listed companies,
consequent to update of DN information by Issuers/RTAs, the
stock exchange shall validate the DN information updated by
the Issuer/RTA and update the date of ‘in-principle’ listing
approval, date of final trading approval / dealing permission
and trading start date [as per point nos. (v), (vi) and (vii) of
5.1.3], immediately upon granting of such permissions.
iii. In respect of companies coming out with initial public offer or
new listings on stock exchanges, the stock exchange shall
update the DN database with the total number of equity shares
for which final trading approval / dealing permission has been
granted.
195
भारतीय प्रततभूतत और वितिमय बोर् ड
Securities and Exchange Board of India
iv. In respect of companies whose capital is changed/altered for
any reason other than further issuance of shares such as buy-
back of shares, forfeiture of shares, capital reduction, etc., the
stock exchange shall confirm such change/alteration in the
capital as updated by the Issuer/RTA in the DN database.
4.2.3. In case the DN data on listed shares as per the records of
Issuers/RTAs does not match with records of the Stock
Exchanges, the Stock Exchanges shall coordinate with the
Issuer/RTA to reconcile such differences.
4.3. Instructions to the Issuers/RTAs
4.3.1. Issuers/RTAs shall use the interface provided by the
Depositories for the following -
i. To update DN information in respect of all physical share
capital and overall DN range for dematerialised share capital
for all listed companies.
ii. Updating the fields (i)-(iv), (viii) and (ix) given in para 5.1.3, on
a continuous basis for subsequent changes including changes in
case of further issue, fresh issuance / new listing and other
change / alteration in capital (such as buy-back of shares,
forfeiture of shares, capital reduction, etc.).
iii. Capturing / updating the DN information on a continuous
basis while processing, dematerialisation / rematerialisation
requests confirmation, executing corporate action, etc.
4.3.2. Issuers/RTAs shall take all necessary steps to update the
DN database. If there is mismatch in the DN information with the
data provided / updated by the Stock Exchanges in the DN
database, the Issuer/RTA shall take steps to match the records
and update the same latest by December 31, 2015.
196
भारतीय प्रततभूतत और वितिमय बोर् ड
Securities and Exchange Board of India
4.3.3. Failure by the Issuers/RTAs to ensure reconciliation of the
records as required in terms of para above shall attract
appropriate actions under the extant laws.
4.4. Instructions to the DPs
4.4.1. The DPs shall use the interface provided by the Depositories
to check the DNs of certificates of equity shares submitted for
dematerialisation and ensure that appropriate ISIN is filled in
Dematerialisation Request Form, as applicable, while processing
request for dematerialisation.
4.31 Ticker on Website - For Investor awareness122
In order to create wider awareness about the same, Depositories and
Depository Participants are advised to run the following ticker on their
websites:
"No need to issue cheques by investors while subscribing to IPO. Just
write the bank account number and sign in the application form to
authorise your bank to make payment in case of allotment. No worries
for refund as the money remains in investor's account."
Depositories are advised to communicate the above to their depository
participants and ensure its implementation.
4.32 Separate mobile number/ email id for the clients of Depository
Participants (DPs)123
i. It has been observed that DPs do not have the procedure to check that
separate mobile number/ email id is uploaded for each client.
ii. In view of the same Depositories are advised to instruct their
participants to ensure that separate mobile number/E-mail address is
uploaded for each client. However, under exceptional circumstances,
the participants may, at the specific written request of a client, upload
the same mobile number/E-mail address for more than one client
122 Reference: Email on “Ticker on Website - For Investor awareness” dated November 05, 2015
123 Email on Separate mobile number/ email id for the clients of Depository Participants (DPs)
dated January 16, 2015.
197
भारतीय प्रततभूतत और वितिमय बोर् ड
Securities and Exchange Board of India
provided such clients belong to one family. ‘Family’ for this purpose
would mean self, spouse, dependent children and dependent parents.
4.33 Investor Protection Fund (IPF) of Depositories124
1. The Depository System Review Committee (DSRC) had examined
various aspects of the depository IPF including utilization and
investment policy of IPF and quantum of funds to be transferred to
IPF. The Expert Committee on Clearing Corporations also deliberated
the issue with regard to quantum of funds to be transferred by the
Depositories to their IPF.
2. SEBI (Depositories and Participants) (Amendment) Regulations, 2012
require every depository to establish and maintain an Investor
Protection Fund (IPF). Pursuant to the aforesaid committee
recommendations, the SEBI (Depositories and Participants)
Regulations were amended mandating the depositories to credit five
per cent or such percentage as may be specified by the Board, of its
profits from depository operations every year to the IPF.
3. Based on recommendations of DSRC and Expert Committee on
Clearing Corporations, the following guidelines are being issued with
regard to IPF of the Depositories.
Utilization of the IPF
4. The IPF may be utilized for the following purposes with a focus on
depository related services:
i. Promotion of investor education and investor awareness
programmes through seminars, lectures, workshops, publications
(print and electronic media), training programmes etc. aimed at
enhancing securities market literacy and promoting retail
participation in securities market.
ii. To aid, assist, subsidise, support, promote and foster research
activities for promotion/ development of the securities market.
124
Reference: Circular SEBI/HO/MRD/DP/CIR/P/2016/58 dated June 07, 2016
198
भारतीय प्रततभूतत और वितिमय बोर् ड
Securities and Exchange Board of India
iii. To utilize the fund for supporting initiatives of Depository
Participants for promotion of investor education and investor
awareness programmes.
iv. To utilize the fund in any other manner as may be prescribed/
permitted by SEBI in the interest of investors.
5. Depositories shall frame their internal guidelines on utilisation of the
funds in accordance with the aforementioned objectives and post
approval of their board, submit the same to SEBI within 30 days from
the date of this circular. Depositories shall also keep SEBI informed of
any subsequent changes in internal guidelines with regard to
utilization of IPF.
Constitution and Management of the IPF
6. The IPF shall be administered by way of a Trust created for the
purpose.
i. The IPF Trust shall consist of atleast one Public Interest Director
(PID) of the depository, one person of eminence from an
academic institution from the field of finance / an expert in the
field of investor education / a representative from the registered
investor associations recognized by SEBI and Managing Director
of the Depository.
ii. The Depository shall provide the secretariat for the IPF Trust.
iii. The Depository shall ensure that the funds in the IPF are kept in a
separate account designated for this purpose and that the IPF is
immune from any liabilities of the Depository.
Contribution to the IPF
7. The following contributions shall be made by the Depository to the
IPF.
i. 5% of their profits from Depository operations every year. The
depositories shall transfer the amount with effect from the
Financial Year 2012-13 as specified in the SEBI (Depositories and
Participants) (Amendment) Regulations, 2016.
ii. All fines and penalties recovered from Depository Participants
and other users including Clearing Member pool account penalty
199
भारतीय प्रततभूतत और वितिमय बोर् ड
Securities and Exchange Board of India
as specified in SEBI circular no. SMDRP/Policy/Cir-05/2001
dated February 01, 2001.
iii. Interest or Income received out of any investments made from the
IPF.
iv. Funds lying to the credit of IPR (Investor Protection Reserve) /
BOPF (Beneficial Owners Protection Fund) of the Depository or
any other such fund / reserve of the Depository shall be
transferred to IPF.
v. Any other sums as may be prescribed by SEBI from time to time
Investments of Fund
8. Funds of the Trust shall be invested in instruments such as Central
Government securities, fixed deposits of scheduled banks and any
such instruments which are allowed as per the investment policy
approved by the Board of the Depository. The investment policy shall
be devised with an objective of capital protection along with highest
degree of safety and least market risk.
9. The balance available in the IPF as at the end of the month and the
amount utilised during the month including the manner of utilization
shall be reported in the Monthly Development Report of the
Depository.
4.34 Enhanced Supervision of Depository Participant 125
1. Uniform nomenclature to be followed by stock brokers for
Naming/Tagging of Bank and Demat Accounts and the reporting of such
accounts to the Depositories.
1.1. Bank accounts and Demat accounts maintained by all stock brokers shall
have appropriate nomenclature to reflect the purpose for which those
bank/demat accounts are being maintained.
1.2. The nomenclature for bank accounts and demat accounts to be followed
is given as under:
125 Reference: Circular SEBI/HO/MIRSD/MIRSD2/CIR/P/2016/95 dated September 26, 2016.
200
भारतीय प्रततभूतत और वितिमय बोर् ड
Securities and Exchange Board of India
1.2.1. Bank account(s) which hold clients funds shall be named as "Name of
Stock Broker - Client Account".
1.2.2. Deleted126
1.2.3. Demat account(s) which hold clients' securities shall be named as
"Name of Stock Broker- Client Account".
1.2.4. Deleted127
1.2.5. Demat account(s), maintained by the stock broker for depositing
securities collateral with the clearing corporation, shall be named as
"Name of Stock Broker-Collateral Account".
1.2.6. Demat account(s) held for the purpose of settlement would be named
as “Name of Stock Broker - Pool account".
1.2.7. Bank account(s) held for the purpose of settlement would be named as
“Name of Stock Broker - Settlement Account"
Accordingly naming proprietary bank/demat accounts of the stock broker
as 'Stock Broker-Proprietary Account' is voluntary. It is however
clarified that bank/demat account which do not fall under the
126 Paragraph 1.2.2 in circular number SEBI/HO/MIRSD/MIRSD2/CIR/P/2016/95 dated September 26,
2016 which read as “Bank account(s) which hold own funds of the stock broker shall be named as "Name of
Stock Broker - Proprietary Account" deleted in view of CIR/HO/MIRSD/MIRSD2/CIR/P/2017/64 dated
June 22,2017
127 Paragraph 1.2.4 in circular number SEBI/HO/MIRSD/MIRSD2/CIR/P/2016/95 dated September 26,
2016 which read as “Demat account(s), which hold own securities of the stock broker, shall be named as
"Name of Stock Broker-Proprietary Account" deleted in view of CIR/HO/MIRSD/MIRSD2/CIR/P/2017/64
dated June 22,2017
201
भारतीय प्रततभूतत और वितिमय बोर् ड
Securities and Exchange Board of India
Clauses 1.2.1,1.2.3, 1.2.5 , 1.2.6 and 1.2.7 would be deemed to be
proprietary.128
2. Imposition of uniform penal action on depository participants by the
Depositories in the event of non-compliance with specified requirements.
Monitoring criteria for Depository Participants
a. Failure to furnish Networth certificate to Depository for year ending
March 31st by September 30th.
b. Failure to furnish Internal Audit report to Depository for half year ending
September 30th by November 15th and half year ending March 31st by
May 15th.
c. Failure to co-operate with the Depository for conducting inspection by not
submitting all the information/records sought within 45 days from the
due date specified in the letter of intimation.
d. Failure to submit data for the half yearly Risk Based Supervision within
the time specified by Depositories.
e. Failure to furnish half yearly compliance certificate/report to Depository
for half year ending June 30th by July 30th and half year ending December
31st by January 31st.
f. Failure to furnish monthly Investor grievance report by 10th day of next
month.
g. In case depository participant shares incomplete/wrong data or fails to
submit data on time.
h. Failure to submit financial statements as per timeline prescribed by the
Depositories.
4.35 Amendment pursuant to comprehensive review of Investor Grievance
Redressal Mechanism129
In order to enhance the effectiveness of grievance redressal mechanism at
Market Infrastructure Institutions (MIIs), SEBI has comprehensively
reviewed the existing framework in consultation with the Stock
128 Reference circular number CIR/HO/MIRSD/MIRSD2/CIR/P/2017/64 dated June 22,2017
129 Reference: Circular SEBI/HO/DMS/ CIR/P/2017/15 dated February 23, 2017
202
भारतीय प्रततभूतत और वितिमय बोर् ड
Securities and Exchange Board of India
Exchanges and Depositories (inter alia, issues relating to strengthening of
arbitration mechanism and investor protection mechanism).
Based on the aforesaid review, it has been decided to revamp the
grievance redressal mechanism at Stock Exchanges and Depositories
(wherever applicable), as follows:-
1. Investor Grievance Resolution Panel (IGRP)/ Arbitration Mechanism
The existing IGRP/ arbitration mechanism to be modified as follows:
A. Public dissemination of profiles of arbitrators
In order to enhance transparency and also to provide choice to
parties, Stock Exchanges/ Depositories shall disseminate
information w.r.t. brief profile, qualification, areas of experience/
expertise, number of arbitration matters handled, pre-arbitration
experience, etc. of the arbitrators on their website.
B. Submission of documents in soft copies
In order to assist the arbitrators in pronouncing comprehensive and
speedy awards, Stock Exchanges/ Depositories shall make
necessary arrangements in terms of hardware viz., computer,
scanner, printer, etc. and required software’s at exchange offices/
Investor Service Centers (ISCs) to facilitate the clients to type/
convert their documents into electronic format/ soft copy. Such
electronic format/ soft copies shall be provided to the arbitrators
along with original submissions in physical copies.
C. Review and Training of arbitrators
Investor Service Committee of the Stock Exchanges/ Depositories
shall review the performance of the arbitrators annually and
submit the review report to the Board of the Stock Exchange/
Depository. Training need of the arbitrators will be catered by
National Institute of Securities Markets (NISM). Cost of training of
arbitrators may be incurred from ISF.
203
भारतीय प्रततभूतत और वितिमय बोर् ड
Securities and Exchange Board of India
D. Mechanism for implementation of award
Stock Exchanges/ Depositories shall create a common database of
defaulting clients accessible to members/ depository participants
across the Stock Exchanges/ Depositories.
For this purpose, a client may be identified as defaulter if the client
does not pay the award amount to the member/ depository
participant as directed in the IGRP/ arbitration/ appellate
arbitration order and also does not appeal at the next level of
redressal mechanism within the timelines prescribed by SEBI or file
an application to court to set aside such order in accordance with
Section 34 of the Arbitration and Conciliation Act, 1996 (in case of
aggrieved by arbitration/ appellate award).
E. Empanelment of arbitrators and segregation of arbitration and
appellate arbitration panel
There shall be separate panels for arbitration and appellate
arbitration. Further, for appellate arbitration, at least one member
of the panel should be a Retired Judge.
Stock Exchanges/ Depositories shall obtain prior approval of SEBI
before empanelment of arbitrators/ appellate arbitrators.
F. Empanelment of IGRP members
Stock Exchanges shall empanel IGRP members and no arbitrator/
appellate arbitrator shall be empaneled as IGRP member.
G. Revision in professional fee of arbitrators
The arbitrator fee shall be upwardly revised to Rs.18,000/- (Rs.
Eighteen thousand) per case. Consequent to this upward revision,
the additional expenses attributable to a client over and above the
fee structure specified in point J, shall be borne by the client
(wherever applicable) and Stock Exchange/ Depository equally.
The total expense attributable to the member/ depository
participant has to be borne by the concerned member/ depository
participant.
204
भारतीय प्रततभूतत और वितिमय बोर् ड
Securities and Exchange Board of India
H. Place of arbitration/ appellate arbitration
In case award amount is more than Rs. 50 lakh (Rs. Fifty lakh), the
next level of proceedings (arbitration or appellate arbitration) may
take place at the nearest metro city, if desired by any of the party
involved. The additional cost for arbitration, if any, to be borne by
the appealing party.
I. Arbitration/ appellate arbitration award
In order to safeguard the interest of the parties involved in
arbitration and to ensure speedy implementation of the arbitration
award, the rate of interest on the award passed by arbitrators shall
be in compliance with Arbitration and Conciliation (Amendment)
Act, 2015.
J. Speeding up grievance redressal mechanism
(i) In order to have faster implementation of award and to
discourage delayed filling of arbitrations by members, the fee
structure (exclusive of statutory dues - stamp duty, service tax,
etc.) for filling arbitration reference shall be as follows:-
Amount of If claim is If claim is filed If the claim is filed
Claim / filed within after six months beyond the
six months from the date of timeline prescribed
Counter
from the date dispute or after in column 3, (only
Claim,
of dispute one month from for member)
whichever is
the date of IGRP
higher (Rs.)
order, whichever is
later
≤ 10,00,000 1.3% subject to 3.9% subject to a Additional fee of
a minimum of minimum of Rs. 3,000/- per
Rs.10,000 Rs.30,000 month over and
above fee
prescribed in
205
भारतीय प्रततभूतत और वितिमय बोर् ड
Securities and Exchange Board of India
column 3
> 10,00,000 - Rs. 13,000 plus Rs. 39,000 plus Additional fee of
25,00,000 ≤ 0.3% amount 0.9% amount above Rs. 6,000/- per
above Rs. 10 Rs. 10 lakh month over and
lakh above fee
prescribed in
column 3
> 25,00,000 Rs. 17,500 plus Rs. 52,500 plus 0.6 Additional fee of
0.2 % amount % amount above Rs. 12,000/- per
above Rs. 25 Rs. 25 lakh subject month over and
lakh subject to to maximum of above fee
maximum of Rs.90,000 prescribed in
Rs. column 3
30,000
(ii) The filing fee will be utilized to meet the fee payable to the
arbitrators.
(iii) A client, who has a claim / counter claim upto Rs. 10 lakh
(Rs. Ten lakh) and files arbitration reference, will be exempted
from filing the deposit.
(iv) Excess of filing fee over fee payable to the arbitrator, if any,
to be deposited in the IPF of the respective Stock Exchange.
(v) In all cases, on issue of the arbitral award the stock exchange
shall refund the deposit to the party in whose favour the award
has been passed.
2. Investor Protection fund (IPF), Investor Service fund (ISF), Interest
on IPF and Interest on ISF
A. IPF and ISF management structure
206
भारतीय प्रततभूतत और वितिमय बोर् ड
Securities and Exchange Board of India
(i) In order to ensure effective utilization of interest income on IPF,
supervision of utilization of interest on IPF will rest with the IPF
Trust.
(ii) In order to have better management and control on the
contributions and utilization of ISF fund, supervision of the
same will rest with the Investor Service Committee.
B. Investor Protection fund corpus
In order to ensure the adequacy of corpus of the IPF, Stock
Exchanges and Depositories shall periodically review the sources of
the fund and the eligible compensation amount so as to recalibrate
the fund to make suitable recommendation for enhancement.
C. Utilization of IPF, ISF, interest on IPF and interest on ISF
Modified guidelines for utilization of IPF, Interest on IPF, ISF and Interest on ISF
would be as follows
Sr. Particulars Utilization
No.
1 IPF Stock Exchanges:
To meet the legitimate investment claims of the clients of
the defaulting members.
Depository:
a) Promotion of investor education and investor
awareness programmes through seminars, lectures,
workshops, publications (print and electronic media),
training programmes etc. aimed at enhancing
securities market literacy and promoting retail
participation in securities market;
b) To utilize the fund for supporting initiatives of
Depository Participants for promotion of investor
207
भारतीय प्रततभूतत और वितिमय बोर् ड
Securities and Exchange Board of India
education and investor awareness programmes;
c) To utilize the fund in any other manner as may be
prescribed/ permitted by SEBI in the interest of
investors;
d) To meet the legitimate claims of the beneficial owners,
upto the maximum cap as to be determined by the
depository, in case the same is not settled by the
beneficial owner indemnity insurance;
2 Interest on Stock Exchanges:
IPF
a) To further strengthen the corpus, 75% of interest on
IPF earned every year should be treated as corpus of
IPF;
b) The balance 25% may be utilized by the exchange for
promotion of investor education and investor
awareness programmes through seminars, lectures,
workshops, publications (print and electronic media),
training programmes etc. aimed at enhancing
securities market literacy, promoting retail
participation in securities market and undertaking
research activities related to securities market. Capital
expenditure would be permissible only w.r.t. setting
up of Investor Service Centre. However, no
expenditure to be incurred on product promotion in
any manner.
c) In any other manner as may be prescribed/ permitted
by SEBI in the interest of investors;
Depositories:
To further strengthen the corpus, 100% of Interest on IPF
should be treated as corpus of IPF
208
भारतीय प्रततभूतत और वितिमय बोर् ड
Securities and Exchange Board of India
3 ISF Exchanges:
a) ISF may be utilized only for promotion of investor
education and investor awareness programmes
through seminars, lectures, workshops, publications
(print and electronic media), training programmes etc.
aimed at enhancing securities market literacy and
promoting retail participation in securities market;
b) At least 50% should be spent at Tier II & Tier III cities;
c) Cost of training of arbitrators;
d) In any other manner as may be prescribed/ permitted
by SEBI in the interest of investors;
4 Interest on Exchanges: Interest on ISF should be ploughed back to
ISF ISF
D. Admissibility of claim for making payment out of IPF in Stock
Exchanges
In the event of default by the member, all transactions executed on
exchange platform shall be eligible for settlement from IPF (subject
to maximum limit), subject to the appropriate norms laid down by
the Defaulters’ Committee.
E. Determination of legitimate claims from IPF for clients of the
defaulter member
The Stock Exchanges shall ensure that once a member has been
declared defaulter, the claim (s) shall be placed before the
Defaulters’ Committee for sanction and ratification. The Defaulters’
Committee’s advice w.r.t. legitimate claims shall be sent to the IPF
Trust for disbursement of the amount immediately.
In case the claim amount is more than the coverage limit under IPF
or the amount sanctioned and ratified by the Defaulters’
209
भारतीय प्रततभूतत और वितिमय बोर् ड
Securities and Exchange Board of India
Committee is less than the claim amount then the investor will be
at liberty to prefer for arbitration mechanism for claim of the
balance amount.
F. Threshold limit for interim relief paid out of IPF in Stock
Exchanges
In partial modification to Circular No. CIR/MRD/ICC/30/2013
dated September 26, 2013 on “Investor Grievance Redressal
Mechanism” the following changes are prescribed:
(i) Stock Exchanges, in consultation with the IPF Trust and SEBI,
shall review and progressively increase the amount of interim
relief available against a single claim for an investor, atleast
every three years.
(ii) The Stock Exchanges shall disseminate the interim relief limit
fixed by them and any change thereof, to the public through a
Press Release and also through its website.
(iii) In case, award is in favour of client and the member opts for
arbitration wherein the claim value admissible to the client is
not more than Rs. 20 lakhs (Rs. Twenty lakhs), the following
steps shall be undertaken by the Stock Exchange:
a) In case the IGRP award is in favour of the client then 50% of
the admissible claim value or Rs. 2.00 lakhs (Rs. Two lakhs),
whichever is less, shall be released to the client from IPF of the
Stock Exchange.
b) In case the arbitration award is in favour of the client and the
member opts for appellate arbitration then 50% of the amount
mentioned in the arbitration award or Rs. 3.00 lakhs (Rs. Three
lakhs), whichever is less, shall be released to the client from IPF
of the Stock Exchanges. The amount released shall exclude the
amount already released to the client at clause (a) above.
c) In case the appellate arbitration award is in favour of the
client and the member opts for making an application under
Section 34 of the Arbitration and Conciliation Act, 1996 to set
210
भारतीय प्रततभूतत और वितिमय बोर् ड
Securities and Exchange Board of India
aside the appellate arbitration award, then 75% of the amount
determined in the appellate arbitration award or Rs. 5.00 lakhs
(Rs. Five Lakhs), whichever is less, shall be released to the client
from IPF of the Stock Exchanges. The amount released shall
exclude the amount already released to the client at clause (a)
and (b) above.
d) Total amount released to the client through the facility of
interim relief from IPF in terms of this Circular shall not exceed
Rs. 10.00 lakhs (Ten lakhs) in a financial year.
3. Disciplinary Action Committee, Defaulters’ Committee, Investors
Service Committee, Arbitration Committee and IPF Trust
(i) In partial modification to circular no. MRD/DoP/SE/Cir-
38/2004 dated October 28, 2004 and CIR/MRD/DSA/33/2012
dated December 13,2012, the functions and composition of the
Disciplinary Action Committee, Defaulter’s Committee,
Investors Service Committee and IPF Trust will be as follows:
Sr. Name of Functions handled Composition
No. Committee
1 Disciplinary i. The Committee shall (i) The Committee should
Action formulate the policy for have a minimum of 3
Committee regulatory actions including members and a maximum
warning, monetary fine,
of 5 members;
suspension, withdrawal of
trading terminal, expulsion, to
(ii) The Public Interest
be taken for various violations
Directors shall form a
by the members of the
majority of the
exchange.
Committee;
ii. Based on the laid down
policy, the Committee shall (iii) A maximum of two
consider the cases of key management
violations observed during
personnel of the exchange
inspection, etc and impose
can be on the committee
appropriate regulatory action
211
भारतीय प्रततभूतत और वितिमय बोर् ड
Securities and Exchange Board of India
on the members of the and one of which shall
exchange. necessarily be the
Managing Director of the
iii. While imposing the
stock exchange;
regulatory measure, the
Committee shall adopt a laid
(iv) The Committee may
down process, based on the
also include independent
'Principles of natural justice'.
external persons such as
retired judge, etc.;
(v) SEBI may nominate
members in the
Committee, if felt
necessary in the interest of
securities market;
2 Defaulters’ i. To realize all the assets (i) The Committee should
Committee / deposits of the defaulter/ have a minimum of 3
expelled member and
members and a maximum
appropriate the same amongst
of 5 members;
various dues and claims
against the defaulter/
(ii) The Public Interest
expelled member in
Directors shall form a
accordance with the Rules,
majority of the
Byelaws and Regulations of
the exchange. Committee;
ii. In the event both the (iii) A maximum of two
clearing member and his key management
constituent trading member
personnel of the exchange
are declared defaulter, then
can be on the Committee;
the Defaulter’s Committee of
the stock exchange and the
(iv) The Committee may
Defaulter's Committee of the
also include independent
clearing corporation shall
external persons such as
work together to realise the
assets of both the clearing
212
भारतीय प्रततभूतत और वितिमय बोर् ड
Securities and Exchange Board of India
member and the trading retired judge, etc.;
member.
iii. Admission or rejection
of claims of client/ trading (v) SEBI may nominate
members/ clearing members
members in the
over the assets of the
Committee, if felt
defaulter/ expelled member.
necessary in the interest of
iv. Advise in respect of the securities market;
claims to the Trustees of the
IPF on whether the claim is to
be paid out of IPF or
otherwise.
3 Investor (i) Supervising the functioning (i) The Committee should
Services of Investors’ Services Cell of have a minimum of 3
Committee the Exchange which includes members and a maximum
review of complaint resolution of 5 members;
process, review of complaints
remaining unresolved over
long period of time, estimate
(ii) The Public Interest
the adequacy of resources
Directors shall form a
dedicated to investor services,
majority of the
etc.;
Committee;
(ii) Supervision of utilization
(iii) A maximum of two
of ISF;
key management
personnel of the exchange
(iii) To have annual review of
can be on the Committee;
the arbitrators and
arbitration/ awards (both
(iv) The Committee may
quantum and quality of the
also include independent
awards).
external persons;
(v) SEBI may nominate
213
भारतीय प्रततभूतत और वितिमय बोर् ड
Securities and Exchange Board of India
members in the
Committee, if felt
necessary in the interest of
securities market;
4 IPF Trust (i) The IPF shall be (i) The Trust should have
administered by way of a maximum 5 trustees;
Trust created for this purpose;
(ii) The trustee should
(ii) The IPF Trust shall comprise of:
disburse the amount of
a. Three Public Interest
compensation from IPF to the
Directors;
investor and such a
compensation shall not be b. One representative
more than the maximum from investor
amount fixed for a single associations
recognized by SEBI;
claim of an investor;
and
(iii) The IPF Trust shall
c. The principal
disburse the compensation to
regulatory compliance
the investors as and when
officer of the MII;
claims have been crystallized
(iii) The maximum tenure
against a defaulter member;
of a trustee (excluding the
(iv) The IPF Trust need not principal regulatory
wait for realization of assets compliance officer of the
of the defaulter member for MII, whose trusteeship
disbursements of the claims; would be co-terminus
with the service) should
(v) Upon receipt of advice of
be five years or as
the Defaulters’ Committee, for
specified by SEBI;
payment, the IPF Trust should
take necessary steps for
disbursement of the amount
214
भारतीय प्रततभूतत और वितिमय बोर् ड
Securities and Exchange Board of India
at the earliest
(ii) The Arbitration Committee of the Stock Exchanges shall stand
discontinued.
215
भारतीय प्रततभूतत और वितिमय बोर् ड
Securities and Exchange Board of India
4.36 Digital Mode of Payment130
i. SEBI has notified the SEBI (Payment of Fees and Mode of
Payment) (Amendment) Regulations, 2017 on March 06, 2017 to
enable digital mode of payment (RTGS/NEFT/IMPS etc.) of
fees/penalties/remittance/other payments etc.
ii. Pursuant to above, SEBI has been receiving direct credit of amounts
from various intermediaries / other entities.
iii. In order to identify and account such direct credit in the SEBI
account, intermediaries / other entities shall provide the information
as mentioned in Annexurebelow to SEBI oncethe payment is made.
iv. The above information should be emailedto the respective
department(s)as well as to Treasury &Accounts division at
tad@sebi.gov.in
Annexure
Date Depar Name Type of SEBI PAN Amount Purpose of Bank UTR
tment of Intermedi Registration (Rs.) Payment name No.
of Intermed ary No. (If (including and
SEBI iary any) the period Account
/ for which number
Other payment from
entities was made which
e.g. payment
quarterly, is
annually) remitted
4.37 Monitoring of Foreign Investment limits in listed Indian companies131
i. As per FEMA, the onus of compliance with the various foreign
investment limits rests on the Indian company. In order to facilitate the
listed Indian companies to ensure compliance with the various foreign
investment limits, SEBI in consultation with RBI has decided to put in
place a new system for monitoring the foreign investment limits. The
architecture of the new system has been explained in Annexure A.
130 Reference circular number SEBI/HO/GSD/T&A/CIR/P/2017/42 dated May 16, 2017
131 Reference circular IMD/FPIC/CIR/P/2018/61 dated April 05, 2018
216
भारतीय प्रततभूतत और वितिमय बोर् ड
Securities and Exchange Board of India
ii. The depositories (NSDL and CDSL) shall put in place the necessary
infrastructure and IT systems for operationalizing the monitoring
mechanism described at Annexure A.
Annexure A
Architecture of the System for Monitoring Foreign Investment Limits in listed
Indian companies
Housing of the System
i. The system for monitoring the foreign investment limits in listed Indian
companies shall be implemented and housed at the depositories (NSDL and
CDSL).
Designated Depository
ii. A Designated Depository is a depository which has been appointed by an
Indian company to facilitate the monitoring of the foreign investment limits
of that company. As defined at Regulation 2(xxiii) of FEMA, the term
‘Indian company’ means a company incorporated in India and registered
under the Companies Act, 2013.
iii. The Designated Depository shall act as a lead depository and the other
depository shall act as a feed depository.
Company Master
iv. The company shall appoint any one depository as its Designated
Depository for the purpose of monitoring the foreign investment limit.
v. The stock exchanges (BSE, NSE and MSEI) shall provide the data on the
paid-up equity capital of an Indian company to its Designated Depository.
This data shall include the paid-up equity capital of the company on a fully
diluted basis. As defined at Regulation 2(xvii) of FEMA, the term “fully
diluted basis” means the total number of shares that would be outstanding
if all possible sources of conversion are exercised.
vi. The depositories shall provide an interface wherein the company shall
provide the following information to its Designated Depository:
1. Company Identification Number (CIN)
2. Name
3. Date of incorporation
4. PAN number
5. Applicable Sector
6. Applicable Sectoral Cap
217
भारतीय प्रततभूतत और वितिमय बोर् ड
Securities and Exchange Board of India
7. Permissible Aggregate Limit for investment by FPIs
8. Permissible Aggregate Limit for investment by NRIs
9. Details of shares held by FPI, NRIs and other foreign investors, on
repatriable basis, in demat as well as in physical form
10. Details of indirect foreign investment which are held in both demat
and physical form
11. Details of demat accounts of Indian companies making indirect foreign
investment in the capital of the company
12. Whether the Indian company that has total foreign investment in it , is
either not owned and not controlled by resident Indian Citizens or is
owned or controlled by person’s resident outside India (Yes or No)
13. ISIN-wise details of the downstream investment in other Indian
companies
The information provided by the companies shall be stored in a Company
Master database. The Designated Depository, if required, may seek additional
information from the company for the purpose of monitoring the foreign
investment limits. The companies shall ensure that in case of any corporate
action, the necessary modification is reflected immediately in the Company
Master database.
vii. In the event of any change in any of the details pertaining to the company,
such as increase/decrease of the aggregate FPI/NRI limits or the sectoral
cap or a change of the sector of the company, etc. the company shall inform
such changes along with the supporting documentation to its Designated
Depository. Such documentation may include:
1. Board of Directors resolution approving the increase/decrease
2. General body resolution approving the increase/decrease
3. Company Secretary certificate for compliance with FEMA, 1999
Reporting of trades
viii. At present, as per SEBI guidelines, the custodians are reporting confirmed
trades of their FPI clients to the depositories on a T+1 basis. This reporting
shall continue and the data shall be the basis of calculating FPI
investments/holding in Indian companies.
ix. With respect to NRI (repatriable) trades, Authorized Dealer (AD) Banks
shall report the transactions of their NRI clients to the depositories. The AD
Banks shall be guided by the circulars issued by RBI in this regard.
Activation of a Red Flag Alert
218
भारतीय प्रततभूतत और वितिमय बोर् ड
Securities and Exchange Board of India
x. The monitoring of the foreign investment limits shall be based on the paid-
up equity capital of the company on a fully diluted basis to ensure that all
foreign investments are in compliance with the foreign investment limits.
xi. A red flag shall be activated whenever the foreign investment within 3% or
less than 3% of the aggregate NRI/FPI limits or the sectoral cap. This shall
be done as follows :
Aggregate NRI investment limit in the company
1. The system shall calculate the percentage of NRI holdings in the
company and the investment headroom available as at the end of the
day with respect to the aggregate NRI investment limit
2. If the available headroom is 3% or less than 3% of the aggregate NRI
investment limit, a red flag shall be activated for that company.
3. Thereafter, the depositories and exchanges shall display the available
investment headroom, in terms of available shares, for all companies for
which the red flag has been activated, on their respective websites.
4. The data on the available investment headroom shall be updated on a
daily end-of-day basis as long as the red flag is activated.
Aggregate FPI investment limit of the company
5. The system shall calculate the percentage of FPI holding in the company
and the investment headroom available as at the end of the day with
respect to the aggregate FPI investment limit
6. If the available headroom is 3% or less than 3% of the aggregate FPI
investment limit, a red flag shall be activated for that company.
7. Thereafter, the depositories and exchanges shall display the available
investment headroom, in terms of available shares, for all companies for
which the red flag has been activated, on their respective websites.
8. The data on the available investment headroom shall be updated on a
daily end-of-day basis as long as the red flag is activated.
Sectoral cap of the company
9. The system shall calculate the total foreign investment in the company
by adding the aggregate NRI investment on the stock exchange, the
aggregate FPI investment in the company and other foreign investment
as provided by the company in the company master.
219
भारतीय प्रततभूतत और वितिमय बोर् ड
Securities and Exchange Board of India
10. If the total foreign investment in a company is within 3% or less than 3%
of the sectoral cap, then a red flag shall be activated for that company.
11. Thereafter, the depositories and exchanges shall display the available
investment headroom, in terms of available shares, for all companies for
which the red flag has been activated, on their respective websites.
12. The data on the available investment headroom shall be updated on a
daily end-of-day basis as long as the red flag is activated.
xii. The depositories shall inform the exchanges about the activation of the red
flag for the identified scrip. The exchanges shall issue the necessary
circulars/public notifications on their respective websites. Once a red flag
has been activated for a given scrip, the foreign investors shall take a
conscious decision to trade in the shares of the scrip, with a clear
understanding that in the event of a breach of the aggregate NRI/FPI limits
or the sectoral cap, the foreign investors shall be liable to disinvest the
excess holding within five trading days from the date of settlement of the
trades.
Breach of foreign investment limits
xiii. Once the aggregate NRI/FPI investment limits or the sectoral cap for a
given company have been breached, the depositories shall inform the
exchanges about the breach. The exchanges shall issue the necessary
circulars/public notifications on their respective websites and shall halt all
further purchases by :
1. FPIs, if the aggregate FPI limit is breached
2. NRIs, if the aggregate NRI limit is breached
3. All foreign investors, if the sectoral cap is breached
xiv. In the event of a breach of the sectoral cap/aggregate FPI limit/aggregate
NRI limit, the foreign investors shall divest their excess holding within 5
trading days from the date of settlement of the trades, by selling shares only
to domestic investors.
Method of disinvestment
xv. The proportionate disinvestment methodology shall be followed for
disinvestment of the excess shares so as to bring the foreign investment in a
company within permissible limits. In this method, depending on the limit
being breached, the disinvestment of the breached quantity shall be
uniformly spread across all foreign Investors/FPIs/NRIs which are net
220
भारतीय प्रततभूतत और वितिमय बोर् ड
Securities and Exchange Board of India
buyers of the shares of the scrip on the day of the breach. The foreign
investors are required to disinvest the excess quantity by selling them only
to domestic investors, within 5 trading days of the date of settlement of the
trades that caused the breach.
xvi. This method has been illustrated with the help of an example provided
below.
Total shares that can be purchased by foreign investors till 600
sectoral cap is not breached
Total quantity purchased by foreign investors on T day 1000
Breach quantity 400
Time Foreign Purchase Cumulativ Quantity to be
Investor d e Purchase disinvested by
quantity by foreign the foreign
investor investor
1000 hrs ABC 100 100 40
1015 hrs XYZ 250 350 100
1145 hrs TYU 50 400 20
1230 hrs POI 180 580 72
1300 hrs QSX 120 700 48
1400 hrs REW 150 850 60
1410 hrs LOP 150 1000 60
Total 1000 400
xvii. As can be observed from the above table, the foreign investors/FPIs/NRIs
which are required to disinvest shall be identified and shall be informed of
the excess quantity that they are required to disinvest.
xviii. In the case of FPIs which have been identified for disinvestment of excess
holding, the depositories shall issue the necessary instructions to the
custodians of these FPIs for disinvestment of the excess holding within 5
trading days of the date of settlement of the trades.
xix. In the case of NRIs which have been identified for disinvestment of excess
holding, the depositories shall issue the necessary instructions to the
Authorized Dealer (AD) Banks for disinvestment of the excess holding
within 5 trading days of the date of settlement of the trades.
xx. The depositories shall utilize the FPI trade data provided by the custodians,
post custodial confirmation, on T+1 day, where T is the trade date. The
breach of investment limits (if any) shall be detected at the end of T+1 day
221
भारतीय प्रततभूतत और वितिमय बोर् ड
Securities and Exchange Board of India
and therefore, the announcement pertaining to the breach shall be made at
the end of T+1 day. The foreign investors who have purchased the shares of
the scrip during the trading hours on T+1 day shall also be given a time
period of 5 trading days from the date of settlement of such trades, to
disinvest the holding accruing from the aforesaid purchase trades. In other
words, the purchase trades of such foreign investors which have taken place
of T+1 day, shall be settled on T+3 day and thereafter a time period from
T+4 day to T+8 day shall be available to them to disinvest their entire
holding arising from purchases on T+1 day.
xxi. If T+1 is a settlement holiday, then the custodial confirmation of the trade
executed on T day shall be done on T+2 day and the subsequent settlement
of the trade on T+3 day. In such a scenario, the breach would be detected at
the end of T+2 day.
xxii. A table summarizing the breach-disinvestment scenario is given below
Parameter Purchase on T Day Purchase on T+1
Date of breach T day T day
Date of trade T day T+1 day
Date of detection T+1 day (End of day) T+1 day (End of day)
of breach
T+2 day (End of Day, if T+1 is a T+2 day (End of Day), if T+1 is a
settlement holiday settlement holiday
Date of T+2 day T+3 day
settlement of
transaction T+3 day, if either T+1 day or T+2 T+4 day, if either T+2 day or
day is a settlement holiday T+3 day is a settlement holiday
Disinvestme 5 trading days from the date of 5 trading days from the date of
nt time frame settlement of the transactions settlement of the transactions
which were executed on the day which were executed on T+1
of the breach day i.e. 5 trading days from T+3
i.e. 5 trading days from T+2 day day
If T+1 day or T+2 day is a If T+2 day or T+3 day is a
settlement holiday, then 5 trading settlement holiday, then 5
days from T+3 day trading days from T+4 day
222
भारतीय प्रततभूतत और वितिमय बोर् ड
Securities and Exchange Board of India
xxiii. In the event the foreign shareholding in a company comes within
permissible limit during the time period for disinvestment, on account of
sale by other FPI or other group of FPIs, the original FPIs, which have been
advised to disinvest, would still have to do so within the disinvestment
time period, irrespective of the fresh availability of an investment headroom
during the disinvestment time period.
xxiv. There shall be no annulment of the trades which have been executed on the
trading platform of the stock exchanges and which are in breach of the
sectoral caps/aggregate FPI limits/aggregate NRI limits.
Failure to disinvest within 5 trading days
xxv. If a breach of the investment limits has taken place on account of the FPIs
and the identified FPIs have failed to disinvest within 5 trading days, then
necessary action shall be taken by SEBI against the FPIs.
Fees
xxvi. The Designated Depository shall levy reasonable fee/charges on the
company towards development, ongoing maintenance and monitoring
costs at an agreed upon frequency.
4.38 Disclosure of performance of CRAs on Stock Exchange and Depository
website132
Each CRA shall furnish data on sharp rating actions in investment grade
rating category, as per the format specified in Annexure B, to Stock
Exchanges and Depositories for disclosure on website on half-yearly basis,
within 15 days from the end of the half-year (31stMarch/ 30thSeptember).
Annexure B
Sharp rating actions in investment grade rating category
(Excluding non-cooperative issuers)
S. No. Rating action Number of ratings
1. Number of rating downgrades of more than 3 notches
2. Number of downgrades to default from investment
grade ratings
132 Reference circular SEBI/ HO/ MIRSD/ DOS3/ CIR/ P/ 2018/ 140 dated November 13, 2018
223
भारतीय प्रततभूतत और वितिमय बोर् ड
Securities and Exchange Board of India
3. Number of rating upgrades of more than 3 notches
4. Number of outstanding ratings as on March 31/
September 30
4.39 Early Warning Mechanism to prevent diversion of client securities133
1. There have been instances where stock brokers had diverted clients’
securities received as collaterals towards margin obligations and / or
settlement obligations, for raising loan against shares on their own
account and / or for meeting securities shortages in settlement
obligations on its own account. However, such instances of diversion
of securities come to light when stock broker failed in meeting the
margin and/ or settlement obligations to Stock Exchange / Clearing
Corporation.
2. It has been decided to put in place an Early Warning Mechanism
and sharing of information between Stock Exchanges, Depositories
and Clearing Corporations to detect the diversion of client’s securities by
the stock broker at an early stage so as to take appropriate preventive
measures. The threshold for such early warning signals shall be decided
by the Stock Exchanges, Depositories and Clearing Corporations with
mutual consultation.
3. Early warning signals, for prevention of diversion of clients’ securities,
may include the following:
3.1. Deterioration in financial health of the stock broker/ depository
participant based on any of the following parameters:
a) Significant reduction in net worth over previous half-year / year.
b) Significant losses in the previous half years / years.
c) Delay in reporting of Annual Report, Balance Sheet, Internal
Audit Reports, Risk Based Supervision (RBS) data and any other
data related to its financial health to the Stock Exchanges/
Depositories.
d) Failure to submit information sought by the Stock Exchange/
Depositories on its dealing with related parties / promoters.
e) Significant mark-to-market loss on proprietary account/ related
party accounts
f) Repeated instances of pay-in shortages.
133 Reference Circular SEBI/HO/MIRSD/DOP/CIR/P/2018/153 dated December 17, 2018
224
भारतीय प्रततभूतत और वितिमय बोर् ड
Securities and Exchange Board of India
g) Significant trading exposure or amount of loans or advances
given to and investments made in related parties/ group.
h) Sudden activation of significant number of dormant client’s
accounts and/ or significant activity in the dormant account/s.
i) Significant number of UCC modifications.
j) Resignation of Statutory Auditors or Directors.
3.2. Early warning signals in relation to securities pledge transactions
by the stock broker to be identified by the Depositories and shall
be shared with Stock Exchanges which may include:
a) Alerts for stock brokers maintaining multiple proprietary demat
accounts and opening any new demat account in the name of stock
broker for client purpose.
b) Movement of shares to/from a large number of clients’ demat
accounts or large value shares to stock broker proprietary accounts
and vice a versa.
c) Transfer of large value of shares through off-market transfers
other than for settlement purposes.
d) Invocation of pledge of securities by lenders against stock broker
or his clients.
e) Significant depletion of client’s shares in the stock broker
client account maintained by the stock broker.
3.3. Increase in number of investor complaints against the stock
broker / depository participant alleging un-authorized trading /
unauthorized delivery instructions being processed and non-receipt
of funds and securities and non-resolution of the same.
3.4. Alerts generated from the monthly/ weekly submissions made by
stock broker under Risk Based Supervision (RBS) or Enhanced
Supervision to the Stock Exchanges.
a) Non-recovery of significant dues from debit balance clients
over a period of time.
b) Significant dues to credit balance clients over a period of time.
c) Failure by stock broker to upload weekly data regarding
monitoring of clients’ funds as specified in SEBI’s circular on
Enhanced Supervision, for 3 consecutive weeks.
d) Pledging securities in case of clients having credit balance and
using the funds so raised against them for own purposes or for
funding debit balance of clients.
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भारतीय प्रततभूतत और वितिमय बोर् ड
Securities and Exchange Board of India
e) Mis-reporting / wrong reporting about the client funds/securities.
f) Significant increase in RBS score.
3.5. Stock broker’s terminal disabled for certain number of days in any
segment / Stock Exchange in previous quarter.
4. Stock Exchanges and Depositories shall frame an internal policy /
guidelines regarding non-cooperation by stock brokers and depository
participants during inspections which shall lay down the time period,
the type of documents critical for closing the inspections, which if not
submitted, can be treated as non-cooperation.
4.1. Failure to submit data sought for inspections especially relating to
bank / demat accounts, client ledgers etc. despite repeated reminders.
4.2. Failure to provide reasonable access to the records or any office
premise
5. Stock Exchanges/ Clearing Corporations/ Depositories, shall devise a
mechanism to detect diversion of clients’ securities and to share
information among themselves in respect of:
5.1. Diversion of pay-out of securities to non-client accounts
5.2. Mis-matches between gross (client-wise) securities pay-in and pay-out
files of a stock brokers generated by the Clearing Corporation
which shall be compared with actual transfer of securities to/from
the client’s depository accounts by the Depository. The cases of any
mismatch found out by the Depository shall be informed to the
concerned Stock Exchange / Clearing Corporation.
5.3. Stock Exchange shall seek clarification from the concerned stock
broker on the mismatches reported by Depository and identify
transfer to a non-client / third party, without any trade obligation.
5.4. Such information on wrong / fraudulent / unauthorized transfer
shall be shared by the Stock Exchange with other Stock Exchange/s.
6. Any other alerts as the Stock Exchanges / Clearing Corporations
and Depositories may deem fit.
7. Alerts triggered at one Stock Exchange / Clearing Corporation/
Depository through early warning mechanism shall be immediately
shared with other Stock Exchanges / Depositories with respect to the
stock broker / depository participant.
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भारतीय प्रततभूतत और वितिमय बोर् ड
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8. Based on the analysis of the early warning data, if it is established
that the stock broker’s financial health has deteriorated and/ or he has
made unauthorized transfer of funds / securities of the client, in such
cases Stock Exchanges / Depositories shall jointly take preventive actions
on the stock broker which may include one or more of, but not limited, to
the following:
8.1. Actions to be initiated by the Stock Exchanges like:
a) Blocking of certain percentage of available collaterals towards
margin.
b) Check securities register in respect of securities received and
transferred against pay-in/pay-out against settlement and client’s
securities received as collateral.
c) Check details of funds and securities available with the
clearing member, Clearing Corporation and the Depository of that
stock broker.
d) Impose limits on proprietary trading by the stock broker.
e) Prescribe and monitor shorter time duration for settlement of
Running Account of clients.
f) Conduct meeting with the designated directors of the stock
broker to seek appropriate explanation.
g) Uniform action of deactivation of trading terminals by all
Stock Exchanges based on the communication received from other
Stock Exchange.
h) Initiate inspection of the stock broker/depository participant.
i) Cross check information submitted by stock broker with other
independent sources like collateral details with the Clearing
Corporation, transactions in Bank and Depositories, with
statement collected directly etc
j) Where client money and securities diversion is suspected,
appoint forensic auditor to trace trails of entire funds and
securities of clients.
8.2. Actions to be taken by the Depositories:
a) Restriction on further pledge of client securities from the client’s
account by freezing the stock broker client account for debit.
b) Imposition of 100% concurrent audit on the depository participant.
c) Cessation/ restriction on uses of Power of Attorney (POA) given
to stock broker by clients mapped to such brokers only to meet
227
भारतीय प्रततभूतत और वितिमय बोर् ड
Securities and Exchange Board of India
settlement obligation of that client. Clients to issue instructions
electronically or through Delivery Instruction Slip (DIS) for
delivery of shares for off market transfers.
8.3. Any other measures that Stock Exchanges/ Clearing Corporations/
Depositories may deem fit.
4.40 Reporting for Artificial Intelligence(AI) and Machine Learning
(ML) applications and systems offered and used by Market
Infrastructure Institutions (MIIs)134
Background
1. SEBI is conducting a survey and creating an inventory of the AI / ML
landscape in the Indian financial markets to gain an in-depth
understanding of the adoption of such technologies in the markets and to
ensure preparedness for any AI / ML policies that may arise in the future.
Scope definition
2. Any set of applications / software / programs/ executable / systems
(computer systems) –cumulatively called application and systems, to
carry out compliance operations / activities, where AI / ML is used
for compliance or management purposes, is included in the scope of
this circular. In order to make the scope of this circular inclusive of
various AI and ML technologies in use, the scope also covers Fin-Tech
and Reg-Tech initiatives undertaken by MIIs that involves AI and ML.
3. Technologies that are considered to be categorized as AI and ML
technologies in the scope of this circular, are explained in Annexure A.
Regulatory requirements
4. All MIIs shall fill in the AI / ML reporting form (Annexure B) in respect of
the AI or ML based applications or systems as defined in Annexure A
offered or used by them, and submit the same in soft copy only at
AI_MII_SE@sebi.gov.in (for stock Exchanges) / AI_MII_ DEP@sebi.gov.in
134 Reference Circular SEBI/HO/MRD/DOP1/CIR/P/2019/24 dated January 31, 2019
228
भारतीय प्रततभूतत और वितिमय बोर् ड
Securities and Exchange Board of India
(for Depositories) /AI_MII_CC@sebi.gov.in (for Clearing Corporations) to
SEBI on a quarterly basis within 15 days of the expiry of the quarter, with
effect from quarter ending March 31, 2019.
Annexure A – Systems deemed to be based on AI and ML technology
Applications and Systems belonging but not limited to following
categories or a combination of these:
1. Natural Language Processing (NLP), sentiment analysis or text mining
systems that gather intelligence from unstructured data. – In this case,
Voice to text, text to intelligence systems in any natural language will be
considered in scope. Eg: robo chat bots, big data intelligence gathering
systems.
2. Neural Networks or a modified form of it. – In this case, any systems
that uses a number of nodes (physical or software simulated nodes)
mimicking natural neural networks of any scale, so as to carry out
learning from previous firing of the nodes will be considered in scope.
Eg: Recurrent Neural networks and Deep learning Neural Networks
3. Machine learning through supervised, unsupervised learning or a
combination of both. – In this case, any application or systems that carry
out knowledge representation to form a knowledge base of domain, by
learning and creating its outputs with real world input data and
deciding future outputs based upon the knowledge base. Eg: System
based on Decision tree, random forest, K mean, Markov decision
process, Gradient boosting Algorithms.
4. A system that uses statistical heuristics method instead of procedural
algorithms or the system / application applies clustering or
categorization algorithms to categorize data without a predefined set of
categories
5. A system that uses a feedback mechanism to improve its parameters and
bases it subsequent execution steps on these parameters.
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भारतीय प्रततभूतत और वितिमय बोर् ड
Securities and Exchange Board of India
6. A system that does knowledge representation and maintains a
knowledge base.
Annexure B - Form to report on AI and ML technologies – to be submitted
quarterly
S/N Head Value
1 Entity SEBI registration number
2 Registered entity category
3 Entity name
4 Entity PAN no.
5 Application / System name
6 Date used from
7 Type of area where AI or ML is
used (order execution /
Surveillance / compliance /
others). In case of others, please
specify.
8 What is the name of the Tool / <free text field>
Technology that is categorized as
AI and ML system / Application
and submissions are declared vide
this response
9 How was the AI or ML project <Internally / through solution
implemented
provider / Jointly with a solution
provider or third party>
10 Are the key controls and control <free text field>
points in your AI or ML
application or systems in
accordance with circular(s) of SEBI
that mandate/s cyber security
control requirements
11 Is the AI / ML system included in <Yes / No>
the system audit
12 Describe the application / system <free text field>
and how it uses AI / ML
13 What safeguards are in place to <free text field>
prevent abnormal behavior of the
AI or ML application / System
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भारतीय प्रततभूतत और वितिमय बोर् ड
Securities and Exchange Board of India
4.41 Measures to expedite Dematerisation of securities135
1. In order to enable prompt execution of demat requests, Depositories shall
provide additional details, such as PAN, Address and Residential status of
investors in the DRF itself.
2. To include a provision in DRF to capture 2 signatures – one registered
with DP at the time of demat account opening and the other registered
with issuer/RTA at the time of allotment /transfer. The request submitted
by BO would be only processed when both two signatures i.e one
registered with RTA and other registered with DP matches with two
respective signatures on DRF. In case of mismatch of any of the two
signatures the existing process of verifying signature may be followed.
3. To advise Depository Participants to update bank account details of all
demat account holders in their records.
4.42 Capacity Planning Framework for the Depositories136
1. The capacity planning framework of the Stock Exchanges and
Clearing Corporations was reviewed by Technical Advisory
Committee (TAC) of SEBI. Based on recommendations of the
committee, circular no. CIR/MRD/DP/17/2015 dated October
08, 2015 was issued to the Stock Exchanges and Clearing
Corporations with regard to their capacity planning.
2. Depositories have been identified as financial Market
Infrastructure Institutions which facilitate and perform
systemically critical functions in the securities market. In view of
their importance in the smooth functioning of the securities
market, the framework for capacity planning of the Depositories
was also discussed in TAC. Based on recommendations of the
committee, it has been decided to put in place following
requirements for Depositories while planning capacities for their
135 Reference: SEBI letter MRD/DoPII/DSAII/MIRSD/DOS3/OW/2018/28162/1 dated October 22, 2018
136 Reference: SEBI Circular No. SEBI/HO/MRD/DP/CIR/P/2017/29 dated April 03, 2017
231
भारतीय प्रततभूतत और वितिमय बोर् ड
Securities and Exchange Board of India
operations:
a.The installed capacity shall be at least 1.5 times (1.5x) of
the projected peak load.
b. The projected peak load shall be calculated for the
next 60 days based on the per hour peak load trend of the
past 180 days.
c. The Depositories shall ensure that the utilisation of
resources in such a manner so as to achieve work
completion in 70% of the allocated time.
d. All systems pertaining to Depository operations
shall be considered in this process including all technical
components such as network, hardware, software, etc.,
and shall be adequately sized to meet the capacity
requirements.
e. In case the actual capacity utilization exceeds 75% of the
installed capacity for a period of 15 days on a rolling
basis, immediate action shall be taken to enhance the
capacity.
f. The actual capacity utilisation shall be monitored
especially during the period of the day in which pay-in
and pay-out of securities takes place for meeting
settlement obligations.
3. Depositories shall implement suitable mechanisms, including
generation of appropriate alerts, to monitor capacity utilisation
232
भारतीय प्रततभूतत और वितिमय बोर् ड
Securities and Exchange Board of India
on a real-time basis and shall proactively address issues
pertaining to their capacity needs.
4.43 Statutory Committees137
1. In order to ensure effective oversight of the functioning of depositories
(hereafter referred as Market Infrastructure Institutions or MIIs), Regulation 30
of the SEBI (Depositories and Participants) Regulations, 2018 [SEBI (D&P)
Regulations, 2018], mandates MIIs to constitute three functional committees
and four oversight committees within each MII. A list of all such mandatory
committees for MIIs along with their functions and detailed composition
requirements is provided at Annexure A.
2. Further, while the aforementioned annexure provides for the composition that
is specific to each statutory committee at MII, the overarching principles for
composition and quorum of the statutory committee at MIIs shall be as under,
which shall be applicable to all committees with an exception for Investor
Grievance Redressal Committee (IGRC) and Advisory Committee:
2.1 On each committees at MIIs, except IGRC and Advisory Committee, the
number of Public Interest Directors (PIDs) shall not be less than the total of
number of shareholder directors, Key Management Personnel (KMPs),
independent external persons, etc. put together, wherever shareholder
directors, KMPs, independent external persons, etc. are part of the concerned
committee.
2.2 PID shall be chairperson of each committee at MII.
2.3 To constitute the quorum for the meeting of the MII committee, the number
of PIDs on each of the committees at MIIs shall not be less than total number of
other members (shareholder directors, KMPs, independent external persons,
etc. as applicable) put together.
2.4 The voting on a resolution in the meeting of the committees at MIIs shall be
valid only when the number of PIDs that have cast their vote on such
resolution is equal to or more than the total number of other members
(shareholder directors, KMPs, independent external persons, etc., as
applicable) put together who have cast their vote on such resolution.
2.5 The casting vote in the meetings of the committees shall be with the
chairperson of the committee.
137 Circular No. SEBI/HO/MRD/DOP2DSA2/CIR/P/2019/13 dated January 10, 2019 and Circular No.
SEBI/HO/MRD/DOP2DSA2/CIR/P/2019/26 dated February 5, 2019
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भारतीय प्रततभूतत और वितिमय बोर् ड
Securities and Exchange Board of India
2.6 Apart from that specifically provided in the Annexure, whenever required,
a committee may invite Managing Director, other relevant KMPs and
employees of the MII. However such invitee shall not have any voting rights.
As regards the composition and quorum of IGRC and Advisory Committee, the
same shall be as prescribed in the enclosed Annexure A.
3. Further, MIIs are directed to adhere to the following:
3.1 Over and above the statutory committees mentioned at point 1 above, the
committees that are mandated by relevant law for listed companies shall apply
mutatis mutandis to MIIs.
3.2 MIIs shall lay down policy for the frequency of meetings, etc., for the
statutory committees.
3.3 PIDs in Committees at MIIs:
3.3.1 SEBI (D&P) Regulations 2018 prescribes that a PID on the board of a
MII shall not act simultaneously as a member on more than five
committees of that MII.
3.3.2 It is clarified that the above limitation on maximum number of
committees that a PID can be member of, shall be applicable only to
statutory committees prescribed by SEBI under SEBI (D&P) Regulations,
2018, and circulars issued thereunder. The said requirement shall not be
applicable to committees constituted under Companies Act, 2013, SEBI
(Listing Obligations and Disclosure Requirements), 2015, amongst
others.
3.3.3 In case of non-availability of adequate number of PIDs in a MII, the
relevant MII shall take steps to induct more PIDs in order to fulfil the
requirement of composition of committees within a MII.
3.4 Meeting of PIDs:
3.4.1 As per code of conduct for PIDs provided SEBI (D&P) Regulations
2018, the PIDs shall be required to meet separately every six months. It
is added that all the PIDs shall necessarily attend all such meetings of
PIDs
3.4.2 The objective of such meetings, shall include inter alia reviewing
the status of compliance with SEBI letters/ circulars, reviewing the
functioning of regulatory departments including the adequacy of
resources dedicated to regulatory functions, etc. PIDs shall also prepare
234
भारतीय प्रततभूतत और वितिमय बोर् ड
Securities and Exchange Board of India
a report on the working of the committees of which they are member
and circulate the same to other PIDs. The consolidated report in this
regard shall be submitted to the governing board of the MIIs. Further,
PIDs shall identify the important issues which may involve conflict of
interest for the MII or may have significant impact on the market and
report the same to SEBI, from time to time.
3.5 Independent external persons in committees at MIIs:
3.5.1 The independent external persons forming a part of committees
shall be from amongst the persons of integrity, having a sound
reputation and not having any conflict of interest. They shall be
specialists in the field of work assigned to the committee; however they
shall not be associated in any manner with the relevant MII and its
members.
3.5.2 MIIs shall frame the guidelines for appointment, tenure, code of
conduct, etc., of independent external persons. Extension of the tenure
may be granted to independent external persons at the expiry of the
tenure, subject to performance review in the manner prescribed by SEBI
for PIDs. Further, the maximum tenure limit of Independent external
persons in a committee of MII shall be at par with that of PIDs, as
prescribed under Regulation 25(3) of the SEBI (D&P) Regulations, 2018.
3.6 The existing MIIs shall submit a confirmation report to SEBI with regard
to the formation and composition of the Committees listed out in the
Annexure A and compliance with other norms prescribed in the circular,
at the earliest but not later than three months from the date of the circular.
4. Performance review of Public Interest Directors (PIDs)138:
4.1 In respect of Public Interest Directors (PIDs) appointed in the
governing board of MIIs, Regulation 25(3) of SEBI(D&P)
Regulations, 2018, provides the following:
“Public interest directors shall be nominated for a term of three years,
extendable by another term of three years, subject to performance
review in the manner as may be specified by the Board:
Provided that post the expiry of term(s) at the recognized stock
exchange or the recognized clearing corporation / depository, a public
interest director may be nominated for a further term of three years in
138 Circular No. SEBI/HO/MRD/DOP2DSA2/CIR/P/2019/31 dated February 15, 2019
235
भारतीय प्रततभूतत और वितिमय बोर् ड
Securities and Exchange Board of India
other recognized clearing corporation or recognized stock exchange, or a
depository, only after a cooling-off period of one year:
Provided further that a person may be nominated as a public
interest director for a maximum of three terms across recognized stock
exchanges / recognized clearing corporations / depositories, subject to a
maximum age limit of seventy five years.”
4.2 For complying with the aforementioned regulation, while
developing a framework for performance review of PIDs, MIIs
need to consider the following:
4.2.1 Policy for Performance review of PIDs:
4.2.1.1 The Nomination and Remuneration committee
(NRC) of the MIIs will be responsible for
framing the performance review policy for
PIDs.
4.2.1.2 Such performance review policy shall include
criteria for performance evaluation,
methodology adopted for such evaluation and
analyzing the results, amongst others.
4.2.1.3 Performance review policy of PID shall include
scope for both internal evaluation as well as
external evaluation.
4.2.1.4 Further, as performance review is not a static
process and requires periodical review, NRC
shall also be responsible for reviewing such
performance review policy, at least once in 3
years.
4.2.1.5 Such performance review policy and changes
made therein, shall be approved by the
governing board of MII.
4.2.2 Guiding criteria of Performance Review:
As a part of framing performance review policy, NRC shall be primarily
responsible for formulation of performance evaluation criteria. The criteria
for performance review of PIDs, which shall be considered for both
internal evaluation and external evaluation, may be framed by NRC
236
भारतीय प्रततभूतत और वितिमय बोर् ड
Securities and Exchange Board of India
taking into consideration guiding principles provided at Annexure B.
These principles would serve as a guidance for MIIs and the same may be
adopted by respective MIIs, as considered appropriate, with additional
principles, if any.
4.2.3 Evaluation mechanism:
4.2.3.1 PIDs shall be subjected to internal evaluation
as well as external evaluation, carrying equal
weightage.
4.2.3.2 Internal evaluation: All the governing board
members shall evaluate the performance of
each PID, on an annual basis at the end of
every financial year.
4.2.3.3 External evaluation: PIDs shall also be subject
to external evaluation during their last year of
the term in a MII, by a management or a
human resources consulting firm. The
consultant shall take into consideration the
performance of the PID for the entire tenure
served in a given MII, at least up to 4 months
before expiry of his/ her term. In order to
avoid any bias or conflict of interest, external
consultant should not be a related party or
associated with the MII, the concerned PID or
any other governing board members.
4.2.3.4 Such performance review should be carried
out in fair & objective manner and the review
should be recorded with clarity and verifiable
facts in a standardized format covering all the
relevant criteria / aspects.
4.2.3.5 While evaluating conflict of interest of a PID,
the governing board of MII shall also take into
consideration provisions of Clause 2(d) of
Schedule II Part C of SEBI (D&P) Regulations,
2018 under the head ‘Public Interest Director’;
and conflict of interest, if any, of any PIDs
237
भारतीय प्रततभूतत और वितिमय बोर् ड
Securities and Exchange Board of India
should be disclosed to SEBI by the governing
board with their comments/ views.
4.2.4 Disclosure: Performance evaluation criteria for PIDs
shall be disclosed in their annual report as well as on the
website of the concerned MII.
4.2.5 Recommendation to SEBI: After taking into account the
performance of a PID in the concerned MII, on the basis
of internal evaluation and external evaluation both
carrying equal weightage, NRC shall consider and
recommend extension of his / her tenure to the
Governing Board of the MII. The Governing Board of the
MII shall in-turn consider and recommend to SEBI if the
tenure of the PID is desired to be extended by another
term of three years.
4.2.6 In addition to the other requirements prescribed in
performance review policy of the MIIs along-with norms
specified in SEBI (D&P) Regulations, 2018, the following
may be considered by NRCs of MIIs:
4.2.6.1 It shall be ensured that the concerned PID
hasn’t remained absent for three consecutive
meetings of the governing board and has
attended seventy five per cent of the total
meetings of the governing board in each
calendar year; failing which PID shall be liable
to vacate office.
4.2.6.2 It shall be ensured that PIDs in the governing
boards of MIIs are selected from diverse fields
of work, in terms of their qualification and
experience.
4.3 The application for extension of term of a PID shall be accompanied
with the attendance details of PID in the meetings of various
mandatory committees and of the governing board of the MII
along-with specific reasons for seeking extension of his / her term
as a PID. Such specific reasons shall include facts such as whether
the concerned PID, during the term served, had identified any
important issues concerning any matter which may involve conflict
of interest, or have significant impact on functioning of MII, or may
238
भारतीय प्रततभूतत और वितिमय बोर् ड
Securities and Exchange Board of India
not be in the interest of securities market as a whole, and whether
the PID had reported the same to SEBI.
4.4 In terms of SEBI (D&P) Regulations, 2018, it is clarified that a
minimum of two names shall be submitted by MIIs at the time of
making request for appointment of PID and extension of the term
of existing PID, including appointment of PID for the purpose of
broad basing the governing board, against each such vacancy.
4.5 It is clarified that the aforementioned norms specify the minimum
requirements that have to be complied with by MIIs, however the
NRCs of MIIs may adopt additional and more stringent norms
while framing a policy for performance review of PIDs. With
regard to the detailed criteria for performance evaluation, as
provided in Annexure B to the circular, the same shall serve as an
illustrative guide for MIIs to frame performance evaluation criteria
–both for internal as well as external evaluation, and the same may
be adopted by MIIs as considered appropriate, with additional
criteria, if any.
4.5.1 Additionally, with regard to tenure of existing PIDs as on
date of this circular, following is clarified:
4.5.1.1 The term of existing PIDs serving in a MII for
more than three years, can be extended, subject
to his / her performance review and a
maximum tenure of 6 years as PID in that
particular MII.
4.5.1.2 The term of existing PIDs, that have already
served for six years or more in a single MII,
shall not be eligible for further extension in
that MII.
239
भारतीय प्रततभूतत और वितिमय बोर् ड
Securities and Exchange Board of India
CIRCULARS
1. Circular No. SMDRP/Policy/Cir-28/99 dated August 23, 1999.
2. Circular No. SMDRP/Policy/Cir-05/2001 dated February 1, 2001.
3. Circular No. D&CC/FITTC/Cir-09/2002 dated July 4, 2002.
4. Circular No. D&CC/FITTC/Cir-10/2002 dated September 25, 2002.
5. Circular No. D&CC/FITTC/Cir-13/2002 dated November 1, 2002.
6. Circular No. D&CC/FITTC/CIR - 12/2002 dated October 30, 2002.
7. Circular No. D&CC/FITTC/Cir-15/2002 dated December 27, 2002.
8. Circular No. LGL/Cir-2/2003 dated February 19, 2003.
9. Circular No. DCC/FITTC/Cir-19/2003 dated March 4, 2003
10. Circular No. SEBI/MRD/Policy/AT/Cir-19/2004 dated April 21, 2004.
11. Circular No. MRD/DoP/Dep/Cir-27/2004 dated August 16, 2004.
12. Circular No. MRD/DoP/Dep/Cir-29/2004 dated August 24, 2004.
13. Circular No. MRD/DoP/SE/Dep/Cir-36/04 dated October 27, 2004.
14. Circular No. SEBI/MRD/SE/DEP/Cir-4/2005 dated January 28, 2005.
15. Circular No. SEBI/MRD/SE/Cir-16/2005 dated August 04, 2005.
16. Circular No. MRD/DoP/SE/Dep/Cir-18/2005 dated September 2, 2005.
17. Circular No. MRD/DoP/Dep/Cir-22 /05 dated November 09, 2005.
18. Circular No. SEBI/MRD/DEP/Cir-24/05 dated December 22, 2005.
19. Circular No. SEBI/MRD/DEP/Cir-2/06 dated January 19, 2006.
20. Circular No. SEBI/MRD/DEP/Cir-3/06 dated February 21, 2006.
21. Circular No. MRD/DoP/Dep/Cir-09/06 dated July 20, 2006.
22. Circular No. MRD/DoP/Dep/SE/Cir-13/06 dated September 26, 2006.
23. Circular No. MRD/DoP/Dep/SE/Cir-17/06 dated October 27, 2006.
24. Circular No. MRD/Dep/Cir- 20/06 dated December 11, 2006.
25. Circular No. MRD/DoP/Dep/SE/Cir-22/06 dated December 18, 2006.
26. Circular No. MRD/DSA/SE/Dep/Cust/Cir-23/06 dated December 22,
2006.
27. Circular No. SEBI/CFD/DILDIP/29/2008/01/02 dated February 1, 2008.
28. Circular No. SEBI/MRD/Dep/Cir-03/2007 dated February 13, 2007.
29. Circular No. MRD/DoP/Cir- 5/2007 dated April 27, 2007.
30. Circular No. MIRSD/DPS-III/Cir-9/07 dated July 3, 2007.
31. Circular No. MIRSD/DPS- III/Cir-23/08 dated July 25, 2008.
240
भारतीय प्रततभूतत और वितिमय बोर् ड
Securities and Exchange Board of India
32. Circular No. SEBI/MRD/Dep/Cir-03/2008 dated February 28, 2008.
33. Circular No. MRD/DoP/Cir-20/2008 dated June 30, 2008.
34. Circular No. MRD/DoP/SE/Dep/Cir-2/2009 dated February 10, 2009.
35. Circular No. CIR/MRD/DP/19/2010 dated June 10, 2010.
36. Circular No. CIR/MRD/DP/20/2010 dated July 1, 2010.
37. Circular No. CIR/MRD/DP/22/2010 dated July 29, 2010.
38. Circular No. CIR/MRD/DO/37/2010 dated December 14, 2010.
39. Circular No. CIR/MRD/DP/04/2011 dated April 07, 2011.
40. Circular No. CIR/MRD/DP/05/2011 dated April 27, 2011.
41. Circular No. MIRSD/SE/Cir-21/2011 dated October 5, 2011.
42. Circular No. CIR/MRD/DMS/13/2011 dated November 29, 2011.
43. Circular No. CIR/MRD/DMS/12/2012 dated April 13, 2012
44. Circular No. CIR/MRD/ DMS/17/2012 dated June 22, 2012
45. Circular No. CIR/MRD/ICC/16/2012 dated June 15, 2012.
46. Circular No. CIR/MRD/DP/21/2012 dated August 02, 2012.
47. Circular No. CIR/MIRSD/09/2012 dated August 13, 2012.
48. Circular No. CIR/MRD/DP/22/2012 dated August 27, 2012.
49. Circular No. CIR SEBI/MIRSD /11/2012 dated September 05, 2012.
50. Circular No. CIR/MRD/DP/24/2012 dated September 11, 2012.
51. Circular No. CIR/MRD/DP/DA/25/2012 dated September 21, 2012.
52. Circular No. CIR/MRD/DP/27/2012 dated November 01, 2012.
53. Circular No. CIR/MRD/DP/32/2012 dated December 06, 2012.
54. Circular No. CIR SEBI/MIRSD/01/2013 dated January 04, 2013.
55. Circular No. CIR/MRD/DP/10/2013 dated March 21, 2013.
56. Circular No. CIR SEBI/MRD/DRMNP/26/2013 dated September 04,
2013.
57. Circular No. CIR SEBI/MIRSD /07/2013 dated September 12, 2013.
58. Circular No. CIR SEBI/MIRSD/09/2013 dated October 08, 2013.
59. Circular No. CIR/MIRSD/10/2013 dated October 28, 2013.
60. Circular No. CIR SEBI/MIRSD/ 12/2013 dated December 04, 2013.
61. Circular No. CIR SEBI/MRD/DOP/01/2014 dated January 07, 2014.
62. Circular No. CIR MRD/DMS/03/2014 dated January 21, 2014.
63. Circular No. CIR SEBI/MRD/DMS/05/2014 dated February 07, 2014.
241
भारतीय प्रततभूतत और वितिमय बोर् ड
Securities and Exchange Board of India
64. Circular No. CIR/MRD/DP/21/2014 dated July 01, 2014.
65. Circular No. CIR/MRD/DP/22/2014 dated July 04, 2014.
66. Circular No. CIR/MRD/DP/31/2014 dated November 12, 2014.
67. Circular No. CIR/MRD/DP/1/2015 dated January 12, 2015.
68. Circular No. CIR/ MIRSD/1/2015 dated March 04, 2015.
69. Circular No. CIR/MRD/DP/10/2015 dated June 05, 2015.
70. Circular No. CIR/MRD/DP/13/2015 dated July 06, 2015.
71. Circular No. CIR/MIRSD/2/2015 dated August 26, 2015.
72. Circular No. CIR/MRD/DP/18/2015 dated December 09, 2015.
73. Circular No. CIR/MRD/DP/19/2015 dated December 09, 2015.
74. Circular No. CIR/MRD/DP/20/2015 dated December 11, 2015.
75. Circular No. CIR/MIRSD/29/2016 dated January 22, 2016
76. Circular No. SEBI/HO/MRD/DP/CIR/P/2016/58 dated June 07, 2016.
77. Circular No. CIR/MIRSD/64/2016 dated July 12, 2016
78. Circular No. CIR/MIRSD/66/2016 dated July 21, 2016
79. Circular No.SEBI/HO/MIRSD/MIRSD2/CIR/P/2016/95 dated
September 26, 2016
80. Circular No. CIR/IMD/FPIC/123/2016 dated November 17, 2016
81. Circular No. SEBI/HO/DMS/CIR/P/2017/15 dated February 23, 2017
82. Circular No. SEBI/HO/MIRSD/MIRSD6/CIR/P/2017/20 dated March
10, 2017
83. Circular No. SEBI/HO/MRD/DP/CIR/P/2017/29 dated April 03, 2017
84. Circular No. SEBI/HO/MIRSD/MIRSD1/CIR/P/2017/38 dated May 02,
2017
85. Circular number SEBI/HO/GSD/T&A/CIR/P/2017/42 dated May 16,
2017
86. Circular number CIR/MRD/DP/56/2017 dated June 14, 2017
87. Circular number CIR/HO/MIRSD/MIRSD2/CIR/P/2017/64 dated June
22, 2017
88. Circular number SEBI/HO/IMD/FIIC/CIR/P/2017/068 dated June 30,
2017
89. Circular number CIR/IMD/DF-1/67/2017 dated June 30,2017
242
भारतीय प्रततभूतत और वितिमय बोर् ड
Securities and Exchange Board of India
90. Circular number SEBI/HO/MRD/DSA/CIR/P/2018/1 dated January 29,
2018
91. Circular number CIR/DDHS/P/59/2018 dated March 28, 2018
92. Circular number SEBI/HO/OIAE/IGRD/CIR/P/2018/58 dated March
28, 2018
93. Circular number IMD/FPIC/CIR/P/2018/61 dated April 05, 2018
94. Circular number SEBI/ HO/ MIRSD/ DOS3/ CIR/ P/ 2018/ 140 dated
November 13, 2018
95. Circular number SEBI/HO/MIRSD/CIR/PB/2018/147 dated December
03, 2018
96. Circular number CIR/MRD/CSC/148/2018 dated December 07, 2018
97. Circular number SEBI/HO/MIRSD/DOP/CIR/P/2018/153 dated
December 17, 2018
98. Circular number CIR/MRD/DP/158/2018 dated December 27, 2018
99. Circular SEBI/HO/MIRSD/DOS2/CIR/P/2019/10 dated Jan 04, 2019
100. Circular number SEBI/HO/MIRSD/DOP/CIR/P/2019/05 dated January
04, 2019
101. Circular No. SEBI/HO/MRD/DOP2DSA2/CIR/P/2019/13 dated
January 10, 2019
102. Circular No. SEBI/HO/MRD/DOP2-DSA2/CIR/P/2019/22 dated
January 23, 2019
103. Circular number SEBI/HO/MRD/DOP1/CIR/P/2019/24 dated January
31, 2019
104. Circular number SEBI/HO/MRD/DOP2DSA2/CIR/P/2019/26 dated
February 05, 2019
105. Circular No. SEBI/HO/MRD/DOP2DSA2/CIR/P/2019/31 dated
February 15, 2019
106. Circular number CIR/HO/MIRSD/DOS2/CIR/PB/2019/038 dated
March 15, 2019
107. Circular number SEBI/HO/MRD/DMS1/CIR/P/2019/43 dated March
26, 2019
243
भारतीय प्रततभूतत और वितिमय बोर् ड
Securities and Exchange Board of India
COMMUNICATIONS
1. SMDRP/NSDL / 3055 /1998 dated August 11, 1998.
2. SMDRP/RKD /NSDL/2494 /98 dated November 18, 1998.
3. SMDRP/NSDL/4615 /2000 dated March 13, 2000.
4. SMDRP/CDSL / 18300 /2000 dated November 16, 2000.
5. SMDRP/NSDL/26563/2001 dated April 10, 2001.
6. D&CC/ 1099 / 2002 dated November 01, 2002.
7. MRD/DRK/SU/16034/2003 dated August 22, 2003.
8. MRD/VSS/ARR/ 12255/2004 dated June 10, 2004.
9. MRD/DoP/ Dep/82334 /2006 dated December 14, 2006.
10. MRD/DEP/PP/123624 /2008 dated April 23, 2008.
11. MRD/DoP/MC/141442 /2008 dated October 17, 2008.
12. SEBI/ MRD/CDSL/ 149156 /2009 dated January 01, 2009.
13. MRD/CDSL/VM/ 155773 /2009 dated February 27, 2009.
14. MRD/NSDL/VM/158886 /2009 dated March 30, 2009.
15. MRD/DoP/NSDL/VM/ 162378 /2009 dated May 06, 2009.
16. MRD/DoP/NSDL/VM/168994 /2009 dated July 07, 2009.
17. MRD/CDSL/VM/168989 /2009 dated July 07, 2009.
18. SEBI/MRD/DEP/VM/169784 /09 dated July 15, 2009.
19. MRD/DoP/Dep/VM/182963/2009 dated November 12, 2009.
20. MRD/DoP/MAS – OW/16723/2010 dated August 17, 2010.
21. MRD/DP/SG-OW/202/2012 and MRD/DP/SG-OW/203/2012 dated
January 4, 2012.
22. MRD/DP/SG-OW/2010/2012 dated January 20, 2012.
23. CFD email dated November 05, 2015.
24. MIRSD email dated January 16, 2015.
25. SEBI Letter No. MRD//DP/OW/23881/2015 dated August 24, 2015SEBI
letter No. SEBI/HO/MRD/DP/OW/2016/25739/1 & 25740/1 dated
September 14, 2016
26. SEBI letter No. OW/00000/04961/2017/1 dated May 11, 2017
244
भारतीय प्रततभूतत और वितिमय बोर् ड
Securities and Exchange Board of India
27. SEBI letter MIRSD2/DB/AEA/OW/2018/7292 dated March 07, 2018
28. SEBI letter SEBI/MRD/ICC/OW/P/2018/27066/1 dated September 25,
2018
29. SEBI letter MRD/DoPII/DSAII/MIRSD/DOS3/OW/2018/28162/1 dated
October 22, 2018
245