The Securities Markets Code quietly introduces some major changes to the Depository framework.
๐ญ. ๐๐ฒ๐ฝ๐ผ๐๐ถ๐๐ผ๐ฟ๐ถ๐ฒ๐ ๐ฎ๐ฟ๐ฒ ๐ป๐ผ๐ ๐ฑ๐ฒ๐ณ๐ถ๐ป๐ฒ๐ฑ ๐ฏ๐ ๐ณ๐๐ป๐ฐ๐๐ถ๐ผ๐ป, ๐ป๐ผ๐ ๐ฟ๐ฒ๐ด๐ถ๐๐๐ฟ๐ฎ๐๐ถ๐ผ๐ป
- Earlier: A depository was simply an entity registered with SEBI.
- Now: Any person providing "depository services" may qualify as a depository.
- This broader definition could potentially bring mutual fund registrars within the ambit of depositories since they already record transactions, distribute benefits and facilitate investor approvals.
- The change may require fresh regulatory clarification.
๐ฎ. ๐ฃ๐ต๐๐๐ถ๐ฐ๐ฎ๐น ๐๐ต๐ฎ๐ฟ๐ฒ ๐ฐ๐ฒ๐ฟ๐๐ถ๐ณ๐ถ๐ฐ๐ฎ๐๐ฒ๐ ๐ฎ๐ฟ๐ฒ ๐ฒ๐ณ๐ณ๐ฒ๐ฐ๐๐ถ๐๐ฒ๐น๐ ๐ต๐ถ๐๐๐ผ๐ฟ๐
- The Depositories Act allowed investors to choose between physical and demat shares.
- SMC removes this option completely.
- Shares can only be credited to a depository account.
- The provision allowing rematerialisation (conversion back to physical form) is also absent.
- The message is clear thar securities ownership is moving to a fully digital regime.
๐ฏ. ๐ข๐ณ๐ณ-๐บ๐ฎ๐ฟ๐ธ๐ฒ๐ ๐๐ฟ๐ฎ๐ป๐๐ณ๐ฒ๐ฟ๐ ๐บ๐ฎ๐ ๐ณ๐ฎ๐ฐ๐ฒ ๐น๐ฒ๐ด๐ฎ๐น ๐๐ป๐ฐ๐ฒ๐ฟ๐๐ฎ๐ถ๐ป๐๐
- Today, transfers through the depository system outside stock exchanges are legal.
- The existing law explicitly treats such transfers as valid spot-delivery contracts.
- SMC retains the exemption for spot-delivery contracts but does not clearly state that depository-based off-market transfers qualify.
- Unless clarified, routine transactions such as gifts, family transfers and promoter restructuring could face legal challenges.
๐ฐ. ๐๐ฒ๐ฝ๐ผ๐๐ถ๐๐ผ๐ฟ๐ถ๐ฒ๐ ๐ด๐ฎ๐ถ๐ป ๐ด๐ฟ๐ฒ๐ฎ๐๐ฒ๐ฟ ๐ฑ๐ถ๐๐ฐ๐ฟ๐ฒ๐๐ถ๐ผ๐ป
- Currently, regulations and agreements determine how often issuers receive beneficial ownership information.
- Under SMC, depositories may decide this frequency through their own bye-laws.
- Critics argue this could reduce transparency and delay critical ownership-related information for issuers.
๐ฑ. ๐ฆ๐๐ฟ๐ผ๐ป๐ด๐ฒ๐ฟ ๐ถ๐ป๐๐ฒ๐๐๐ผ๐ฟ ๐ฝ๐ฟ๐ผ๐๐ฒ๐ฐ๐๐ถ๐ผ๐ป ๐บ๐ฒ๐ฎ๐๐๐ฟ๐ฒ๐
- The Code reflects lessons from past cases involving misuse of client securities.
- It requires clear specification of rights and obligations of depositories, participants, and issuers.
- Depositories must adopt safeguards against unauthorized access and misappropriation of client assets.
- Investor compensation for losses caused by negligence continues to be protected.
The bottom line is SMC does not merely merge existing laws, it redefines what a depository is. These changes could significantly reshape India's securities market infrastructure.