SEBI (CUSTODIAN OF SECURITIES) REGULATIONS, 1996

Narendra Kumar

10 Sep, 2019

Meaning:

Custodial Services in relation to securities of a Client or Gold or Gold related instruments held by a mutual fund or title deeds of real estate assets held by a real estate mutual fund scheme. It also includes:

• Maintaining accounts of securities or gold or gold related instruments or title deeds of real estate assets of a Client.
• Undertaking activities as a Domestic Depository in terms of Companies (Issue of Indian Depository Receipts^[1]) Rules, 2004;
• Collecting the benefits or rights accruing to the client in respect of securities or gold or gold related instruments or title deeds of real estate assets;
• Keeping the client informed of the actions taken or to be taken by the issuer of securities, having a bearing on the benefits accruing to the client.
• Maintaining & reconciling records of the services

It prevents the theft or loss of securities. SEBI, It holds securities & other assets in electronic or physical form. The fees charged by custodians depends upon the clients & their desires.

E.g.: BNP Paribus security services, Bank of America, JP Morgan Chase, Citi Group, Axis Ltd.

Process:

An Application for grant of Certificate shall be made in Form A to SEBI accompanied by application fees. An application that is incomplete in all respects or which does not conform to the instructions specified shall be rejected. Provided before rejecting such application, a reasonable opportunity of being heard should be given to the applicant.

If the application is fine in all respects, Board shall be satisfied that all particulars have been furnished & the applicant is eligible for grant of a certificate.

Thereafter, the grant of Certificate in Form B upon receipt of the registration fee.

Read our article:SEBI Guidelines for Making Public Offer

Consideration of Application:

• The applicant must fulfill the capital requirements.
• The applicant has the necessary infrastructure, adequate office space, vaults for the safe custody of securities & computer system capability, required to discharge his activities.
• The applicant has the requisite approvals under any law for the time being in force, in connection with providing custodial services related to Gold or Gold related instruments of a mutual fund.
• The applicant is a fit & proper person.
• It shall enter into a valid agreement with the Client for the purpose of providing custodial services.
• It shall not carry on any activity other than activities related to the rendering of financial services.
• The applicant has in his employment competent persons who have the capacity to manage the same.
• Grant of Certificate is in the interest of investors.
• The applicant has prepared a complete manual, setting out the systems & procedures to be followed by him for the effective discharge of his functions.

Capital Requirement & Other Aspects:

• The net worth of a minimum of rupees 50 Cr.
• Validity period: 3 years from the date of the grant of registration or renewal.
• Every Custodian of securities shall abide by the Code of Conduct as set out in the third schedule.
• Every Custodian shall open a separate account for each client whose security is in custody. Also, they have to enter into an agreement with each client on whose behalf it is acting as custodian.
• Every Custodian shall have internal controls to prevent manipulation of records & documents including an audit of securities held on behalf of the client.
• Every Custodian shall preserve the records & documents for a minimum period of 5 years.

Fees:

• Application Fees: 5,00,000/-
• Registration Fees: 50,00,000/-
• Annual Fees: 10, 00,000 or 0.0005 % of the assets under custody of securities, whichever is higher.

  Fees specified shall be payable by demand draft or bankers cheque in favor of ‘SEBI^[2]’ at Mumbai. 

*Custodians are clearing members not trading members. A trading member may assign a particular trade to a custodian for settlement.

Read our article:SEBI (Depository Participant Regulations), 1996