Presentation on Custodian and custodial services

DARSHAN-964 VIREESH-985

INTRODUCTION
The custodians of securities who provide custodial

services play a critical role in the secondary market. According to the SEBI regulations, custodial services in relation to securities mean (i) safe-keeping of the securities of a client who enters into an agreement to avail of these securities and (ii) providing services incidental thereto, including:

 Maintaining accounts of the securities of a client;

Collecting the benefits/rights accruing to him in

respect of securities; Keeping him informed of the actions taken/ to be taken by the issuer of securities, having a bearing on the benefits/ rights accruing to him; Maintaining and reconciling records of the services referred to above

Registration
Registration with SEBI is mandatory Application in prescribed form must be filed along

with application fee of Rs. 1,00,000 Requirements: Applicant must have net worth of Rs.50crores Applicant must be a body corporate Has to pay an annual fee of Rs.10 crores or 0.01%of the net worth

General obligations/ Responsibilities

Code of conduct: Be prompt in distributing dividends / interest /

any such accruals of income received / collected by him on behalf of his clients, on the securities held in custody. Be continuously accountable for the movement of securities in/out of custody account, deposit and withdrawal of cash from the clients accounts and provide complete audit trail whenever called by the client/SEBI

 Maintain client confidentiality in respect of his

affairs. Take precautions to ensure that, where records are electronically maintained, continuity in record keeping is not lost / destroyed, and sufficient backup of the records is available.

 Segregation of activities Monitoring/review/evaluation/inspection

of systems/ controls Prohibition of assignment Separate custody account and agreement with clients Internal controls Maintenance of records Appointment of compliance officer Information to SEBI

Inspection and audit

SEBI is empowered to conduct inspection /

investigation, including inspection by an auditor of the books, of accounts /records /documents /of custodians for any of the following purposes: To ensure that they are being maintained in the manner specified in these regulations. To investigate into complaints received from the investors/clients/any other person on any matter having a bearing on his activities To ascertain compliance with the provisions of the SEBI Act and these regulations.

Action by SEBI incase of default:

Suspension of Registration: 2. Cancellation of Registration:
1.

Suspension of Registration:
Failure to furnish any information required by the

SEBI/furnishing false/ misleading information in material particular. Non-submission of periodic returns / reports required by the SEBI. Non-cooperation in any enquiry / inspection by the SEBI. Failure to update its systems/ procedures as recommended by the SEBI. Failure to pay annual fees Guilty of misconduct / breach of code of conduct

Cancellation of Registration:
The SEBI can cancel the Registration of a

custodian when 1. It is guilty of fraud or has been found convicted of an offence involving moral turpitude, and 2. It has been guilty of repeated default of the nature, leading to suspension.

Uniform Norms and Practices

Function as an integral part of the system and integrate with the system. Therefore, no custodian should have such norms and practices as would result in their functioning in isolation, away from the clearing and settlement systems. 2. Become members of clearing houses/ clearing corporations of the stock exchange(s) and participate in the clearing and settlement process, through them, for all securities. 3. Comply with the applicable rules of stock exchanges where they have become members of the clearing house/ clearing corporation. This would facilitate operations of clients, and also result in the reduction of cost of service for the clients.
1.

Contd..
4. Advise all other clients about the facility to settle

a) b) c) d)

their trades through the clearing house/ clearing corporation, stressing on advantages such as Time bound rectification of objections No shortages Reduction of risk Cost efficiency

Thank You