SEBI Depositories and Participants Regulations
The SEBI (Depositories and Participants) Regulations 2018 govern the registration, obligations, and conduct of depositories (NSDL and CDSL) and their registered participants, ensuring the safe custody and electronic transfer of securities held in dematerialised form.
The regulations were initially framed in 1996 and comprehensively replaced by the 2018 version, incorporating decades of operational experience and aligning with the Depositories Act 1996. The Depositories Act provides the legal foundation for dematerialisation and the beneficial-owner framework — under which the depository holds securities in its own name as a 'registered owner' while the actual investor is the 'beneficial owner' entitled to all economic rights.
The 2018 Regulations classify participants (Depository Participants, or DPs) into several categories: clearing members (broker-members of stock exchanges), banks, non-banking finance companies, financial institutions, and custodians. Each category must meet prescribed net-worth requirements and obtain a certificate of commencement of operations from the relevant depository. SEBI must approve any change in ownership or control of a DP.
Key operational obligations under the regulations include: (a) maintaining separate client accounts and not co-mingling client securities with the participant's proprietary holdings; (b) executing dematerialisation and rematerialisation requests within prescribed timelines (currently five working days); (c) crediting or debiting the beneficial owner's account within one working day of receiving delivery instructions; (d) retaining records of all transactions for a minimum of eight years.
The regulations also govern system audits of depositories (annual audits by SEBI-empanelled auditors), business continuity planning, and cybersecurity requirements that have been tightened significantly since 2019. Both NSDL and CDSL are required to maintain a 'settlement guarantee fund' to cover potential losses arising from participant defaults. SEBI has additionally prescribed nomination (Rule 19A of SEBI Regulations) as mandatory for demat accounts to simplify transmission on death.
The Demat account grievance redressal mechanism — including the SCORES platform — allows investors to file complaints against DPs for delays, incorrect debit, or failure to execute instructions. DPs found in violation face penalties, suspension, or cancellation of registration.