SEBI has, on October 3, 2018, issued the SEBI (Depositories and Participants) Regulations, 2018 (‘New DP Regulations’), replacing the SEBI (Depositories and Participants) Regulations, 1996 (‘Old DP Regulations’) introducing amendments largely related to structuring, shareholding and governance of depositories. Some of the key aspects are set out below:

(i)      Structuring: Under the New DP Regulations, a SEBI registered depository has been permitted to carry on any other activity (whether involving the deployment of funds or otherwise), after obtaining prior SEBI approval, as against the Old DP Regulations as per which depositories were only permitted to undertake other activity which were incidental to the activity of the depository. Moreover, the New DP Regulations now expressly provide that the prior approval of SEBI shall not be required in case of treasury investments, if such investments are as per the investment policy approved by the governing board of the depository. Similar to the position under the Old DP Regulations, the New DP Regulations permit the depository to carry out an activity not incidental to its activities as a depository through the establishment of strategic business unit(s) specific to each activity as may be assigned to the depository by the Central Government or by a regulator in the financial sector (through deployment of funds or otherwise).

(ii)     Shareholding: Under the New DP Regulations, the maximum prescribed shareholding in a depository, directly or indirectly, either individually or together with persons acting in concert has been retained at 5% of its paid-up equity share capital with the newly introduced exception of both Indian and foreign stock exchanges, Indian and foreign depositories, Indian and foreign banking companies, Indian and foreign insurance companies, public financial institutions, a foreign commodity derivatives exchange and a bilateral/multilateral financial institution approved by the Central Government, which may acquire or hold up to 15% of the paid-up equity share capital of such depository. An ‘applicant’ who proposes to establish a depository under the New DP Regulations is now locked in for a period of five years from the date of registration and can only hold up to 15% of the share capital of the depository, whereas under the Old DP Regulations, the sponsor was required to hold at least 51% of the equity share capital.

(iii)    Governance: Under the New DP Regulations, the number of public interest directors cannot be less than the number of shareholder directors on the governing board of a depository. The requirement under the Old DP Regulations for at least one public interest director to be present in the meetings of the governing board to constitute the quorum, has been replaced with the requirement of the public interest directors not being less than the number of shareholder directors to constitute the quorum. The New DP Regulations has now specifically included the managing director in the category of shareholder directors and provide for voting on a resolution of the governing board to be valid only when the number of public interest directors that have cast their vote on such resolution is equal to or more than the number of shareholder directors who have cast their vote on such resolution, with a casting vote in favour of the chairperson of the governing board. Subject to prior approval of SEBI, the chairperson will be elected by the governing board from amongst the public interest directors. Lastly, no foreign portfolio investor (‘FPI’) will have any representation on the governing board.