RIGHTS AND OBLIGATIONS OF DEPOSITORIES, PARTICIPANTS, ISSUERS,MANNER OF SURRENDER OF CERTIFICATE OF SECURITY AND CREATIONOF PLEDGE OR HYPOTHECATION

Rights and obligations of depositories, etc.

26. The depositories, participants, issuers, and issuers' agents, in addition to the rights and obligations laid down in the Depositories Ordinance and the bye-laws shall have the rights and obligations arising from the agreements entered into by them.

Depository to declare specific securities eligible arising from the agreements entered into by them.

27. Every depository shall, in its bye-laws, state the specific securities which are eligible for being held in dematerialised form in the depository.

Securities eligible for dematerialisation

28. The following securities shall be eligible for being held in dematerialised form in a depository:-

29. (1) Either on the issuer or on the investors exercising an option to hold his securities with a depository in dematerialised form, the issuer shall enter into an agreement with a depository to enable the investor to dematerialise the securities.¹⁰.

   (2) Where the issuer has appointed a Registrar to the Issue or Share Transfer Agent, who has been granted certificate of registration by the Board under sub-section (1) of section 12 of the Act, the depository shall enter into a tripartite agreement with the issuer and the Registrar to the Issue or Share Transfer Agent, as the case may be, in respect of the securities to be declared by the depository as eligible to be held in dematerialised form.

Provided further that no such agreement shall be required to be entered into where the State or the Central Government is the issuer of Government Securities¹¹.

Systems and procedures

30. Every depository shall have systems and procedures which will enable it to co-ordinate with the issuer or its agent, and the participants, to reconcile the records of ownership of securities with the issuer or its agent, as the case may be, and with participants, on a daily basis.

Connectivity

31. Every depository shall maintain continuous electronic means of communication with all its participants, issuers or issuers' agents, as the case may be, clearing houses and clearing corporations of the stock exchanges and with other depositories.

Transfer to be affected only after payment

32. The depository shall satisfy the Board that it has a mechanism in place to ensure that the interest of the persons buying and selling securities held in the depository are adequately protected and shall register the transfer of a security in the name of the transferee only after the depository is satisfied that payment for such transfer has been made.

Withdrawal by participant

33. Every depository shall allow any participant to withdraw or transfer its account, if the request for such withdrawal or transfer is in accordance with conditions stipulated therefor in the bye-laws of the depository.

Internal monitoring, review and evaluation of systems and controls

34. Every depository shall have adequate mechanisms for the purposes of reviewing, monitoring and evaluating the depository's controls, systems, procedures and safeguards.

External monitoring, review and evaluation of systems and controls

35. Every depository shall cause an inspection of its controls, systems, procedures and safeguards to be carried out annually and forward a copy of the report to the Board.

Insurance against risks

36. Every depository shall take adequate measures including insurance to protect the interests of the beneficial owners against risks likely to be incurred on account of its activities as a depository.

Manner of keeping records

37. Where records are kept electronically by the depository, it shall ensure that the integrity of the automatic data processing systems is maintained at all times and take all precautions necessary to ensure that the records are not lost, destroyed or tampered with and in the event of loss or destruction, ensure that sufficient back up of records is available at all times at a different place.

Records to be maintained

38. (1) Every depository shall maintain the following records and documents, namely:-

   (3) Subject to the provisions of any other law, the depository shall preserve records and documents for a minimum period of five years.

Co-operation with other entities

39. Every depository shall extend all such co-operation to the beneficial owners, issuers, issuers' agents, custodians of securities, other depositories and clearing organizations as is necessary for the effective, prompt and accurate clearance and settlement of securities� transactions and conduct of business.

Prohibition of Assignment

40. No depository shall assign or delegate to any other person its functions as a depository, without the prior approval of the Board.

Agreement by participant

41. Every participant shall enter into an agreement with a beneficial owner before acting as a participant on his behalf, in a manner specified by the depository in its bye-laws.

Separate Accounts

42. (1) Separate accounts shall be opened by every participant in the name of each of the beneficial owners and the securities of each beneficial owner shall be segregated, and shall not be mixed up with the securities of other beneficial owners or with the participant's own securities.

   (2) A participant shall register the transfer of securities to or from a beneficial owner's account only on receipt of instructions from the beneficial owner and thereafter confirm the same to the beneficial owner in a manner as specified by the depository in its bye-laws.

   (3) Every entry in the beneficial owner's account shall be supported by electronic instructions or any other mode of instruction received from the beneficial owner in accordance with the agreement with the beneficial owner.

Statement of accounts

43. Every participant shall provide statements of account to the beneficial owner in such form and in such manner and at such time as provided in the agreement with the beneficial owner.

Transfer or withdrawal by beneficial owner

44. Every participant shall allow a beneficial owner to withdraw or transfer from his account in such manner as specified in the agreement with the beneficial owner.

Connectivity

45. Every participant shall maintain continuous electronic means of communication  with each depository in which it is a participant.

Monitoring, reviewing and evaluating internal systems and controls

46. Every participant shall have adequate mechanism for the purposes of reviewing, monitoring and evaluating the participant's internal accounting controls and systems.

Reconciliation

47. Every participant shall reconcile his records with every depository in which it is a participant, on a daily basis.

Returns

48. Every participant shall submit periodic returns to the Board and to every  depository in which it is a participant in the format specified by the Board or the bye-laws of the depository, as the case may be.

Record of services

49. (1) Every participant shall maintain the following records and documents, namely:-

   (3) Every participant shall allow persons authorised by the depository in which it is a participant to enter its premises during normal office hours and inspect its records.

   (4) Every participant shall intimate the Board the place where the records and documents are maintained.

(5) Subject to the provisions of any other law, the participant shall preserve records and documents for a minimum period of five years.

Manner of keeping records

50. Where records are kept electronically by the participant, it shall ensure that the integrity of the data processing systems is maintained at all times and take all precautions necessary to ensure that the records are not lost, destroyed or tampered with and in the event of loss or destruction, ensure that sufficient back up of records is available at all times at a different place.

Records to be maintained depository-wise

51. If a participant enters into an agreement with more than one depository, it shall maintain the records specified in regulation 49 separately in respect of each depository.

Prohibition of assignment systems.

52. No participant shall assign or delegate its functions as participant to any other person, without the prior approval of the depository.

Agreement by issuer

53. Every issuer whose securities have been declared as eligible to be held in dematerialised form in a depository shall enter into an agreement with the depository in accordance with the provisions of regulation 29.

Provided that no agreement shall be required to be entered into in case :-

54.(1) Any beneficial owner, who has entered into an agreement with a participant, shall inform the participant of the details of the certificate of security which is to be dematerialised, and shall surrender such certificate to the participant:

Provided that where a beneficial owner has appointed a custodian of securities, then he may surrender the certificates of security to the participant through his custodian of securities.

   (2) The participant shall, on receipt of information under sub- regulation (1), forward such details of the certificate of security to the depository and shall confirm to the depository that an agreement has been entered into between the participant and the beneficial owner.

   (3) The participant shall maintain records indicating the names of beneficial owners of the securities surrendered, the number of securities and other details of the certificate of security received.
   (4) The participant shall, furnish to the issuer details specified in sub-regulation (2) alongwith the certificate of security referred to in sub- regulation (1).

   (5) The issuer shall on receipt of the certificate of security from the participant immediately mutilate and cancel it and substitute in its records the name of the depository as the registered owner and shall send a certificate to this effect to the depository and to every stock exchange where the security is listed.

   (6) Immediately upon receipt of information from the issuer under sub-regulation (5), the depository shall enter in its records the name of the person who has surrendered the certificate of security as the beneficial owner, as well as the name of the participant from whom it has received intimation under sub-regulation (2), and shall send an intimation of the same to the participant.

(7) The issuer shall maintain a record of certificates of securities, which have been dematerialised.

Reconciliation

55. The issuer or its agent shall reconcile the records of dematerialised securities with all the securities issued by the issuer, on a daily basis.

Provided that where the State or the Central Government is the issuer of Government securities, the depository shall, on a daily basis, reconcile the records of the dematerialised securities¹⁴.

Connectivity

56. Every issuer or its agent shall establish continuous electronic means of communication with the depository with which it has entered into an agreement.

Information

57. Every issuer whose securities have been declared as eligible for dematerialisation in a depository shall give information to the depository about book closures, record dates, dates for the payment of interest or dividend, dates for annual general meetings and other meetings, dates for redemption of debentures, dates for conversion of debentures and warrants, call money dates and such other information at the time and in the manner as may be specified by the depository in its bye-laws or agreement.

Provided that no such information would be required to be given to the depository where the State or the Central Government is the issuer of Government securities¹⁵.

Manner of creating pledge or hypothecation

58. (1) If a beneficial owner intends to create a pledge on a security owned by him, he shall make an application to the depository through the participant who has his account in respect of such securities.

   (2) The participant after satisfaction that the securities are available for pledge shall make a note in its records of the notice of pledge and forward the application to the depository.

   (3) The depository after confirmation from the pledgee that the securities are available for pledge with the pledgor shall within fifteen days of the receipt of the application create and record the pledge and send an intimation of the same to the participants of the pledgor and the pledgees.

   (4) On receipt of the intimation under sub-regulation(3) the participants of both the pledgor and the pledgee shall inform the pledgor and the pledgee respectively of the entry of creation of the pledge.

   (5) If the depository does not create the pledge, it shall send along with the reasons an intimation to the participants of the pledgor and the pledgee.

   (6) The entry of pledge made under sub-regulation (3) may be cancelled by the depository if the pledgor or the pledgee makes an application to the depository through its participant.

Provided that no entry of pledge shall be cancelled by the depository with the prior concurrence of the pledgee.

   (7) The depository on the cancellation of the entry of pledge shall inform the participant of the pledgor.

   (8) Subject to the provisions of the plegde document, the pledgee may invoke the pledge and on such invocation, the depository shall register the pledgee as beneficial owner of such securities and amend its records accordingly.

   (9) After amending its records under sub-regulation (8) the depository shall immediately inform the participants of the pledgor and pledgee of the change who in turn shall make the necessary changes in their records and inform the pledgor and pledgee respectively.

   (10) (a) If a beneficial owner intends to create a hypothecation on a security owned by him he may do so in accordance with the provisions of sub-regulations (1) to (9).

2. The provisions of sub � regulations (1) to (9) shall mutatis mutandis apply in such cases of hypothecation.