Market regulator Sebi is looking to overhaul its norms for depository systems with an aim to strengthen its oversight mechanism and to safeguard against any systemic risks posed by single-point failures.
The depositories work as safe-keepers of various kinds of securities issued by the companies as well as other entities and these entities are regulated by the Sebi (Securities and Exchange Board of India).
The depositories have the mandate to help the companies convert their physical shares or securities into dematerialised or demat form and thereafter maintain those
shares, and also supervise proper conversion and reconciliation of their total share capital by the companies.
A 'Depository System Review Committee' constituted by Sebi has been asked to conduct an overall assessment/adequacy of existing depository framework and identify potential areas for review, a senior official said.
The move comes at a time when efforts are on to expand the ambit of depositories by allowing them to hold new asset classes in demat format.
Sebi has received suggestions from the government to expand the list of asset classes to be held by a depository.
It has been suggested that there are many assets/records such as warehouse receipts, fixed deposits with banks and corporates, insurance policies, Post Office investments and University degree certificates that can be held in demat form.
To begin with, depositories may be be first allowed to hold only those financial assets for which there exists a sectoral regulator, as it might require legal amendments in relevant Acts before Sebi might notify records such as degree certificates as securities, the official said.
Sebi's Depository System Review Committee, which comprises outside experts as also a member secretary from the regulator, would assess the existing depository system to benchmark it against the global best practices.
Besides, it will also identify the areas for continuous improvement of systems, procedures and practices and make the required recommendations.
The mandate to the Sebi panel also includes identifying "systemically important market infrastructure providers/ institutions/depository participants and their inter-linkages and identify areas and suggest safeguards to prevent single point failures and denial of depository service.
It would also review the existing system of inspection by depositories and suggest changes for strengthening monitoring and oversight of depository participants, the official added.
Sebi's Depository System Review Committee would also study the relevant principles of IOSCO, a global body of market regulators from across the world, and European Central Bank recommendations for Central Securities Depositories.