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Unit 7: Depositories and Custodians

8. Extend to other custodial entities/depositories/clearing organizations, all cooperation Notes
necessary for conduct of business in the areas of inter-custodial settlements and transfer of
securities/funds. Ensure an arm's length relationship from other businesses, both in terms
of staff and systems. Exercise due diligence in safekeeping/administration of assets of
clients in custody.
9. The officers/employees engaged in custodial services should not be engaged in any other
activity carried out by him.
Separate custody account and agreement with clients: A separate custody account for each client
should be opened by the custodian and assets of one client should not be mixed with those of
others. The custodian should enter into an agreement with each client providing for the
circumstances under which he would (1) accept/release securities, assets/documents and money
from the custody account, and (2) receive rights/entitlement on the securities of the client. It
should also include circumstances and the manner of registration of securities in respect of each
client and details of insurance to be provided for by the custodian.
Maintenance of records: The custodians should maintain records/documents on behalf of/for
each client containing details of: securities, assets/documents received/released, money received/
released, rights/entitlements arising from the securities held, registration of securities ledger,
instructions received from/given to clients and all reports submitted to the SEBI. These records
should be maintained for at least five years and the place where they are maintained to the SEBI
should be intimated.
Appointment of compliance officer: Every custodian of securities should appoint a compliance
officer to monitor the compliance of the SEBI Act/regulations/notifications/ guidelines/
instruction and so on issued by the SEBI/government and for redressal of investors' grievances.
He should immediately and independently report to the SEBI any non-compliance observed by
him.
Information to SEBI: The SEBI can, at any time, ask for any information with respect to any
matter relating to the activities of a custodian. Such information must be provided within such
reasonable period as the SEBI may specify.

Monitoring and Audit of Custodians by SEBI

The 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:
1. To ensure that they are being maintained in the specified manner.

2. To investigate the complaints received from the investors/clients/any other person on
any matter related to the activities of Custodian.
3. To ascertain compliance with the provisions of the SEBI Act and these regulations.

On the basis of the inspection/investigation report, the SEBI can call upon the custodian to take
such measures as it deems fit.
Suspension of registration: In case of default, the SEBI can suspend/cancel registration of a
custodian. The registration of the custodians is liable to be suspended by the SEBI for the following
reasons:
1. Contravention of the provisions of the SEBI Act, rules and regulations.

2. Failing to provide any information required by the SEBI or furnishing false/misleading
information.

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