Page 141 - DCOM304_INDIAN_FINANCIAL_SYSTEM

Indian Financial System

Notes 3. Non-submission of periodic returns reports required by the SEBI.
4. Non-cooperation in any enquiry/inspection by the SEBI.
5. Failure to update its systems/procedures as recommended by the SEBI.
6. Failure to resolve the complaints of clients or provide a satisfactory reply to the SEBI in
related matters.
7. Guilty of misconduct/breach of code of conduct.
8. Failing to pay annual fees.

SEBI's Norms and Practices for Custodians

The SEBI has prescribed some uniform norms and practices for the custodians of securities in
their interactions with other market participants. They must:
1. act as an integral part of the system. Therefore, no custodian should have such norms and
practices as would result in their functioning in isolation, away from the clearing and
settlement systems.
2. become the members of clearing houses/clearing corporations of the stock exchange(s)
and participate in the clearing and settlement process, through them, for all securities.
3. comply with the applicable rules of stock exchanges where they have become members of
the clearing house/clearing corporation. This would facilitate operations of clients, and
also result in the reduction of cost of service for the clients.
4. advise all their clients about the facility of settling their trades through the clearing
house/clearing corporation, stressing on advantages such as (i) time bound rectification
of objections, (ii) no shortages, (iii) reduction of risk and (iv) cost efficiency.

5. highlight that 'DVP trades' (i.e. Delivery vs. Payment Trade) where delivery of securities
is not taken or given by the custodian through the clearing house/clearing corporation
would not enjoy the attendant benefits.
6. adopt the uniform good/bad delivery norms, including norms for the rectification of bad
deliveries through Bad Delivery Cell, framed by the SEBI and circulated to all stock
exchanges, as amended from time to time.
7. adopt, in cases of trades where the custodian does not take or give delivery from or to the
clearing house/clearing corporation (DVP trades), the following norms:
(i) Accept the partial delivery of shares arising from a trade from the buying broker,
irrespective of the value of the trade.

(ii) Accept the delivery of shares arising from a trade from the buying broker in at least
two partial deliveries, with the first partial delivery accounting for at least 50 per
cent of the total trade size. The delivery of shares of the second partial delivery
should be completed in accordance with the bylaws of the stock exchange though
which the trade was executed.
(iii) Bring to the notice of the SEBI, exceptions in case any client has a reservation about
accepting partial settlement.
(iv) Make payment for all shares delivered up to 5.30 p.m. on day 1 by 10 a.m. on day 3,
so that the high value clearing on day 3 is possible for the broker.

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