NISM-Series-VI: Depository Operations · Introduction to Depository

Legal Framework: Depositories Act 1996 and SEBI Regulations

Updated 11 October 2026 · Fact-checked

The Depositories Act, 1996 lets securities be held and transferred in electronic form through depositories. SEBI (Depositories and Participants) Regulations, 2018 set the rules for depositories and participants. The depository is the registered owner; the investor is the beneficial owner. Solve questions by first identifying who holds legal title and who holds economic rights.

Understand Legal Framework: Depositories Act 1996 and SEBI Regulations

Before 1996, shares were held as paper certificates. Transfers needed physical delivery and signatures. This caused delay, forgery, theft and bad delivery. The Depositories Act, 1996 was passed to fix this. It allows securities to be held in electronic (dematerialised) form and transferred by book entry.

The Act creates a legal basis for a depository: an entity registered with SEBI that holds securities in electronic form on behalf of investors. It works through depository participants (DPs), who deal with investors. The Act also lets an investor choose to hold securities in physical or demat form, subject to the rules that apply to the security.

The key idea is the split of ownership. Under Section 9(1) of the Act, the depository is deemed the registered owner for the purpose of effecting transfer of ownership of securities on behalf of the beneficial owner. When securities are in demat form, the depository's name appears in the issuer's register. The beneficial owner is the person who has the rights and benefits: dividends, bonus, voting and sale proceeds. This is the investor. The depository holds legal title for the transfer purpose only and has no voting rights or benefit over those securities.

The Act says that the depository, as registered owner, has no voting rights or other rights and privileges of a holder in respect of securities held in its name (Section 9(2)). The beneficial owner is entitled to all the rights and benefits, and is subject to all the liabilities, in respect of those securities (Section 9(4)). The depository's records identify the beneficial owners, and issuers rely on those records to deal with them for corporate benefits.

SEBI makes the detailed rules. The SEBI (Depositories and Participants) Regulations, 2018 replaced the 1996 regulations. They cover registration of depositories and participants, eligibility and conduct, rights and obligations, and the operation of accounts and records. For the exam, remember who is regulated, what SEBI requires, and the owner distinction.

Key formulas to remember

Registered owner: Registered owner (demat) = the depository, deemed registered owner under Section 9(1) for the purpose of effecting transfer of ownership; The depository holds legal title for transfer purposes only. Under Section 9(2) it has no voting rights or other rights and privileges of a holder. Under Section 9(4), rights and benefits belong to the beneficial owner.
Beneficial owner: Beneficial owner = a person whose name is recorded as such with a depository; This is the investor. Dividends, bonus, voting and sale proceeds belong to this person.
Ownership split: Legal title → depository; economic rights → beneficial owner; Use this one line to answer any registered vs beneficial owner question.
Chain of entities: Issuer → depository → depository participant → investor; This is only a simple picture of how the system is organised. The investor ordinarily accesses depository services by opening an account with a DP.
Regulator and rule source: Act = Depositories Act, 1996; detailed rules = SEBI (Depositories and Participants) Regulations, 2018; SEBI registers and supervises depositories and participants. Do not mix this with the Companies Act.
Form of holding: Investor may hold in physical or demat form, subject to applicable rules; Demat is an option under the Act, though SEBI rules make demat mandatory in many cases, such as IPO allotment and trading in listed securities.

How to solve Legal Framework: Depositories Act 1996 and SEBI Regulations questions

Use this method for any question on the Depositories Act, SEBI regulations or owner types.

1Read the question and mark the keyword: Act, regulations, registered owner, beneficial owner, DP or SEBI.
2Decide whether the question is about law (Act or regulations) or about ownership.
3For ownership, ask: who is deemed the registered owner for effecting transfer, and who gets the benefits? The first is the depository; the second is the beneficial owner.
4For regulator questions, remember that SEBI registers depositories and participants and frames the regulations.
5Cross out options that give voting rights or dividends to the depository.
6Be careful with options that say demat is the only form allowed in every case. Also check options about dealing directly with the depository: the investor ordinarily accesses depository services through a DP.
7Pick the option that matches the Act's wording in plain terms, and check it does not overstate.

Quickest way: Two-name test

When to use it: Use for any MCQ asking who owns, who votes, who receives benefits or who is registered.

Write two labels: Legal title and Economic rights.
Assign legal title to the depository and economic rights to the investor, for demat holdings.
Match the option to the right label.
If an option gives the depository voting or dividend rights, reject it.
If two options remain, re-read the Act's wording on the depository's rights and the beneficial owner's rights, and choose the option that matches it without overstating.

Common mistakes in Legal Framework: Depositories Act 1996 and SEBI Regulations

Saying the depository can vote on shares held in its name.
Students link registered owner with full ownership.
Fix: Remember the depository has legal title for transfer only and has no voting rights (Section 9(2)). Voting and benefits belong to the beneficial owner (Section 9(4)).
Treating the investor as the registered owner for demat shares.
The investor feels like the owner, so the name seems obvious.
Fix: In the issuer's register, the depository's name appears. The investor appears in the depository's records.
Believing the investor opens an account directly with NSDL or CDSL.
Students confuse depository with DP.
Fix: The investor ordinarily opens a demat account through a DP, which acts as the agent of the depository under the Act.
Confusing the 2018 SEBI regulations with the Companies Act or the SEBI Act.
Several laws touch securities and the names sound alike.
Fix: Link depositories to the Depositories Act, 1996 and the SEBI (Depositories and Participants) Regulations, 2018.
Assuming the Act makes demat compulsory for every investor and security.
Students overstate that dematerialisation is universal.
Fix: The Act gives the option to hold in demat or physical form. Mandatory demat comes from SEBI rules for specified cases, so avoid absolute words unless the question gives the context.

Worked examples

Example 1

Mr Rao holds 500 shares of a listed company in his demat account. Who is the registered owner and who is the beneficial owner?
A. Registered owner: Mr Rao; beneficial owner: the depository
B. Registered owner: the depository; beneficial owner: Mr Rao
C. Both are Mr Rao
D. Registered owner: the DP; beneficial owner: the issuer

Show the solution

Ask whose name is in the issuer's register for demat securities. It is the depository.
So the depository is the registered owner, holding legal title.
Ask who gets dividends, bonus and voting rights. It is Mr Rao.
So Mr Rao is the beneficial owner.
Option A reverses the roles. Option C ignores the split. Option D wrongly names the DP and the issuer.

Answer: B. The depository is the registered owner and Mr Rao is the beneficial owner.

Example 2

Which statement about the Depositories Act, 1996 is correct?
A. The depository can exercise voting rights on securities held in its name
B. A depository participant is the registered owner of all demat securities
C. The Act provides for securities to be held and transferred in electronic form through depositories
D. The Act applies only to physical share certificates

Show the solution

Recall the purpose of the Act: to enable electronic holding and book-entry transfer.
Check A: the depository, as registered owner, has no voting rights over these securities. Reject.
Check B: the registered owner is the depository, not the DP. Reject.
Check D: the Act is about demat, not only physical certificates. Reject.
Check C: it matches the purpose of the Act.

Answer: C. The Act provides for securities to be held and transferred in electronic form through depositories.

Exam tips

Expect direct questions on who is the registered owner and who is the beneficial owner. Learn the one-line split and you will not lose these marks.
Watch for absolute words such as always, only and all. The Act gives investors an option, so such options are often traps.
If a question asks about the regulator, SEBI is the answer. The Act itself and the 2018 regulations are the two names to recognise.
Negative marking applies in this paper, so do not guess blindly. If two options remain, re-check the Act's wording on who has voting rights and who gets the benefits, and choose the option that matches it.

Practice questions from Introduction to Depository

Legal Framework: Depositories Act 1996 and SEBI Regulations: frequently asked questions

What is the Depositories Act, 1996?

It is the law that allows securities to be held and transferred electronically through depositories. It gives legal backing to book-entry transfer and defines the rights of depositories and beneficial owners. It removed much of the paperwork and risk of physical certificates.

What is the difference between a beneficial owner and a registered owner?

The registered owner is the person named in the issuer's register. For demat securities, this is the depository, which is deemed the registered owner under Section 9(1) for effecting transfer and holds legal title only. The beneficial owner is the investor, who under Section 9(4) is entitled to all rights and benefits, such as dividends, bonus and voting rights, and is subject to all liabilities.

Which regulations govern depositories and participants now?

The SEBI (Depositories and Participants) Regulations, 2018 govern them. They deal with registration, conduct, obligations and operations of depositories and participants. They replaced the earlier 1996 regulations.

Does the depository have voting rights on the securities it holds?

No. Under Section 9(2) of the Act, the depository as registered owner does not have voting rights or other rights and privileges of a holder in respect of these securities. Those belong to the beneficial owner.