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NISM Certifications · NISM-Series-VI: Depository Operations · Depository and its Business Partners

A DP is found to have failed to segregate client securities from its own and wishes to know which party has the authority to inspect the DP and take action, given that the DP is registered with SEBI and is also an agent of a depository. Which statement best describes the position?

Both SEBI and the depository can inspect the DP, and the depository can act under its bye-laws. A DP is a SEBI-registered intermediary and also the depository's agent, so it is subject to regulatory and depository oversight. Exchanges and issuers have no such authority over the DP's depository operations.

  1. AOnly the stock exchange can inspect and penalise the DP
  2. BOnly the issuer of the securities can inspect the DP
  3. CBoth SEBI and the depository can inspect the DP, and the depository can take action under its bye-lawsCorrect
  4. DNeither can act because DPs are independent entities

Explanation

A DP is registered with SEBI and operates under the depository's bye-laws and business rules. SEBI has inspection powers, and depositories also inspect their participants and can take disciplinary action under their bye-laws. Exchanges and issuers have no such supervisory authority over DPs as DPs.

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