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egistered Owner in the books of the issuer, but ownership rights and liabilities rest with Beneficial Owner. All the rights, duties and liabilities underlying the security are on the beneficial owner of the security.

Free Transferability of shares: Transfer of shares held in dematerialized form takes place freely through electronic book-entry system.

Legal Framework

The depository business in India is regulated by:

a. The Depositories Act, 1996

It was enacted to provide for regulation of depositoriesÂ in securities and for matters connected therewith or incidental thereto. It came into force from 20th September, 1995. It provides for the establishment of single and multiple depositories. Anybody to be eligible needs to be formed and registered as a company under the Companies Act, 1956 and seek registration with SEBI and obtain a Certificate of Commencement of Business from SEBI on fulfillment of the prescribed conditions.

b. The SEBI (Depositories and Participants) Regulations, 1996

SEBI on 6th May, 1996 issued SEBI (Depositories and Participants) Regulations, 1996 which apply to depositories and its participants. The Depositories Act requires that the registration of the depository, depository participant and custodian, is mandatory with SEBI. [5] These regulations also contain provisions for operations and functioning of depositories, for application and certificates used and schedule of fees for participants etc.

c. Bye-Laws of Depository

Depository is required to frame its bye-laws [6] with the prior approval of SEBI, consistent with the provisions of the Act and the regulations made by SEBI thereunder. However on non-compliance SEBI has the power to amend or revoke the bye-laws on its own.

d. Other Laws

Apart from the above, Depositories are also governed by certain provisions of Companies Act, 1956, The Indian Stamp Act, 1899, SEBI Act,1956, SCRA,1956, Benami Transaction Prohibition Act,1988, Income Tax Act,1961, Bankers Book Evidence Act,1891.

Ownership Norms

Setting up of a Depository:

An application for the grant of a certificate of registration as a depository shall be made to the Board by the sponsor in Form A. A Sponsor (anchor investor), as per section 2 (g), SEBI (Depositories and Participants) Regulations, 1996, means any person or persons who, acting alone or in combination with another proposes to establish a depository and undertakes to perform the obligations of a sponsor under these regulations.

It is to be accompanied by the fee [7] and be paid in the manner specified thereof. [8]

The application should be accompanied by draft bye-laws of the depository that is proposed to be set up. The sponsor is to be from one of the mentioned categories:

(i) A public financial institution as defined in section 4A of the Companies Act, 1956 (1 of 1956);

(ii) A bank included for the time being in the Second Schedule to the Reserve Bank of India Act, 1934 (2 of 1934);

(iii) A foreign bank operating in India with the approval of the Reserve Bank of India;

(iv) A recognized stock exchange within the meaning of clause (j) of section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956);

(v) A body corp