SEBI adjudicates CDSL over pledge rejection and DP penalty failures

This order details SEBI's adjudication of alleged regulatory violations by Central Depository Services (India) Limited (CDSL) identified during an inspection for FY 2023-24, specifically concerning pledge creation, basic services demat account conversions, and the handling of client unpaid securities.

Who it concerns: Central Depository Services (India) Limited (CDSL)

What SEBI found or ordered

• Alleged violation of Regulation 79(5) of DP Regulations for failing to communicate reasons for pledge rejections to participants.
• Alleged failure to ensure effective conversion of eligible demat accounts to Basic Services Demat Accounts (BSDA) or obtaining opting-out confirmations, with 1,10,95,451 eligible accounts unconverted at the end of the inspection period.
• Alleged violation of SEBI Circular dated November 11, 2022 regarding the release of securities from the Client Unpaid Securities Pledgee Account (CUSPA) on the 6th and 7th trading days instead of the mandated 5th trading day.
• Alleged lack of effective supervision over Depository Participants (DPs) regarding BSDA compliance and pledge invocation timelines.

Also in the document

• The order notes that CDSL is considered a 'first level regulator' for DPs, and SEBI alleged that CDSL's penalties on DPs for non-compliance were treated by DPs as a 'cost of business' rather than leading to improved performance.
• The inspection period covered FY 2023-24, with findings communicated to CDSL in January 2024.
• The document is an Adjudication Order, indicating the process is at the stage of determining penalties after a Show Cause Notice was issued in August 2024.