Have CDSL and NSDL, both share market depository participants (DPs) that hold client demat accounts, put restrictions on off-market transactions? Share brokers’ association ANMI has raised concerns with the two DPs on how a recent circular by them was effectively restrictive on various ways of doing off-market trades, which are legitimate and permissible by law.

Recently, the two DPs came out with a circular specifying off-market transactions that it would allow. Market players say the circular seems to have been issued in the wake of alleged fraud by Allied Financial, which gave away client collateral as its own to trade in the derivatives segment. BusinessLine had reported on July 15 that the Allied Financial matter had highlighted how there was a lack of mechanism at clearing corporations to segregate collateral provided by clients and that of the broker for trading in the futures and options (F&O) segment.

In that context, the DPs took it up on themselves to curb off-market deals that could be detrimental to clients or could give an edge to brokers, experts say.

“It is highly unlikely that DPs could have acted without SEBI’s knowledge. But market regulations should not be restrictive to the effect that it could hurt legitimate transactions and the circular by DPs seems to come close to doing that,” a lawyer involved in SEBI-related matters said.

Omitted methods

ANMI has specifically pointed out how various methods of off-market transactions have been omitted by the DPs in the circular. It includes transfer from minor account to guardian account, transfer between family member accounts for private purposes and its reversal, transfer between clients and banks/NBFCs for loan against shares, transfer between private persons for security against loan, transfer of delisted or unlisted share, and shares/mutual fund units provided as collateral or loan to the company by directors.

Transfer of shares by family member, director, HUF to exchange or broker; transfer of securities by jobbers, traders conducting trades in pro account to member towards margin deposit as per agreement between them or such reversal; transfer of security by employees against loans or advances; transfer of security for loan between two private parties; and friendly transfer of securities between two parties are also not covered by the new circular, said ANMI.

Besides, transfer of securities in case of demerger, transfer of shares from trust to beneficiaries, transfer of corpus from HUF to Karta, and transfer of shares in case of capital contribution by partners, dissolution of firm, distribution of assets among partners or stakeholders are some of the off-market deals that are not covered by DPs in their recent circulars, ANMI added.

Related Topics