SEBI Proposes Allowing Associations Of Persons To Open Demat Accounts

Markets regulator Securities and Exchange Board of India on Wednesday proposed allowing Associations of Persons to open demat accounts in their name to hold certain securities, excluding equity shares.

The proposal if implemented would promote ease of doing business and encourage the shift from physical to electronic holdings of securities.

In its consultation paper, SEBI has proposed amending its rules to allow AOPs to open demat accounts in their names. These accounts would enable AOPs to hold securities, excluding equity shares, directly.

The AOP would need to provide its details when opening the account and confirm that only permitted securities are held, ensuring the account is not used for equity shares.

SEBI has sought public comments on the proposal by Nov. 5.

The proposal came after SEBI received suggestions to allow partnership firms, AOPs, and unregistered trusts to open demat accounts in their own name, instead of only in the names of their partners, members, or trustees.

Currently, such entities cannot hold company shares unless they are recognised as separate legal entities.

While the law is clear that these entities cannot become company members, it is unclear whether they can hold other financial assets like corporate bonds, government securities, or mutual fund units in demat form, Sebi said.

A review of legal provisions found that it's challenging to form a clear stance on whether partnership firms and unregistered trusts can hold mutual fund units, corporate bonds, or government securities. Therefore, no changes are currently planned for these entities, it added.