FinTech Limited, a newly incorporated company from the rapidly growing digital finance sector, aims to enter into the securities market infrastructure by establishing itself as a new and leading depository participant. B

CS Executive · Capital Market and Securities Laws · PYQS · June 2026
FinTech Limited, a newly incorporated company from the rapidly growing digital finance sector, aims to enter into the securities market infrastructure by establishing itself as a new and leading depository participant. Because, with the increase in paperless trading and growing investors' participation, its management believes this as a lucrative opportunity. Therefore, the management applies for registration under SEBI (Depositories and Participants) Regulations, 2018. The company proudly claims to have cutting-edge ambitions. But, in real terms, it presents a mixed picture of preparedness. The company has a net worth of ₹ 75 crore. Management feels this level is sufficient to meet the general infrastructure for such an institution. Its promoters, consist entirely of private investors and venture capitalists in India, with no Financial Institution participations. X, an Indian resident is holding about four percent of the paid-up equity capital and desirous to increase it by additional six percent of the capital. The company is yet to develop technological infrastructure and secure systems to maintain electronic records of securities. The management team is very enthusiastic and energetic, though they don't have prior experience in handling large-scale securities market operations. Despite its ambitious vision to revolutionize the depository business, management of FinTech Limited know that there will be more challenges in the smooth running of the operations. Because, management feels there will be some operational issues on reconciling the records of dematerialised securities on monthly basis, as well as, the audit report required for the purposes of reconciliation of the total issued capital, listed capital and capital held in the dematerialized form etc. can be issued by their Chief Financial Officer [CFO], he is yet be appointed. Based on these scenarios, determine the legal position with respect to the provisions of the said Regulation on the below aspects: (i) Meeting the net worth requirements by FinTech Limited. (ii) FinTech Limited wants to reconcile the records of demat securities on monthly basis. (iii) Is the CFO of FinTech Limited eligible to issue the audit report ? (iv) Experience and capability of the Management, and (v) Regulations that will be applicable to FinTech Limited, as Depository?

Answer & Explanation:

Fintech Limited aims to enter into the securities market infrastructure by establishing itself as a new and leading depository participant, the following are the legal position with respect to the SEBI (Depositories and Participants) Regulations, 2018: (i) The net worth requirements for the Depository Participants as per Regulation 35 of the SEBI (Depositories and Participants) Regulations, 2018 are: In case of a non-banking finance company - net worth of not less than ₹ 50 lakhs (only on behalf of itself). In case of a registrar to an issue or share transfer agent -minimum net worth of ₹ 10 crores. In case of a stock broker - net worth of ₹ 5 crores. In the given scenario, the FinTech Limited has a net worth of ₹ 75 crores. Therefore, company falling within any above mentioned category meets the prescribed net worth requirements as a depository participant. (ii) Under Regulation 64 of SEBI (Depositories and Participants) Regulations, 2018, every participant shall reconcile its records with every depository in which it is a participant on a daily basis. Therefore, the intention of FinTech Limited to maintain reconciliation of the records of dematerialised securities on monthly basis is not aligned with the requirements of the SEBI (Depositories and Participants) Regulations, 2018. (iii) Under Regulation 76 of SEBI (Depositories and Participants) Regulations, 2018 every issuer shall submit audit report on a quarterly basis to the concerned stock exchanges audited by a practicing Company Secretary or a qualified Chartered Accountant or a practicing Cost Accountant, for the purposes of reconciliation of the total issued capital, listed capital and capital held by depositories in dematerialized form, the details of changes in share capital during the quarter and the in-principle approval obtained by the issuer from all the stock exchanges where it is listed in respect of such further issued capital. Any person falls under the above mentioned categories, may issue the audit report. In the given case, Chief Financial Officer (CFO) is yet to be appointed by FinTech Limited. Assuming that the company has appointed the CFO, hence, being an employee, CFO is not permitted to issue the audit report. (iv) Under Regulation 35 of the SEBI (Depositories and Participants) Regulations, 2018, requires the applicant to have infrastructure, systems, safeguards and trained staff and the applicant is a fit and proper person under the SEBI (Intermediaries) Regulations, 2008 to carry on activity as a depository participant. However, in this given case, the management of FinTech Limited does not have prior experience in handling large-scale securities market operations. Therefore, it is not complying the conditions of the above mentioned Regulation. (v) The SEBI (Depositories and Participants) Regulations, 2018 will be applicable to FinTech Limited.

Topics: Depositories and Participants

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