NSDL Pays Rs 3.12cr To SEBI As The Settlement Amount In Depositary Rules Violation Case.

The National Securities Depositary Ltd.(NSDL)  settled the SEBI case by paying Rs 3.12 cr as settlement amount. The matter had stemmed from the alleged violations of certain provisions of the SEBI (Depositories and Participants) Regulations, 2018. Now, NSDL chose to sort out the issue without denying or admitting the findings of facts, an accepted way for regulatory settlements wherein companies can settle issues without formal admission of any wrongdoing.

The complaints were filed because of the allegations that the NSDL could not redress the grievances of the participants or beneficial owners in the said prescribed timeline of 30 days as drafted under Regulation 7(g). Further, it was also alleged that NSDL had violated some provisions of the Code of Conduct as drafted for under the same regulations. These could reportedly have been violations of both pre-and post-periods as drafted above in the timeline: before and after August 28, 2023.

Settlement process initiated with its proposal to settle the matter by an order of settlement.

NSDL has deposited the amount of Rs 3.12 crore received on October 14 and finally disposed of the adjudication proceedings initiated by SEBI with a show cause notice dated February 8, 2024. Its resolution allows NSDL to move ahead under clear-cut operations without the black cloud of regulatory action hanging over its operations.

Implications of the Settlement 

This settlement shall display SEBI’s seriousness in forcing compliance with regulations on the crucial infrastructure institutions in the market at the same time, prove its willingness to amicably solve a problem. The said settlement removes one of the potential obstacles to NSDL’s proposed IPO and frees it up to focus on future growth along with public listing.

On the other hand, the settlement highlights open questions about the effectiveness of internal compliance mechanisms in NSDL and how the oversight mechanism in depository sector should have been tighter. Since NSDL is one of the foundational components of India’s financial market infrastructure, strict adherence to regulatory norms by the entity will be critical to investor and market confidence.

Meanwhile, we are still waiting for SEBI to take a definitive action against its Chairperson, Mrs Madhabi Puri Buch. It is funny how the market regulator has been on its toes, penalizing all the different organisations while it lacks in doing so for its own officials.

Recently, SEBI issued show cause notice to around 120 stockbrokers and before that, the market regulator for doing rounds in the news as they fined Anil Ambani’s son, Anmol Ambani for Rs 1 Cr because he failed to exercise due diligence. But it’s Chairperson, who is accused of having offshore fund investments, questionable net worth, connect with controversial entities like the Wirecard scandal and what not, is still comfortably holding her position. 

NSDL about to launch IPO 

This development is parallel and underscores the strategic ambitions of NSDL, as it has received approval from SEBI to launch its IPO in late September. It had filed the IPO papers in July 2023, which was more than a year since it had filed IPO papers with the regulator. Such large market players were subjected to an extremely thorough testing before getting listed shows that the listings were very strictly overlooked.

The structure of the proposed IPO warrants notice. It has been designed as an OFS of more than 5.72 cr equity shares by existing shareholders. So, it would not bring in fresh capital for NSDL but instead will act as an exit route for the existing investors in the company. Some of India’s most respected financial institutions are the selling shareholders in LancoInfratech, including HDFC Bank, SBI, and National Stock Exchange of India.

It marks a new chapter in NSDL’s history, syncing it with the zooming Indian financial markets. The country’s largest depository will be the first to go public, clearly, it has the potential to attract strong investors and potentially set a few benchmarks for market infrastructure valuations.

NSDL’s Role in Financial Market 

To digest the aura of these events, one needs to understand the position of NSDL in the financial market of India. 

NSDL was formed after the Depositories Act was introduced in 1996, and the entity became the first depository to dematerialize securities in India – opening its operations in November of the same year.

NSDL gives a myriad of products/services to the financial and securities markets in India as a SEBI-registered market infrastructure entity. Holding and safekeeping securities in electronic form is one of the major functions, providing multiple value-added services for facilitating secure transactions.

This dematerialization by NSDL revolutionized the Indian securities markets, cutting risks of loss, theft, and forgery associated with the physical share certificates. It resulted in a better efficiency in the transaction of securities. It has multiplied the growth and modernization of Indian capital markets over the last two and a half decades.

What does the future have in store for NSDL?

The settlement with SEBI is welcome not only because it may alleviate the immediate regulatory issues but also because it promises better compliance and governance structures. To be a listed entity, NSDL will be subject to greater public scrutiny and will be called upon to raise its standards of transparency and governance corporate standards.

The IPO is taking place at a time when the financial services sector is undergoing great technological change. Relatedly, as technology surrounding blockchains develops and the marketplace discusses decentralized finance (DeFi), existing market infrastructure providers like NSDL have to innovate to remain relevant; new capital infusions via the IPO can help NSDL reinvest in new technologies and services to maintain its lead.

Additionally, opening up with public listing by NSDL can unlock the doors for other market infrastructure institutions to follow suit. This could lead to a more dynamic competition in the financial market infrastructure sector of India and would most probably push the innovative side of the things and efficiency improvements for the benefit of the broader market.

Whether the NSDL will be able to properly balance regulatory compliance, technological innovation, and shareholder interests will only be known in the future. Its performance as a listed entity will certainly capture the attention of market participants, regulators, and investors in their own right.