The Securities and Exchange Board of India (SEBI) has proposed a new rule allowing Associations of Persons (AOPs) to open demat accounts to hold specific securities, excluding equity shares. This initiative aims to enhance business operations and facilitate a transition from physical to electronic security holdings.
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According to the consultation paper released by SEBI, AOPs would be able to directly hold permitted securities in their demat accounts. To open these accounts, AOPs must provide necessary details and confirm that only allowed securities are maintained, thereby preventing any equity share holdings.
This proposal arose after SEBI received recommendations to permit partnership firms, AOPs, and unregistered trusts to maintain demat accounts in their names, rather than just in the names of their members, partners, or trustees. Currently, these entities are restricted from holding company shares unless recognized as separate legal entities.
SEBI clarified that while the law prohibits these entities from becoming company members, there is ambiguity surrounding their ability to hold financial assets such as corporate bonds, government securities, or mutual fund units in demat form.
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A review of the existing legal provisions revealed that establishing a clear guideline for partnership firms and unregistered trusts regarding these financial assets is complex. As a result, no immediate changes are anticipated for these entities, and SEBI is seeking public feedback on the proposed amendments by November 5.
