SEBI proposes AoPs to hold MFs, bonds, govt securities in demat accounts

Capital market regulator SEBI has proposed allowing associations of persons (AoPs) -- a group of people or entities -- to own demat accounts for holding certain securities in dematerialised form.

SEBI's October 16 consultation paper proposes AoPs can hold securities other than equities in the name of the entity, and the BO account can be in its name. "Towards the pursuit of Ease of Doing Business, we propose to allow holding of units of mutual funds, corporate bonds, and government securities by AoPs in their own demat accounts. This would also encourage dematerialisation of securities held in physical form," says SEBI.

AoPs can be organised in any form -- joint venture associations, cooperative societies, and cooperative housing societies, etc.). They can hold government securities, mutual fund units and corporate bonds.

"In the case of Association of Persons (AoP), the beneficiary owner (BO) account can be in the name of AoP and securities (other than equity shares) can be held in its name. PAN card details of the respective AoP shall be obtained," says the consultation paper.

The proposal says the depository participants will seek confirmation from the AoP while opening a demat account in their name. "The statutes governing the AoP permit the AoP to hold securities that are being dematerialised and that only such securities that an AoP is permitted to hold will be dematerialised or subscribed in demat form."

The Demat account, however, will not be used for subscribing or holding equity shares.

The move comes amid suggestions that depositories should be allowed to open demat accounts in the names of partnership firms, associations of persons (AoP), and unregistered trusts instead of the current practice of only natural persons. These include the names of its partners, persons associated with AoP, and trustees, respectively.

The current statutes say shares in a company can't be held in the name of a partnership firm, unregistered trust or AoP unless such an entity is a separate legal entity.

SEBI says although statutes clarify that unregistered trusts, AoPs and partnership firms can't become members of the company as they are not juristic persons, the position in terms of their holding of other financial assets like corporate bonds, G-Sec, mutual fund units by partnership firms, unregistered trusts and association of persons, is not clear.

In respect of partnership firms and unregistered trusts, a common view regarding holding mutual fund units, corporate bonds and government securities is difficult, says SEBI. "Thus at this stage, due to the legal issues involved in holding of such securities by partnership firms and unregistered trusts, no changes are being envisaged for such entities."

AoP will also be legally responsible for ensuring that they only subscribe to the financial instruments or securities permitted by statutes governing them, says the regulator.