Markets regulator Sebi on Wednesday proposed allowing associations of persons (AOPs) to open demat accounts in their names to hold certain securities, excluding shares.
If implemented, the proposal would promote the ease of doing business and encourage the shift from physical holdings of securities to electronic holdings.
In its consultation paper, Sebi proposed amending its rules to allow AOPs to open demat accounts in their names. These accounts would allow AOPs to hold securities, excluding stocks, directly.
The AOP would have to provide its PAN details while opening the account and confirm that only permissible securities are held, ensuring that the account is not used for stocks.
The Securities and Exchange Board of India (Sebi) has sought public comments on the proposal by November 5.
The proposal came after Sebi received suggestions to allow associate companies, AOPs and unregistered trusts to open demat accounts in their own names, instead of just in the names of their partners, members or trustees.
Currently, such entities cannot own shares in the company unless they are recognized as separate legal entities.
While the law makes it clear that these entities cannot become members of companies, it is not clear 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 is difficult to form a clear position on whether associate companies and unregistered trusts can hold units of mutual funds, corporate bonds or government securities. Therefore, no changes are currently planned for these entities, he added.
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