Market entities may get incentives to open retail demat account

To attract a larger number of retail investors to stock markets, the Securities and Exchange Board of India (Sebi) is looking into a proposal to devise an incentive structure for brokers and other market entities to encourage opening of demat accounts by persons from small cities.

Under the proposed move, depository participants - with whom an investor needs to open a demat account to trade - can be compensated for the account opening costs, especially for the basic service demat accounts.

The incentive structure is expected to act as a motivator for the depository participants (DPs) to open more accounts, a senior official said.

The move was first recommended by Sebi's Depository System Review Committee, following which the regulator sought inputs from the two depositories - National Securities Depository Ltd (NSDL) and Central Depository Services Ltd (CDSL) - which act as custodians for all demat accounts in the country. Sebi is now examining the issue for further action, the official added.

The Sebi panel, which comprises officials from the regulatory body and independent experts, had opined the DPs need to widen their reach in Tier-II and Tier-III towns to achieve wider financial inclusion and to encourage participation of investors from these places in the securities market.

"For this purpose, there is a need to devise an incentive structure for depository participants so that they encourage investors to open demat accounts with them.

"In this regard, the revenue source of depositories may be augmented and DPs may be incentivised by having a revenue sharing mechanism between the depositories and DPS which may encourage the DPs to expand their reach in Tier-II and Tier-III towns.

"Bank DPS with their large branch network and wider reach in Tier II and Tier III towns can play a crucial role in furthering the objective of financial inclusion," the panel said in its recommendations.