Depository System in India
Depository System in India
Depository System in India
SYSTEM IN INDIA
1.1 INTRODUCTION:-
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would reduce the time between transfer Of entitlements which would
reduce the time between allotment of shares and transfer of entitlement
As India has large number of listed companies investing a massive
amount of paper work there have been stolen share, certificates etc.
Which pose a threat to the security of threat to the securities of
investment .the idea of setting up a depository and the introduction of
scriptures trading and settlement were thus conceived for improving the
efficiency of the markets and associated with dealing in physical
certificates, a depository system benefits the investing public, the issuers
of securities the intermediates and the nation as a whole
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securities, the way a bank transfers funds without actually handling
money.
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⇒ Insurance companies
⇒ Stock Exchange Clearing corporation
⇒ Registrar and share transfer Agents
⇒ Fund Managers and Custodian
⇒ Stock broker
⇒ Non balancing finance company , State financial Corporation ,
⇒ Scheduled Bank.
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1.6 LEGAL FRAMEWORK: -
The legal framework for all depository system has been lain down n
the following enactments.
⇒ Securities and Exchange Board of India Act,1992
⇒ The Depositories Act,1996
⇒ The SEBI Regulation,1996
⇒ By Laws of depositories.
⇒ The Companies ACT, 1956.
As a part of its on-going market reforms, the Government of India
promulgated the Depositories Ordinance in September 1995. Based on
this ordinance, Securities and Exchange Board of India (SEBI) notified
its Depositories and Participants Regulations in May 1996 in order to
provide the regulatory framework for depositories. The enactment of the
Depositories Act the following August paved the way for the launch of
National Securities Depository Ltd. (NSDL) in November 1996. In
exercise of the rights conferred by the Depositories Act, NSDL framed its
Byelaws and Rules. The Byelaws are approved by SEBI. While the
Byelaws define the scope of the functioning of NSDL and its business
partners; the Business Rules outline the operational procedures to be
followed by NSDL and its business partners.
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HISTORY OF THE COMPANY
2.1 HISTORY:-
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In Company there are 28 persons working. Company has five
servers. In this 1 server connected with NSE CTCCL AND SECOND
WITH DISESTER MGT. In NSDL also one main server. Company
provides three different rooms for online trading to its clients and sub
brokers. There is BOLT and in back office with account package at
compteque also works activity with NSDL Server. Company also provide
very useful and modern service to this account member which is
interactive voice Response (IVR) telebanking Service Connect with the
help of this customer can know about their D.D. Although the telephone,
fax organisation Internet. It is very useful to customer.
Shri Anil Choksy, Mr. Bhadresh G. Kapadia, Mr. Shahikant R.
Yadav,Mr. Aiyub M. Yacoobali ,Mr. Bipinchandra Lineswala who are
the permanent directors of the Company.
The Company now purposes to become depository participants
with the National Securities Depository Ltd., so as to provide cleaner
trading and settlement environment for its clients. The investors dealing
through the company are enthusiastic about the said proposal of the
company and company is expected that the company will be able to
generate substantial depositary business.
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2.2 COMPANY PROFILE :-
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FINANCIAL POSITION:-
Financial Results
31.03.03 31.03.02
Particulars
(Rs. In lacs) (Rs. In lacs)
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2.4 MILESTONE:-
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Profit after Tax for current year is 11.86 lacs as
against 1.05 lacs as compared to previous year.
LIMITED):-
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developing products and services that will continue to nurture the
growing needs of the financial services industry.
In the depository system, securities are held in depository
accounts, which is more or less similar to holding funds in bank
accounts. Transfer of ownership of securities is done through simple
account transfers. This method does away with all the risks and hassles
normally associated with paperwork. Consequently, the cost of
transacting in a depository environment is considerably lower as
compared to transacting in certificates.
1. NEW ISSUE
The investor has the option to take the share either in
physical mode or in the electronic mode .The investor in his application
has to specify his choice and the depository participants to which the
allotted shares are to be delivered. The allotment of shares will take
place according to SEBI guidelines but the shares are to be sent to the
depositors
Participants as per the institution given by the investor .At
present, SEBI has made it mandatory for the companies to have new
issues in the dematerialized.
2. SECONDARY MARKET
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In the secondary market transaction the trading procedures would
be the same but the settlement and clearing procedures are different. The
seller may opt to deliver the shares from the depository mode but the
buyer may be willing to take them on the electronic mode buyer and
seller may prefer the electronic mode.
Management of NSDL:-
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NSDL is a public limited company managed by a professional
Board of Directors. The Managing Director conducts the day-to-day
operations. To assist the MD in this function, the Board appoints an
executive committee of not more than 15 members. The eligible criteria
and period of nomination of the member of EC, etc.
Owner Ship:-
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⇒ Corporate action.
⇒ Account freezing.
⇒ Nomination
⇒ Demat of dept instruments.
⇒ Dealing in Government securities.
NSDL MILESTONES:-
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September 1995 Drafting of the Depositories Ordinance
December 1995 NSDL incorporation
May 1996 SEBI Regulations
August 1996 Enactment of the Depositories Act
Inauguration of NSDL; commencement of
November 1996
dematerialization
Commencement of trading in dematerialized
December 1996
shares on NSE
Total value of demat securities at NSDL
June 1997
crosses US $ 1 bn.
Compulsory demat trading for institutional
January 1998
investors commences
Demat shares treated as good delivery in
April 1998
physical segments of NSE and BSE
Commencement of trading in dematerialized
June 1998
shares on CSE
November 1998 Investor accounts cross 1,00,000
Commencement of dematerialization of
December 1998
Government Securities
Compulsory demat trading for retail investors
January 1999
commences
NSDL launches the NSDL-Depository
May 1999
Operations Module
October 1999 Investor accounts cross One million mark
NSDL launches internet based service-
February 2000
SPEED for clearing members
May 2000 Investor accounts cross 2.5 million
Commencement of dematerialization of Debt
June 2000
instruments
June 2000 98% Settlement in demat form
Introduction of T+5 Rolling Settlement &
July 2001
Uniform Settlement Cycle
April 2002 Introduction of T+3 Rolling Settlement
Launch of STEADY - an STP initiative by
November 2002
NSDL
December 2002 Investor accounts cross 5 million
April 2003 Introduction of T+2 Rolling Settlement
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3.2 CDSL (Central Depository Security Ltd.) :-
In establish 1995 the government have accepted in principle the
proposed law for setting up of depository and of a central depository for
immobilization of physical certificates .The central depository is to be
set up as a Trust to hold the physical custody of shares and effect
transfers by book entries without the need to deal and transfer the
physical certificates between parties. This is to be sponsored by public
financial institutions and banks and will have a minimum net worth of
Rs.50-100 crores as sponsored by the SEBI. This central depository can
be connected to a number of share depositories for effecting transfers in
book entries. The foreign institutional agencies, NRIs and OCBs have
for long required the depository of this type of facilitating their trade in
the Indian stock market. The foreign security forms who were licensed
by the SEBI. The operating is India, but physical custody of the Indian
securities has to be handled by Indian custodian such as a bank which
can now be converted into the depository to be licensed by the SEBI.
Above all these depository there will be central depository which will
co-ordinate these depository and the models operands of these operation
here worked but by the SEBI. The guideline and regulation in respect of
the operations of depository will help smooth interoperations among
depository and their operations with the central depository.
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Inter Depository Transactions:-
CDSL has a single instruction slip, which can be used for both
intro and inter depository transfers by using the appropriate columns.
The other depository has separate instruction slip for effecting inter
depository transfer. It is therefore advisable for the Bos holding account
in the other depository to have issued inter depository transfer slip from
their DPs so as to avoid last minutes anxiety in case where the transferee
has an account in CDSL.
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Since CDSL does not collect from its DPs any custody fee and
also offers other unique features, CM use the CDSL system for
settlement purpose
The new server installed as CDSL has not only increased its
processing and storage capacities, but also resulted into efficiency gains
of around 60%.This has improved the response time and the system
availability significantly. With the reduced time taken for EOD
processing and both ‘post’ EOD back-ups, the system is now available
to user’s right from 3:00 a.m. to 8:30 p.m. o n any business day.
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⇒ “Pulling” of reports
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DEMATERIALISATION & REMATERIALISATION
4.1 DEMATERIALISATION :-
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Procedure of Dematerialization:-
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NSDL 2 SGSSL
3 4 1 6
2
2A
Registrar
Investor
Steps:-
1. Client/Investor submits the DRF (Demat Request Form) and Physical
Certificates to DP.DP checks whether the securities are available for
demat. Client defaces the certificate by stamping ‘Surrendered for
Dematerialization’. DP punches two holes on the name of the
company and draws two parallel lines across the face certificate.
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2. DP enters demat request in his system to be sent to NSDL. DP
dispatches the physical certificate along with the DRF to the R & T
Agent.
3. NSDL records the details of the electronic request in the system and
forwards the request to the R&T Agent.
4 R&T Agent., on receiving the physical documents and electronic
request, verify and check them. Once the R&T Agent is satisfied,
Dematerialization of the concerned securities is electronically
confirmed to NSDL.
5 NSDL credits the dematerialization securities to the beneficiary
account of the investor and intimates the DP electronically. The DP
issues a statement of the transaction to the client.
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⇒ The name of client on DRF had the certificate is
exactly the same as in the client’s account in DPM. However, minor
variations in the name may be permitted if it can be reasonably
established that both names are of the same person .the permitted if
it can be reasonably established that both names are of the same
person. The permitted variations refer to initials not being spelt out
prior to after the surname. In such cases, if the signature on the DRF
matches the specimen signature available with the DP, the securities
can be considered for demat.
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• All joint holder in case of joint holding;
• Authorized signatories in the case of
corporate accounts;
• Constituted attorney in the case of NRI
accounts.
• The signatures of the client as appearing on
DRF match with the signatures in the records of the DP .If the
signatures do not match, the DP should satisfy itself about the
identity of the client. If the client has a signature registered with
the company which is different from the specimen signature given
to the DP, the client may be advised / allowed to affix both
signatures on the DRF. on the DRF.
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⇒ Once the DP has received the certificates defaced by the
investors, the DP punches two holes on the name of the Company and
draws two parallel lines on the face of the certificate. The DP should
forward the DRF and the relevant security certificates to the issuer or
it’s R&T Agent for dematerialization. DRF and enclosures have to be
sent at the “address to which physical certificates to be sent”
communicated by NSDL. The forwarding letter should refer to the
allotted DRN and should be sent within 7 days of accepting it from the
client.
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⇒ DRF and certificates are not sent back:
• If the certificate is fake;
• If the certificate has been reported to be
stolen;
• If duplicates of the original certificates sent
for demat have already been issued;
• If the endorsements are forged;
• If the securities are not in the name of the
account holder as per DEF;
• If the details of the certificates do not match
with DRF;
• If the DRF/Securities do not pertain to the
R&T Agent;
• If the signatures differ;
• If there is any court order on the securities;
• If the certificates are received after 15 days
of the electronic Request.
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⇒ The DP, if the client so requires, may generate
a new dematerialization request and send the securities again to the
issuer to the issuer or its R&T Agent.
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International Securities Identification Number (ISIN) :-
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4.2 REMATERIALISATION
2A
2B
4 3 6
1
Registrar Investor
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⇒ Investor requests the DP for rematerialization.
⇒ The depository participant informs it to the
NSDL
⇒ NSDL informs the registrar
⇒ The registrar of the company prints certificates
with new numbers and informs NSDL.
⇒ NSDL adjusts its accounts and passes on the
details to the depository Participants.
⇒ The certificates are dispatched to the investor.
Steps:-
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⇒ The client has indicated his option to receive
physical certificates either in jumbo lot for the entire quantity
requested or in market lot.
⇒ RRF is signed by
• The sole holder in case of single holding
• All joint holders in case of joint holding
• Authorized signatories in case of corporate accounts
• Constituted attorney in case of NRI accounts
4. If RRF is not found in order, the DP should return the RRF to the client
for rectification
5. If RRF is found in order the DP should accept RRF and issue an
acknowledgement to the client.
6. DP participant should enter the re-materialization request in DPM.
DPM will generate a request number (RRN) which should be
mentioned on RRF.
7. An authorized person, other than one who entered the RRF details in
DPM, should verify the details of RRN and release are quest to the
depository.
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8. The DP should complete the authorization of RRF and forward it to
the Issuers or its R&T agent for re- materialization. The DP should
forward RRF to issuer or its agent within sever days of accepting it
from the client.
9. The issuer or its R&T agent should verify the RRF for validity,
competences and correctness. It should also match the details with the
intimation received from the depository against the same RRN.
10. In case the issuer or its R&T agent finds RRF in order it should
confirm the remat request the issuer or its R&T agent should then
proceed to issue the physical security certificates and dispatch them to
the beneficial owner.
11. The DP, on receiving confirmation of debit entry in DPM, should
inform the client accordingly.
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4.3 SEBI (DEPOSITORY ACT 1996)
1) Depository institution:-
The act provides for creation of one or more depository institution
registered under the Companies Act and predominantly owned by the
participants.
The SEBI has proposed that the minimum net worth of a
depository should be Rs.100 crores.
2) Depository Participants:-
The Act envisages that a depository will interface
with the users through a set of depository participants (DP). They are
persons dealing directly with the depository for their clients. The DP is a
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crucial link between the investor and depository. The DP will be deemed
an agent of the depository. The depository will be therefore being
responsible for the acts of omission and commission and commission on
the depository participants.
The SEBI has proposed that the following entities could be permitted
to be registered as depository participants, namely commercial banks,
financial institutions, stock exchanges, financial services companies
owned to the extent of 75 per cent by any of the above mentioned
institutions as well as companies registered abroad providing custodial,
clearing or settlement services in the securities market and approved by
the Central Government.
3) Investors’ Choice:-
An investor is given the option between holding physical
securities as at present and having a depository based ownership
recorded. Such option can be exercised by the investor either at the time
of an initial offer of securities by a company indicating his choice in the
application form or at any subsequent time. The investor will have also
the freedom to switch from the depository mode to non-depository mode
and vice versa.
4) Free Transferability:-
The Act has made free transferability of shares. The Act has taken
away the companies right to use their discretion in effecting transfer of
securities by deleting sec. 22A from the companies Act. This would mean
that, once the buyer pays the agreed consideration he is automatically
entitled to all the rights associated with the security. As soon as the
intimation regarding delivery of security is received, a depository
participant on delivery versus payment basis will affect the transfer. In
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the depository mode, no transfer deed is required and the procedural
requirements under Sec. 108 of the Companies Act have been dispensed
with.
5) Rights of Transferee:-
The Act provides that the transferee of a security will be entitled
to all the rights including voting rights associated with the security.
However, if any transfer is made in contravention of any provisions of
SEBI can make an application to the Company Low Board (CLB).
Pending the completion of enquiry the CLB can suspend the voting rights
in respect of the securities so transferred. However the transferee in such
case will continue to enjoy the economic rights like bonus, rights and
dividend attached to the security. After the enquiry if the CLB is satisfied
about the contravention, it can direct the depository to make rectification
in ownership records.
6) Fungibility:-
Section 83 of the Companies Act requires that an appropriate
number shall distinguish each share in a company. The section is deleted
now and the Act has made that securities held by a depository are
fungible. As per the Act, share certificates need not carry distinctive
numbers and all shares will form parts of a fungible mess. All share
certificates will become interchangeable like withdrawing money from a
bank account without being concerned about the number printed on the
currency notes at the time of deposit into the bank and at the time of
withdrawal of money.
6) No Stamp Duty:-
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The Act has done away with stamp duty on secondary market
transactions in the depository mode. At the time of issue of securities
issued, whether through a depository or direct to investors in the form of
physical certificates. Where an investor opts to exit from a depository and
seeks to issue of physical certificates from the issuer, the issue of such
certificates. All transactions outside the depository made will attract
stamp duty as at present.
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4.4 STEPS FOR JOINING AS A DP:-
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⇒ The DP and NSDL sign an agreement n the
prescribed format.
⇒ NSDL activates the DP module at the
prescribed format.
⇒ NSDL activates the DP module at the
applicant’s premises.
⇒ DP begins operations.
1. Individual Accounts:-
⇒ Ordinary
⇒ NRI
⇒ HUF
⇒ NON NRI
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This is an account opened by investors to hold their securities in
dematerialized form with a depository and to settle the transactions of
sale and purchase of such securities in book entry form through the
depository system. An account holder is legally entitled for all rights and
liabilities attached to the securities (i.e., equity shares, debentures,
government securities, etc) held in that account .Therefore, the accounts
is called: beneficial owner accounts” also. A beneficiary account can be
in the name of an individual/corporate or the broker himself for the
purpose of his personal investments in demats form. The account is
opened with a DP.
a) Proof of Identity
In the form of applications signature & photograph authenticated
by an existing account holder or by applicant’s bank or due
verification made with the original of passport, voter ID, driving
licensed or PAN card with photograph.
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b) Prof of Residence
In the form of a ration card, passport, election voting card, income
tax PAN card, driving licenses, bill for electricity or gas, etc. This is
required to confirm and ascertain the correct identity and establish
correct address of the account holder.
c) Passport-size photograph
Common Information:-
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Procedure for opening an account with a
Depository Participant:-
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facilitate efficient and error-free services to investors. Separate forms are
prescribed for individuals (including HUF) and corporate clients/clearing
member accounts.
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• Details of guardian In case account holder is a minor
Only a guardian can open a depository account for minor. The
guardian remains the beneficial owner in the records of the depository for
the securities held on behalf of the minor till he becomes a major. The
guardian is required to sign the application form and details of his name
address need to be given in addition to the details of the minor.
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Details of bank account of the account holder, including the nine
digit code number of the bank and branch appearing on the MICR cheque
issued by the bank have to be filled in the application form. Companies
used this information for printing them on dividend/interest warrants etc.
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In the event of the death of a joint holder, the balance lying in the
account can be transmitted, on request of the surviving holders, to a new
account to be opened by the surviving holders. The earliest account
having the deceased holder’s name is closed after such transmissions.
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obtain documents evidencing the age of minor. E.g. birth certificate,
along with the account opening form.
⇒ Proof of Identity
⇒ Proof of Address
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Procedure to open a Clearing Member Account:-
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A separate enclosure has to be attached to the accounting
form specifying the following details:-
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account .The processed of opening an Intermediary account is same as for
opening a corporate beneficiary account only as per the procedure
prescribed for this by depository .
3.Closure of Account:-
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• Re-materialization. Of all securities standing to the credit of the
account at the time of making the application for closure
• Transferring the balance to the credit of another account opened by
the same account holder either with the same DP or with a different
DP.
Before closing the account the DP should ensure that all pending
transactions have been settled . The request for closure should be
processed only after ensuring that there is no balance lying in the account
.
4. Freezing Of Accounts:-
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• On the valid written request of the account holder where he
had requested freezing
• On directions of depository made in purchase of the order of
the appropriate authority
5.Interemediary Account:-
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⇒ Any person desirous of availing the services of depository may
enter into an agreement with any of the depository participants.
⇒ Any person who enters into an agreement for availing the services
of the depository shall surrender the physical securities held by him to
the depository participant for dematerialisation.
⇒ After dematerialisation the depository will be the registered owner
of the shares. The beneficial ownership will however remain with the
respective shareholders and they will be entitled to all benefits
accruing in respect of such securities.
⇒ The securities held by a depository shall not have any distinctive
or certificate numbers.
⇒ Ownership changes in the depository system shall be made
automatically on the basis of delivery and payment. There shall be
regular, mandatory flow of information about the details of ownership
in the depository's record to the company concerned.
⇒ No stamp duty will be payable on electronic transfer of scrips
through depository.
⇒ It will be possible to get the dematerialised scrip reissued in
physical form.
⇒ A beneficial owner, with previous approval of the depository shall
be able to create a pledge or hypothecation in respect of securities
owned by him through depository.
⇒ Person subscribing to securities offered by an issuer shall have the
option either to receive securities in physical form or through the
depository.
⇒ The depositories shall be liable to indemnify the beneficial owner
for any loss caused to the owner due to negligence of the depository.
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⇒ An investor has the option to hold securities either in physical or
in dematerialised form.
5.1 SAFETY:-
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⇒ A DP can be operational only after registration by
SEBI, which is based on the recommendation from NSDL and their
own independent evaluation. SEBI has prescribed criteria for
becoming a DP in the regulations.
⇒ Depository Participants are allowed to affect any debit
and credit to an account only on the basis of valid instruction from the
client.
⇒ Every day, there is a system driven mandatory
reconciliation between participant and NSDL.
⇒ There are periodic inspections into the activities of both
DP and R&T agent by NSDL. This also includes records based on
which the debit/credit is affected.
⇒ The data interchange between NSDL and its business
partners is protected by protection measures of international standards
such as encryption hardware lock. The protection measures adopted
by NSDL are more than what is prescribed in the SEBI Regulations.
⇒ All transactions are recorded at NSDL Central System
and in the databases maintained by business partners.
⇒ All investors have a right to receive their statement of
accounts periodically from the DP.
⇒ Every month NSDL forwards statement of account to a
random sample of investors as a counter check.
⇒ In the depository, the depository holds the investor
accounts on trust. Therefore, if the DP goes bankrupt the creditors of
the DP will have no access to the holdings in the name of the clients of
the DP. These investors can transfer their holdings to an account held
with another DP.
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Freeze Facility:-
Insurance Cover:-
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NSDL has taken a comprehensive insurance policy to protect the
interest of the investors in cases of failure of the DP to resolve a genuine
loss.
Periodic Review:-
5.2 CHARGES:-
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The following transaction related fees shall be payable by the
Participants to the Depository:
⇒ Settlement fee:
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⇒ in case of :
a. transfers necessitated by transmission on death of the Client; and
b. Transfer of the accounts of Clients from one Participant to another as
a consequence of expulsion or suspension of such Participant.
⇒ Pledge fee:
⇒ Custody Fees:
A custody fee at the rate of Re.0.50 per month (Rs.6 per annum)
for securities held under each ISIN (International Securities Identification
Number) in each and every account maintained with the Participant shall
be charged to the Participant, on a monthly basis. In case an account has
no security balance, such an account shall also be charged at the rate of
Re.0.50 per month. Provided however that no custody fee will be charged
on the securities of companies which have paid one time custody fee to
NSDL.
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⇒ Fee For Dematerialization & Rematerialisation:
⇒ Minimum Fee:
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• In case issue of Commercial Papers, a flat fee of Rs.10,000 shall be
levied on the Issuer for all issues of Commercial Papers during the
calendar year.
• In case of issue of short term debt instruments viz., certificate of
deposits, MIBOR linked papers etc., a flat fee of Rs.10,000 shall be
levied on the Issuer for 10 such issues made in a calendar year.
Provided however that an additional fee of Rs.1,000 shall be levied on
the Issuer for each subsequent issue.
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rids the capital market of the dangers related to handling of paper. NSDL
provides numerous direct and indirect benefits, like
⇒ No Stamp Duty:-
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⇒ Immediate transfer and registration of securities:-
In the depository environment, once the securities are credited to
the investors account on pay out, he becomes the legal owner of the
securities. There is no further need to send it to the company's registrar
for registration. Having purchased securities in the physical environment,
the investor has to send it to the company's registrar so that the change of
ownership can be registered. This process usually takes around three to
four months and is rarely completed within the statutory framework of
two months thus exposing the investor to opportunity cost of delay in
transfer and to risk of loss in transit. To overcome this, the normally
accepted practice is to hold the securities in street names i.e. not to
register the change of ownership. However, if the investors miss a book
closure the securities are not good for delivery and the investor would
also stand to loose his corporate entitlements.
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⇒ Reduction in brokerage by many brokers for trading
in dematerialized securities:-
Brokers provide this benefit to investors as dealing in
dematerialised securities reduces their back office cost of handling paper
and also eliminates the risk of being the introducing broker.
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5.4 DEPOSITORY SYSTEM:-
NSDL carries out its activities through various functionaries called
business partners who include Depository Participants (DPs), Issuing
companies and their Registrars and Share Transfer Agents, Clearing
corporations/ Clearing Houses of Stock Exchanges. NSDL is
electronically linked to each of these business partners via a satellite link
through Very Small Aperture Terminals (VSATs) or through Leased land
lines. The entire integrated system (including the electronic links and the
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software at NSDL and each business partner's end) is called the "NEST"
[National Electronic Settlement & Transfer] system.
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Depository Participant (DP):-
The investor obtains Depository Services through a depository
participant of NSDL. A DP can be a bank, financial institution, a
custodian, a broker, or any entity eligible as per SEBI (Depositories and
Participants) Regulations, 1996. The SEBI regulations and NSDL bye
laws also lay down the criteria for any of these categories to become a
DP.
Just as one opens a bank account in order to avail of the services of
a bank, an investor opens a depository account with a depository
participant in order to avail of depository facilities. Though NSDL
commenced operations with just three DPs, Depository Participant
Services are now available in most of the major cities and towns across
the country.
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Clearing Corporation / House: -
The clearing corporations/houses of stock exchanges also have to
be electronically linked to the depository in order to facilitate the
settlement of the trades done on the stock exchanges for dematerialised
shares. At present, all the major clearing corporations/houses of stock
exchanges are electronically connected to NSDL.
⇒ Joining NSDL as DP
⇒ Joining NSDL as Issuer
⇒ Joining NSDL as Registrar and Share Transfer Agent
⇒ Joining NSDL as CC / CH
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5.5 SERVICE STANDARD:-
5.5.1 SPECIAL SERVICES:-
NSDL has taken the initiative for providing the facility of enabling
brokers to deliver contract notes to custodian / fund managers
electronically through its STEADY facility. STEADY (Securities
Trading - information Easy Access and DeliverY) was launched by
NSDL on November 30, 2002. STEADY is a means of transmitting
digitally signed trade information with encryption across market
participants electronically and efficiently, through Internet.
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market transfers & inter-depository transfers, distribution of non-cash
corporate actions and nomination/ transmission.
The Depository Act, 1996 requires that clients can avail services of
a depository thought dps. This requirement has created a new business
entity Depository participant. A DP has to deal in business with the
following characteristics:
⇒ Sensitive and demanding clients
⇒ Intense competition on the prisce front due to which the
profit margins are under tremendous pressure
⇒ This profit margins require high volume of clients for
opening the DP services profitably
⇒ High volume of business is error-prone ,unless supported
by appropriate System and quality of manpower
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The services standard may be changed in response to client
requirements and competitive market demands
1. Office Ambience:-
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⇒ Forms for nomination, account opening and all other forms that
are not handed over to the clients to the clients at the time of account
opening.
2. BRANCH OFFICES
EMPOWERMENTS:-
Modern communication technology and IT have made it possible
to effectively decentralize operations even while reporting and
supervision controls are centrally maintained. Such decentralization
requires empowerment of branch offices.
The ability of a branch office to give good services to the client is
determined by the co –ordination and communication facility between
head offices and the branches. Head offices should take care of
informational needs of the branch. This should be given extra care if the
branch office is not electronically connected to head offices Head office
should provides the following information on a regular basis to branch
office to help the branch achieve customer satisfaction
⇒ ISIN list available for dematerialization.
⇒ List of scripts included in the compulsory list.
⇒ Adequate supply of accounts opening forms, nomination
forms and other forms.
⇒ Settlement calendars, settlement number and other settlement
related information.
⇒ Regular feed back on transaction as given below:-
• Status of account opening/account numbers
• Status on demat requests
• Return of rejected demat requests
• Status of transactions and holding
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• Information on credits arising out of corporate actions
5.6 TRANSMISSION & NOMINATION:-
5.6.1 TRANSMISSION:-
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1. Single holder:-
In the event of death of the sole holder, if no nomination had been
made, the claimants of the deceased can get the securities transmitted in
their favour by submitting their claim duly supported by the relevant legal
documents to Dp .If the claimants heaven existing beneficiary account in
their name, the securities to be transmitted would be credited to their
existing account
2. Joint Accounts:-
If ant one of the joint- holders of a security dies, the surviving joint
holders can get the securities transmitted in their favour by producing the
death certificates of the deceased joint holder. The surviving joint holder
will have to open a new account with the DP in their name
.
5.6.2 NOMINATION:-
The COMPANIES Act, 1999 has introduced provisions for
nomination in respect of shares, debentures, fixed deposited .the
nomination facility fulfils one of the long felt need of the investors .This
facility was already in place for deposit in banking industry. Under the
provision, a shareholder, a debenture-holder or deposit holder can
nominate a person, in whom the shares or debentures or bond or deposits
would vest, in the event of original investor’s death. The facility can be
availed of by ant person whether Indian resident or a non –resident India
investor.
Nomination is allowed only for the accounts with single names.
Nomination is not allowed for joint accounts with more than two names,
Huf and Corporate accounts.
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Who can nominate?
Individuals applying for debt securities on their own behalf singly
or jointly with one or two persons can make nomination, If the shares are
held jointly, all the joint holders are requires to sign the nomination form.
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BUYING AND SELLING PROCESS OF DEMAT
SHARE
Sale of securities:-
Purchase of securities:-
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6.2 SETTLEMENT OF OFF-MARKET
TRANSACTION:-
OFF-MARKET TRADE
NSDL
DPI DP2
SELLER BUYER
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Steps:-
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ON MARKET TRANSACTION: -
The broker has to then complete the pay –in before the deadline
prescribed by the stock exchange. The broker moves the securities from
his account to cc/ch of the stock exchange concerned, before the decline
given by the stock exchange
The cc/ch gives pay –out and securities are transfer to the buying
broker’s account. The broker then gives delivery instruction to his DP to
transfer securities to the buyer’s account the movement of funds takes
place outside the NSDL system.
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⇒ Buying broker gives instruction and securities move to
the buyer’s account.
NSDL
CC DP
DP
2
2 3
BROCKER BROCKER
1 4
1 4
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What are the different Market types for settlements?
⇒ DP to verify signature
⇒ DP to ensure strict adherence to submission of in instruction
deadline.
⇒ Check RBI approval in case of NRI transactions.
⇒ In case of nature’s guardian, no court is needed for movement of
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6.4 PLEDGE & HYPOTHECATION:-
NSDL
3 2
4 5
PLADGEE’S DP PLEDGOR’S DP
CONFIRMATION
3 4 2 REQUEST
AGREEMENT
PLADGEE PLEDGOR
1
LOAN
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Steps:-
Pledge Closure:-
NSDL
2 2
3 4
PLEDGEE’S DP PLEDGOR’S DP
2 3 CLOSURE
2 REQUEST
CONFIRMATION
PLEDGEE PLEDGOR
1
REPAYMENT
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Steps: -
Pledge Invocation:-
NSDL
3
3 2 2
PLADGEE’S DP PLEDGOR’S DP
INVOCATION
3 2 4
PLADGEE
ORDER PLEDGOR
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1
NOTICE
Steps:-
pledgor.
2. Pledgee submits a pledge invocation request to DP .DP forward the
request pledgor’s DP through the NSDL system.
3. Securities move automatically from pledgor’s account to pledgee’s
accounts through the NSDL system .
4. Pledgor is informed of the movement of securities by his DP.
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6.5 DEBT INSTRUMENT: -
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3. How can a company admit its
debt instruments in NSDL?
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CONCLUSION
Strengths:-
According to my project Report and research, there are some
weakness &strengths.
Weakness:-
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⇒ Duplicate & fraud case can be possible.
⇒ Repetition of demats accounts
⇒ The only proof of ownership for demat shares is a receipt only.
⇒ The work becomes monotonous.
⇒ Some unsecured company mgt dislikes rapid unsupervised
The high amount of paper work involved in the demat process is also a
very painful.
Suggestion
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⇒ Duplicate &fraud case can be possible.
BIBLIOGRAPHY
Books
Capital Market in India
By .E. Gorden &K. Natrajan.
Investement Management
By V.A . Avdhani
Annual Report of the Company
Financial Management
By Ravi. M. Kishore
Magazines
Capital Market
Business World
Wed sites
www.nsdl.com
www.nsdl.co.in
www.cdslindia.com
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