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Project on Demat operations

Project on Demat operations

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Published by: vijee_877 on Jul 07, 2009
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10/21/2012

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A Descriptive Model on ‘Demat Operations’ – A case study forIntegrated Enterprises (India) LtdIntroduction:
Depository Participant (DP):
 
The investor obtains Depository Services through a DP 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 byelaws 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, aninvestor opens a depository account with a DP in order to avail of depository facilities.Though NSDL commenced operations with just three DPs, Depository ParticipantServices are now available in most of the major cities and towns across the country.
Demat Trading:
Instead of signing the transfer deed as seller and delivering share certificates to a broker,you shall give your DP debit instruction when you sell your shares in the electronic form.You can trade through any broker of your choice registered with the stock exchangesconnected with NSDL but will have to provide the details of your account with the DP.The money would be received from the broker/ paid to the broker in the same fashion asdone in case of buying/ selling of physical shares. The DP will provide you a statementupdated every fortnight giving details of your holdings.Shares bought in the electronic form can be pledged/ hypothecated by making applicationto the DP in the prescribed form. For the purpose of calculation of capital gains tax, thecost of acquisition of shares would be determined on the principle of first in first out. The process of opening an account with a DP is similar to the opening of bank account.Photograph, Introduction and signing the prescribed agreement form are some of therequirements.If there are any discrepancies in your holdings statement or pass book entries, you cancontact your DP. If the problem cannot be resolved at DP end, you can approach NSDL.There is absolutely no restriction to the number OD DPs you can open accounts with. Justas you can have savings or current accounts with more than one bank, you can openaccounts with more than one DP.There is no minimum balance required for your account with DP. In fact you could havenil security in your account.1
 
What's the security that a person has with respect to proof of his holdings? Upon openingan account with DP, you sign an agreement where the DP indemnifies you for any misuseof your holdings.When any company announces right, bonus or dividend for a particular security, the DPwill give details of the clients having electronic holdings of that security as of recorddate/ book closure to the registrar. The registrar will then calculate the benefits due to allshareholders. The disbursement of cash benefits like dividend or interest will be done bythe registrar whereas distribution of securities entitlements will be done by the DP basedon information provided by the registrar The investor retains the choice of receiving the corporate benefits in physical or electronic form. For discrepancies in corporate benefits in the form of securities, you canapproach your DP who will then approach the registrar. In case of discrepancies in cash benefits, you will have to contact the registrar directly.
Features of Demat services in Integrated Enterprise (India) limited
In our continuous endeavor to offer the best services to our customers, we provide thefollowing benefits:
Highly competitive service charges
Wide network of 112 branches across the country
Secured transmission and storage of data
Statement of Holdings updated on hourly basis in our websites
Complete range of demat related services
Managed by a team of well organized and specialized personnel
Quick, efficient and simple procedures
Online services such as Speed-e and IDeAS
Relationship Scheme
Trading services
Online connectivity with Head Office
Full fledged Back Office System
Tax related processing services are also conveniently available to all accountholders
Demat Process:
A request form together with the share certificates desired to be dematerialized is given tothe DP. He sends the request along with the share certificates to the company/ registrarsthrough NSDL for confirmation of its genuineness. After checking the records, theregistrar will destroy the certificates and sends confirmation of dematerialization to NSDL. NSDL then confirms the dematerialization of shares to your DP to credit the2
 
holding of shares in your account electronically. This takes about 15 days from the dateof request. Electronic holdings can be converted back into certificates, if so desired, in asimilar fashion as that for dematerialization.
Benefits of Demat:
In the depository system, the ownership and transfer of securities takes place by means of electronic book entries. At the outset, this system rids the capital market of the dangersrelated to handling of paper. NSDL provides numerous direct and indirect benefits, like:
 Elimination of bad deliveries-
In the depository environment, once holdings of an investor are dematerialized, thequestion of bad delivery does not arise i.e. they cannot be held "under objection".Statistically, in the physical environment, about 20% of delivered stock constitutes baddeliveries. Of these, about 1% is ultimately absorbed by the system as bad delivery cost.Rectification of objection usually involves extensive follow up by the investor. Also, theinvestor cannot sell the securities till they are registered. This means that in the physicalenvironment, every fifth person taking delivery of stock gets securities, the genuinenessto which there is a doubt whereas he parts with genuine funds
 Elimination of all risks associated with physical certificates-
Dealing in physical securities have associated security risks of theft of stocks, mutilationof certificates, loss of certificates during movements through and from the registrars, thusexposing the investor to the cost of obtaining duplicate certificates and advertisements,etc. This problem does not arise in the depository environmentNo stamp duty for transfer of equity instruments & units of mutual funds in thedepository(In case of physical shares, stamp duty of 0.5% is payable on transfer of shares).
 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 itto the company's registrar for registration. Having purchased securities in the physicalenvironment, 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 andis rarely completed within the statutory framework of two months thus exposing theinvestor to opportunity cost of delay in transfer and to risk of loss in transit. To overcomethis, the normally accepted practice is to hold the securities in street names i.e. not toregister the change of ownership. However, if the investors miss a book closure the3

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