INTRODUCTION OF THE DEPOSITORY SYSTEM IN INDIA 1.

1 INTRODUCTION:A Depository is an organization, which assists in the allotment and transfer of securities. The shares in a depository are held in the from of electronic accounts i.e. in dematerialized from and the depository system revolves around scrip less trading. An effective depository systems essential for maintaining and enhancing the market efficiency, which is one of the core characteristic of a mature capital market in such 1989, the group of thirty had emphasized the importance of a central depository by highlighting the adverse effect on global investment brought about the inefficiencies of international settlement & clearing facilities in their report on “clearance & settlement system in the worlds securities market.” The depository and custodial services is one of the key ingredients of the developed markets like Japan, U.K and countries like k Korea, Hong Kong ,Malasiya, Srilanka and Thailand have also set up depository system provides a wider range of service vise primary market services, secondary market services and ancillary services In the case of primary market services, secondary market services and ancillary services in the case of primary market services, the depository through link between the investor and clearing house of the exchange to facilities settlement of the security transactions through book keeping entries further the depository can provide ancillary services like collecting dividend sand interest and responding corporate information In India the need for setting up a depository was realized after the large scale irregularities in securities transaction of 1992 exposed the limitations of the prevailing settlement system .the need for depository system was also realized for the healthy growth of primary market. which 1

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 1.2 MEANING OF DEPOSITORY: Depository means a place where something is depository for safekeeping, a bank in which others deposit funds securities, usually under the terms of specific depository agreement. Depository means one who receives a deposit of money, securities, instruments, organization other property a person to when something is entrusted, a trustee, and a person organization group entrusted with the preservation organization safe keeping of something. The Depository is an organization where the securities of shareholders are held in the form of electronic accounts, in the same ways as a bank holds money. The depository holds electronic custody of securities &also arranges for transfer of ownership of securities on the settlements dates this system is know as “scrip less trading system “Any body to be eligible to provide depository services SEBI. A depository is an organization that holds the securities of the investors in the form of electronic book entries in the same way a bank holds money. Depository Transfer securities without physically handling 2 must register with

securities, the way a bank transfers funds without actually handling money.

1.3 NEED OF DEPOSITORY:The large-scale irregularities in securities transaction of 1992 exposed the limitation of prevailing settlements system .It was also realized that a depository could reduce the time between allotments of shares and transfer of entitlements arising out of each allotment that would facilities the growth of primary market. Finally the massive amount of paper work associated with transfer of large number of listed companies often gave rise to problems of stolen shares. To over come the problem of large number of transfer deeds share certificates the concepts of jumbo transfer deed and jumbo certificate had been introduced. In a jumbo transfer deed only on transaction for deed is to be executed for a large number of transfer while a funds certificates large number of securities. The depository system in India in India operates within the framework of depository Act1996 and SEBI regulations Act1996.

1.4 The Depository Participant:A depository is an agent of the depository & function as the interacting medium between the depository &the investor. A depository is a person registered with SEBI & must possess the requester qualifications prescribed by the depository of which he is a participant’s depository is responsible for marinating the investors securities account in accordance with the investors written instruction . A depository could be linked to a broker who deals/ trades on the investor’s behalf. As per Regulations SEBI 19(A) the depository participant include that are eligible to become depository participants system:3

⇒ 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.

1.5 DEPOSITORY SYSTEM: -

PARTICIPANT

GUIDED

The Participant will have its own I.T. set up installed, which will be connected to the Depository system situated at National Securities Depository Limited, Trade world, 4th Floor, Kamala Mills Compound, Lower Parel, Mumbai 400 013, using appropriate telecommunication links. The hardware, software & telecommunication equipment should be as specified by NSDL. The Participant should ensure continuous electronic means of communication (connectivity) with NSDL. The minimum I.T. set up required for a Participants entry level system would comprise of single CPU Server (upgradeable to dual or quad CPUs), at least one client/ node and networking hardware. The Participant may configure additional CPU, memory, disks and nodes based on the volume of business envisaged.

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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:South Gujarat Shares and Share Brokers LTD. (SGSSL) is a public Ltd. Company registered under co. act 1956. Company established with authorized share capital of Rs. 3 crores and its paid up capital 1.27 crores. Company was started in 1996 in Baroda and had main office over there and this office is shifted from Baroda to Surat in July 1996.In 1996, company got direct membership of NSE of India. Company is registered broker of SEBI. In 1998, Company takes National Securities Depository Ltd. Participation. In South Gujarat, SGSSL is the 1st company, who takes the depository participant (D.P). In DP there are 11500 holders which having demate account in SGSSL. The company is 2nd largest in demat account. Accordingly the company SGSSL brokers Limited was registered under the companies act on the 5h January 1995.To begin with it conducted its trading business through other members of the National Stock Exchange. During the first year of its operation ending on the 31st March 1995 it suffered a loss of Rs. 80,000. The company had another poor year during 1995-96 and suffered a further loss if Rs.1.18 Lacs this was mainly because the company couldn’t procure the national Stock Exchange membership during the year and also because of the prevailing poor Market conditions. Company has computer-to-computer links (CTCL) networks, which are connected with LAN and also with WAN. In Surat City Company given many register sub broker CTCL. Company also provide in outside of Surat like Hazira, Navsari and also in Bilimora.

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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.  SGSSL different activities:• ⇒ ⇒ ⇒ Stock Market Operation

Online Trading for NSE Depository Segment for Demat Trading.

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2.2 COMPANY PROFILE :⇒ Name of the company:South Gujarat Shares & Shares Broker Ltd. ⇒ Board of Directors :Mr. Anil. Choksy (Chairman and M.D.) Mr. Bhadresh. G. Kapadia (Director) Mr. Shahikant .R. Yadav(Director) Mr. Aiyub. M. Yacoobali (Director) Mr. Bipinchandra. Lineswala(Director) ⇒ Bankers :Canara Bank HDFC Bank Ltd. ⇒ Registered Office:3rd Floor,Belgium Chamber Opp. Linear Bus Stop, Ring Road Surat-395003 ⇒ Statutory Auditors :Ashok Rajpara (Chartered Accounts, Surat) ⇒ Internal Auditors :Amish Sanghavi & Company (C.A. Surat) ⇒ Company Secratory:Kanti bhai Savalia Kunjanbhai Dalal

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FINANCIAL POSITION:Financial Results

Particulars Total Income Profit Before Depreciation Depreciation Profit Before Tax Provision for Tax Profit After Tax

31.03.03 (Rs. In lacs) 96.58 30.99 12.13 18.86 7.00 11.86

31.03.02 (Rs. In lacs) 108.80 15.80 13.99 1.81 0.76 1.05

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2.4 MILESTONE:

In 1992 SGSSI had started their activities as an On 5th January 1995 the company register under the On 31st March 1995 the company suffered the loss of In 1995-96 the company suffered the further loss of On 27 February 1996 the company got SEBI The activity of NSE started on 18 April 1996 On 23rd July 1996 the company operation were Another terminal installed as J.K. Tower in March The total volume per day now crossed Rs. 2 Carore. During the year ended 31st March 1997 the company The company ahs taken approval form NSDL to At present there are more than 12000 holders having Company has 35 registered sub brokers Total income of current year 96.58 lacs

association of person

company act 1956

Rupees 80000  Rs. 1.18 lacs  registration 

shifted from Vadodra to Surat  1997 

has turned the corner  work as DP  demat account in SGSSL  

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Profit after Tax for current year is 11.86 lacs as

against 1.05 lacs as compared to previous year.

TYPES OF DEPOSITORY SYSTEM 3.1 NSDL
LIMITED):-

(NATIONAL SECURITIES DEPOSITORY

Although India had a vibrant capital market that is more than a century old, the paper-based settlement of trades caused substantial problems like bad delivery and delayed transfer of title till recently. The enactment of Depositories Act in August 1996 paved the way for establishment of NSDL, the first depository in India. This depository promoted by institutions of national stature responsible for economic development of the country has since established a national infrastructure of international standard that handles most of the trading and settlement in dematerialized form in Indian capital market. Using innovative and flexible technology systems, NSDL works to support the investors and brokers in the capital market of the country. NSDL aims at ensuring the safety and soundness of Indian marketplaces by developing settlement solutions that increase efficiency, minimize risk and reduce costs. At NSDL, we play a quiet but central role in

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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.  Transaction of the NSDL:The transaction of the stock market generally full into two categories namely 1. NEW ISSUE 2. SECONDARY MARKET TRANSACTION 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. In the last case cited above ,the transaction would be smooth because both of them prefer the same mode .In the earlier cases the transaction would be little bit difficult for the broker .In both cases the transfer of shares from one mode to another mode is involved. In the first case the broker has to withdraw from the account mode into physical mode to keep the shares ready for delivery. In the second event the seller has to convert the physical mode of securities into deposit accounts by opening accounts or by utilizing he accounts of an other broker  NSDL’S First Participants:1. 2. 3. 4. 5. 6. 7. 8. 9. Industrial Development Bank of India Unit trust of India National stock Exchange State Bank of India Global Trust Bank limited Citibank NA Standard Chartered bank HDFC Bank Limited Dena Bank

10. Canara Bank  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:NSDL is public limited company in corporate under the companies Act, 1996. NSDL had a paid up equity capital of Rs.105 crore. The paid-up capital has been reduced to Rs.80 crore since NSDL has bought back its shares of the face value of Rs.25 crore in the year 2000.However,its net worth is above the Rs.100 crore, as required by SEBI regulations.  Facilities Offered By NSDL:The various facilities offered by depositories are as follows. ⇒ Opening of depositories Accounts and Account Transfer. ⇒ Dematerialization and Rematerialisation ⇒ Settlement of trades in dematerialized Securities. ⇒ Transfer, Transmission and Transposition ⇒ Pledge and Hypothecation ⇒ Redemption or Repurchase ⇒ Stock lending and borrowing.

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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 December 1995 May 1996 August 1996 November 1996 December 1996 June 1997 January 1998 April 1998 June 1998 November 1998 December 1998 January 1999 May 1999 October 1999 February 2000 May 2000 June 2000 June 2000 July 2001 April 2002 November 2002 December 2002 April 2003

Drafting of the Depositories Ordinance NSDL incorporation SEBI Regulations Enactment of the Depositories Act Inauguration of NSDL; commencement of dematerialization Commencement of trading in dematerialized shares on NSE Total value of demat securities at NSDL crosses US $ 1 bn. Compulsory demat trading for institutional investors commences Demat shares treated as good delivery in physical segments of NSE and BSE Commencement of trading in dematerialized shares on CSE Investor accounts cross 1,00,000 Commencement of dematerialization of Government Securities Compulsory demat trading for retail investors commences NSDL launches the NSDL-Depository Operations Module Investor accounts cross One million mark NSDL launches internet based serviceSPEED for clearing members Investor accounts cross 2.5 million Commencement of dematerialization of Debt instruments 98% Settlement in demat form Introduction of T+5 Rolling Settlement & Uniform Settlement Cycle Introduction of T+3 Rolling Settlement Launch of STEADY - an STP initiative by NSDL Investor accounts cross 5 million 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:Any transfer of securities from a demat account with one of the depository to a demat account maintained with the other depository, termed as an “Inter Depository “transfer. Inter depository instructions are done through inter-depository instruction slip furnishing particulars of the DP/BO-ID of the transfer in the other depository. Delivery of Securities across depositories arises in the following circumstances: ⇒ For settlement of trades –when beneficial owners/sub-

brokers/clearing members do not have demat account within the same depository system. ⇒ When transfer of security from one depository to the other is made as an off market transaction either in response to an open offer/buy back or otherwise. 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. Presently, inter-depository transfers are effected DPs twice a day i.e. 10:00 A.M. and 6:00 .p.m.. This facility is proposed to be more online to facilitate ring depository transfers any time during the business hours.

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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  CDSL-Adding value month after month :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. ⇒ Seamlessly operational Disaster Recovery Site(DRS) After successfully relocating the Disaster Recovery Site to a State-of-the-art data center at Navi Mumbai, DSL is currently engaged in making the DRS seamlessly operational in terms of connectivity. This will be an important milestone in ensuring business continuity. ⇒ Faster availability of data The master data kept at the front-end of CDSL system is updated daily through a “Transfer and update”, which was resulting in delays due to increased volumes. This procedure has since been modified in such a way that now only the incremental data is transferred, which enables DPs and Issuers to update their master data quickly and commence their business operations early.

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“Pulling” of reports From the system of downloading reports to DPs when they ”registered” to the CDSL system, DSL system has now introduced pull facility for reports. This gives DPs the benefits of downloading & viewing the report “as and when they require”

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DEMATERIALISATION

& REMATERIALISATION

4.1 DEMATERIALISATION :Conversion of the physical certificates into dematerialized holding at the request of the investor is called ‘Dematerialization ‘. Only shares registered in the name of the account holder are accepted for dematerialization at the depository. In dematerialization process, investors surrender defaced certificates along with ‘Dematerialization request Form’ (DRF) to the depository participant and depository participant intimates the depository of the request through the system. Depository Participant then submits the certificate along with Dematerialization request Form to the Registrar who confirms the dematerialization request from the depository. Registrar validates the request, updates records and informs depository who in turn credits the depository participant account and inform the depository participant. Depository Participant updates the investor account and informs the investor. The entire process of the dematerialization completes in about 15 days time. However, for those cases, where large numbers of the certificates are submitted from institutions for dematerialization, it takes up to 30 days for dematerialization.

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 Procedure of Dematerialization:5
NSDL 2 SGSSL

3

4 2A Registrar

1 2

6

Investor

⇒ ⇒ ⇒

Investor requests the DP for Dematerialization. NSDL is informed by the DP through electronic connectivity. Original share certificates are submitted to the Registrar by The request for dematerialization from NSDL to the Registrar.

the DP. ⇒ The Registrar credits an equivalent number of shares in the account and informs NSDL.

The NSDL updates its own account and the depository The depository agent credits it in the account of the investor

participants are informs.

and the same is informed to the investors.  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 Dematerialization of the concerned 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.  The following points should be checked particularly:⇒ The security certificates sought to be dematerialized are attached to DRF. ⇒ The attached security certificates are marked (defaced) with the words ‘Surrendered for Dematerialisation’. This is a precautionary measure to prevent misuse of the share certificates by anyone. ⇒ The certificates are mutilated by punching two holes. However, the certificates should not be mutilated or defaced in a manner affecting any material information. R&T Agent is satisfied, securities is electronically

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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.

In case of joint holding, the order of the names appearing in the DRF and certificates has to be the same as in the client’s account in DPM.

Details like securities type, face value, paid-up value, pari passu status, certificate numbers, distinctive numbers, numbers of certificates, total quantity of securities and lock-in status are filled-in correctly.

Separate DRFs have to be submitted for: • Free and locked-in securities; • Securities locked-in for different reasons; • Each ISIN; • Securities of different paid-up value; • For each client account.

⇒ •

DRF is signed by: The sole holder in case of single holding;

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• • corporate accounts; • accounts. •

All joint holder in case of joint holding; Authorized signatories in the case of Constituted attorney in the case of NRI The signatures of the client as appearing on in the records of the DP .If the registered with

DRF match with the signatures

signatures do not match, the DP should satisfy itself about the identity of the client. If the client has a signature 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. ⇒ If the DRF and the accompanying security certificates are not found in order, the DP should return the DRF and certificates. ⇒ the client. ⇒ The DP should enter the dematerialization request in DPM.DPM generates a request number (DRN), which should be mentioned on DRF. ⇒ An authorized person, other than one who entered the DRF details in the DMP, should verify the details of the DRN and release a request to NSDL. If the DRF and the accompanying certificates are found in order, DP should accept the DRF and issue an acknowledgement to the

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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. ⇒ The issuer or its R&T Agent verify the DRF and

the accompanying certificates for validity, completeness and correctness. They also match the details with the intimation received from NSDL against the same DRN. ⇒ In case DRF is not found in order ,the issuer or

its R&T Agent send an objection memo to the DP, with or without DRF and security certificates depending upon the reason for rejection. ⇒ DRFs and Certificates are sent following grounds: • DM • DRF • DRF Quantity of actual securities is more than Quantity of actual securities is less than DRN does not match with message from back on the

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⇒ DRF and certificates are not sent back: • • stolen; • • • • with DRF; • R&T Agent; • • • of the electronic Request. ⇒ The DP informs the client accordingly and If the signatures differ; If there is any court order on the securities; If the certificates are received after 15 days If the DRF/Securities do not pertain to the If duplicates of the original certificates sent If the endorsements are forged; If the securities are not in the name of the If the details of the certificates do not match for demat have already been issued; If the certificate is fake; If the certificate has been reported to be

account holder as per DEF;

requests removal of Reasons for objection. The DP removes these or provides additional information to the issuer or it’s R&T Agent within 15 days of receiving the objection memo. ⇒ If the DP fails to remove the objection within

15 days, the issuer or its R&T Agent may reject the request and return DRF and accompanying certificates to the DP. The DP informs the client accordingly. The DP also returns the securities to the client and obtains an acknowledgement. 27

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. ⇒ If the issuer or its R&T Agent finds the DRF in

order, it informs NSDL and authorizes it to create the appropriate credit balance in the client’s account. DPM automatically credits the client’s accounts when DM is updated. For the purpose of income tax calculations, the date of credit of securities by dematerialization is taken as the date of acquisition of shares. ⇒ The DP, on receiving confirmation of credit

entry in DPM, informs the client. ⇒ shares. An R&T Agent is required to confirm / reject a

demat request within 15 days from the date of receipt of physical

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 International Securities Identification Number (ISIN) :Each of the securities dematerialized in the NSDL depository bears distinctive ISINan identification number. International Securities Identification Number (ISIN) is unique for each security issued in any of the international Standards organization (ISO) member countries in accordance with the ISIN standard. ISO 6166 was developed for use in an international as well domestic trade. Securities issued by the same company, issued at different times or carrying different rights, terms and conditions are considered different securities for the purpose of allocating ISIN and are allotted distinct Insisting India; SEBI assigns ISIN to various publicly traded securities. Different ISIN are allotted to the physical and dematerialized securities of the same issue.

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4.2 REMATERIALISATION

The conversion of

dematerialization holding back into

certificates is called ‘Rematerialisation’. If the investor wish to get back his securities in the physical form, all he has to do is to request his depository participant for rematerialisation of the same by filling up ‘Rematerialisation Request Form’ (RRF). Depository Participant will then forward the request to the depository after verifying that investor has necessary balances. Depository, in turn will intimate the registrar usually takes a maximum of 30 days.

5 NSDL 2A Depository Participant

2B 4 3 1 6

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 NSDL adjusts its accounts and passes on the The certificates are dispatched to the investor. with new numbers and informs NSDL. details to the depository Participants.

Steps:1. The DP should provide re- materialization request forms (RRF) to clients. 2. The client should complete RRF in all respects and submit it to the DP. 3. The DP should complete RRF for validity, completes and correctness. In Particular, the following points should be checked. ⇒ ⇒ ⇒ ⇒ There is sufficient free balance available in the Incase of joint holding, the order of names The name of client on RRF is exactly the same Details like security type, face value, issuer’s

client’s account to honour the re- materialization request. appearing in RRF is he same as in the client’s accounts as that in the client account. name and lock –in status are filled –in correctly.

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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. ⇒ Separate RRf are submits for • Free and locked in securities • Securities locked in- for different reasons • Each ISIN • Securities of different paid –up value and • Each client account. ⇒ 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)

The depository ordinance was promulgated in September, 1995. The SEBI circulated a consultative paper seeking views from the public on the framework of depository system. This was followed by issues of the SEBI (depository and participant) Regulations which were promulgated by the government in May, 1996. The scope of the legislation extends to the issue of scrip less trading, transfer of ownership by means of book entries though electronic media and holding of securities through depository fungibles of shares. 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 34 system as also

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 35

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:36

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. 7) Depository Records as Legal Evidence:The ownership records maintained by the depository or the participants will be accepted as prima facie evidence in legal proceedings. The depository records will receive the same treatment as available to bank under the Bankers’ Book Evidence Act.

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4.4 STEPS FOR JOINING AS A DP:⇒ application to NSDL.

Entity desirous of becoming a DP makes an NSDL verifies the application for completeness NSDL may reject, ask for further information and

and conformity to the instruction given for filling in the application form. ⇒ clarification ,or ask to remove the defects in the application NSDL ensures that all systems like hardware, software, telecommucations, data processing , information stroge, backup alternate connectivity ,internal controls are in place and confirms to SEBI ⇒ ⇒ NSDL forwards the application to SEBI for SEBI reviews the application for completeness registration along with its recommendations. and correctness. It may reject the application, or ask for further clarification from the DP OR NSDL. ⇒ ⇒ ⇒ bye-laws. SEBI grants certificate of registration. The DP pays the registration fee to SEBI within The DP pays registration fee, security deposits,

the stipulated period of 15 days. insurances fee and other collateral to NSDL as stipulated under its

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⇒ prescribed format. ⇒ prescribed format. ⇒ applicant’s premises. ⇒

The DP and NSDL sign an agreement n the NSDL activates the DP module at the NSDL activates the DP module at the DP begins operations.

4.5 ACCOUNTING OPENING:The purpose for which a depository account is opened determines the natures of operation of such accounts .On this basis, depository accounts of various market participants may be categorized into the following types:1. 2. 3. 4. Individual Accounts (Beneficiary Accounts) Clearing Members Accounts Corporate Accounts Intermediary Accounts

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. House accounts vs. Non house accounts – An accounts opened by a DP for the custody of and transactions in its own investments is referred to as a house accounts ,and all other beneficiary accounts are referred to as non house accounts. DPs are required to open house accounts for their transaction to prevent co-mingling accounts. DPs are required to open house accounts for their transactions to prevent co-mingling of their securities investments with the investments of their clients.

 Documents for Verification:For the purpose of verification, All Investors have to submit the following documents along with the prescribed account opening form. 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:The process of opening an account with a depository, nature of such an account and various factors to be considered for opening a depository account are explained below. Some details are common to all types of accounts. These are: a) Name of the holder b) Date of Birth(for individual accounts) c) Occupation d) Address & phone/fax number e) Bank details, like, name of bank, type of account(Current/Saving) account, account number, branch address ,MICR No. etc., f) PAN number, if applicable g) Details of nomination h) Specimen signatures

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Procedure

for

opening

an

account

with

a

Depository Participant:A depository account opening with a DP is a very simple process and is similar to opening a bank account. A person can open a depository account with any registered Depository Participant of his choice. There is no restriction on the number of depository account a person can open with DPs. Just as a person can have savings or current accounts with more than one bank, he can open depository accounts with more than one DP.

The basic requirement of an individual for opening an account with a DP is: a) b) c) d) e) f) g) Account Opening Form Identification (Passport/Election ID/Driving license) Photographs of the applicants duly signed across Standing instruction in written to DP for receiving credits Agreement between the DP and the person seeking to open Indemnity in respect of facsimile for operation of Depository Tariff structure of a DP, duly signed by account holders

account with the DP account (if desired)

 Types of Application form:For each kind of account, there is a different application form .A DP must understand clearly the differences in the application forms, to

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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. Forms for Individual Account :-

a)

• Name of account holder The DP should ensure that the name is identical to that which appears on the certificate to be in the same order as appearing in the share certificate to be dematerialized, if any.Investors are advised to open their fully expanded name, i.e., to spell to the first name as well as the middle name. This would obviate any doubts about the veracity of the information. Investors can dematerialized all physical securities held in his full name, abridged name, name with initials or any other fashion in this account .By opening the account in the fullest/expanded name, chances of wrong credits and debits and rejection of demat requests are minimized. • Mailing and communication Address The veracity of the applicant’s address is determined through the documents submitted for verification like ration card, voter ID, PAN card driving license, bank passport, etc. For NRI accounts, proof is required for both address that of the account holder as well as the constituted attorney. For corporate accounts, a copy of Memorandum of Association, Articles of Association, Board Resolution permitting operating of account, the registered addresses of the company as well as address of the person authorized to operate the account on behalf of the company have to be furnished.

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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. • Foreign Address and RBI approval details for NRI,FII or OCB accounts For foreign-based clients like NRIs, OCBs, FIIs, etc. The DP must obtain original or attested copies of the power of attorney and the approval letter from RBI permitting them to invest. If the account holder is an FII or an OCB,SEBI registration details along with attested copy of registration certificate issued by SEBI and authorization letter is required. • Clearing member details for a clearing account A broker account as a clearing account can be opened only after depository approves it and allots a clearing –member business partner identification number. A broker member can have only one clearing account per stock exchange of which he is a member .The DP should obtain, with the account opening form, the necessary details from the clearing member along with a letter from the clearing corporation allotting a CC-MM-ID. In such case the clearing account is being transferred from any other DP, a no objection from the earlier DP is also required. • Details of bank account

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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. • Details of Income-TAX permanent account Number In case the account holder is not an income tax assessed or he has not yet been allotted a PAN or GIR No., the DP must obtain a declaration to this effect from the account holder. In other cases, a photocopy of PAN card or the acknowledgement of latest income-tax returns is required.

b)

Forms for Joint Accounts:A depository account may be opened and maintained in the names

of more than one person. The names and signatures of the joint-holders should however appear on the account opening form and in the records of the depository and the DP in the order in which they appear on the security certificates to be dematerialized. The entire joint holder has to sign the application form and the agreement. The supporting documents and photograph should also be provided for all joint holders. The account opening module of NSDL system provides only for up to three joint names as at present. Through the beneficial ownership of jointly held securities vests equally in all joint-holders, communications about the joint depository account are provided only to the first holder. The dividend and interest warrants, annual reports and notices for meetings are also issued to the first-named joint-holder only. 45

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. Form for HUF:When a depository account is opened in the name of an HUF, THE BENEFICIAL WILL BE ITS Karta. DPs should clearly designate the account in the name of the Karta as such.

c)

d)

Form for Companies :A company being an artificial person can open a depository

account, provided its memorandum authorized it to make investment in the securities of other companies. A depository account in the name of a company should be operated by the person authorized by a resolution passed by its board of directors. The DP should obtain an attested copy of its memorandum and board resolution authorizing the opening and mode operation of the depository account. Form for Minors:A minor may hold shares through guardian. Accordingly, a minor may open a depository account only through his guardian. The DP should

e)

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obtain documents evidencing the age of minor. E.g. birth certificate, along with the account opening form.  Check List for Account Opening :⇒ ⇒

Proof of Identity Proof of Address

2.

Clearing Member Account:The entities that are authorize to pay in and receive the pay out

from a clearing corporation/clearing house against trades done by them or their clients are known as clearing members. Clearing Members are identified in the system through their CMBP ID. All pay-in and payout transaction are carried out through their accounts. There are two types of clearing members:⇒ ⇒

All members of a stock exchange popularly known as Custodians who are permitted by the stock exchange to act

brokers are clearing members. as a clearing member.

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Procedure to open a Clearing Member Account:The step undertaken to open the account are same as those of individuals, difference lies in the type of form and details to be filled in and documents to be submitted. The only major difference is that the clearing member has to first register itself with the depository and obtain a business partner identification number. The clearing account is identified by the combination of CC-CM-ID given by the clearing corporation, CM-BP-ID given by the depository and the client-ID given by the DP. Immediately after opening a clearing account, the DP should inform the depository the details of the clearing member’s name, CM-BPID, client-ID and date of opening the account in the DPM system.  Details to be filled in the form:⇒ ⇒ ⇒ number, ⇒ ⇒ number ⇒ Signature of authorized signatory

Name of the Clearing Member Company’s short name, if any Address of the registered office, telephone number, fax e-mail, if any Name and address of the authorized signatories, their Bank account particulars, bank name and its branch ,current

designations and telephone number, status-code ,sub-status code account number, RBI reference number, RBI approval date ,PAN/GIR

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 A separate enclosure has to be attached to the accounting form specifying the following details:⇒ Name and address of the Clearing Member ⇒Name and address of the Clearing corporation ⇒Clearing corporation ID(CC-ID) ⇒Clearing Member ID(CM-ID) ⇒Stock Exchange clearing code ⇒SEBI Registration number ⇒Trade name ⇒Copy of Board Resolution for authorized signatories should also be submitted. Once these details are entered in the system, a “Clearing member Business Partner” identity number is generated. With this ID, the account gets activated. Generally, there will be only once CM account per broker for a stock exchange. However, if the stock exchange allow badla transaction, a broker may open another CM account for vyaj badla transaction .Deliveries in and out relating to vyaj badla transaction are carried out through this CM account . Intermediary Account As per SEBI Regulation on stock lending and borrowing intermediary can lend and borrow stocks from clients. This intermediary borrows from lenders and lends to borrow. Intermediary registered with SEBI as approved intermediary may open an intermediary account with a DP of its choice, for executing stock lending and borrowing transaction made through them. An intermediary account may be opened only after obtaining registration from SEBI under an approve stock Lending Scheme, and getting the approval of the depository for opening the 49

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:⇒ Closure on client’s Request

A DP can close a depository account on receipt of an application in the prescribed format. The application should be made by the account holder or by all the joint-holders. An account can be closed only when there is no balance in the account .In case there is any balance in the account sought to be closed, The following steps are necessary:-

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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:Accounting freezing means suspending ant further transaction from a depository account till the account is DEPOSITORY-frozen; a depository account maintained with a DP may be frozen in certain cases ⇒ If a written introduction is received from the client by the DP requesting freezing of account or ⇒ If written instruction are received from the depository pursuant to an order the central or State government ,SEBI ,or ant order by the court, tribunal, or any statutory authority. An account can be frozen only for debits or for credits. No transaction can take place in such an account until it is reactivated. A frozen account may be defrozen or re-activated, by taking the reverse step.

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• •

On the valid written request of the account holder where he On directions of depository made in purchase of the order of

had requested freezing the appropriate authority The DP should immediately inform the client about change in status of the account from “active” to “suspended” and vice versa

5.Interemediary Account:As per SEBI Regulation on stock lending and borrowing only a qualified intermediary can lend and borrow stocks from clients .This intermediary borrow from lenders to borrows. Intermediary registered with SEBI as approved intermediary may open an intermediary account with a DP of a choice, for executing stock lending and borrowing transactions made through them .An intermediary account may be opened only after obtaining registration from SEBI under an approved stock lending ,and getting the approval of the depository for opening the account. The processed of opening an opening an intermediary account is same as for opening a corporate beneficiary account. Securities may be transferred to or from an intermediary account only as per the procedure prescribed for this depository.

4.6 RIGHTS AND OBLIGATION DP & AGENT:A depository shall enter into an agreement, in the prescribed form, with one or more depository participants (DP) as its agents.

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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.

Advantages & Service Charges of DP
5.1 SAFETY: There are various checks and measures in the depository system to ensure safety of the investor holdings. These include:-

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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. ⇒ client. ⇒ ⇒ Every day, there is a system driven mandatory There are periodic inspections into the activities of both reconciliation between participant and NSDL. 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 All investors have a right to receive their statement of Every month NSDL forwards statement of account to a In the depository, the depository holds the investor and in the databases maintained by business partners. accounts periodically from the DP. random sample of investors as a counter check. 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. Depository Participants are allowed to affect any debit and credit to an account only on the basis of valid instruction from the

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 Freeze Facility:A depository account holder (beneficiary account) may freeze securities lying in the account for as long as the account holder wants it. By freezing the account, account holder can prevent unexpected debits or credits or both, creeping into its account. The following types of freeze facility available in the NSDL system may be availed of by submitting freeze instruction to the Depository Participant (DP) in the prescribed form. ⇒ ⇒ ⇒ ⇒ Freeze for debits only Freeze for debits as well as credits Freeze a particular ISIN in the account Freeze a specific number of securities held under an

ISIN in an account  Certification in Depository Operations:NSDL has introduced a Certification Programmed in Depository Operations, and it has been made compulsory for all DPs to appoint a person qualified in this certification in each of its branches. This way, NSDL wants to ensure that each branch of a DP that services investors has at least one person who has thorough knowledge about depository system.  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:The NSDL hardware, software and communication systems are continuously reviewed in order to make them more secure and adequate for the size of business. These reviews are a part of an ongoing exercise wherein security considerations are given as much importance as operational efficiency.

5.2 CHARGES:NSDL provides depository services to investors and clearing members through market intermediaries called Depository Participants (DPs). NSDL does not charge the investors and clearing members directly but charges its DPs, who are free to have their own charge structure for their clients. NSDL charges to DPs are uniform for all DPs. Some charges are payable by Issuers also. FEE PAYABLE BY DEPOSITORY PARTICIPANTS

ENTRY FEES:Each Participant shall pay, to the Depository, a non-refundable Entry Fee of Rs.25, 000.  TRANSACTION RELATED FEES:-

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The following transaction related fees shall be payable by the Participants to the Depository:

Settlement fee: A settlement fee at the rate of Rs. 10 per debit instruction in A settlement fee at the rate of Rs.1.00 per instruction in

• •

a Client's account shall be charged to the Participant of the Client. respect of securities received from the clearing Corporation into the Receipt-in account of each Clearing Member maintained with the Participant subject to a minimum of Rs.1000 and a maximum of Rs.20,000 per quarter per CM Account shall be charged to the Participant. • A settlement fee at the rate of Rs.10 per debit instruction for transfer of securities by way of inter-settlement transfers in the CM Account(s) shall be charged to the Participant. • A settlement fee at the rate of Rs.10 per debit instruction for transfer of securities from the CM account of a Clearing Member to the CM account of another Clearing Member shall be charged to the Participant of the delivering Clearing Member.

 Provided however that no settlement fee shall be charged:In respect of commercial papers and short term debt instruments such as certificate of deposits, MIBOR linked papers etc., no settlement fee shall be charged to the Participant.

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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: A fee at the rate of Rs.25 per instruction for creation of pledge /

hypothecation shall be charged to the Participant of the pledgor/ hypothecator. No fee shall be charged when a pledge / hypothecation is closed or invoked.

Lending and Borrowing fee: A fee at the rate of Rs.25 per instruction shall be charged to the

Participant of the borrower in respect of credit of securities to the account of the borrower. No fee shall be charged at the time of repay or recall of securities.

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. 59

Fee For Dematerialization & Rematerialisation: No fee shall be charged by the Depository on dematerialization

requests. However, in case of rematerialisation request, a flat fee of Rs.10 per certificate shall be charged to the Participant.

Minimum Fee: In case the total fee billed to the Participant in a financial year is

less than the minimum fee of Rs.1,50,000 then the Participant shall be charged the difference thereof.

Security Deposit: Every Participant shall pay to the Depository Rs.10 lakh by way of

interest free refundable security deposit. However, a Clearing Corporation or a Clearing House of a Stock Exchange will be exempt from payment of security deposit.  Fee Payable By Issuers Fee:⇒

For Distribution Of Non-Cash Corporate Benefits: In case of offers for sale by an offered or disinvestment by GOI or

issue of shares arising out of bonus, rights, public issues, shares split, merger, demerger, etc., a fee at the rate of Rs.10/- per record shall be charged to the Issuer, subject to a minimum fee of Rs.500 per corporate action. • In case of conversion of shares of non pari-passu to pari-passu, partly-paid to fully-paid etc., no fee shall be charged. 60

• 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.

ONE TIME CUSTODY FEES: An Issuer may pay a one time custody fee to NSDL at the rate of

0.05% on the market capitalization of the company. The market capitalization of a company will be determined on the basis of the average market price for a period of 26 weeks preceding the date on which the company agrees to make such payment. Consequent upon such payment, NSDL shall not levy any custody fee on the Participants. If a company opts to pay the aforesaid one time fee, it will also be required to agree to pay on the newly issued shares, a custody fee at the rate of 0.05% (five basis points) on the value of shares calculated on the basis of issue price of newly issued shares. In case the company does not pay this amount, NSDL shall charge custody fee as per provision mentioned at Rule 21.2.2.4 hereunder. However, the Issuer shall not be required to pay any custody fee on any subsequent issue of Bonus shares by the company.

5.3 ADVANTAGES:In the depository system, the ownership and transfer of securities takes place by means of electronic book entries. At the outset, this system

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rids the capital market of the dangers related 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, the question of bad delivery does not arise i.e. they cannot be held "under objection". In the physical environment, buyer was required to take the risk of transfer and face uncertainty of the quality of assets purchased. In a depository environment good money certainly begets good quality of assets.

Elimination

Of

All

Risks

Associated

With

Physical Certificates:Dealing in physical securities have associated security risks of theft of stocks, mutilation of certificates, loss of certificates during movements through and from the registrars, thus exposing the investor to the cost of obtaining duplicate certificates and advertisements, etc. This problem does not arise in the depository environment.

No Stamp Duty:For transfer of any kind of securities in the depository. This waiver

extends to equity shares, debt instruments and units of mutual funds.

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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.

Faster settlement cycle:The exclusive demat segments follow rolling settlement cycle of

T+2 i.e. the settlement of trades will be on the 2nd working day from the trade day. This will enable faster turnover of stock and more liquidity with the investor.

Faster disbursement of non cash corporate benefits like NSDL provides for direct credit of non cash corporate entitlements

rights, bonus, etc. to an investors account, thereby ensuring faster disbursement and avoiding risk of loss of certificates in transit

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Reduction in brokerage by many brokers for trading Brokers provide this benefit to investors as dealing in

in dematerialized securities:dematerialised securities reduces their back office cost of handling paper and also eliminates the risk of being the introducing broker.

Reduction in handling of huge volumes of paper Periodic Status Reports to investors on their holdings

and transactions, leading to better controls.

Elimination of problems related to change of address In case of change of address or transmission of demat shares,

of investor, transmission, etc.:investors are saved from undergoing the entire change procedure with each company or registrar. Investors have to only inform their DP with all relevant documents and the required changes are effected in the database of all the companies, where the investor is a registered holder of securities.

Elimination of problems related to selling securities on A natural guardian is not required to take court approval for selling

behalf of a minor demats securities on behalf of a minor.

Ease in Portfolio Monitoring since statement of account

gives a consolidated position of investments in all instruments.

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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 65

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.  Issuing Companies/ their Registrar & Transfer Agents: Securities issued by issuers who have entered into an agreement with NSDL are admitted into the NSDL depository. As per this agreement, issuer agrees to verify the certificates submitted for dematerialization before they are dematerialized and to maintain electronic connectivity with NSDL. Electronic connectivity facilitates dematerialization, rematerialisation, daily reconciliation and corporate actions. NSDL is electronically linked to each issuer company or its R&T agent. This facilitates dematerialization, rematerialisation, daily reconciliation and corporate actions.

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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:Depository is a facility for holding securities, which enables securities transactions to be processed by book entry. In addition to the core services of electronic custody and trade settlement services, NSDL provides special services like pledge, hypothecation of securities, automatic delivery of securities to clearing corporations, distribution of cash and non-cash corporate benefits, stock lending, distribution of securities to allot tees in case of public issues, Internet based services for clearing members 'SPEED' & Internet based services for account holders 'SPEED-e'. 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. 5.5.2 BASIC SERVICES:Under the provisions of the Depositories Act, NSDL provides various services to investors and other participants in the capital market like, clearing members, stock exchanges, banks and issuers of securities. These include basic facilities like account maintenance, dematerialisation, rematerialisation, settlement of trades through market transfers, off

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market transfers & inter-depository transfers, distribution of non-cash corporate actions and nomination/ transmission. The depository system, which links the issuers, depository participants (DPs), NSDL and Clearing Corporation/ clearing house of stock exchanges, facilitates holding of securities in dematerialized form and effects transfers by means of account transfers. This system, which facilitates scrip less trading, offers various direct and indirect benefits to the market participants. 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 This profit margins require high volume of clients for High volume of business is error-prone ,unless supported

profit margins are under tremendous pressure opening the DP services profitably 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:The front ambience should be pleasant and should provide

minimum conveniences for the clients to conduct their transactions. The waiting space should be proportionate to the number of clients that transaction .The waiting space should be proportionate to the number of clients that may visit the offices to conduct their business. The type of access to the different areas should match with the specific transaction requirements of the clients The following facilities should be available for at every offices/branch of DP ⇒ Provision to write instructions ⇒ Introductory literatures /booklets ⇒ Display of offices timings ⇒ Display of a list of services offered from the service center /branch ,i.e ,whether account opening /demat/account transfer/pledge services are available at that branch ⇒ Latest list of ISINs available for dematerialization ⇒ Compulsory demat list. ⇒ Display of deadline timing for various transactions ⇒ Settlement calendar and settlements number, if space for display is available ⇒ Rubber stamp for cancellation of certificate ⇒ Inquiry counter for finding out balances in client accounts.

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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 Settlement calendars, settlement number and other settlement Regular feed back on transaction as given below:-

forms and other forms. related information. • 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:Transposition Change in the order of names in which certificates are issued is termed as transposition. The Significance of Transposition Sometimes, a title holder of securities holds them jointly with one/two/three persons in different order of names for variety of reasons. Since dematerialization can take place through a demat account only in the identical order of names, such a situation, the investor would have to open multiple demat accounts as per the order of names .To avoid such a situation the investor could consider using the transposition facility offered by CDSL. Transfer depository is electronic linked to depository participant, issuer company or Registrar &transfer agent and the clearing corporation /clearing house the stock exchange .This is done in order to facilitate settlement of trades and to perform a daily, reconciliation of all the account balances held with depository. Thus, an integrated system is set up for maintenance of investor accounts. Under a depository, transfer of security occurs merely by passing book entries in the records of the depositories, as and when instructed by the beneficial owners. The process of transmission through NSDL is simple as well as quick because the successor to the title interacts only with one entity, his DP, Transactions can be for sole holding cases as well as for joint holding.

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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.  Who cannot be appointed as nominee? Trusts, societies, body corporate, partnership firms, Kartas of Hindu undivided family or power of attorney holder cannot be appointed as nominee

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BUYING AND SELLING PROCESS OF DEMAT SHARE 6.1 TRADING & SETTLEMENTS: Sale of securities:The procedure for selling dematerialized securities through any stock exchange is similar is similar to the procedure for selling physical shares. However, the procedure for delivery of securities id much simpler when compared to the sale of securities in physical segment. In case of sale of demat security, immediately on receipt of intimation of execution of trade from broker, the seller should issue instruction to the DP with whom he maintains his demat accounts, for delivery of security either directly to the clearing corporation or to the broker’s clearing account, as advised by his broker.  Purchase of securities:Purchase of securities can give one-time standing instruction to his DP for receiving securities in his account. This standing instruction can be given at the time of opening of account or later .Alternatively, an investor mat choose to issue separate receipt instruction every time he makes any purchase of securities.

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6.2 SETTLEMENT OF OFF-MARKET TRANSACTION: Transfer of securities from one account to another may be done for any of the following purposes: ⇒ ⇒ exchange. ⇒ closure. Transfer due to a transaction done on a person to Transfer arising out of a transaction done on a stock Transfer arising out of transmission and account

person basis.(off-market transaction

 OFF MARKET TRANSACTION:Off market transaction is one which is settled directly between two BOS with or without using the broker and where no clearing corporation /clearing house is involved Any trade that is cleared and settled without the participant of a clearing corporation is called off market trade. OFF-MARKET TRADE
NSDL

DPI

DP2

SELLER

BUYER

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 Steps:1. Seller gives delivery instruction to his DP to move securities from

his account to the buyer‘s account. 2. Buyer automatically receives the credit of the securities into his account on the basis of standing instruction for credits
3. Buyer receives credit of securities into his account only if he gives

receipt instruction, if standing instruction has not been given.
4. DP needs to be extra careful in verifying the signature of the client

if unusual quantities of securities are being debited to the account. 5. Funds move from buyer to seller outside the NSDL system.
6. Execution date should be same on both the instruction (i.e.

Delivery Instruction of the seller and Receipt Instruction of buyer).

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ON MARKET TRANSACTION: Any transaction for sale and purchase of securities through a

broker on the stock exchange to be settled through clearing corporation is generally termed as “on market transaction”  Market Settlement-Demat Shares:A market trade is one that is settled through participant of a clearing corporation. In the depository environment, the securities move through move through account transfer. Once the trade is executed by the broker o the stock exchange, the seller gives a delivery instruction to his to transfer securities to his broker” account. 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. ⇒ ⇒ ⇒ Seller gives delivery instruction to his DP to move Securities are transferred from broker’s account to cc On pay-out, securities are moved from cc to buying

securities from his account to his broker’s account. on the basis of a delivery out instruction. broker’s account.

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Buying broker gives instruction and securities move to

the buyer’s account.  MARKET SETTLEMENT-DEMAT SHARES

NSDL

DP

CC

DP

2 2 1 1
SELLER SELLER BROCKER

3
BROCKER

4

4
BYUER BYUER

 How the settlement Number is indicated? Settlement number has 7 digits, the first 4 digit s represents the year and the remaining 3 digits represent the settlement number of the exchange on which the transaction has been executed.

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 What are the different Market types for settlements? MARKET TYPE DESCREPTION Rolling Market Normal Rolling (NSE) Auction Rolling Normal Auction(NSE) Company Objection Trade to Trade CHARACTER CODES RM NR AR NA CO TT

 Check list for Settlement ⇒ DP to verify signature
⇒ DP to ensure strict adherence to submission of in instruction

within pre-defined settlement deadlines.
⇒ Advise and ensure that clients sign instruction by the entire joint

holder. Only in case of CM A/c the facility of any one or jointly is permitted. ⇒ DP to verify all fields in instruction form.
⇒ DP to accept delivery instruction before 24hrs. Of pay –in

deadline. ⇒ Check RBI approval in case of NRI transactions.
⇒ In case of nature’s guardian, no court is needed for movement of

securities from the account held in name of the minor.

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6.4 PLEDGE & HYPOTHECATION:The depositories Act permits the creation of pledge and hypothecation of securities. Securities held in a depositories account can be pledge or hypothecation against loan, credit or such other facility availed by the beneficial owner of securities. For this purpose, both the parties to the agreement, i.e., the pledge and the pledge must have a beneficiary accounts with NSDL. However, both parities need not have their depository account with same DP. The nature of the control on the securities offered as collateral determines whether the transaction is a pledge or hypothecation. If the lender has right to appropriate the securities to his account if the borrower defaults or otherwise, the transaction is called a pledge.  Pledge of Demat Shares:-

NSDL

3 4
PLADGEE’S DP

2 5
PLEDGOR’S DP

CONFIRMATION 3 4 AGREEMENT
PLADGEE

2 1 LOAN 6

REQUEST

PLEDGOR

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 Steps:1.

Agreement is signed between the Pledgor gives a pledge creation The request reaches the pledgee’s Pledge gives a pleade creation Securities are transferred from Loan is given by pledgee to

pledge or and pledgee out side the NSDL system
2.

request to a DP who entres it in the system.
3.

DP through the NSDL system. Pledgee is intimated by his DP
4.

confirmation to his DP who entres it in the system. 5. 6. ’free balances ‘head to pledge balances head. pledgor outsides the NSDL system.  Pledge Closure:NSDL

2 3
PLEDGEE’S DP

2 4
PLEDGOR’S DP

2

3 2 CONFIRMATION
PLEDGEE PLEDGOR

CLOSURE REQUEST

1 REPAYMENT 84

 Steps: 1. pledgee. 2. NSDL. 3. 4. pledgor’s account. Pledgee gives a pledge clouse The pledge is closed and the confirmation from to DP . DP confirms the closure on the system. securities are moved from ‘pledged’balances to free balances in the Pledgor gives a pledge clousure request to his DP.DP forwards the request to pledgee’s DP through Pledgor repays the loan to

 Pledge Invocation:-

NSDL

3
PLADGEE’S DP

3

2

2

PLEDGOR’S DP

INVOCATION 3 2
PLADGEE ORDER

4
PLEDGOR

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1 NOTICE

 Steps:1. On repayment default, pledgee sends an invocation notice to

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.

 Checklist for pledge/hypothecation Points:1. is submitted in duplicate.
2.

Ensure that the instruction from On receipt of instruction for

creation of pledge, check whether pledgee has opened a depository account.
3.

On receipt of instruction for

creation of pledge, check whether there is enough balance in pledgor’s account to effect the creation of pledge/hypothecation .If not advise the client suitably.
4.

Ensure that all compulsory Ensure that request for

fields in the instruction form entered. 5. the instruction form. 86 confirmation of pledge is given before the closure date mentioned in

6.5 DEBT INSTRUMENT: 1. How can one dematerialize debt instrument? Procedure for dematerialization of debt instrument is same as that carried out for equity shares. In order to dematerialize his/her certificates; an investor will have to first open an account with a DP and then request for the dematerialization of certificates by filling up a dematerialization request form [DRF], which is available with DP and submitting the same along with the physical certificates. The investor has to ensure that before the certificates are handed over to the DP for demat, he marks "submitted for dematerialization" on the face of the certificates. 2. What type of debt instruments can be admitted in NSDL? NSDL has no restriction on type of instruments that can be admitted in the depository. Instruments like Bonds, Debentures, Commercial Papers, Certificate of Deposit, etc. irrespective whether these instruments are listed/unlisted/privately placed or even issued to a single holder can be dematerialized.

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3. debt instruments in NSDL?

How can a company admit its

Company has to send a request to NSDL detailing type of instrument along with a Letter of Intent. On receipt of request, a tripartite agreement will be signed between NSDL, Issuer and Registrar & Transfer Agent. Ones admitted, these securities would be made available for dematerialization by NSDL.

6.6 CORPORATE ACTIONS:When any corporate event such as rights or bonus or dividend is announced for a particular security, NSDL will give the details of all the clients having electronic holdings in that security as of the record date to the registrar. The registrar will then calculate the corporate benefits due to all the shareholders. The disbursement of cash benefits such as dividend/interest will be done by the registrar whereas the depository will do the distribution of securities entitlements based on the information provided by the registrar to all those clients who have opted for electronic allotment. In case of non-cash corporate actions such as a rights/bonus issue, investors have a choice of either physical or electronic allotment.

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CONCLUSION  Strengths:According to my project Report and research, there are some weakness &strengths. ⇒ Reduce paper work and it increases the works of trading. ⇒ Demat is reduces the risk associated with bad delivery. ⇒ There are no stamp duties for transfer of the shares to one person to another person. ⇒ There are no postage expenses in the demat. ⇒ Time can be saved in delivery pay –in and pay –out. ⇒ People can sale or purchase odd number of transfer. ⇒ Saving time in share transfer from one person to another person. ⇒ You can also receive your bonuses and rights in to your depository account as direct credit ,thus eliminating risk of loss in transit

 Weakness:89

⇒ 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
According to my thinking power, there should make some improvement in the depository system ⇒ Repetition of demat accounts ⇒ The only proof of ownership for demat shares is a receipt only. ⇒ The work becomes monotonous very high. ⇒ Duplicate &fraud case can be possible ⇒ Some unsecured company mgt dislikes rapid unsupervised. ⇒ Proper co-ordination and co-operation should be made between different Depository participants because they are still in competition in the charges. ⇒ The trading no demat should be made on the Internet. ⇒ The high amount of paper work involved in the demat process is also a very painful ⇒ The stationary expences become very high. 90

⇒ 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. cdsl .com
 www.nseindia.com  www.cdslindia.com

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