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In partial fulfilment of the degree in Master of Business Administration (MBA). Project submitted to:
PoojaM.Kohli Executive director (officiating) Ludhiana stock exchange

Submitted By:
HireshAhluwalia MBA 3rd semester DAVIET, Jalandhar

This project report pertains to the ma king of summer training project of M.B.Acurriculum. The purpose of this project is to make the students gain thorough knowledge of the topics given to them. I learned a lot about the topic after putting in much hard work in collecting the information regarding the topic allotted, which will be of a great use in future. It cannot be said with certainty that full j ustification has been done to the topic in the few pages presented here, but I have tried my best to cover as much as possible about depository in this report.

This projecttitled Depositoryis submittedinpartialfulfilmentoftherequirementfortheawardofdegreeofMasterofBusine ssAdministrationofPunjabTechnicalUniversity,Jalandhar. Thiscompilation of projectisdonebyHireshAhluwalia .ThisprojectworkhasbeendoneforMBAonlyandnoneofthisresearchworkhas beensubmittedforanyotherdegree. The assistanceandhelpduringtheexecutionoftheprojecthasbeen fullyacknowledged.


I take this opportunity to express my deep gratitude to all my seniors who helped and guided me to complete this project intime. I amextremely thankful to Mrs .Pooja M. Kohli,executive director (officiating),Ludhiana stock exchange , for assigning me the project Depository, and also taking a keen interest and rendering valuable help that ultimately proved to be very helpful in the successful completion of my project. I am also very thankful to Mr.Sadhu Ram, coordinator of the training programme , who in spite of his busy schedule, provided me invaluable guidance and has shown utmost interest in imparting this training.

S e ria l N o. 1 P a rt icu la rs Page No.

About Ludhiana stock exchange

Introduction to capital market


Introduction to depository









Types of Accounts






Annexures APPLICATION Form FOR OPENING AN ACCOUNT y For Individuals Only


For Corporates/Clearing Members only


Chapter-1 About Ludhiana stock exchange:

About Ludhiana stock exchange:

The Ludhiana Stock Exchange Limited was established in 1981, by Sh. S.P. Oswal of Vardhman Group and Sh. B.M. Lal Munjal of Hero Group, leading industrial luminaries, to fulfil a vital need of having a Stock Exchange in the region of Punjab, Himachal Pradesh, Jammu & Kashmir and Union Territory of Chandigarh. Since its inception, the Stock Exchange has grown phenomenally. The Stock Exchange has played an important role in channelizing savings into capital for the various industrial and commercial units of the State of Punjab and other parts of the country. The Exchange has facilitated the mobilization of funds by entrepreneurs from the public and thereby contributed in the overall, economic, industrial and social development of the States under its jurisdict ion. Ludhiana Stock Exchange is one of the leading Regional Stock Exchange and has been in the forefront of other Stock Exchange in every spheres, whether it is formation of subsidiary for providing the platform of trading to investors, for brokers etc. in the era of Screen based trading introduced by National Stock Exchange and Bombay Stock Exchange, entering into the field of Commodities trading or imparting education to the Public at large by way of starting Certification Programmes in Capital Market. The vision and mission of Stock Exchange is:
"Reaching small investors by providing services relating to Capital Market including Trading, Depository Operations etc. and creating Mass Awareness by way of education and training in the field of Capital Market. To create educated investors and fulfilling the gap of skilled work force in the domain in Capital Market."

Further, the Exchange has 295 members out of which 16 2 are registered with National Stock Exchange as Sub -brokers and 121 with Bombay Stock Exchange as sub-brokers through our subsidiary.


LSE SALUTES ITS PRESIDENT/ CHAIRMEN VICE PRESIDENT/ VICE CHAIRMEN PRESIDENTS/ CHAIRMEN Sr. No. 1 Name of the person Sh. S.P. Oswal Tenure 16.08.1983 to 27.07.1986

2 3 4

Sh. B.M. Lal Munjal Sh. V.N. Dhiri Sh. G.S. Dhodi

28.07.1986 to 15.10.1989 16.10.1989 to 30.10.1992 30.09.1998 to 04.10.2000 31.10.1992 to 22.12.1993 23.12.1993 to 05.10.1995 01.10.1996 to 29.09.1998 06.10.2001 to 01.07.2002 06.10.1995 to 30.09.1996 05.10.2000 to 05.10.2001 25.06.2007 to 10.12.2007 15.07.2007 to 23.09.2008 23.09.2008 to 29.09.2009 30.09.2009 to till date

Sh. Jaspal Singh

6 7 8 9 10 11

Sh. M.S. Gandhi Sh. R.C. Singal Dr. B. B. Tandon, Chairman Sh. S.P. Sharma, Chairman Sh. Jagmohan Krishan Prof Padam Parkash Kansal

VICE PRESIDENTS/ VICE CHAIRMEN Sr. No. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 Name of the person Sh. Rajinder Verma Sh. B.K. Arora Sh. G.S. Dhodi Sh. B.S. Sidhu Sh. D.P. Gandhi Sh. M. S. Sarna Sh. T.S. Thapar Sh. Tarvinder Dhingra Dr. Rajiv Kalra Sh. D.K. Malhotra, Vice Chairman Sh. Jagmohan Krishan, Vice Chairman Sh. Ravinder Nath Sethi Prof Padam Parkash Kansal Sh. Joginder Kumar Tenure 14.07.1984 to 08.08.1987 09.08.1987 to 15.10.1989 31.10.1992 to 22.12.1993 28.10.1991 to 30.10.1992 16.10.1989 to 27.10.1991 23.12.1993 to 05.10.1995 06.10.1995 to 26.09.1997 27.09.1997 to 29.09.1998 30.09.1998 to 04.10.2000 05.10.2000 to 05.10.2001 06.10.2001 to 01.07.2002 025.06.2007 to 10.12.2007 15.07.2007 to 23.09.2008 23.09.2008 to 08.10.2008 09.10.2008 to 29.09.2009 30.09.2009 to till date

Governance and management :


LSE has a strong governance and administration, which encompasses a right balance of Industry Experts with highest level educational background, practicing professionals and independent experts in various fields of Financial Sector. The administration is presently headed by Sr. General Manager CUM Company Secretary and team of persons having in-depth knowledge of Secretarial, Legal and Education & Training. The Governing Board of our Exchange comprises of eleven members, out of which two are Public Interest Directors, who are eminent persons in the fields of Finance and Accounts, Education, Law, Capital Markets and other related fields, Six are Shareholder Directors, and Three are Broker Member Director and the Exchange has four Statutory Committees namely Disciplinary Committee, Arbitration Committee, Defaults Committee and Investor Services Committee. In addition, it has advisory and standing committees to assist the administration. LSE has a Code of Conduct in place that governs the elected Board Members and the Senior Management Team. The same is monitored through periodic disclosure procedures. The Exchange has an Ethics Committee, which looks into any issue of conflict of interest and has in place general code of conduct for the Senior Officials. The composition of the Governing Board is as under: -

Composition of the Governing Board

Sr. No. 1 Name of Director Prof. Padam Parkash Kansal Category Chairman (Shareholder Director) Vice Chairman (Shareholder Director) Shareholder Director Shareholder Director Shareholder Director Shareholder Director Registrar of Companies (Public Interest Director)

2 3 4 5 6 7

Sh. Joginder Kumar Sh. Rajinder Mohan Singla Sh. Satish Nagpal Sh. Vikas Batra Sh. Varun Chhabra Dr. Raj Singh

8 9 10 11 12

Sh. Ashwani Kumar Sh. V.P. Gaur Sh. Jaspal Singh Sh. Sunil Gupta Sh. Sanjay Anand

Public Interest Director Public Interest Director Trading member Director Trading Member Director Trading member Director

Strength of LSE group 1. LSE brand is popular among masses. The brand image of LSE can be capitalized.

2. We have requisite infrastructure for the Capital Market activities which includes a multi-storeyed, centrally air conditioned building situated in the financial hub of the city i.e. Feroze Gandhi Market. 3. We have well experienced staff handling operations of Stock Exchange. 4. We have competent Board and professional management. 5. We have much needed networking of sub brokers in the entire region, who are having rich experience in Stock Market operations for the last 25 years. 6. We have more than 40,000 clients spread across Punjab, Himachal Pardesh, Jammu & Kashmir and adjoining areas of Haryana and Rajasthan. 7. The turnover of our subsidiary is the highest amongst all subsidiaries of Regional Stock Exchanges in India.
Infrastructure and asset base at Ludhiana stock exchange


The Exchange building is situated at Feroze Gandhi Market, Ferozepur Road, Ludhiana. It is a six storeyed building, which is centrally air -conditioned. The building has 262 rooms, which are located on various floors ranging from second to fifth. The first floor of the building houses the administrative office and rooms from second to fifth floors have been leased out to brokers. The first floor also has canteen and banking facilities. Investor Service Centre is also located at first floor which houses a well-equipped library and view-terminals to provide live rates of NSE and BSE to investors. Investors are also provided with Cable TV for the purpose of viewing the latest happenings in the Capital Market and around. Basement of the building has air-conditioning plant and Generators to provide air -conditioned environment and twenty-four hours power back up. The Exchange has also an additional plot of land measuring 2333 sq. yards in the prime location of city, to enhance its infrastructure and source of in come.

Status of subsidiary LSE Securities Limited

Due to Nation-wide reach of bigger Stock Exchanges, the trading volumes at Ludhiana Stock Exchange declined and ultimately, the trading stopped in February, 2002, but the Stock Exchange converted the threat of bigger Exchanges into opportunities and acquir ed the corporate membership of these exchanges through its subsidiary company i.e. LSE Securities Limited. We have now been providing Trading Platforms of Bigger Stock Exchanges to the


Investors of the region. The vast network of Brokers of the Exchange is servicing millions of Investors. The subsidiary company is also providing depository services in the State of Punjab and Himachal Pradesh. The allied services like PAN Service Centre, Investor Service Centres are also being provided at major locations o f the region. The turnover of subsidiary is highest amongst all the subsidiaries of Regional Stock Exchanges. The growth of subsidiary is swift and it has been providing a range of services to the public at large such as Trading, Depository, and IPO bidding collection Centre. The Company in its continuous endeavour to provide qualitative services to its valued clients, has started e-broking trading services for its clients, thereby increasing the geographical reach of the company.

At present, Ludhiana Stock Exchange has 330 listed companies, out of which 214 are regional and 116 are Non -regional. The total listed capital of aforesaid companies is Rs. 3168.91 Crores approx. The market capitalization of the said companies is more than Rs. 3372.34 crores. The Stock Exchange is covering the vast investor base through the listing of abovesaid companies, which are situated in the region comprising of Punjab, Him achal Pardesh, Jammu & Kashmir, and Chandigarh. Despite the fact, the implementation of SEBI (Delisting of Securities) guidelines, 2003 has resulted into the Delisting of good companies listed at Exchange, however still there are leading Companies listed with our Exchange, notable among them are United Breweries Limited, Vardhman Acrylics Limited, SMC global securities limited, Himachal Futuristic Communications Limited etc. Ludhiana Stock Exchange has facilitated the capital generation for agro based industries as Punjab is an agricultural led economy. It will continue to do so, once it gets approval for a tie up with bigger Exchanges for commencing trading operations.

The Exchange has been providing a variety of services for the benefit of investing public. The services include Investor Service Centres, Investor Protection fund and Investor Educational Seminars.
(i).Investor Service Centres

The Exchange has set-up Investor Service Centres at various DP branches of its

subsidiary for providing information relating to Capital Market to the general public. The Centres subscribe to leading economic, financial dailies and periodicals. They also store the Annual Reports of the companies listed at the Stock Exchange. The Investor Service Centres are also equipped with a Terminal for providing live rates of trading at NSE and BSE. A large number of the investors visit the centres to utilize the services being provided by the Exchange.
(ii).Investor Awareness Seminars

The Exchange has been organizing Investor Awareness Seminars for the benefit of Investors of the region comprising State of Punjab, Himachal Pradesh, Jammu & Kashmir, Chandigarh and adjoining areas of Haryana and Rajasthan. This massive exercise of organizing Investor Awareness Seminars has been launched as a part of Securities Market Awareness Campaign launched by SEBI in January, 2003. The Exchange apprises the investors about Dos and Donts to be observed while dealing in Securities Market. Till date, Exchange has organized more than 200 workshops in the region mentioned above.
(iii).Website of the Exchange:

The Exchange has its own website with the domain name The website provides valuable information about the latest market commentary, research reports about companies, daily status of International markets, a separate module for Internet trading, information about listed companies and brokers and sub -brokers of the Exchange and its subsidiary. The website also contains many useful links on portfolio management, investor education, frequently asked questions about various topics relating to Primary and Secondary Market, information about Mutual Funds, Financials of the Company including Quarterly Results, Share Prices, Profit and Loss Accounts, Balance Sheet and Many More. The website also contains daily Technical Charts of various scripts being traded in BSE and NSE
LSE has carved out its unique position among the Stock Exchanges of the country for the Knowledge Management. It has set up an Education and Training Cell and the same has emerged as a leading facility in various Financial Services in India. The Exchange h as been conducting a unique certification programme in Capital Market in association with Centre for Industry Institute Partnership Programme Punjab University, Chandigarh for the last three year. This programme has widened the horizons of participants vis --vis Capital Market Operations as practical skill based knowledge is provided by Stock Brokers, Stock Exchange Officials, Professors of Finance and Business Management and above all Professionals working in different areas of Capital Market. We have comp leted series of batches of this programme and we now want to scale up this programme and are planning to launch various other programmes on areas relating to Securities Market.


We have edge over others as far as Education and Training in Financial Servic es is concerned due to following factors: a. Directly connected with the Industry as Regional Stock Exchange. b. Connected with large base of Investors as they use the Stock Exchange as a Trading Platform for their liquidity needs c. Presence in the region of Punjab, Himachal Pradesh, Jammu & Kashmir and Chandigarh through our branches Network and the area being under the jurisdiction of our Exchange. d. Already running Certification programmes in Capital Market successfully. e. Continuously holdi ng Investor Awareness Programmes for Investors & Investor Groups through association with Brokers, Sub -brokers, Colleges, Universities and Consumer Groups.

Chapter-2 Introduction to Capital Markets


Capital Markets Introduction

Markets exist to facilitate the purchase and sale of goods and services. The financial market exists to facilitate sale and purchase of financial instruments and comprises of two major markets, namely the capital market and the money market. The distinction between capital market and money market is that capital market mainly deals in medium and long -term investments (maturity more than a year) while the money market deals in short term investments (maturity up to a year). Capital market can be divided into two segments viz. primary and secondary. The primary market is mainly used by issuers for raising fresh capital from the investors by making initial public offers or rights issues or offers for sale of equity or debt. The secondary market provides liquidity to these instruments, through trading and settlement on the stock exchanges. Capital market is, thus, important for raising funds for capital formation and investments and forms a very vital link for economic development of any country. The capital market provides a means for issuers to raise capital from investors (who have surplus money available from saving for investment). Thus, the savings normally flow from household sector to business or Government sector, which normally invest more than they save. A vibrant and efficient capital market is the most important parameter for evaluating health of any economy.

Functions of the capital market

The major objectives of capital market are: To mobilize resources for investments. To facilitate buying a nd selling of securities. To facilitate the process of efficient price discovery. To facilitate settlement of transactions in accordance with the predetermined time Schedules.
Investment Instruments

Investment is a deployment of funds in one or more ty pes of assets that will be held over a period of time. Various forms of investment options are available to an investor. They cover bank deposits, term deposits, recurring deposits, company deposits, postal savings schemes, deposits with non -bank financial intermediaries, government and corporate bonds, life insurance and provident funds, equity shares, mutual funds, tangible assets like gold, silver and jewellery, real estate and work of arts, etc. Capital market instruments can be broadly divided into tw o categories namely Debt, Equity and Hybrid instruments. Derivative Products like Futures, Options, Forward rate agreements and Swaps.
Debt: Instruments that are issued by the issuers for borrowing monies from the investors with a defined tenure and m utually agreed terms and conditions for payment of interest and repayment of principal.

Debt instruments are basically obligations undertaken by the issuer of the instrument as regards certain future cash flows representing interest and principal, which the issuer would pay to the legal owner of the instrument. Debt instruments are of various types. The key terms that distinguish one debt instrument from another are as follows: Issuer of the instrument Face value of the instrument Interest rate and payment terms Repayment terms (and therefore maturity period / tenor) Security or collateral provided by the issuer Different kinds of money market instruments, which represent debt, are commercial papers (CP), certificates of deposit (CD), treasury bills (T -Bills), Govt. of India dated securities (GOISECs), etc.
Equity: Instruments that grant the investor a specified share of ownership of assets of a company and right to proportionate part of any dividend declared. Shares issued by a company represent the equity. The shares could generally be either ordinary shares or preference shares. Major difference between Equity and Debt: Share represents the smallest unit of Ownership of a company. If a company has issued 1 , 00,000 shares, and a person owns 10of them, he owns 0.01% of the company. A debenture or a bond represents the smallest unit of lending. The bond or debenture holder gets an assured interest only for the period of holding and repayment of principal at the expiry thereof, while the shareholder is part -owner of the issuer company and has invested in its future, with a corresponding share in its profit or loss. The loss is, however, limited to the value of the shares owned by him. Hybrids: Instruments that include features of both debt and equity, such as bonds with equity warrants e.g. convertible debentures and bonds.


Derivatives: Derivative is defined as a contract or instrument, whose value is derived from the underlying asset, as it has no independent value. Underlying asset can be securities, commodities, bullion, currency, etc. The two derivative products traded on the Indian stock exchanges are Futures and Options. Futures (Index and Stock): Futures are the standardised contracts in terms of quantity, delivery time and place for settlement on a pre -determined date in future. It is a legally binding agreement between a seller and a buyer, which requires the seller to deliver to the buyer, a specified quantity of security at a specified time in th e future, at a specified price. Such contracts are traded on the exchanges. Options (Index and Stock): These are deferred delivery contracts that give the buyer the right, but not the obligation to buy or sell a specified security at a specified price on or before a specified future date. At present in India, both Futures and Options are cash settled. Segments of capital market The Capital Market consists of A) Primary Market B) Secondary Market Primary Market : A market where the issuers access the pro spective investors directly for funds required by them either for expansion or for meeting the working capital needs. This process is called disintermediation where the funds flow directly from investors to issuers. The other alternative for issuers is to access the financial in stitutions and banks for funds. This process is called intermediation where the money flows from investors to banks/ financial institutions and then to issuers. Primary market comprises of a market for new issues of shares and debentures, where investors apply directly to the issuer for allotment of shares/ debentures and pay application money to the issuer. Primary market is one where issuers contact directly to the public at large in search of capital and is distinguished from the secondary market, where investors buy/ sell listed shares / debentures on the stock exchange from / to new / existing investors. Primary market helps public limited companies as well as Government organizations to issue their securities to the new / existing shareholders by making a public issue / rights issue. Issuers increase capital by expanding their capital base. This enables them to finance their growth plans or meet their working capital requirements, etc. After the public issue, the securities of the issuer are listed on a stock exchange(s) provided it complies with requirements prescribed by the stock ex change(s) in this regard. The securities, thereafter, become marketable. The issuers generally get their securities listed on one or more than one stock exchange. Listing of securities on more than one stock exchange enhances liquidity of the securities an d results in increased volume of trading.

A formal public offer consists of an invitation to the public for subscription to the equity shares, preference shares or debentures has to be made by a company highlighting the details such as future prospects, f inancial viability and analyse the risk factors so that an investor can take an informed decision to make an investment. For this purpose, the company issues a prospectus in case of public issue and a

letter of offer in case of rights issue, which is essen tially made to its existing shareholders. This document is generally known as Offer document. It has the information about business of the company, promoters and business collaboration, management, the board of directors, cost of the project and the means of finance, status of the project, business prospects and profitability, the size of the issue, listing, tax benefits if any, and the names of underwriters and managers to the issue, Etc. The issuers are, thus, required to make adequate disclosures in the offer documents to enable the investors to decide about the investment. Making public issue of securities is fraught with risk. There is always a possibility that the issue may not attract minimum subscription stipulated in the prospectus. The risk may be high or low depending upon promoters making the issue, the track record of the company, the size of the issue, the nature of project for which the issue is being made, the generaleconomic conditions, etc. Issuers would like to free themselves of this worry and attend totheir operations wholeheartedly if they could have someone else to worry on their behalf. For this purpose the companies approach underwriters who provide this service. Normally, whenever an existing company comes out with a f urther issue of securities, the existing holders have the first right to subscribe to the issue in proportion to their existing holdings. Such an issue to the existing holders is called Rights issue. The price of the security before the entitlement of ri ghts issue is known as the cum-rights price. The price after the entitlement of rights issue is known as the ex-rights price. The difference between the two is a measure of the market value of a right entitlement. An existing holder, besides subscribing to such an issue, can let his rights lapse, or r enounce his rights in favour of another person (free, or for a consideration) by signing the renunciation form. The companies declare dividends, interim as well as final, gener ally from the profits after the tax. The dividend is declared on the face value or par value of a share, and not on its market price. A company may choose to capitalize part of its reserves by issuing bonus shares to existing shareholders in proportion to their holdings, to convert the reserves into equity. The management of the company may do this by transferring some amount from the reserves account to the share capital account by a mere book entry. Bonus shares are issued free of cost and the number of shareholders remains the same. Their proportionate holdings do not change. After an issue of bonus shares, the price of a com panys share drops generally in proportion to the issue.
Activities in the Primary Market 1. Appointment of merchant bankers 2. Pricing of securities being issued 3. Communication/ Marketing of the issue 4. Information on credit risk 5. Making public issues 6. Collection of money 7. Minimum subscription 8. Listing on the stock exchange(s) 9. Allotment of securities in demat / physical mode 10. Record keeping

Secondary Market: In the secondary market the investors buy / sell securities throughstock exchanges. Trading of securities on stock exchange results in exchange of money and securities between the investors.

Secondary market provides liquidity to the securities on the exchange(s) and this activity commences subsequent to the original issue. For example, having subscribed to the securities of a company, if one wishes to sell the same, it can be done through the secondary market. Similarly one can also buy the se curities of a company from the secondary market. A stock exchange is the single most important institution in the secondary market for Providing a platform to the investors for buying and selling of securities through its members. In other words, the stock exchange is the place where already issued securities of companies are bought and sold by investors. Thus, secondary market activity is different from the primary market in which the issuers issue securities directly to the investors. Traditionally, a stock exchange has been an association of its members or stock brokers, formed for the purpose of facilitating the buying and selling of securities by the public and institutions at large and regulating its day to day operations. Of late however, stock exchanges in India now operate with due recognition from Securities and Exchange Board of India (SEBI) / the Government of India under the Securities Contracts (Regulation) Act, 1956. The stock exchanges are either association of persons or are formed as compan ies. There are 24 recognized stock exchanges in India out of which one has not commenced its operations. Out of the 23 remaining stock exchanges, currently only on four stock exchanges, the trading volumes are recorded. Most of regional stock exchanges have formed subsidiary companies and obtained membership of Bombay Stock Exchange, (BSE) or National Stock Exchange (NSE) or both. Members of these stock exchanges are now working as sub -brokers of BSE / NSE brokers.

Securities listed on the stock exchange (s) have the following advantages: The stock exchange(s) provides a fair market place. It enhances liquidity. Their price is determined fairly. There is continuous reporting of their prices. Full information is available on the companies. Rights of investors are protected. Stockbroker is a member of the stock exchange and is licensed to buy or sell securities for his own or on behalf of his clients. He charges a commission (brokerage) to the clients on the gross value of the transactions d one by them. However, some of the stockbrokers, apart from buying and selling of securities for their clients for a commission, offer facilities such as safekeeping clients shares and bonds, offering investment advice, planning clients portfolio of inves tments, managing clients portfolio. There are experts who believe that by identifying and processing relevant information pertaining to financials of the companies "correctly"

and quickly (as compared to the market as whole), they can predict the share pr ice movement faster than the market and thus outperform the market. Such experts are known as fundamental analysts. These experts use the fundamental approach to security valuation, for estimating the fundamental price (or fundamental price earnings multiple) of a security. Fundamental Analysis refers to scientific study of the basic factors, which determine a shares value. The fundamental analyst studies the industry and the companys sales, assets, liabilities, debt structure, earnings, products, market share; evaluates the companys management, compares the company with its competitors, and then estimates the shares intrinsic worth. The fundamental analysts tools are financial ratios arrived at by studying a companys balance sheet and profit and loss account over a number of years. Fundamental analysis is more effective in fulfilling long -term growth objectives of shares, rather than their short -term price fluctuations.

Ratios of values obtained from a companys financial statements are used to study its health and the price of its securities. The most important among these are current ratio, price earning (P/E) ratio, earnings to equity ratio, price -book value ratio, profit before tax to sales ratio, and quick ratio. Accounting figures, which help to arrive at these ratios, include book value, dividend, current yield, earning per share (EPS), volatility, etc. Unlike the fundamental analysts, there are other experts who be lieve that largely the forces of demand and supply of securities determine the security prices, though the factors governing the demand and supply may themselves be both objective and subjective. They also believe that notwithstanding the day -to-day fluctuations, share prices move in a discernible pattern, and that these patterns last for long periods to be identified by them. Such analysts are called as Technical Analysts. Technical analysis is a method of prediction of share pri ce movement based on a study of price graphs or charts on the assumption that share price trends are repetitive, and that since investor psychology follows certain pattern, what is seen to have happened before is likely to be repeated. The technical analyst is not concerned with the fundamental strength or weakness of a company or an industry; he studies investor and price behaviour. A stock market operator who expects share prices to fall in the immediate future and keeps selling (with the intention to pick up the shares later at a lower price for actual delivery), causing selling pressure and lowering the prices further is called a "Bear. The term is derived from the attacking posture of the bear, pushing downwards. A stock market operator who expects share prices to rise and ke eps buying (to sell the shares later at higher price), causing buying pressure and increasing the prices further is called a Bull. The term is derived from the attacking posture of the bull, pushing upwards.
Stag is a person who subscribes to a new issu e with the primary objective of selling at profits no sooner than he gets the allotment. Contract Note is a document given by the stockbroker to his clients giving particulars of the securities bought / sold, rate and date of transaction and the brokers commission. The broker sends the contract note after executing the clients order as an agreement. The contract note must be carefully preserved, as it is a

primary documentary evidence of clients' transactions being executed by a member of a stock exchange. In case of any dispute between them, this can be used for the purpose of arbitration or filing claims / compensation against the member of the stock exchange who has executed the transaction. It also serves as evidence to the income tax authorities in verification of computations of short -term or long-term capital gains or losses. Buying or selling of securities of a particular company with an expectation that the prices will increase or decrease in a span of short duration with an objective to generate income on account of such fluctuations in price is called Speculation . This is an activity in which a person assumes high risks, often without regard for the safety of his invested principal, to achieve capital gains in a short time. Investing in securities with the intention of holding them for long term for realizing appreciation in the value of the securities should be the aim of the investors who wish to derive benefits from holding investments for long term.
Arbitrage means buying shares on one stock exchange at a lower rate and selling the same on other stock exchange at a higher rate. Activities in the Secondary Market

1. Trading of securities 2. Risk management 3. Clearing and settlement of trades 4. Delivery of securities and funds

Major entities involved in the capital market: ENTITIES y y y y y y y y y y y y y y


Chapter-3 Introduction to depository:


A significant development of the 20th century particularly in its later part is expansion of financial market world over which mostly was driven by globalization, technology, innovations and increasing trade volume. India has not been an exception with probably largest number of listed companies with a very large investor population and ever increasing volumes of trades. However, this continuous growth in activities increased problems associated with stock trading. Most of these problems arose due to the intrinsic nature of paper based trading and settlement, like theft or loss of share certificates. This system required handling of huge volumes of paper leading to increased costs and inefficiencies. The process beginning from buying shares through the stock exchanges till getting the certifica tes duly endorsed in the buyers name was indeed quite complex and time-consuming and was riddled with a variety of problems. Growing number of investors participating in the capital market has increased the possibility of being hit by a bad delivery, The cost and time spent by the brokers for rectification of these bad deliveries tends to be higher with the geographical spread of the clients. The increase in trade volumes lead to exponential rise in the back office operations thus limiting the growth poten tial of the broking members. The inconvenience faced by investors (in areas that are far flung and away from the main metros) in settlement of trade also limits the opportunity for such investors, especially in participating in auction trading. The physica l form of holding and trading in securities also acted as a bottleneck for broking community in capital market operations. Risk exposure of the investor also increased due to this trading in paper. Some of these associated risks were: delay in transfer of shares, possibility of forgery on various documents leading to bad deliveries, legal disputes etc., and possibility of theft of share certificates, prevalence of fake certificates in the market, mutilation or loss of share certificates in transit. Thus, th e system of security transactions was not as investor-friendly as it ought to be. In this scenario dematerialized trading under depository system is certainly a welcome move. This popular financial service emerged in Germany first time.

Meaning of depository
A depository is an organisation which holds securities (like shares, debentures, bonds, government securities, mutual fund units etc.) of investors in electronic form at the request of the investors through a registered Depository Participant. It also provides services related to transactions in securities.

Comparison between banks and depository


1. Promoted by reputed persons and institutions : promoters of both bank and depository are reputed persons and institutions 2. Renders safe keeping services: both banks and depository provide safe keeping services. Banks provides safe custody of cash and locker facility for keeping valuable articles to its clients. Depositories also provide safe keeping

of shares, debentures, bonds, government securit ies, mutual fund units to its clients. 3. Central office and braches 4. Charge of fees 5. Transfer of funds and securities : Funds/securities are transferred only at the instruction of the account holder 6. Written confirmation of transfer (of shares and currencies ) 7. Account is operated by power of attorney: a person under power of attorney can operate theaccount. 8. Customers are entitled to get statement s of accounts 9. Nomination facility : customer can nominate any person to whomaccount will be transferred in case of death of the person 10. Currencies (in case of banks ) and shares (in case of depositories) when held do not have any distinctive number
Differentiation: Bank Account Vs. Demat Account S. Basis Of No. Differentiation 1. 2. 3. Form of Holdings/Deposits Used for Facilitates Bank Account Depository

Funds Safekeeping of money

Securities Safekeeping of shares

Transfer of money (without Transfer of shares (without actually handling money) actually handling shares) A bank of choice A DP of choice (can be a bank) Mandatory (effective from April 01, 2006) No interest accruals on securities held in demat account


Where to open


Requirement of PAN Not Mandatory Number Interest accrual on holdings


Interest income is subject to the applicable rate of interest AQB*( Average Quarterly Balance) maintenance is specified


Minimum balance requirement

No such requirement


for certain bank accounts

8. Either or Survivor facility


Not available

Immobilization and Dematerialization

Conversion of securities from physical (paper) form to electronic form can be achieved by two methods Immobilization or Dematerialization. Under the immobilization method, after giving credit of the securities in electronic form, physical certificates are stored or lodged with an organization, which acts as a custodian a securities depository. Subsequent transactions in such immobilized securities take place through book-entries. Under the dematerialization metho d, the securities, issued in physical form are destroyed and exactly equal numbers of securities are created in the depository system, which are credited into the account of the investor. Unlike physical securities, the securities converted into electronic form do not have any distinctive numbers and they are treated as equal and replaceable in all ways i.e. securities in electronic form are fungible. All subsequent transactions (transfer of ownership) of such securities take place in book-entry form. India has adopted dematerialization method whereas immobilization has been adopted by some of the countries like Hong Kong and USA. Japan has adopted both, dematerialization as well as immobilization for achieving a paper -less securities market. Whether a country has adopted immobilization or dematerialization, the investor has a right to get the securities converted back into physical form through a process called as rematerialisation, in case of need.
Availing of various services offered by a depository

A depository in India cannot open a demat account of an investor and / or provide services to such a person directly. For opening a demat account or availing the services offered by the depository, a person is required to approach a Depository Participant (DP) who is an agent of the depository, complete the account opening formalities as per the Depositories Act, SEBI regulations, depository byelaws. Thereafter, the investor can receive securities in the demat account as well as tender the securities held by him / her in physical form for dematerialization to the DP (as explained in the subsequent part) and hold the same in book entry form in the account. When an investor holds securities in physical form, his / her name is recorded as registered owner in the books of the company. As per the laws currently in force in India, when the securities are converted in electronic form by way of dematerialization, name of thedepository is registered in the books of the company as registered owner. However, theinvestor continues to be the real owner of the securities and is entitled to receive all the benefits such as dividend, interest, bonus


shares etc. in respect of the said security and as such is called as Beneficial Owner (BO) under the depository system. Today demat has become a common word. The institutional and individual investors spread all over India are found to be making an extensive use of the depository participant services for holding their securities in electronic form.




Depository system essentially aims at eliminating the voluminous and cumbersome paper work involved in the scrip -based system and offers scope for paperless trading through state -of-the-art technology. It is an institution which m aintains an electronic record of ownership or securities. The storage and handling of certificates is hence immediately eliminated which generates a reduction in costs like back office cost for handling, transporting and storing certificates. Depositary participant is an institution akin to bank for securities. When an investor hands over securities to a depository participant, investors account is credited. The investors depository system account will show their holdings. His account is updated for his transactions of sale and purchase but without physical movement of scripts or transfer deeds. In depository system, share certificates belonging to the investors are dematerialised (demats). Dematerialisation or Demat is a process whereby investors securities like shares, debentures etc., are converted into electronic data and stored in computers by a Depository. Securities registered in investors name are surrendered to depository partici pant (DP) and these are sent to the respective companies who will cancel them after Dematerialization and credit investors depository account with the DP. The securities on Dematerialization appear as balances in ones depository account. These balances are transferable like physical shares. If at a later date, investors wish to have these demat securities converted back into paper certificates, the Depository does this and their names are entered in the records of depository as beneficial owners. The beneficial ownership will be with investor but legal ownership will be with the depository. Consequently, benefits like interest, dividend, and rights: bonus and voting rights will be with investors. Since depository is to get securities transferred in its name, the depository name will be registered in the ownership register maintained by the company. Thus, instead of name of several owners, the name of depository figures in the register of company. Since transfer will be affected only in depository, regis ter of company need not be updated on every transactions of sale or purchase of companys share. It alleviates the hardships currently faced by the investors and it also offers option for converting the shares from electronic to physical or paper form thro ugh a process of rematerialisation (remat). Depository system is, indeed, time tested and long prevalent in many advance countries and has been playing a significant role in stock markets around the world.
Constituents of Depository System

The depository system comprises of: i) Depository ii) Depository Participants (DPs) iii) Companies/issuer iv) Investors

1) Depository:
Depository functions like a securities bank, where the dematerialized physicalsecurities are traded and held in custody. This facilitate s faster risk free and

low cost settlement. Depository is much like a bank and pe rforms many activities that are similar to a bank depository: a) Enables surrender and withdrawal of securi ties to and from the depository through the process of demat and remat, B) maintains investors holdings in electronic form, c) Effects settlement of securities traded in depository mode on the stock exchanges, D) carries out settlement of trades not done on the stock exchanges (off market trades). In India a deposit ory has to be promoted as a corporate body under Companies Act, 1956. It is also to be registered as a depository with SEBI. It starts operations after obtaining a certificate of commencement of busine ss from SEBI. It has to develop automatic data processing systems to protect against unauthorised access. A network to link up with depository participants, issuers and issuers agent has to be Created. Depository, operating in India, shall have a net worth of rupees one hundred croreand instruments for which depository mode is open need not be a security as definedin the Securities Contract (Regulations) Act 1956. The depository, holding securities,shall maintain ownership records in the name of each participant. Despite the factthat legal ownership is with depository, it does not have any voting right against thesecurities held by it. Rights are intact with investors. There are two depositories inIndia at present i.e. 1. NSDL: National Securities Depository limited 2. CDSL:Central Depository Services (India) Limited
ii) Depository

Participants (DP):

A DP is investors representative in the deposi tory system and as per the SEBI guidelines, financial institutions/banks/custodians/st ock brokers etc. can become DPs provided they meet the necessary requirements prescribed by SEBI. DP is also an agent of depository which functions as a link between the depository and the beneficial owner of the securities. DP has to get itse lf registered as such under the SEBI Act. The relationship between the depository and the DP will be o f a principal and agent and their relation will be governed by the bye-laws of the depository and the agreement between them. Application for registrat ion as DP is to be submitted to a depository with which it wants to be associated. The registration grant ed is valid for five years and can be renewed. As depository holdin g the securities shall maintain ownership records in the name of each DP, DP in return as an agent of depository, Shall maintain ownership records of every beneficial owner (investor) in bo ok entry form. A DP is the first point of contact with the investor a nd serves as a link between the investor and the company through depository in demate rialisation of shares and other electronic transactions. A company is not allowed to entertain a demat request from investors directly and investors have to necessarily initiate the process through a DP.


Eligibility criteria for depository participants: The following entities are eligible for becoming depository participant in accordance with Regulation 19 of the SEBI (Depositories and Participants) Regulations, 1996. A public financial institution as defined in Section 4A of the Companies Act, 1056. A bank included in the second schedule o f the Reserve Bank of India Act, 1934. A foreign bank, operating in India with the approval of Reserve Bank of India. A state financial corporation established under the provisions of section 3 of the State Financial Corporations Act, 1951. An institution engaged in providing financial services, promoted by any of the four institutions mentioned above. A custodian of securities, who has been granted a certificate of registration by SEBI under Section 12(1A) of the SEBI Act, 1992. A clearing corporation or a clearing house of a stock exchange. A stockbroker having a minimum net worth of rupees TWO CRORES. The aggregate value of the portfolio of securities, of the BOs, held in dematerialized form in a depository through him, shall not exceed 100 times of the net worth of the stockbroker. (Not applicable for DPs whos net worth is Rs. ten crores). In case the stockbroker seeks to act as a participant in more than one depository, he shall comply with the net worth criteria separately with each s uch depository. A non-banking finance company, having a net worth of not less than rupees fifty lakhs provided that such company shall act as a participant only on behalf of itself and not on behalf of any other person. Provided further that a non -banking finance company may act as a participant on behalf of any other entity, if it has a net worth of Rs. fifty crores in addition to the net worth specified by any other authority. A registrar to an issue or share transfer agent who has a minimum net worth of Rupees ten crores and who has been granted a certificate of registration by SEBI

Characteristics of depository participant :

1. Acts as an Agent of Depository 2. Directly deal with customer 3. Functions like Securities Bank 4. Account opening 5. Facilitates dematerialization 6. Instant transfer on pay out 7. Credits to investor in IPO, rights, bonus 8. Settles trades in electronic segment


ISSUER / Companies:
The issuer is the co. which issues the securities. It maintains a register for recording the names of the registered owners of securities and the depositories. The issuer sends a list of shareholders who opt for the depository system. And only those co.s can issue the securities which are registered under stock exchanges


Beneficial owner is a person whose name is recorded as such with a depository. It means a person who is engaged in buying and selling of securities issued by the companies and is registered his/ her securities with the depository in the form of book entry. And he/ she has all the rights and liabilities associated with the securities

Facilities offered by depository system:

1. Dematerialization: It is a process of conversion of physical share certificate into electronic form. So, when a shareholder uses the dematerialization facility, company take back the shares, through depository system and equal numbers of shares are credited in his account in e-form.

2. Rematerialization : Rematerialization is the exact reverse of Dematerialization . It refers to the process of issuing physical securities in place of the securities held electronically in book -entry form with a depository.
Other Services a) Pledging Dematerialized Shares: Dematerialized shares could be pledged; in fact, this is more advantageous as compared to ple dging share certificates. After loan is repaid one can request for a closure of pledge by instructing one s DP through a standard format. The pledgee on receiving the re payment as well as the request for closure of pledge will instru ct his DP accordingly. Even the locked-in securities can be pledged. The pledger continues to remain the beneficiary holder of those securities even after the securities are pledged. b) Initial Public Offerings: Credits for public offers can be directly received into demat account. In the public issue applicat ion form of depository eligible companies, there will be a provision to indicate the manner in which securities should be allotted to the applicant. One is to mention one s client account number and the name and identification number of DP. All allotment due to investor will be credited into required account. c) Receipt of Cash/non-cash Benefits: When any corporate event such as rights or bonus or dividend is announced for a parti cular security, depository will give the details of all the clients having electronic holdings in that security as of the record date to the registrar. The registrar wi ll then calculate the corporate benefits due to all the shareholders. The disbur sement of cash benefits such as dividend/ interest will be done directly by the registrar. In case of non-cash benefits, depository will directly

credit the securities entitlements in the depository accounts of all those clients who have opted for electronic allotment based on the information provided by the registrar. d) Stock Lending and Borrowing: Through the depository account securities in the demat form can be easily lent/ borrowe d. Securities can be lent or borrowed in electronic form through an approved interme diary, who has opened a special intermediary account with a DP. Instructions are to be given to DP through a standard format (which is available with DP) to deposit securities with the intermediary. Similarly to borrow securities fr om the intermediary, one has to instruct DP through a standard format (which is available with your DP). e) Transmission of Securities: Transmission of securities due to death, lunacy, bankruptcy, insolvency or by any other lawful me ans other than transfer is also possible in the depository system. In the case of transmission, the claimant will have to fill in a transmission request form, ( which is available with the DP) supported by valid documents. f) Freezing Account with DP: If at any time as a security measure one wishes that no transaction should be effected in ones account, one may advise one s DP accordingly. DP will ensure that account of such investor is totally frozen until further instructions from him.

Benefits of Depository System:

1. This system will eliminate paper work as the book entry system does not need physical movement of certificates for transfer process. 2. The risk of bad deliveries, fraud and misplaced, mutilated and lost share certificates will not exist. 3. The electronic media will shorten settlement time and hence the investor can save time and increase the velocity of security movement. 4. Investors will be able to change portfolio more frequently. 5. The capital market will be more transparent as the trading, clearing and settlement mechanism have to be highly automated and interlinked with the depository among them. 6. The market will be highly automated and efficient due to the usage of computing and telecommunication technology for the back office activities for all the capital market players.




LEGAL FRAMEWORK Introduction The depositories in India are regulated under the following legal framework: The Depositories Act, 1996 SEBI (Depositories and Participants) Regulations, 1996 Companies Act, 1956 Securities and Exchange Board of India Act, 1992 Prevention of Money Laundering Act, 2002 Apart from the above-mentioned Acts and Regulations, following govern the business and operations of a depository.

Bye Laws of the depository Operating Instructions of the depository

The Depositories Act, 1996 gives power to depositories to make bye-laws

But such bye laws should be consistent with the provisions of this Act and the SEBI Regulations. Such bye-laws shall provide for: a) The eligibility criteria for admission and removal of securities in the depository; b) The conditions subject to which the securities shall be dealt with; c) The eligibility criteria for admission of any person as a participant;

d) The manner and procedure for dematerialisation of securities; e) The procedure for transactions within the depository; f) The manner in which securities shall be dealt with or withdrawn from a depository; g) The procedure for ensuring safeguards to protect the interests of participants and beneficial owners; h) The conditions of admission into and withdrawal from a participant by beneficial owner; i) The procedure for conveying information to the participants and beneficial owners on dividend declaration, shareholder meetings and other matters of interest to the beneficial owners; j) The manner of distribution of dividends, interest and mone tary benefits received from the company among beneficial owners; k) The manner of creating pledge or hypothecation in respect of securities held with a depository; l) Inter se rights and obligations among the depository, issuer, participants, and beneficial owners; m) The manner and the periodicity of furnishing information to the Board, issuer and other persons; n) The procedure for resolving disputes involving depository, issuer, company or a beneficial owner; o) The procedure for proceeding against the participant committing breach of the regulations and provisions for suspension and expulsion of participants from the depository and cancellation of agreements entered with the depository; p) The internal control standards including procedure for auditing, and monitoring. Reviewing

SEBI (Depositories and Participants) Regulations, 1996

Board (SEBI) grants a certificate of registration to a depository subject to the following conditions, namely: a) The depository shall pay the registration fee specified within fifteen days of receipt of intimation from the Board; b) The depository shall comply with the provisions of the Act, the Depositories Ordinance, the bye-laws, agreements and these regulations; c) The depository shall not carryon any activity other than that of a depository unless the activity is incidental to the activity of the depository; d) the sponsor shall, at all times, hold at least fifty one per cent of t he equity capital of the depository and the balance of the equity capital of the depository shall be held by its participants; e) No participant shall at any time, hold more than five per cent of the equity capital of the depository; f) If any information previously submitted by the depository or the sponsor to the Board is found to be false or misleading in any material par ticular, or if there is any change in such information, the depository s hall forthwith inform the Board in writing; g) The depository shall redress the grievances of the participants and the beneficial owners within thirty days of the date of receipt of any complaint from a Participant or a beneficial owner and keep the Board informed about the number and the nature of redressals:


h) The depository shall make an application for commencement of business under regulation 14 within one year from the date of gr ant of certificate of registration under this regulation; and i) The depository shall amend its bye -laws as directed by SEBI.
Certificate of Commencement of Business The Board shall take into account for considering grant of certificate ofcommencement of business, the following points, namely, whether a) The depository has a net worth of not less than rupees one hundred crore; b) The bye-laws of the depository have been approved by the Board; c) The automatic data processing systems of the depository have been protected against unauthorised access, alteration, destruction, disclosure or dissemination of records and data: d) the network through which continuous electronic means of communications are established between the depository, participants, issuers and issuers agents is secure against unauthorised entry or access; e) The depository has established standard transmission and encrypti on formats for electronic communications of data between the depository, participants, issuers and issuers agents; f) the physical or electronic access to the premises, facilities, automatic data processing systems, data storage sites and facilities inclu ding back up sites and facilities and to the electronic data communication network connecting the depository, participants, issuers and issuers agents is controlled, monitored and recorded; g) the depository has a detailed operations manual explaining all aspects of its functioning, including the interface and method of transmission of information between the depository, - issuers, issuers agents, participants and beneficial owners; h) the depository has established adequate procedures and facilities to en sure that its records are protected against loss or destruction and arrangements have been made for maintaining back up facilities at a location different from that of the depository; i) the depository has made adequate arrangements including insurance for indemnifying the beneficial owners for any loss that may be caused to suchbeneficial owners by the wrongful act, negligence or default of the depository orits participants or of any employee of the depository or participant; and j) The grant of certificat e of commencement of business is in the interest of investors in the securities market.

The Board shall, before granting a certificate of commencement of business makes a Depository Physical verification of the infrastructure facilities and systems established by the Depository.
Record of Services by Depository Participant (DP) i) Types of records Every participant shall maintain the following records and documents, namely: a) Records of all the transactions entered into with a depository and with a beneficial owner; b) Details of securities dematerialised, rematerialised on behalf of beneficial owners with whom it has entered into an agreement;

c) Records of instructions received from benefi cial owners and statements of account provided to beneficial owners; and d) Records of approval, notice, entry and cancellation of pledge or hypothecation, as the case may be. Every participant shall make available for the inspection of the depository in which it is a participant all records referred above. Every participant shall allow persons authorised by the depository in which it is a participant to enter its premises during normal office hours and inspect its records. Every participant shall intimate the Board the place where the records and documents are maintained. The participant shall preserve records and documents for a minimum period of five years. ii) Where records are kept electronically by the participant, it shall ensure that the integrity of the data processing systems is maintained at all times and take all precautions necessary to ensure that the records are not lost. Destroyed or tampered with and in the event of loss or destruction, ensure that sufficient back up of records is available at all times at a different place. iii) If a participant enters into an agreement with more than one depository, it shall maintain the specified records separately in respect of each depository. iv) No participant shall assign or delegate its functions as participant to any other person, without the prior approval of the depository. Agreement by Issuer Every issuer whose securities have been declared as eligible to be held in dematerialised form in a depository shall enter into an agreement with the depository.
Records to be maintained by Depository

Every depository shall maintain the following records and documents, namely: a) Records of securities dematerialised and rematerialized; b) The names of the transferor, transferee, and the dates of transfer of securities; c) A register and an index of beneficial owners; d) Records of instructions received from and sent to participants, Issuers, issuers agents and beneficial owners; e) Records of approval, notice, entry and cancellation or pledge or hypothecation, asthe case may be; f) Details of participants;


Chapter-6 ABOUT CDSL and NSDL



There are two depositories inIndia at present i.e. 1. NSDL: National Securities Depository limited 2. CDSL:Central Depository Services (India) Limited

NSDL: National Securities Depository limited: About NSDL

Although India had a vibrant capital market which 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 institut ions of national stature responsible for economic development of the country has since established a national infrastructure of international standards that handles most of the securities held and settled in dematerialised form in the 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, minimise risk and reduce costs. At NSDL, we play a quiet but central role in developing products and services that will continue to nurture the growing needs of the financial services industry. In the depository system, securities are held i n 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. C onsequently, the cost of transacting in a depository environment is considerably lower as compared to transacting in certificates. Promoters / Shareholders NSDL is promoted by Industrial Development Bank of India Limited (IDBI) - the largest development bank of India, Unit Trust of India (UTI) - the largest mutual fund in India and National Stock Exchange of India Limited (NSE) - the largest stock exchange in India. Some of the prominent banks in the country have taken a stake in NSDL.
y y y

Industrial Development Bank of India Limited (Now, IDBI Bank Limited) Unit Trust of India (Now, Administrator of the Specified Undertaking of the Unit Trust of India) National Stock Exchange of India Limited

Other Shareholders


y y y y y y y y y y y

State Bank of India HDFC Bank Limited Deutsche Bank A.G. Axis Bank Limited Citibank N.A. Standard Chartered Bank The Hong Kong and Shanghai Banking Corporation Limited Oriental Bank of Commerce Union Bank of India Dena Bank Canara Bank

Legal Framework

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. The enactment of the Depositories Act the following August paved the way for the launch of National Securities Depository Ltd . (NSDL) in November 1996. The Depositories Act has provided dematerialisation route to book entry based transfer of securities and settlement of securit ies trade. In exercise of the rights conferred by the Depositories Act, NSDL framed its Byelawsand Rules. TheByelaws 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."

CDSL:Central Depository Services (India) Limited:

It is a Depository facilitates holding of securities in the electronic form and enables securities transactions to be processed by book entry by a Depository Participant (DP), who as an agent of the depository, offers depository services to investors. According to SEBI guidelines, financial institutions, banks, custodians, stockbrokers, etc. are eligible to act as DPs. The investor who is known as beneficial owner (BO) has to open a demat account through any DP for dematerialisation of his holdings and transferring securities. The balances in the investors account recorded and maintained with CDSL can be obtained through the DP. The DP is required to provide the investor, at regular intervals, a statement of account which gives the details of the securities holding s and transactions. The depository system has effectively eliminated paper -based certificates which were prone to be fake, forged, counterfeit resulting in bad deliveries. CDSL offers an efficient and instantaneous transfer of securities.CDSL was promoted by Bombay Stock Exchange Limited (BSE) jointly with leading banks


such as State Bank of India, Bank of India, Bank of Baroda, HDFC Bank, Standard Chartered Bank, and Union Bank of India and Centurion Bank. CDSL was set up with the objective of providing convenient, dependable and secure depository services at affordable cost to all market participants. Some of the
important milestones of CDSL system are :

CDSL received the certificate of commencement of business from SEBI in February, 1999. Honourable Union Finance Minister, Shri Yashwant Sinha flagged off the operations of CDSL on July 15, 1999. Settlement of trades in the demat mode through BOI Shareholding Limited, the clearing house of BSE, started in July 1999. All leading stock exchanges like the National Stock Exchange, Calcutta Stock Exchange, Delhi Stock Exchange, The Stock Exchange, Ahmedabad, etc. have established connectivity with CDSL. As at the end of Dec 2007, over 5000 issuers have admitted their securities (equities, bonds, debentures, and commercial papers), units of mutual funds, certificate of deposits etc. into the CDSL system.

Sr. No 1 2 3 4 5 6 7 8 9 10 11

Name of shareholders Bombay Stock Exchange Limited Bank of India Bank of Baroda State Bank of India HDFC Bank Limited Standard Chartered Bank Canara Bank Union Bank of India Bank of Maharashtra The Calcutta Stock Exchange Limited Others TOTAL

Value of holding (in Rupees Lacs) 5,663.46 582.00 530.00 1,000.00 750.00 750.00 674.46 200.00 200.00 100.00 0.08 10,450.00

% terms to total equity 54.20 5.57 5.07 9.57 7.18 7.18 6.45 1.91 1.91 0.96 0.00 100.00




Wide DP Network: CDSL has a wide network of DPs, operating from over

6000 sites, across the country, offering convenience for an investor to select a DP based on his location. On-line DP Services: The DPs are directly connected to CDSL thereby providing on-line and efficient depository service to investors. Wide Spectrum of Securities Available for Demat: The equity shares of almost all A, B1 & B2 group companies are available for dematerialisation on CDSL, consisting of Public (listed & unlisted) Limited and Private Limited companies. These securities include equities, bonds, units of mutual funds, Govt. securities, Commercial papers, Certificate of deposits; etc. Thus, an investor can hold almost all his securities in one account with CDSL. A BO can also hold warehouse receipts pertaining to commodities, in a demat account. However, a separate account should be opened for holding warehouse receipts. Competitive Fees Structure: CDSL has kept its tariffs very competitive to provide affordable depository services to investors. Internet Access: A DP, which registers itself with CDSL for Internet access, can in turn provide demat account holders with access to their account on the Internet.

On-line Information to Users: CDSL's system is built on centralised database architecture and thus enables DPs to provide on -line depository services with the latest status of the investor's account. Convenient to DPs: The entire database of investors is stored centrally at CDSL. If there is any system-related issues at DPs end, the investor is not affected, as the entire data is available at CDSL. Contingency Arrangements: CDSL has made provisions for contingency terminals, which enables a DP to update transactions, in case of any system related problems at the DP's office. Meeting User's Requirements: Continuous updating of procedures and processes in tune with evolving market practices is another hallmark of CDSL's services. Audit and Inspection: CDSL conducts regular audit of its DPs to ensure compliance of operational and regulatory requirements. Dormant Account Monitoring: CDSL has in place a mechanism for monitoring dormant accounts. Helpdesk: DPs and investors can obtain clarifications and guidance from CDSL's prompt and courteous helpline facility.

Computer Systems: All data held at CDSL and is automatically mirrored at the Disaster Recovery site and is also backed up and stored in fireproof cabinets at the main and disaster recovery site. Unique BO Account Number: Every BO in CDSL is allotted a unique account number, which prevents any erroneous entry or transfer of securities. If the

transferor's account number is wrongly entered, the transaction will not go through the CDSL system, unless corrected. Data Security: All data and communications between CDSL and its users are encrypted to ensure its security and integrity. Claims on DP: If any DP of CDSL goes into liquidation, the creditors of the DP will have no access to the holdings of the BO. Insurance Cover: CDSL has an insurance cover in the unlikely event of loss to a BO due to the negligence of CDSL or its DPs.

Chapter-7 Types of Accounts


Types of Accounts Type of depository account depends on the operations to be performed. There are three types Of demat accounts which can be opened with a depository participant viz.

(a) Beneficiary Account (b) Clearing Member Account (c) Intermediary Account.

Beneficiary Account This is an account opened by investors to hold their securities in dematerialised form with a depository and to carry out the transactions of sale and purchase of such securities in book entry form through the depository system. A beneficiary 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 account is called beneficial owner account". A beneficiary account can be in the name of an individual, corporate, Hindu Undivided Family (HUF), minor, bank, financial institution, trust, etc. or the broker himself for the purpose of his personal investments in demat f orm. The account is opened with a DP. A new sub-type viz. "Margin Account" has been added to the Client types viz.; 'Resident' and 'Body Corporate' under Client Maintenance Module in DPM Application Software (DPMAS). The new sub -type "Margin Account" is added to enable Clearing Members (CMs) to open beneficiary accounts to hold securities for client margin purposes. New sub-types are also added to enable promoters to separately hold securities issued as "Promoter" of the company.

House account vs. non -house account An account opened by a DP for the custody of and transactions in its own investments is referred to as a house account , and all other beneficiary accounts are referred to as non-house account . DPs are required to open house accounts for their own investments to prevent co-mingling of their assets with that of their clients. Neither the Depositories Act nor the regulations made under the Act lay down any specifications about who can open a beneficiary account. Since all beneficial owners are deemed to be members of a company (under section 41(3) of the Companies Act), only those who are eligible to become members of a company under the Companies Act, can open a beneficiary account with a depository. Thus, all legal entities with the exception of partnership firms can open an account in the depository system.

Documents for Verification I. Non-body Corporate Investors: For the purpose of verification, all non -body corporate investors have to submit the following documents, as prescribed by SEBI, along with the stipulated account opening form. A beneficiary account must be opened only after obtaining a proof of identity and address of the applicant. An authorised official of the Participant should verify the photocopies of any of following document s submitted with their corresponding originals and put his/her signature on them with remarks "verified with original" before proceeding to open the account. (a) Proof of Identity (POI)I. Passport II. Voter ID card III. Driving license IV. PAN card with photograph V. MAPIN card (SEBI vide its Circular No. MRD/DoP/Cir-08/2007 dated June 25, 2007 has communicated its decision to discontinue with the requirement of Unique Identification Number (UIN) under the SEBI (Central Database of Market Participants) Regulations 2005 (MAPIN regulations)/circulars. VI. Identity card/document with applicant's Photo, issued by a) Central/State Government and its Departments, b) Statutory/Regulatory Authorities, c) Public Sector Undertakings, d) Scheduled Commercial Ban ks, e) Public Financial Institutions, f) Colleges affiliated to Universities (this can be treated as valid only till the time the applicant is a student), g) Professional Bodies such as ICAI, ICWAI, ICSI, Bar Council etc., to their Members; and h) Credit cards/Debit cards issued by Banks. (b) Proof of address (POA) I. Ration card

II. Passport III. Voter ID card IV. Driving license V. Bank passbook Bank passbook is one of the Proof of Address (POA) being submitted by applicant(s) To the DP at the time of opening depository account. In this regard, procedure is as Follows, (i) Computer generated original bank statement: DPs may accept the computer generated original bank statement as POA if Neither obtaining the copy of bank passbook nor attestation (stamp and signature) Of the authorised official of the bank on the original bank statement is feasible. Provided such original bank statement is printed on the stationery of the bank Carries logo & name of the bank, displays the name, add ress and bank Transactions/holdings of the Client for the latest quarter ending. (ii) Computer generated bank statement on plain paper: DPs may accept the computer generated bank statement which is printed on a Plain paper as POA provided it clearly menti ons the name, address and bank Transactions/holdings of the Client for the latest quarter ending. Provided such A bank statement is duly attested (signed and stamped) by the authorised official Of the bank mentioning the name and designation of such author ised official. In both the aforesaid circumstances, DPs are advised as follows: a) Obtain a cancelled cheque in original and signature of the applicant(s) (all The holders in case of joint holdings) on the bank statement. b) The bank statement should be of the latest quarter ending e.g. depository Accounts opened in the month of April, May and June should be supported By the bank statement of the quarter ending March 31.
Capturing of landmark details Clients prefer to write landmark details viz., name of the building/mall/junction/ School/garden/hotel/bank/railway station /company name/bus depot etc. with the Preceding words such as 'nearby', 'adjacent to', 'behind', 'next to', 'opposite to' 'Off' etc. in the account opening form as it facilitates for easy location of their Addresses and prompt delivery of various communications to be received by The Clients. In this context, procedure is as follows,

A. At the time of opening demat accounts : DPs should ensure compliance with the various guidelines/circular s issued By NSDL on account opening and after satisfying itself, may capture the Address including landmark details in the DPM System as provided by the Clients in the account opening forms.

B. Change in landmark details : In case of change (addition/dele tion/modification) in the landmark details Already captured in the DPM system at the time of opening demat accounts, DPs may limit the changes to the landmark details after obtaining a request From the Clients on a plain paper, which is signed by all the holder(s) (in

Case of joint holdings). DPs are advised to note that the primary address Captured in the DPM system as mentioned in the proof of address, at the Time of opening demat accounts should remain intact, limiting the changes To the landmark details. VI. Verified copies of a) Electricity bills (not more than two months old), b) Telephone bills (not more than two months old) pertaining to only Landline telephones (other than Fixed Wireless Phone) irrespective of the service provider can be accepted by DPs as POA. (DP may ascertain the fact that such telephone number exists in the name of the entity, by making a call or by any other means) and c) Leave and License Agreement / Agreement for sa le. VII. Self-declaration by High Court & Supreme Court judges, giving the new address In respect of their own accounts. VIII. Identity card/document with address, issued by a) Central/State Government and its Departments, b) Statutory/Regulatory Authoriti es, c) Public Sector Undertakings, d) Scheduled Commercial Banks, e) Public Financial Institutions, f) Colleges affiliated to Universities (this can be treated as valid only till the time The applicant is a student) and g) Professional Bodies such as ICAI, ICWAI, Bar Council etc., to their Members. In case of joint holdings, POI and POA documents must be collected in respect of all Account holders. The aforesaid documents are the minimum requirement for opening a BO Account. Participants are advised to exercise due diligence while e stablishing the identity of the person to ensure the safety and integrity of the depository system. Participants can apply stricter criteria and accordingly, decide to accept, sele ct documents out of the list of documents prescribed by SEBI, as proof of identity/address.
II. for Corporate Investors: For the purpose of verification, all corporate investors have to submit the following documents as prescribed by SEBI along with the stipulated account opening form. (1) Memorandum & Articles of Association (MOA & AOA), Board resolution for opening demat account and the list of authorised signatories along with their specimen signatures and photographs, etc. (2) Introduction by an existing account holder or by the applicant's bank.

(3) Proof of address of the corporate, evidenced by the document registered with Registrar of Companies or acknowledged copy of Income Tax Return or Bank Statement or Leave and License Agreement/Agreement for sale. An authorised official of the Participant sh all verify the proof of address with the original documents and affix his/her signature on the documents submitted by the Client, while exercising such due diligence. 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 is explained below. Some details are common to all types of accounts. These are: 1. Name of the holder 2. Date of birth (for individual accounts) 3. Occupation 4. Address & phone/fax number 5. Bank details like name of bank, type of account (current/savings), account number, branch address, MICR, etc. 6. PAN number 7. Details of nomination (for individual accounts only) 8. Specimen signatures 9. MAPIN UIN (s) 10. E-mail address 11. Mobile number 12. Address for communication

Clearing Member Account:

The entities that are authorised to pay in and receive the pay out from a Clearing Corporation (CC)/ Clearing House against trades done by them or their clients are known as clearing members (CM). CMs are identified in the system through their CM-BP-ID. All pay-in and pay-out transactions are carried out through their accounts. There are two types of clearing members: 1. All members of a stock exchange popularly known as brokers are clearing members; 2. Custodians who are permitted by the stock exchange to act as a clearing member. Procedure to Open a Clearing Member Account The steps 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

it with the clearing corporation and obtain a CCCM - ID. The clearing account is identified by the combination of CC -CM-ID given by the clearing corporation, CM -BPID given by the depository and the Client -ID given by the DP. Before opening a clearing account, the DP should send to the depository the clearing member's account opening form. The Depository then allots the CM -BP-ID. Based on the CM-BP-ID so allotted, the account gets activated. The DP then generates Client-ID and communicates the date of opening the acco unt in DPM system to the depository. Details to be filled in the form are: 1. Name of the Clearing Member 2. Company's short name, if any 3. Address of the registered office, telephone number, fax number, e -mail, if any 4. Name and address of the authorise d signatories, their designations and telephone numbers, status code, sub-status code 5. Bank account particulars, bank name and its branch, current account number, RBI reference number, RBI approval date, PAN/ GIR number 6. Signatures of Authorised signatory (ies) Details of Introducer - If an existing client has introduced a new client to the DP his signature is required on the form. In other cases, the DP may ask for details that it considers appropriate. A separate enclosure has to be attached to the account opening form specifying the following details: 1. Name and address of the clearing member 2. Name and address of the clearing corporation 3. Clearing Corporation Id (CC -ID) 4. Clearing Member Id (CM-ID) 5. Stock Exchange clearing code 6. SEBI Registration number 7. Trade name 8. Copy of Board Resolution for authorised signatories should also be submitted. Generally, there will be only one CM account per broker for a stock exchange. Checklist for a Clearing Member Account


Ensure that all compulsory fields in the account opening form have been entered. Ensure that a copy of the board resolution for authorised signatories has been enclosed in case of corporates. Ensure that required letter from Stock Exchange giving CC -ID is enclosed. Ensure CM is informed of standing instruction facility for receipt. Ensure CM is informed that in case of delivery to CC instruction, either of the joint holders can sign the instruction. If the forms are received at the branch of a DP, ensure that the account o pening form along with required references is dispatched to head office in a proper and timely manner. If required, retain a copy. Ensure follow up with head office in case defined deadline in respect of account opening is not met. The clearing account should only be used for clearing and settlement purposes and not for any other purpose, e.g., holding of securities. All the securities received in a settlement account should be transferred to respective beneficial accounts as soon as possible, but in no case later than the time prescribed by the depository/ stock exchange/SEBI in this regard. The opening of clearing member account constitutes a "standing instruction" to receive credits from the clearing corporation when there is a pay-out.
Intermediary Account: An intermediary account can be opened by a SEBI registered intermediary for the purpose of stock lending and borrowing. The clearing member account and the intermediary account are transitory accounts. The securities in these accounts are held for a commercial purpose only. Client types

There are several client types in the depository system and different codes are allotted to them. These are listed below: 1. Resident
y y

_ Ordinary _ Hindu Undivided Family (HUF)

2. Financial Institutions (FI)

y y y

_ Government-sponsored FI _ State Financial Corporation _ Others


3. Foreign Institutional Investors (FIIs)

y y

_ Mauritius-based _ Others

4. Non-resident Indian (NRI)

y y

_ Repatriable _ Non-Repatriable

5. Body Corporate
y y y y y y y y y y y y y y y

_ Domestic Company _ Overseas Corporate Body (OCB) _ Government Company _ Central Government _ State Government _ Co-operative Body _ Non-Banking Finance Companies (NBFC) _ Non-NBFC _ Broker _ Foreign Bodies _ Group Companies _ OCB-NonRepatriable _ Foreign Venture Capital _ Limited Liability Partnership _ Others

6. Clearing Member (CM) 7. Foreign National 8. Mutual Fund 9. Trust 10. Bank
y _ Foreign Bank y _ Co-operative bank y _ Nationalised Bank y _ Others 11. Intermediary


Chapter- 8 DEMAT & REMAT


DEMATERIALISATION Definition Dematerialisation is the process of converting physical shares (share certificates) into an electronic form. Shares once converted into dematerialised form are held in a Demat account. Dematerialisation Process

An investor having securities in physical form must get them dematerialised, if he intends to sell them. This requires the investor to fill a Demat Request Form (DRF) which is available with every DP and submit the same along with the physical certificates. Every security has an ISIN (International Securities

Identification Number). If there is more than one security than the equal number of DRFs has to be filled in. The whole process goes on in the following manner:

i) Appointing DP Any investor who intends to transact through depository system has to engage one depository participant (DP). He can approach a DP of his choice and open an account with him just like one opens an account with a bank. Investor gets an identification number called Client ID (just as one gets ones bank account number) which serves as a reference point for all his transactions with D.P. Every investor before getting his holding dematerialised has to enter into an agreement with the depository through a partici pant. This step is necessary whether investor already has securities or securities are yet to be issued in a fresh issue. The investor contracts only with that depository which accepts his security in depository mode since it is not necessary that all eligible securities must be in depository mode and with all the depositories. The decision on whether or not to hold securities within the depository mode and if in depository mode, with which depository or participants, would be entirely with the investor.

ii) Request for Demat After any agreement is entered for getting securities dematerialised and his account is opened, the investor makes an application to depository participants in

form called Dematerialisation Request Form (DRF) to be provided by the DP and hands over his share certificates duly cancelled by writing surrendered for dematerialisation to them for demat. The DP will accept certificates registered only in investors name. The request for dematerialisation with the depository participan ts is sent to the depository through depository network with which DP is connected. Simultaneously DP submits the securities certificates to the issuer company or its Registrar of transfer. iii) Approach the Company or Registrar of Transfer The depository will electronically intimate the issuer or its Registrar and transfer agent of the dematerialisation request. The issuer or the Registrar and transfer Agent has to verify the validity of the security certificates as well as the fact that the DRF has been made by the person recorded as a member in its Register of Members. If the issuer or its Registrar is satisfied, it dematerialises the scrip and updates its record.

iv) Confirmation of Demat The Registrar to transfer or the concerned company when satisfied with the case of demat has to inform the depository of the completion of dematerialisation authorising an electronic credit for that security in favour of the investor. v) Crediting the Clients Account DP credits investors account with the numb er of shares so dematerialised and thereafter investor hold the securities in electronic form. If there is rejection of demat request then such credit is not given. After crediting the account, the client is sending the necessary information in form of a statement like we get bank statement after bank transactions.

Demat Account Definition Demat account is a safe and convenient means of holding securities just like a bank account is for funds. Today, practically 99.9% settlement (of shares) takes place on demat mode only. Thus, it is advisable to have a Beneficiary Owner (BO) account to trade at the exchanges.


Benefits Of Demat Account

1. A safe and convenient way of holding securities (equity and debt instruments both). 2. Transactions involving physical securities are costlier than those involving dematerialised securities (just like the transactions through a bank teller are costlier than ATM transactions). Therefore, charges applicable to an investor are lesser for each transaction. 3. Securities can be transferred at an instruction immediately. 4. Increased liquidity, as securities can be sold at any time during the trading hours (between 9:55 AM to 3:30 PM on all working days), and payment can be received in a very short period of time. 5. No stamp duty charges. 6. Risks like forgery, thefts, bad delivery, delays in transfer etc., associated with physical certificates, are eliminated. 7. Pledging of securities in a short period of time. 8. Reduced paper work and transaction cost. 9. Odd-lot shares can also be traded (can be even 1 share). 10. Nomination facility available. 11. Any change in address or bank account details can be electronically intimated to all companies in which investor holds any securities, without having to inform each of them separately. 12. Securities are transferred by the DP itself, so no need to correspond with the companies. 13. Shares arising out of bonus, split, consolidation, merger etc. are automatically credited into the demat account of the investor. 14. Shares allotted in public issues are directly credited into demat account of the applicants in quick time.

Opening a Demat Account to start dealing in securities in electronic form, one needs to open a demat account with a DP of his choice. An investor already having shares in physical form should ensure that he gets the account opened in the same set of n ames as appearing on the share certificate; otherwise a new account can be opened in any desired pattern by the investor. Opening a Demat Account

Getting started

Documents to be attached


1. Choose a DP 2. Fill up an account opening form provided by DP, and sign an agreement with DP in a standard format prescribed by the depository. 3. DP provides the investor with a copy of the agreement and schedule of charges for his future reference. 4. DP opens the account and provides the investor with a unique account number, also known as Beneficiary Owner Identification Number (BO ID).

1. Passport size photographs 2. Proof of residence (POR) - Any one of Photo Ration Card with DOB / Photo Driving License with DOB / Passport copy / Electricity bill / Telephone bill 3. Proof of identity (POI) - Any one of Passport copy / Photo Driving License with DOB / Voters ID Card / PAN Card / Photo Ration Card with DOB 4. PAN card

1. The agreement required to be signed by the investor details the rights and duties of the investor and DP. 2. DP may revise the charges by giving a 30 days prior notice. SEBI has rationalized the cost structure for isation by removing account opening charges, transaction charges for credit of securities and custody charges, effective from January 28, 2005.
Maximum Number of holders in a Demat Account a maximum of three persons are allowed to open a joint demat account in their names.



Rematerialisation is a process (Chart 9.2) of converting electronic holdings of investor back into share certificates in paper form. The process of rematerialisation is also carried out through DP and the process has to be completed within a period of 30 days. Thus, once security is dematerialised it is not necessary that investor is to continue in depository mode for all times to come. He can switch over to remat whereby he gets back physical possession of security scripts. The client of DP has to submit a request for remat. This request is forwarded for necessary action to depository. The depository confirms the rematerialisation request to the Registrar and Transfer Agents. The Registrar updates the accounts and prints the desired certificate. The depository is informed b y Registrar and certificate is sent to the investor. Thedepository updates its records and communicates to DP to incorporate necessarychanges in the account of the client.



Books: y y

Financial management- shashi k gupta Accounting for management- kalayani Publishers

Website Visited:


For Individuals Only For Corporates/Clearing Members only







APPLICATION Form FOR OPENING AN ACCOUNT (For Corporates/Clearing Members only)