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DEPOSITORY SYSTEM

This system came in to force with effect from September 20, 1995.

What Is Scrip Based System?

Scrip based system of securities transactions involves enormous paper work involving certificates and transfer deeds. Simply, securities are held in physical form.

Feature of scrip based system:


1.

There is physical movement of securities certificates along with transfer deeds. Registration with the company.

2.

Problems with scrip based system:


1. 2. 3. 4. 5. 6. 7.

Time consuming (processing time by co.) Bad deliveries due to signature difference Mistakes in completion of transfer deeds Tearing and mutilation of certificates Fake certificates Cost of transfer : stamp duty Postal delays and charges etc.

What is depository system

A system in which securities of an investor are held by depository on behalf, and at the request, of an investor in an Electronic Form. This system is also known as Scrip Less Trading system.

Features of Depository system


Securities are held in depository accounts Transfer is done through simple account transfers. Eliminates all the risks and hassles normally associated with paperwork. Low cost of transacting in a depository environment. Comply with Global standards. Enhance Liquidity.

Constituents of depository system


There are basically five participant: The Depository The Depository Participant The Issuing Company The RTA The Investor

Who is depository?

Depository facilitates holding of securities in the electronic form and enables securities transactions to be processed by a Depository Participant (DP), who as an agent of the depository, offers depository services to investors

Features of depository system in India


1. 2. 3. 4. 5. 6.

Multi-Depository system Dematerialization A depository can be compared with a bank. Services through depository participants. Fungibility Registered Owner/ Beneficial Owner (two types of owner)

Who can be a depository:


Depository Act, 1996 provides that Depository means: A company formed and registered under the companies Act, 1956, and Which has got a Certificate of Registration from the SEBI.

Depositories in India

The depository model adopted in India provides for a competitive multi-depository system. There can be various entities providing depository services. Such system is known as Multi-Depository System. At present two Depositories are registered with SEBI.

NATIONAL SECURITIES DEPOSITORIES LIMITED

NSDL is the first and largest depository in India, Registered on June 1996 with SEBI and established in August 1996 It has 14,435 DP service centres (as on 31.12.12) Address:

Trade World, a Wing, 4th &5th Floors Kamala Mills Compound Lower Parel Mumbai 400013 website: nsdl.co.in

PROMOTERS OF NSDL
1.

2. 3.

Industrial Development Bank of India Limited Unit Trust of India National Stock Exchange of India Limited

SHAREHOLDERS OF NSDL

State Bank of India Oriental Bank of Commerce Citibank Standard Chartered Bank HDFC Bank Limited The Hongkong and Shanghai Banking Corporation Limited Deutsche Bank Dena Bank Canara Bank Union Bank of India

CENTRAL DEPOSITORY SERVICES (INDIA) LIMITED


This is the second depository in India. This was formed and registered in 1999. It has 576 DPs as on 31.12.2012 Address:
P J Towers 17th Floor, Dalal Street Mumbai website: www.cdslindia.com

PROMOTERS OF CDSL

Bombay Stock Exchange Limited Bank of India, Bank of Baroda, State Bank of India and HDFC Bank

SHAREHOLDERS OF CDSL

Standard Chartered Bank Centurion Bank of Punjab Ltd Canara Bank Union Bank of India Bank of Maharashtra Jammu and Kashmir Bank Limited The Calcutta Stock Exchange Association Limited Others

A Bank-Depository Analogy
Bank
1.Holds funds in an account on behalf of a customer 2.Transfer funds between accounts on the instruction of the account holder. 3.Physical handling of funds is avoided. 4.Provides safe custody of fund

Depository
1.Holds securities in an account on behalf of an investor. 2.Transfer securities between accounts on the instruction of the account holder. 3.Physical handling of securities is avoided. 4.Provides safe custody of securities.

Who Is Depository Participant:

A Depository Participant (DP) is an agent of the depository through which it interfaces with an investor. A DP can offer depository services only after it gets proper registration from SEBI. A DP is just like a Branch of a Bank.

Who can be Depository Participant?


In terms of the Depositories Act, 1996, SEBI (Depositories & Participants) Regulations,1996, only the following entities are eligible to become a Depository Participant: Financial Institutions, Banks, including approved foreign bank Custodians, Stockbrokers, A clearing corporation or a clearing house of a stock exchange A non-banking finance company, A registrar to an issue or share transfer agent

Types of ownership
In the depository system, the ownership of securities dematerialized is bifurcated in to:

REGISTERED OWNER

BENEFICIAL OWNER

Benefits of depository system/holding securities in dematerialized form


Depository system provides benefits to: The investors, and The issuers.

Benefits to investors:

The transactions in electronic mode eliminated the risk and problems of delays. The risk of bad deliveries is totally eliminated There is no requirement of filling up the transfer deeds, payment of transfer stamp duty and a lot of other paper work at the end of the investor. It totally eliminates the risk associated with fraudulent interception of certificates in postages or transits.. Transfer of ownership of securities is immediate in case of depository mode. The investment, automatically, becomes more liquid. contd.

Contd.

Holding investments in equity and debt in a single account. Change in address recorded with DP gets registered with all companies in which investor holds securities electronically eliminating the need to correspond with each of them separately. Transmission of securities is done by DP eliminating correspondence with companies. Nomination facility.

Benefits to the issuing company:

The company saves a lot of paper work which otherwise is required in the physical mode. The company saves a postal cost for the dispatch of right shares, bonus shares or share certificates after affecting the transfer. By offering depository services to its shareholders, a company may send a positive sign to its shareholders about its concern for their welfare. Depository services adds liquidity to the security thus fund raising capacity of the company.

Features of Beneficiary Account


Features of Beneficiary Account

No minimum balance is required to be retained in a beneficiary account. An investor can close a beneficiary account with one DP and open an account with another DP. To dematerialize existing physical holdings, the beneficiary account must be opened in the same ownership pattern in which the securities are held in the physical form.

Procedure of Opening An Account:

Investor will choose a DP for the purposes of opening beneficiary account. The choice of the investor may be based on convenience, comfort, services offered, cost or any other reason.

The investor will obtain the relevant account opening form from the chosen DP.

contd.

Contd.

For the purpose of verification, investor has to submit the following documents along with the prescribed account opening form.

Proof of Identity(POI) (voter card, pan card, driving license etc.) Proof of Address (POA) (ration card, bank pass book copy, voter id card etc.) Passport-size photograph Copy of PAN card The DP will also provide a copy of the DP-Client agreement.

Some other aspects:

The investor will submit to his DP the duly filled in account opening form & DP-client agreement along with the documents. On successful opening of the account, the DP will give:
Client Id - an eight digit number to be used along with DP Id for any future transactions. Delivery Instruction slip book.

Some other aspects

contd.

The demat account cannot be operated on "either or survivor" basis like the bank account. In case of the joint account for the beneficial owners, all the joint holders have to sign the account opening form. More than one demat account can be opened in the similar / identical name and either with the same DP or different DPs. A periodical statement of holdings and transactions is provided by DP. This can also be asked for from the DP

What is dematerialisation?

Dematerialization is the process by which physical certificates of securities of an investor are converted to an equivalent number of securities in electronic form and credited into the investors account with his/her DP. It is to be noted that an investor can hold shares in physical form but for the purpose of trading in stock exchanges shares should be in electronic form.

Process of dematerialisation

An investor intending to dematerialize its securities needs to have an account with a DP. The client will submit a request to the DP in the Dematerialization Request Form for dematerialization, along with the certificates of securities to be dematerialized. Before submission, the client has to deface the certificates by writing "SURRENDERED FOR DEMATERIALISATION". The DP will verify that the form is duly filled in and the number of certificates, number of securities and the security type (equity, debenture etc.) are as given in the DRF. If the form and security count is in order, the DP will issue an acknowledgement slip duly signed and stamped, to the client.

Contd.

After intimating NSDL electronically, the DP sends the securities to the concerned Issuer/ R&T agent. NSDL in turn informs the Issuer/ R&T agent electronically, using NSDL Depository system, about the request for dematerialization. If the Issuer/ R&T agent finds the certificates in order, it registers NSDL as the holder of the securities (the investor will be the beneficial owner) and communicates to NSDL the confirmation of request electronically. On receiving such confirmation, NSDL credits the securities in the depository account of the investor with the DP. This procedure takes 15to 30 days.

Rematerialisation

Rematerialization is the process by which a client can get his electronic holdings converted into physical certificates. A client can rematerialize his dematerialized holdings at any point of time. The rematerialization process is completed within 30 days. The securities sent for rematerialization cannot be traded.

Procedure of rematerialisation

The client has to submit the rematerialization request to the DP with whom he has an account. The DP enters the request in its system which blocks the client's holdings to that extent automatically. The DP releases the request to NSDL and sends the request form to the Issuer/ R&T agent. The Issuer/ R&T agent then prints the certificates, dispatches the same to the client and simultaneously electronically confirms the acceptance of the request to NSDL. Thereafter, the clients blocked balance are debited.

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