Nism Doce Training Module: HR - L & D Team, HDFC Bank

NISM DOCE
TRAINING MODULE
HR – L & D Team ,
HDFC Bank
HR – L & D Team , HDFC Bank Internal 1

INTRODUCTION TO CAPITAL MARKET
 Primary Market (IPO)  Secondary Market
Merchant Individual Stock
bankers investors Exchanges Individual
Stock
investors
Brokers
Primary
Secondary
Market Financial Merchant Financial
Mutual Market
institutions bankers institutions
funds
Mutual Foreign
Foreign
funds institutional
institutional
investors (FIIs)
investors (FIIs)
RTA, Custodians and Depositories

(Services provided to Both Market)
HR – L & D Team , HDFC Bank Internal
2
REGULATORY ENVIRONMENT
 The Securities and Exchange Board of India Act, 1992
(SEBI Act, 1992):
a) Protecting the interests of investors in securities,
b) Promoting and development of securities market
c) Regulating the securities market.
 The Securities Contracts (Regulation) Act, 1956

a) Organized trading activity in securities
b) Determine listing regulations
Cont’d…

3
THE DEPOSITORIES ACT, 1996
 Securities are freely transferable

 Dematerialization of Securities
 Maintenance of ownership records in a book
entry form
 Electronic transfers of securities for settlement
process
# Securities includes shares, debentures, bonds, mutual funds,

CDs, CPs & G-Secs.
Cont’d….
4
PROVISIONS OF THE COMPANIES ACT, 1956
a) Issue, allotment and transfer of securities
b) It provides for standard of disclosure in public

issues of capital
c) Regulates underwriting
 Contracts for Purchase / sale of gold securities

is exercised by RBI
Chapter 1 Complete
5
Recap Questions
1. Which of the following is NOT a part of the

Primary Market?
(a) Merchant Bankers
(b) Mutual Funds
(c) Exchanges
(d) Registrars and Transfer Agents

Recap Questions
2. An active ________ promotes the growth of the

primary market and capital formation.
(a) secondary Market
(b) bullion market
(c) money market
(d) forex market

Recap Questions
3. _______________ aims at streamlining
settlement process by transfer of ownership of
securities electronically by book entry without
making the securities move from person to
person.
(a) Companies Act, 1956
(b) Depositories Act, 1996
(c) SEBI Act, 1992
(d) SCRA, 1956
Recap Questions
4. ________ has powers to register and regulate all

market intermediaries in the securities market
and also to penalise them.
(a) RBI
(b) Depositories
(c) SEBI
(d) IRDA

INTRODUCTION TO DEPOSITORY SYSTEM
Depository Act was passed in 1996 - provides for multi-
depository system
a) Fungibility - all securities in the same class are identical and
interchangeable
b) Registered Owner/ Beneficial Owner – The securities held

in demat A/c are registered in the name of Depository,
where as all the rights, duties and liabilities underlying the
security belong to the beneficial owner
c) Free Transferability of shares – Transfers take place freely

through electronic book-entry system
(where as in Physical securities, transfers take place by
Endorsement)

10
COMMENCEMENT OF DEPOSITORY BUSINESS
 A depository that has obtained registration can
function only if it obtains a certificate of
commencement of business from SEBI
 A depository must start functioning within one year

after obtaining certificate of commencement of
business from SEBI
 Sponsor of the depository should hold atleast 51% of

Equity Capital
 Minimum networth to register Depository is 100 crore

11
ADVANTAGES OF DEPOSITORY
 Free and instant transferability in a secured
manner at lower cost
 Tradable lot is reduced to 1 share
 Free from the problems like bad deliveries, odd-
lots etc
 Government has exempted stamp duty on transfer
of securities in dematerialized form
 No question of theft, forgery, mutilation of
Certificates under depository system

12
LEGAL FRAMEWORK
 The Depositories Act, 1996
 SEBI (Depositories and Participants)
Regulations, 1996-
 To maintain records & documents for minimum period of
5 years
 Bye-laws approved by SEBI
 Operating Instructions of the depository
 PMLA, 2002

13
FUNCTIONS OF A DEPOSITORY
 Account Opening / Modification /Closure
 Dematerialisation
 Account Transfer (in case of joint demat A/c, both a/c
holders must sign the DIS)
 Transfer and Registration
 Corporate Actions
 Pledge and Hypothecation
 Linkages with Clearing System
Chapter 2 Complete
14
Recap Questions
1. With the introduction of depository system in

India theft, forgery, mutilation of certificates
became more prominent.
(a) True
(b) False

Recap Questions
2. During the time when there was no demat of

securities, for transfer of securities, __________
was evidence of change of ownership.
(a) Endorsement of physical security
(b) Proof of Delivery
(c) Letter of acknowledgement from the transferee

Recap Questions
3. Can either of the account holders sign in case of

a depository account as is the case with a bank
account?
(a) Yes
(b) No

Recap Questions
4. DP has to be registered with

(a) Depository
(b) Exchanges
(c) SEBI
(d) None of the above

DEPOSITORY AND ITS BUSINESS
PARTNERS (DP)
 A DP is an entity who is registered as such with SEBI
under the provisions of the SEBI (Depositories &
Participants) Regulations, 1996
 As per the provisions of these regulations, an entity

can offer depository-related services only after
obtaining a certificate of registration from SEBI as a
depository participant

19
DEPOSITORY & ITS BUSINESS
PARTNERS
• Depository Participants
• Issuers
• Registrar & Transfer Agents
• Clearing Corporations
• Stock Exchanges

DEPOSITORY PARTICIPANTS (DP)
 Bound by an agreement under Depositories Act
 Agent of depository-Depositories Act, 1996
 Entity registered with SEBI under provisions of SEBI (D &

P) Regulations, 1996
 Offer depository-related services after obtaining a

certificate of registration from SEBI

21
DEPOSITORY PARTICIPANTS (DP)
ENTITY NETWORTH CRITERIA-SEBI
Public financial institution No Minimum criteria
Bank No Minimum criteria
Foreign bank operating in No Minimum criteria
India
State Financial Corporation No Minimum criteria
Custodian No Minimum criteria
Clearing Corporation or a No Minimum criteria
Clearing house
Stockbroker Rs. 50 lakh
Non-banking finance For other entities Rs. 50 crore in
company. addition
If Less than Rs. 50 cr. for themselves
only
HR – L & D Team , HDFC Bank
R&T Agent Internal
Rs. 10 crore in addition 22
ENTITY ELIGIBILITY CRITERIA-DEPOSITORIES IN ITS
BYE-LAWS
Public financial Defined in section 4A of the Companies Act
institution
Bank Second Schedule to the Reserve Bank of
India Act, 1934
Foreign bank operating in With approval of the Reserve Bank of India
India
State Financial established under the provisions of section
Corporation 3 of the State Financial Corporations Act,
1951
Custodian granted a certificate of registration by SEBI
Clearing corporation or a of Recognised Stock Exchanges
clearing house
Stockbroker Networth criteria for CDSL – 2 crore & NSDL
HR – L & D Team , HDFC Bank – 3 Internal
crore 23
APPLICATION - DP
EVALUATE
DEPOSITORY APPLICATION
ENTITY WITHIN 30 DAYS OF

RECOMMENDATION
SEBI

24
CONDITIONS FOR GRANT OF
REGISTRATION-DP
 Eligible & has complied with conditions stipulated in
SEBI (D&P) Regulations
 SEBI considers the following
- Adequate infrastructure &system
- Safeguards in place & trained staff for DP activity
- Fit & proper person
 SEBI examines whether it is in interest of investors

25
ADDITIONAL CONDITIONS
1. Furnish information & details for minimum of 3 Yrs
2. Not convicted in any of 5 yrs immediately preceding application
3. Not been expelled, barred or suspended in last 3 yrs
4. Furnish details of Board of Directors/ authorized officials, who would be
responsible for conduct of business as a participant
5. Appoint Compliance Officer who would interact with depository & on the DP's
behalf for compliance
6. Have adequate office space exclusively for depository operations furnish details
of office
7. Make adequate arrangements for conducting effective & safe depository
operations

26
VALIDITY & RENEWAL OF
REGISTRATION CERTIFICATE - DP
 Valid for 5 years from date of issue
 Renewal application to be made 3 months before expiry date
 Renewal application made through depository along with

fees
 Renewal is dealt in same manner as if fresh application

27
VALIDITY & RENEWAL OF REGISTRATION
CERTIFICATE-DP
If renewal application is not If renewal is received at
received at SEBI by expiry date SEBI less than 3 months
before expiry
1. Cease to be an intermediary on Stop undertaking any fresh
the date of expiry. business / clients from the
2. Stop carrying on activities of the date of expiry.
intermediary from that date, &
Transfer the a/cs to another
registered intermediary.
No renewal application can be made SEBI may initiate action for
after date of expiry of registration. If late submission under
it applies for registration it will be provisions of SEBI Act, 1992
considered as a fresh application & regulations
28
COMMENCEMENT -DP
Pre-requisites for DPs for commencing operations:
1. Apply in prescribed form
2. On receiving approval, apply for connectivity with depository
(Primary - V-sat/leased line, Fall back - PSTN line/dial up lines)
3. At least 2 officials have successfully completed training
4. Procure the prescribed hardware & communicate the same
5. Applicant has to enter into an agreement with the depository
6. Activate Application system & DP - ID is issued to the DP
7. DP can then start functioning

29
RIGHTS & OBLIGATIONS-DP
 Agreement with Beneficial Owners (BOs)
 Except in case of
 a. FII (those who are not registered with SEBI)
 b. International Multilateral Agency,
 Separate A/c for each BO

 Securities should be transferred on Client Instructions
 Transaction Statements
 Electronically provided if agreement has been executed
 Connectivity
 Monitor, Review & Evaluate Internal Systems & Controls
 Reconciliation of its records with depository

30
 Periodic returns to SEBI & depository
 Audited financial statement by 30th Sept. every year along with
Networth Certificate
 Internal audit report (half yearly basis) & concurrent audit report
(monthly basis) as specified by the depository
 No. of complaints received from clients, their nature, status & manner
of redress, once every month (with in 30 days)
 DP to Indemnify Depository
 Prohibition of Assignment
 Insurance
 Record of Services
Contd..

31
 Ensure adherence to guidelines on Anti Money
Laundering Measures
 Evolve own guidelines to comply with provisions of PMLA &
rules, guidelines issued by GOI/SEBI
 DP should appoint senior management executive as Principal
Officer.
 Monitor & Report to Financial Intelligence Unit( FIU)-India
suspicious transactions within 7 days & Report to depository
no. of suspicious transaction filed with FIU-IND by 7th of next
month.
 Maintenance & Preservation of records - DP
 Evolve an internal mechanism. Records to be preserved for a
period of 10 years from date of cessation of transactions
between the client
• DP to Ensure Integrity & Back-up of Data
32
SUSPENSION OF CERTIFICATE-DP
 Contravened any provisions of Depositories Act, the Bye-Laws,
agreements & SEBI (D&P) Regulations, 1996;
 Failed to furnish information relating to its activity as a DP
 Not furnished / furnished false or misleading information
 Not co-operated in inspection/investigation/enquiry by SEBI;
 Failed to comply with any direction of SEBI; or
 Failed to pay annual fee as specified

33
CANCELLATION/ TERMINATION -DP
Cancellation
 DP is guilty of fraud, or convicted of an offence involving moral turpitude; or
 DP has been guilty of repeated defaults as specified
Termination
By Depository:
 Depository has own Bye-Laws for termination/suspension of DPs
By DP:
 DP to give notice of not less than 30 days to depository
 On receipt of notice, depository ceases to provide any service/act for DP
 Depository notifies DP, other DPs, clients of DP & SEBI within 7 days

34
CLEARING CORPORATION / CLEARING
HOUSE (CC / CH)
 Entity responsible for clearing & settlement of trades done by
clearing members on a recognized stock exchange
 Admitted for clearing & settlement of securities traded on their

respective stock exchanges
 Needs to have electronic connectivity with depository for

electronic settlement of securities in demat form
 Admitted as a user after entering into an agreement

35
ADMISSION CRITERIA CC / CH
1. Adequate hardware & software systems;
2. Operates in such a manner that it ensures payment against
delivery or guarantees settlement;
3. Redress the grievances of clients & DPs in respect of its
operation in relation to the depository;
4. Has operational capability to provide the services
 CC/CH shall not open BO a/cs for clients, except with permission
by RBI to offer Constituent SGL account facility to the investors

36
ELIGIBILITY CRITERIA- ISSUER OR ITS
R&T AGENT
Executive Committee /Securities Committee of depository
determines the securities that are eligible for demat
Issuer/RTA has to comply with the following conditions:
 Undertake to co-operate at all times to redress grievances of
client & DP
 Adequate hardware & software systems to interact with
Depository
 Issuer & its RTA if any, have signed the tripartite agreement
 Above conditions are not applicable to securities issued by Central
or State Government

37
RIGHTS & OBLIGATIONS OF ISSUERS & THEIR RTA
 Represent & warrant in favour of depository
 securities exist at time of transfer of securities into
depository
 these securities are validly issued & that it is entitled or has
full authority to transfer such securities into the Depository
 Provide timely information about corporate actions
 Reconcile with the records of the depository
 State/central govt. is issuer, depository reconciles records of
demat securities with statement provided by the RBI on a daily
basis
 Responsible for accuracy & correctness of all information
furnished by it to depository

38
ROLE OF ISSUER/ RTA IN DEMAT OF
SECURITIES
Verifies securities
All Demat + person making
requests request
daily
DEPOSITORY
ISSUER /
Intimates & RTA
authorizes
electronic credit
credit entries
BO

39
ROLE OF ISSUER/ RTA IN DEMAT OF SECURITIES
Verifies securities
+ person making
All Demat request
requests daily
DEPOSITO ISSUER /
RY Rejection within 15 days and RTA
returns DRF with rejection
reason & security certificates
Exception;
security certificates stolen/ fake or;
Order from court/ competent statutory
authority prohibiting transfer or
duplicate certificates already issued

40
ROLE OF ISSUER/ RTA IN REMAT OF SECURITIES
Certificates ISSUER /
within 30 Confirm RRF has
days RTA been accepted
Details on
RRF daily basis
BO within
DEPOSITO
7 days
RY
Withdraw security
by submitting RRF.
DP

41
ROLE OF ISSUER/RTA IN CORPORATE BENEFITS
Inform about
corporate actions
ISSUER /
DEPOSITORY
RTA Provides details of
holdings of the
clients
dividend, interest or Automatic

other monetary benefits Corporate
Action
BO
Chapter 3 Complete
42
Recap Questions
1. For registering as a DP, the application should be
submitted to __________.
(a) separately to Depository and SEBI
(b) to Depository, who will in turn forward it to
SEBI after evaluation
(c) to Depository who will in evaluate and register
the DP
(d) directly to SEBI and a copy should be sent to
Depository for information only
Recap Questions
2. After Depository receives an application for

registering as a DP, it evaluates and forwards the
application to SEBI within _______.
(a) 30 days
(b) 15 days
(c) 45 days
(d) 90 days

Recap Questions
3. As per PMLA, records of services need to be

preserved for _______ years.
(a) 1
(b) 5
(c) 7
(d) 10

Recap Questions
4. Are Certificates of deposits eligible for

dematerialisation as per SEBI (Depositories &
Participants) Regulations, 1996?
(a) Yes
(b) No

FUNCTIONS OF DEPOSITORY
PARTICIPANT-ACCOUNT OPENING
xSimilar to opening a bank A/c

x Multiple a/c’s can be open with single / several
DPs
x First sign agreement & then open account

47
TYPES OF ACCOUNT
Beneficial Owners Account opened by a Beneficiary owner
Clearing Member Account: opened by a broker or a clearing

member for the purpose of
settlement of trades
Intermediary Account: opened by a SEBI registered
intermediary for the purpose of stock
lending and borrowing
Clearing member A/c and The securities in these accounts are
the intermediary A/c are held for a commercial purpose only
transitory accounts

48
BENEFICIAL OWNER ACCOUNT
 A beneficiary account can be in the name of:
 Individual
 Corporate
 Hindu Undivided Family (HUF)
 Minor
 Bank
 Financial institution
 Registered (incorporated) trust, etc.
 Broker (for the purpose of his personal investments in

demat form)

49
DOCUMENTS FOR VERIFICATION:
 Establish KYC norms for the intending BO
 Proof of Identity For all holders
 Proof of Address
 Correspondence & Permanent address for first

holder
 Only permanent address for joint holders
 PAN Card Details For All Holders

 (Exemption for Sikkim Resident & UN entities/
Multilateral Agencies)
 PAN card details mandatory for all categories of accounts

50
BENEFITS/CHOICES TO INVESTORS:
 Can select the DP based on the investors
convenience, comfort, service levels, safety,
reputation, charges etc
 No requirement of minimum balance
 Can close an account anytime with one DP and open

another one with any other DP

51
CLIENT-PARTICIPANT AGREEMENT
(DP-BO AGREEMENT)
 Enter into an agreement (which is a standard
agreement approved by SEBI) with the client
 Value of stamp paper varies with place of
registration
 Agreement should be signed before opening the
Demat A/c, and a copy of the duly executed
agreement has to be given to the client

52
PROCEDURE
 Different application form needs to be filled for each kind of
accounts.
 Separate forms are prescribed for
 Individuals (including karta of the HUF) and
 Corporate clients/clearing member accounts.
For NRI accounts, proof is required for both addresses
the account holder as well as the constituted attorney
 Demat A/c of an HUF can be opened only in the name of its
Karta
In CDSL, HUF demat A/c can be opened in the name of
–
• Existing Karta
• HUF entity
53
Procedure
 Verify copies of all the documents against originals
 DP officials to sign copies of the documents under a stamp ‘ Verified
against original’ and “Pan Verified” on copy of a Pan Card.
 “ In-person Verification” to be carried out for
 Individuals, NRI and Foreign Nationals.
 For NRI/FN if ‘In-Person Verification’ is not possible,
Photocopies of the Documents should be certified by any of the following
authorities in the country where the NRI / FN is residing:
 The Indian Embassy / Consulate General
 Any court / Judge / Magistrate
 Notary Public
 Local Banker

54
ADDITIONAL INFORMATION
 No joint holders in HUF / Minor Accounts
 A minor may open a demat A/c only through his
guardian
 One time standing instruction for credits
 For Registered Trust account in the name of the trust
 For Unregistered Trust account in the name of the
trustees
 Account can not be opened in the name of partnership
& Proprietary firm

55
ADDITIONAL INFORMATION
• Power of attorney holder or BO anybody can sign DIS
 DPs are not authorised to merge the securities kept under various
accounts of the clients
 Death of joint holder – Survivor / Nominee.
 Account opening form should be signed by:

 Sole holder, in case of single holding;
 All joint holders, in case of joint holding;
 authorised signatories, in the case of corporate accounts;
 Guardian, in case of a minor;
 NRI, in case of NRI accounts.
(operated under signature of A/c holder(s) or a Power of Attorney
Holder)
56
CLIENT ACCOUNT NUMBER
 In CDSL,
1 2 0 4 8 1 0 0 0 00 0 0 0 5 4
DPID Client ID
 In NSDL,
I N3 0 0 1 0 0 1 00 0 5 6 7 8
DPID Client ID

57
CLEARING MEMBER ACCOUNT
 All pay-in and pay-out transactions are carried out
through CM A/c
 The account be used for clearing and settlement
purposes and not for any other purpose, e.g., holding of
securities
Types of clearing members:

 All the members of a stock exchange are clearing
members; and
 Custodians who have been permitted by the stock
exchange to act as a clearing member

58
PROCEDURE
 In CDSL –
 16 digit ID similar to the BO ID
 Similar to process to opening A beneficiary account
 In NSDL –
 CM register itself with the clearing corporation and
obtain a CC-CM-ID (clearing corporation clearing member
identification number)
 Before Opening a CM A/c, DP should send A/c Opening
form to the depository
 Depository then allots the CM-BP-ID. Based on that, the
account gets activated
59
CLOSURE OF ACCOUNT
 DP can close a account, after receiving the A/c Closure
form (in prescribed format) sign by a/c holder or by all the
joint holders
 An account can be closed only when there is no balance
in the account
 If balance available in demat A/c,

 Rematerialisation of all securities
 Transferring the balance to the credit of another

account

60
CLOSURE OF ACCOUNT
 If pending demat in demat A/c:
BO Should:
 write a letter to the Issuer
(with a copy marked to its Participant and respective

RTA), requesting for rejection of the pending
dematerialisation request(s) and send fresh physical
security certificate(s) to the Client directly
 enclose a copy of the dematerialisation request
generated from DP system, duly signed & stamped by the
Participant, along with the letter to the Issuer
 Closure by DP – 30 days notice required (In CDSL)

61
FREEZING OF ACCOUNTS
 Freeze can be initiated by:
 BO
 Written freeze Request from BO
 DP & Depository
 Notice/Order from Statutory Body
 Lien on securities with after CDSL approval
• Freeze can be for Debits, Credits or both

62
CHANGES IN CLIENT DETAILS
Account Modification Form along with proper documentation:
x Father's/Husband's Name (after marriage)

x Standing instruction facility (Automatic credit Yes/No)
x Address / Tel no. / Mobile no.
x Occupation Details
x Nominee Details (duly filled Nomination form signed by all
holders)
x Bank Details
x PAN Details
Account status / Account Holder’s name can not be
changed

63
CHANGE OF ADDRESS FOR INDIVIDUAL
CLIENTS The details of documents required and procedure to be followed for
change of address of client in CDSL and NSDL is given below:
CDSL NSDL
Request Letter for change of address A written application for change of address duly
/ account modification form duly signed by all the account holders.
signed by all the account holders.
Proof of new address along with the Proof of new address along with the original
original documents for verification documents for verification
Not applicable Proof of identity

Not applicable Latest transaction statement of the account received
from the Participant
Not applicable The Client has to personally visit the DP’s office and
submit the application for change of address or
submit the documents through an authorised
representative, whose identity the DP must verify.
Not applicable The Client or its authorised representative should

sign the application once again in the presence of
the officials of the DP. 64
 VERIFICATION OF DOCUMENTS
× Document verification by DP official by putting “verified
with original” stamp and sign under stamp.
× Modification in the system.
× Send letter to old as well as new address of the BO
× If BO personally visit DP’s office with documents, the DP
need not obtain the transaction statement from that
Client
65
CHANGE OF NAME IN CORPORATE ACCOUNTS
The facility for change of name in corporate A/c is available for Client type’s viz.,
Body Corporate, Bank, Financial Institution (FI), Foreign Institutional Investors
(FII), Mutual Fund (MF) and Trust.
(i) In case the entity is registered under the Companies Act 1956, the following
documents should be obtained from the Client:
a. Letter requesting for change of name signed by the authorized signatories.
b. Certified true copy of fresh certificate of incorporation consequent upon
change of name issued by the Registrar of Companies.
c. Certified true copy of Board Resolution where the change in name was
approved
d. List of authorized signatories along with the specimen signature duly
verified by MD/Co. Secretary.

66
CHANGE OF NAME IN CORPORATE ACCOUNTS
(ii) In case of other corporate entities:
The following documents should be obtained from the Client:
a. Letter requesting for change of name signed by the
authorized signatories.
b. Certified true copy of Board Resolution for change of name.
c. Certificate of registration issued by SEBI / relevant Statutory
Authorities, as applicable.
Request letter & documents to be

CDSL
forwarded to CDSL for necessary changes
DP obtained the required documents and

NSDL
modifies the client details

67
CHANGE OF SIGNATURE
 A written request / modification form duly signed by all
holders specifying reasons for change in signature.
 The client should personally visit the DP’s office with a valid
proof of identity and affix his/her new signature in the
presence of the DP official. If the client cannot come in
person, the request in writing should contain the old and
the new signature and the same should be attested by the
BO’s banker.
 DP official shall verify the details and make necessary

changes in the system.
Chapter 4 Complete
(First Tea Break)
68
Recap Questions
1. Client-Participant agreement is a standard

agreement approved by
(a) SEBI
(b) RBI
(c) DCA
(d) Depositories

Recap Questions
2. Only a guardian can open a depository account

for a minor.
(a) True
(b) False

Recap Questions
3. In the event of the death of a joint holder, the

balance lying in the account can be transmitted,
on request of the surviving holders, to a new
account to be opened by the surviving holders
(a) True
(b) False

Recap Questions
4. The following client details can be changed even

after opening the demat account except
for________.
(a) Pan Number
(b) Nominee Details
(c) Account Holders Name
(d) Bank Details

NOMINATION
The Companies (Amendment) Act, 1999 has introduced provisions for
nomination in respect of shares, debentures, fixed deposits, etc.
 In case of death of the sole holder / all the joint holders, securities
lying in the demat account of the deceased BO will be transferred to
the nominee.
 Nomination facility can be availed at the time of opening the
depository account itself or subsequently also by filing up Nomination
form as prescribed by the depository.
 Only individuals (resident/non-resident) can nominate and can be a
nominee. Non-individuals including society, trust, body corporate,
karta of HUF, etc. cannot nominate and also cannot be appointed as
nominee.
 A minor can nominate through a guardian. A minor can also be
appointed as a nominee represented by a guardian.

73
TRANSMISSION
Transmission means transfer of ownership of shares to the
surviving holders / nominee in case of death of the sole
holder / one of the joint holders.
Transmission in Physical Form
Hind Lever
Relevant
documents + Colgate
certificates
Surviving Reliance
holders /
Nominee

74
In the Depository System
Transmission form +
supporting
documents
Surviving
holders /
Nominee DP

75
TRANSMISSION OF SECURITIES WITHOUT NOMINATION
 The legal heir(s) or legal representative(s) of the deceased

A/c holder have to make a request, in the prescribed form
along with supporting documents given below to the DP for
transmitting the balances lying in the A/c of the deceased
to their account:
 Original or a copy of the death certificate, duly
notarized/ attested by a gazette officer ; and
 A Succession Certificate,
 A Letter of Administration, Any One
 A Probate of the will of the deceased.

76
TRANSMISSION OF SECURITIES WITHOUT NOMINATION
If the Successors express their inability to produce either of these documents
and the market value of the securities held in each of the accounts of the
deceased BO as on the date of application for Transmission does not exceed
Rs. 1,00,000/-, the DP shall process the Transmission request on the basis of
the following documents:
 Transmission request in prescribed format
 Original or a copy of the death certificate, duly notarized/ attested by a
gazette officer; and any one of the following documents:
a. Letter of Indemnity made on appropriate non judicial stamp paper;
b. An Affidavit made on appropriate non judicial stamp paper;
c. No objection Certificate(s) or a copy of Family Settlement Deed
 Check validity of the documents
 After effecting transmission, close the account

77
TRANSMISSION OF SECURITIES (HUF)
 In the event of death of the Karta of a Hindu Undivided Family
(HUF), the surviving member(s) of the HUF may appoint
another person as the new Karta of the HUF.
 For transmission of securities from the account of the

deceased Karta to the account of the new Karta, the surviving
members through the new Karta shall make application to the
Depository Participant along with the following documents:
i) True Copy of the death certificate of the Karta, duly certified
by a notary public;
ii) An appropriate order by a competent court,(not a
requirement in CDSL)

78
TRANSMISSION OF SECURITIES (HUF)
 DP official shall verify the details and make necessary
changes in the system
 After effecting transmission, close the account
 In CDSL, the account need not be closed. The new karta
shall submit:
a. the new list of members
b. no objection from the surviving members of the HUF

for him to act as a karta of the HUF.
 The new karta shall record change in signature to
operate the account.

79
SUMMARY
 Single account with nomination – to Nominee
 Single account without nomination – to Legal Heir(s) or

Legal representative(s) of the deceased BO
 Joint account – to Surviving Holders
 HUF account – to the New Karta of HUF
Chapter 5 Complete

Recap Questions
1. Nomination of shares is a provision under which

act?
(a) Companies (Amendment) Act 1999
(b) SEBI Act
(c) Depositories Act 1996
(d) SCRA 1956

Recap Questions
2. Can nomination be made by individuals for

Beneficiary accounts held jointly or singly?
(a) Yes
(b) No

Recap Questions
3. What kind of account is required by a nominee

to give effect to the transmission of shares?
(a) Savings Account
(b) Demat Account
(c) Salary Account
(d) Current Account

Recap Questions
4. For transmission of securities to the account of

the new Karta from the account of the deceased
Karta, the surviving members through the new
Karta shall make a joint application to the DP.
(a) True
(b) False

FUNCTIONS OF DP-DEMAT
As per the SEBI Guidelines:-
xDemat Process-Process of converting physical certificates

into electronic form.
x Remat Process-Process of converting electronic holding

into physical holding

85
INTERNATIONAL SECURITY IDENTIFICATION NUMBER(ISIN)
A 12 digit unique alphanumeric code given to a security

when it is admitted in a depository
I N E 4 7 5 C 0 1 0 1 2
Pre-fix (IN - India) 2 -Check digit

Basic number (9 alphanumeric characters)
•E – Co. Type ( May be E, F, A, B or 9 : E –Company, F -Mutual fund unit, A -Central
Govt. Security, B -State Govt. Security , 9 -Equity shares with rights different from
equity shares bearing INE No. )
•475C –Co. serial no.
•01 -equity (can be mutual fund units, debt or Govt. sec.);
•01 -issue number
86
DEMATERIALISATION
Process of converting physical certificates into electronic
form.
PHYSICAL ELECTRONIC
CERTIFICATE FORM

87
Procedure for Demat
3. Checks DRF
4. In order ;
Certificate & DRF
DP ISSUER
/RTA
2. DRF & 1.DRF
Certificate
4. Not in order : BO
DRF & Certificate
88
DRF valid, complete and correct
Certificate are attached

Defaced ;“Surrendered for
Dematerialization” & With DP
Name & BO ID
Mutilated;two holes at top
Name of Bo is same
Details ; “SURRENDERED FOR DEMATERIALIZATION”
DP NAME :ABC CO. LTD
Security type, Paid up value, BO ID 1200000000000001
Pari – passu status, Certificate
no, Distinctive no, Total cert. ,
Quantity, Lock in status
89
DRF valid, complete and correct
 Separate DRFs for:
-Free & locked-in securities;
-Each ISIN;
-Securities locked-in for
different reasons;
-Securities of diff paid-up
value; & “Surrendered for Dematerialization” with
ABC DP & BO ID 1200000000000001
-For each client a/c.
•Signature all holders
•Signature with DP
90
•Signature with
HR – L & D Team , HDFC Bank RTA Internal
Dematerialisation
Verifies DRF + CERT.
•Match details of DRN
Enters in system • Confirm/reject- 15days
(maker-checker)
2. Cert; Deface & Mutilate ISSUER

DP • DRF with DRN
• Within 7 days
/RTA
monthly
transaction
statement
DEPOSITORY
BO Informs DRF in order
DP system automatically
• authorizes to create
HR – L & D Team , HDFC Bank credits the client's a/cs
Internal
91
the appropriate cr.
Procedure for Dematerialisation
Verifies DRF + CERT.
•Match details of DRN
Enters in system • Confirm/reject-15days
(maker-checker),
2. Cert; Deface & Mutilate

DP • DRF with DRN
• Within 7 days
ISSUER /RTA
• Reject request &
• DRF & cert
Informs + Cert +
obtain acknowledgement
•Reason of objections
•Remove Within 15 days
BO 92
•Objection
HR – L & D Team , HDFC Bank
memo-NSDL Internal
Transposition cum Demat
 Change order of names + Demat.
 Depositories amended Bye-Laws
 DRF + Certificate + Transposition form
 Prior clients to opened a/cs for each sequence OR
 Effect transposition directly with Issuer/RTA & demat
through DPs
Transmission and Demat
 Death of one /more joint holders
 DRF+ Share Certificate + Transmission form + Original OR
copy of death certificate duly notarized/attested by a
Gazetted Officer

93
Remat Process
3. Checks RRF
DP
2.Completed 4 Acknowledgement
1.RRF
RRF
4. To rectify : RRF
BO
•Owner of securities should make the request
•Sufficient free /lock-in balance available in a/c to honour remat request
94
Enters in system,
Remat Process
RRN No. in RRF
Verify Details • Verifies RRF .
Authorise RRF •Match details of RRN
ISSUER
DP 2. RRF
• Within 7 days /RTA
RRF in
Informs client's
order-
BO Issue
Cert. (with
RRF not in order: in 30 days)
•Objection memo
• With/Without RRF
95
HR – L & D Team , HDFC Bank Internal Chapter 6 Complete
Recap Questions
1. Only those securities whose____________has

been activated by the depository, can be
dematerialised in the depository system
(a) ISIN
(b) WAP
(c) IIP

Recap Questions
2. Who can make a request for the demat of the

security?
(a) Company
(b) Registered holder of the security
(c) Depository
(d) Depository Participant

Recap Questions
3. It is possible for investors to transpose names of

the joint holders alongwith the process of
dematerialisation through their DPs
(a) False
(b) True

Recap Questions
4. Within how many days of request for remat of

securities should the client receive the physical
securities
(a) 45 days
(b) 30 days
(c) 7 days
(d) 15 days

TRADING & SETTLEMENT PROCESS
Transfer of Securities form one demat account to another
a) Execution of Off Market transaction
b) Execution of Trade Executed on a Stock Exchange

platform

100
EXECUTION OF OFF MARKET TRANSACTION
 A beneficiary account can be debited only if the
beneficial owner has given 'Delivery Instruction Slip' (DIS)
in the prescribed format
 Any trade that is cleared and settled without the
participation of a clearing member or clearing
corporation is called off-market trade:
a) Transfer from one beneficiary account to another due
to a trade between them
b) Trades among private parties
c) Transfer of securities between a client and a sub-broker

101
 The transferor will submit a DIS with 'off-market

trade' ticked off to initiate an off-market debit
 The account holder is required to specify the
date on which instruction should be executed by
mentioning the execution date on the instruction
 The instruction will be executed on the execution
date

102
 If adequate balances do not exist in the account,

then instruction will wait for adequate balances
till the end of the execution day
 The account will be debited immediately on
receipt of adequate balances in the account
 If adequate balances are not received till the end
of the day of the execution date, the instruction
will fail

103
 Transferee will receive securities into the account
automatically if SI were given to the DP at the
time of account opening
 If SI is not given, transferee has to submit duly
filled in 'Receipt-Instruction' (RI) form for every
expected receipt
 Exchange of money for the off-market
transactions are handled outside the depository
system

104
EXECUTION OF TRADE EXECUTED ON A
STOCK EXCHANGE PLATFORM
 A market trade is one that is settled through
the participation of a Clearing Corporation/
Clearing House (CC/CH)
 Once the trade is executed by the broker on the
stock exchange, the seller either gives a delivery
instruction to his DP to transfer securities to his
broker's account or on behalf of his broker gives
an on market or early pay-in delivery
instruction to his DP
105
EXECUTION OF TRADE EXECUTED ON
A STOCK EXCHANGE PLATFORM
 The broker has to ensure that the pay-in
instruction [on market or early pay-in] is
entered from his CM account and / or
sufficient balance is there in his CM account /
respective settlement pocket before the
deadline prescribed by the stock exchange

106
 The CC/CH gives pay-out and securities are
transferred to the buying broker's account
 The broker then gives delivery instructions to his DP
to transfer securities to the buyer's account
 If a broker gives pay-out breakup of his clients to
CC/CH then pay-out securities are directly credited in
the clients account by the CC/CH.
107
 Transfer of securities towards settlement of
transactions done on a stock exchange is called
settlement of market transaction.
 This type of settlement is done by transferring
securities from a beneficiary account to a clearing
member account.
 Brokers of stock exchanges that offer settlement of
trade through depository, are required to open a
‘Clearing Member account'.

108
 In addition to the brokers, custodians registered
with SEBI and approved by stock exchanges can
open a clearing member account. These
accounts are popularly known as 'Broker
settlement account'.
 A client who has sold shares will deliver
securities into the settlement account of the
broker through whom securities were sold.

109
IMPORTANT TERMS RELATED TO
TRANSACTION ON A STOCK EXCHANGE
A) Market Type :
Stock exchanges offer different market segments in which trades
can be done. The segmentation is done by the type of settlement
or type of trade. Each of the segments is denoted as 'market type'
in the depository system.
The DI slip should contain the name of the stock exchange,

market type and settlement number for which securities are
being transferred to the clearing member accounts. The contract
note/trade confirmation slip given by the broker/ sub-broker will
indicate the settlement details.

110
B) Settlement Number
Trading periods of each of the market segments is identified
by a settlement number. Every settlement number has a trade
beginning day, trade-ending day, settlement pay-in day and
settlement pay-out day etc. Stock exchanges divide a period of
one year [BSE - financial year or NSE - calendar year].
Settlement No in BSE - 1112001
Settlement No in NSE - 2012001
The DIS contain the settlement number for which the
securities are being transferred to the clearing member
account.

111
C) Clearing Member
 Every broker in a stock exchange participating in settlement process through
depository [CDSL] is required to open aforesaid 'clearing member accounts'.
 These are identified with BOIDs and called as 'CM accounts'.
 If a broker deals in more than one stock exchange, he is required to have a
separate set of CM accounts per stock exchange.
 The DIS contain the BOID of a CM account relevant to the stock exchange in
which the trade was done.
 Securities can be transferred from one broker A/c. to another broker A/c.

112
D) Delivery Deadline
In order to ensure that clients give securities in time to the clearing member,
SEBI has prescribed deadline time by which clients have to give securities to
clearing members. SEBI has advised DPs to instruct their clients to submit the
settlement instructions on T+1 (in physical form upto 4 p.m. and 6p.m. in case of
Electronic instructions) for pay-in of securities.
For example, pay-in for trades executed on 'Monday' will be on

Wednesday. Hence, clients will have to submit instructions to their
Participants (upto 4 p.m. in case of physical and upto 6 p.m. in case of electronic
instructions) on Tuesday.

113
STEPS IN PAY-IN
The process of a broker/trading member submitting
securities towards the securities sold by him on
behalf of his client, to CC/CH of a stock exchange is
called 'pay-in'. All CM's are expected to complete
the pay-in before the deadline time prescribed by
the stock exchange
The clients of the brokers who have sold securities will

move the securities to the broker settlement
account before the deadline time.

114
STEPS IN 'PAY-IN' :
 Securities that are made available for pay-in by seller
clients [on behalf of CMs] and clearing members through
various settlement related instructions before the deadline
time given by the stock exchange would be informed to
CC/CH in a pay-in file. If the seller client or CM is unable to
deliver the securities within a pay-in deadline time, the
short deliveries are auctioned and are purchased by the
CC/CH in an open auction and the difference in price is
borne from the defaulter CM

115
STEPS IN 'PAY-OUT':
 The process of a CC/CH transferring the securities to the broker's
settlement-account for the quantity of securities purchased by
them on behalf of their clients is known as 'pay-out'. Payout time is
also pre-determined by the settlement calendar.
 The following steps are carried out by CC/CH in pay-out:
a) The CC/CH credits the buying CM account immediately on pay-
out.
b) The CM/broker will transfer securities from his CM Settlement
account to the accounts of the buyer.
c) If a broker gives pay-out breakup of his clients to CC/CH then
pay-out securities are directly credited in the clients account by the
CC/CH.

116
TRACKING OF SECURITIES RECEIVED
FOR PAY-IN
 A CM is required to track the securities, which it has
received for pay-in. A CM can obtain such information
from the following sources:
(1) Its clients: CM may contact selling clients to inquire
whether they have delivered securities.
(2) Its DP: CM may contact its DP to find out the deliveries
received into its CM settlement account.
(3) Internet -using facilities provided by the depositories
such as SPEED of NSDL and easi and easiest of CDSL

117
AUTOMATIC DELIVERY-OUT
(1) The CC/CH generate auto delivery obligations (Dos)
on behalf of those CMs who have opted for the said
facility. Such CMs will not be required to give
delivery-out instruction forms to the Participants for
Pay-in to the CC. The Clearing Members can know
the Auto DOs either by way of downloads from the
Clearing Corporation or through the Auto DO Report
from the Participants or from facility on Internet
provided by the depositories.

118
AUTOMATIC DELIVERY-OUT
(2) Auto DOs will not be generated in the following
cases and the Clearing Members will have to give
Delivery-out Instruction forms to their Participants as
usual:
a. Non Pari-Passu shares or multiple ISINs
b. Irreversible Delivery-out (IDO)
c. Shifting of CM Settlement Account
(3) Participants can get a separate report from the DP

system for Auto DOs , BO confirmation instructions
and early pay-in instructions.

119
INTER SETTLEMENT TRANSFERS:
 In CM A/c, the securities are always kept in a bucket
of specific market type and settlement number.
 The CM may have to move securities from one bucket
with a different market type-settlement number
combination to another bucket from where pay-in is
to be effected.
 To effect this movement, instruction to move
securities from one settlement to another
settlement within a same CM A/c is called 'inter-
settlement' transfer.
120
INTER-DEPOSITORY TRANSFER
 Transfer of securities from an account in one
depository to an account in another depository is
termed as an inter-depository transfer.
 As per SEBI (Depositories and Participants)
Regulations, 1996, both the depositories must be
inter-connected to enable inter-depository transfers
 The account in the depository can be either a
clearing account or a beneficiary account
 For debiting the clearing account or the beneficiary
account with one depository, the form for "Inter-
depository delivery instruction" is required to be
submitted by the clearing member/beneficial owner
to its DP
121
INTER-DEPOSITORY TRANSFER
 Inter-Depository Transfer instructions for the day are

exchanged online between the two depositories
 The deadline time for DPs to verify & release Inter
Depository Transfer delivery/ receipt instructions is 8
p.m. on weekdays and 2.30 p.m. on Saturdays
Chapter 7 Complete
Lunch Break
122
Recap Questions
1. Transfer due to a transaction done on a person

to person basis is called ___________
transaction.
(a) Off Market
(b) Market
(c) Sub-Market
(d) Intra-Market

Recap Questions
2. State whether the given statement is true or

false: “If adequate balances do not exist in the
account, then delivery instruction will wait for
adequate balances till the end of the execution
day”.
(a) True
(b) False

Recap Questions
3. If a broker gives ________ of his clients to
Clearing Corporation /Clearing House, then pay-
out securities are directly credited in the clients
account by the Clearing Corporation /Clearing
House.
(a) Names and PAN Nos
(b) Pay-out breakup
(c) Identities
(d) PAN nos and DP ids
Recap Questions
4. Who is required to give the Inter-settlement

Instructions to the Participants for securities
lying within a same CM account but in different
settlement a pocket.
(a) Exchange
(b) Clearing House
(c) Depository
(d) Clearing Member
PLEDGE & HYPOTHECATION
 Pledge – Lender (Pledgee) can appropriate shares to his own
account without consensus of the Buyer (Pledgor)
 Hypothecation - Lender (Pledgee) needs consensus of the Buyer
(Pledgor) for appropriating shares to his account
 Permitted under section 12 of the Depositories Act
 Free as well as Lock in Balances can be pledged
 Pledgor & Pledgee have to maintain demat A/cs with same or
different DPs of the same depository
 In case of default – Pledgee may invoke the Pledge after taking
the necessary steps under terms of the agreement, depository
bye-laws and SEBI Rules and Regulation

127
CREATION OF PLEDGE / HYPOTHECATION
 BO may contract loan on his securities by borrowing from
bank or any other party.
 Any number of pledge transactions between same parties
are permitted.
 Multiple Pledge Instructions can be carried under single
agreement
 Entering Agreement Number – Optional in CDSL
 All corporate benefits - cash and non-cash - like dividends,
bonus, rights etc., will accrue to the Pledgor (Borrower)
until the pledge is invoked
128
Pledge Process Flow
7. Securities Blocked in
Pledgor BO’s account
CDSL
3. Request setup 6. Request Accepted
Pledgor DP Pledgee DP
2. PRF
5. PRF
4. Copy of the PRF

Pledgor BO Pledgee BO
1. Agreement
129
UNPLEDGE (CLOSURE)
 Pledgor can request for unpledging after the
performance of the underlying agreement
 Securities are debited from the pledged balances and
credited to free/locked-in balances in the Pledgor’s
account
 On Rejection in the CDSL System - Pledgee DP can enter
the reason for same in a remark field
 In CDSL system, Pledge closure is referred as Unpledge

130
REASONS FOR REJECTION (NOT IN CDSL)
 Un-pledge / Closure date not accepted
 Pledged quantity not accepted
 ISIN not accepted
 Security details not accepted
 Market value of pledged ISINs insufficient
 ISIN delisted from trading
 POA not received from all holders
 Holders not acceptable to the pledgee
 Agreement number differs from that on the agreement
 Others

131
Unpledge Process Flow
6. Securities Released in
Pledgor BO’s account
CDSL
2. Request setup 5. Request Accepted
Pledgor DP Pledgee DP
1. URF
4. URF
3. Copy of the URF

Pledgor BO Pledgee BO
132
UNILATERAL UNPLEDGE (CLOSURE) OF
PLEDGE
 Unilateral Closure (Unpledge) – Pledgee initiates the
unilateral closure of pledge / hypothecation
 Pledgee’s DP forward’s the request to the depository
after which securities are unpledged
 Securities are moved from ‘Pledged Balances’ to ‘free
/ locked’ in balances of the Pledgor’s account
 This facility is Provided by both depositories.
 Confirmation / Rejection is not required to be taken
by the Pledgor and/or Pledgor's DP

133
Unilateral Unpledge Process Flow
3. Securities Released in CDSL

Pledgor BO’s account 2. Request Accepted
Pledgee DP
1. URF
Pledgee BO
134
INVOCATION OF PLEDGE
 Pledgee invokes the pledge – When Pledgor fails to
discharge his obligations under the agreement of pledge or
for any other reason
 Only after Invocation – Pledgee claims the beneficial
ownership of the concerned securities without the Pledgor’s
consent
 No confirmation is required in DP system of the Pledgor's
DP for transferring such securities
 For lock-in securities, then invocation request cannot be
setup till the lock-in period is over

135
Invocation Process Flow
CDSL
2. Request Setup
Pledgee DP
1.IRF
Pledgor BO 3. Balance Movement

Pledgee BO
136
INVOCATION OF HYPOTHECATION
(NOT APPLICABLE IN CDSL)
 Pledgee invokes the hypothecation – When Borrower fails to
discharge his obligations under the agreement or for any other
reason
 Lender submits a request in the prescribed form to his DP for
invoking the hypothecation
 Lender’s DP verifies the form for its completeness and validity
 On receiving the instructions from the borrower, the borrower’s
DP executes the order for accepting/rejecting the invocation
request as per the instructions given in the form
 DP enters the reason for rejection in DP system as specified in the
form by the borrower

137
INVOCATION OF HYPOTHECATION
(NOT APPLICABLE IN CDSL)
 Acceptance/rejection of invocation confirmation is
communicated to DP system of the lender's DP
 If Rejected- Securities remain in the Pledgor’s

account under ‘Pledged Balance’
 Locked-in securities cannot be invoked before the

lock-in release date

138
SUBSTITUTION OF SECURITIES OFFERED IN
PLEDGE (NOT APPLICABLE IN CDSL)
 Pledgor (Borrower) can substitute the securities offered in

a pledge transaction, if the Pledgee (Lender) agrees to it
 Procedure involves closure of earlier Pledge and creation

of a new Pledge
 Similar facility is available for securities hypothecated

139
POINTS TO REMEMBER
 Instruction forms should be submitted in duplicate
 DPs should check whether there is balance in Pledgor's
account to effect the creation of pledge/hypothecation
 Pledgor DP and Pledgee DP shall create at least two users to
implement the Maker- Checker feature
 Ensure all mandatory fields in the instruction forms are
entered
 Confirmation of pledge request is given before the closure
date mentioned in the instruction forms
 DP shall maintain copies of all Instruction Forms (IRF) for a
minimum period of 10 years or any such period informed by
SEBI / CDSL from time to time
Chapter 8 Complete
140
Recap Questions
1. If the lender needs concurrence of the borrower

for appropriating securities to his account, the
transaction is called ____________?
(a) Pledge
(b) Hypothecation
(c) Either of the above

Recap Questions
2. State whether the given statement is true or

false: “For pledging and hypothecation of
securities, the pledgee and the pledgor can have
their account with DPs under the different
depository”.
(a) True
(b) False

Recap Questions
3. When do we call that a Pledge transaction is

completed?
(a) When SEBI approves the proposal
(b) When the depository gives its nod
(c) When the confirmation advice is entered in the
DP system

Recap Questions
4. From who does the DP receives the pledge

closure request?
(a) Pledgor
(b) Depository
(c) Pledgee

9. CORPORATE ACTIONS
 Two Types:
 Cash corporate actions: Dividend, Interest etc
- Depository provides information to Issuer

 Non-cash corporate actions: Bonus Issues, Right
Issues, Conversion of Securities, etc
- Facilitate the distribution of non-cash
corporate benefits

145
RECORD DATE AND BOOK CLOSURE
 Issuer determines the eligible BOs of a particular date
who are eligible to receive corporate benefits on a
“Record Date”
 Depository system provides list of BOs having holdings
in the ISIN of the issuer as of EOD of Record Date
 Issuer setup a corporate action specifying Book closure
start and end date
 Depository system generates a list of BOs having holdings at
EOD one day prior to book closure start date

146
PROCEDURE FOR CORPORATE ACTIONS
Depository DPs update
Issuer / its RTA
Announcement of System makes changes in
informs
Record Date info. Of CA the BO/s
Depository
available to DPs details
RTAs distribute Depository

DPs Clear all
the corporate provides
balances of
benefits to the Details (tax status,
the ISIN from
BOs as well as bank details) of
settlement
CMs / CCs who the holdings of the
accounts and
hold the ISINs in beneficial owners
intermediary
trust of behalf of to the Issuer / its
accounts
the actual BOs RTA on the cut off
date

147
MONETARY BENEFITS
 SEBI Circular No. DCC/FITTCIR-3/2001 - Companies
should mandatorily use ECS facility for distribution of
dividends and other cash benefits like dividend,
interest and other monetary benefits
 Where ECS facility in unavailable - companies issue

warrants for distribution of dividends
 Companies should mandatorily print the

bank account details furnished by the
Depositories on the payment instruments

148
NON-MONETARY BENEFITS
 Issuer / its RTA informs the eligible beneficial owners about
Corporate Action Benefits
 If Benefits are in form of securities – Shareholders have the option
to receive them physically or electronically
 Shareholders having ISINs in physical form may opt for receiving
them in dematerialised form and vice-versa
 If Shareholders do not indicate any choice – Securities are issued
in the form in which they are present on the record date
 Issuer / its RTA allot the securities and inform the depositories
about allotment details of all beneficial owners
 Depository makes the credit entries in the accounts of the
beneficial owners on the execution date

149
NON-MONETARY BENEFITS
 Records where there is a mismatch in the details of
A/cs to which shares are allotted by the RTA and the
A/cs maintained with the depository are rejected.
 Issuer / its RTA rectify such records or the Allotment

has to be made in the Physical form
 Corporate Action Credits are reflected in statement of

transactions sent by the DP to the beneficial owners

150
MERGER / AMALGAMATION /
CAPITAL REDUCTION / SUB DIVISION
Shares held in demat accounts under old ISIN are

automatically debited and proportionate number of
new shares are credited in the new ISIN

151
RIGHTS OF LENDER (UNDER STOCK LENDING
SCHEME) (NOT APPLICABLE IN CDSL)
 Lender of securities is entitled for all CAs
 Procedure for distribution depends on the status of
securities lent as of the cut-off date
- securities are in the intermediary account
or transferred to borrower's account
 If Securities are in the intermediary account:
- Intermediary may return the securities to the lender
OR
- Transfer the securities to its Beneficiary Account and
receive the benefit from the Issuer / its R&T
 Intermediary also executes a proxy form in favour of the
lender to enable him to exercise his voting rights

152
RIGHTS OF LENDER
In case the securities have been lent and transferred to
the borrower's beneficiary account:
 Benefits of such securities would be paid by the Issuer/its
R&T Agent to the borrower or to the person who has
bought securities from the borrower
 Intermediary will collect the value of lender's entitlement
to the corporate benefits from the borrower and pay the
same to the lender
In the second case, the lender is not entitled to the
voting rights in respect of the securities lent by him

153
RIGHTS OF PLEDGOR / HYPOTHECATOR
 Pledgor / Borrower is the owner of the securities till
their invocation
 All corporate benefits (cash and non-cash) will
accrue to the Pledgor / Borrower
 Dividends will be given to the Pledgor / Borrower
 Non Cash Corporate actions like bonus, share splits
or consolidation or exchange under a
merger/acquisition scheme are credited to the
account of the Pledgor with pledge marked in favour
of the Pledgee

154
PAYMENT OF INTEREST ON DEBT SECURITIES
 Investors in debt securities will receive interest from

the Issuers / its R&T Agents
 For government securities - depository distributes

the interest to eligible clients
- After RBI has credited interest amount to the
depositories account
Chapter 9 Complete
155
Recap Questions
1. Which of the following is a "Cash Corporate

Actions"?
(a) Corporate Benefits
(b) Dividend
(c) Rights
(d) Bonus

Recap Questions
2. "Non-cash corporate actions" involves which of

the following?
(a) All benefits other than monetary benefits
(b) Monetary Benefits
(c) Both monetary as well as non-monetary
benefits

Recap Questions
3. Record Date for a Corporate Action is announced

by:
(a) Exchanges
(b) Issuers
(c) Depository
(d) Shareholders

Recap Questions
4. During distribution of dividends, companies

should mandatorily print the bank account
details furnished by the Depositories on the
payment instruments.
(a) True
(b) False

PUBLIC ISSUES
 Primary Market - raising funds from investors through
sale of new securities
 Issuers issue new securities in the primary market to
raise funds for investment and/or to discharge some
obligation
 Issuers of Securities:
- New company
- New company promoted by an existing company
- Existing public listed company
- Existing public unlisted company

160
PUBLIC ISSUES
 Issue of securities in the primary market can be done through
public issues (initial public offer or follow on public offer) or
private placement
 Companies Act, 1956 (section 68B) : every listed public
company, making an initial offer of any security of Rs. 10 crore
and above has to issue it only in dematerialised form in
accordance with Depositories Act, 1996
 To encourage issue of securities in demat form, SEBI has issued
guidelines for public issues.
 Issuer shall be required to enter into agreement with all the
Depositories before coming out with a public offer.
161
PUBLIC ISSUE
 Investor can subscribe to the issue in physical or electronic
form
 To receive Securities electronically, investor must open a
demat account through any DP of any depository
 Investors should furnish their demat account number along with
the following information in the Application Form:
- Depository Name
- DP's Name
- DP-ID
- Beneficiary Account Number (BO ID)
 No charges for the allotment process

162
2. BO Id for verification
3. Verification Report
ISSUER / RTA DEPOSITORY
4. Details of Allotments to BOs
5. Credit of Securities
6. Issuers send Intimation of Allotment
BENEFICIAL
OWNER
163
HR – L & D Team , HDFC Bank 1. Application for Internal
Allotment
PUBLIC ISSUE FACILITY
 Depository communicates the Public Offer Control
Instruction to all the DPs which reflects the Issuer
name, open date, closure date, etc
 Depository allots a unique identification number
 DPs capture the details of the application forms in DP
system
 DP system will allow the DP to verify and release the
instructions only after the beginning of day process
(BOD) of the offer open date

164
 Investor fill the application form and submit it with
the payment instrument to the DP or directly to the
collection bank/centre
 DPs capture the details such as client id, issue
number, application form number, application date,
requested quantity for the ISIN, bank details etc in
the DP system
 DPs verify the application form and deposit it with
any of the collecting banks before the end of
banking hours of the offer closure date
 DPs are responsible for timely deposits of the forms

165
 DPs receive the allotment information through the
depository system after the completion of the
allotment process
 Accounts of all the successful allottees will be

credited on the BOD/ EOD of the allotment date
 Allotment advice/refund warrants are sent to the

applicants directly by Issuers/ RTAs

166
DP’S BRANCHES (NOT APPLICABLE IN CDSL)
 Branches of the DPs accept the application forms
along with the payment instruments from their
clients.
 Branches transmit the details its main office in a
manner intimated by the Depository from time to
time
 Branches of the DPs deposit the application forms
along with the payment instruments with the local
collecting banks and forward the acknowledgement
receipt to their clients
Chapter 10 Complete
(Second Tea Break)
167
Recap Questions
1. Public limited companies are required to make

the public offer only in dematerialised form in
case the offer is more than ____ crore.
(a) Rs. 10 crore
(b) Rs. 25 crore
(c) Rs. 15 crore
(d) Rs. 50 crore

Recap Questions
2. Issuer shall be required to enter into agreement

with all the _______________ before coming out
with a public offer.
(a) Depositories
(b) Depository Participants
(c) Investors
(d) SEBI

Recap Questions
3. Can SEBI issue guidelines pertaining to public

issues?
(a) Yes
(b) No

Recap Questions
4. The securities offer in the public offer can only

be traded in the stock exchange in demat form?
(a) True
(b) False

SPECIAL SERVICES- DEBT INSTRUMENTS
AND GOVERNMENT SECURITIES
•Debt Security/Debt Instrument is a written

agreement to repay a loan, usually with
interest, within a given time frame
• A debt instrument has a limited life

172
DEBT INSTRUMENTS
 Depending on features like Issuer, tenure, interest

rate, etc., debt instruments can be classified into
different categories like bonds, debentures,
commercial paper, government securities, treasury
bills, etc
 Financial institutions or corporate bodies issue bonds,
debentures and commercial paper
 Government securities and treasury bills are issued by
State or Central government

173
ADMISSION OF DEBT INSTRUMENT TO
THE DEPOSITORY SYSTEM
 A tripartite agreement is signed between the
depository, the Issuer and Registrar & Transfer Agent
 Each debt security is given an ISIN, which is linked to
the special features of the security termed descriptor
 Once admitted, these securities are made available
for dematerialisation by the depository

174
INSTRUMENT DESCRIPTOR
 Debt instruments are differentiated by different
coupon rate or redemption date or put/call exercise
date or interest payment schedule or by being
secured / unsecured.
 The instrument descriptor in the depository system
indicates :
∙ Name of the Issuer
∙ Coupon/Interest Rate
∙ Security name
∙ Redemption date
∙ Face Value
175
ICICI BANK LIMITED SR-B98 14.25 UMD 14FB05
FVRS1LAC indicates:
 Issuer Name: ICICI Bank Limited

 Coupon Rate: 14.25%
 Instrument Name: Series B98 UMD
 Redemption date: 14/02/2005
 Face Value: Rs. 1,00,000

176
 Letter of Allotment (LOA) and Debenture Certificates:
Issuer allots LOA till the charges are created. On creation of
charge, ISIN of LOA is changed to a debenture.
∙ For e.g. Descriptor for LOA ISIN -KMPL 9.5 LOA 29DC05
FVRS1LAC is changed to
∙ KMPL 9.5 NCD 29DC05 FVRS1LAC LOA UPTO 23MR05.
 Time value of money: Debt instruments bear interest. Therefore,

the execution date is crucial while executing any transfer
instruction for debt instrument
 Redemption date: On redemption, the ISIN associated with the
instrument is de-activated in the depository system

177
CALL/PUT OPTION IN DEMAT FORM
 “Call option” means Issuer can repay debt

before the final redemption date. The
procedure is same as normal redemption.
 “Put option” means investor can demand

repayment before the final redemption date.

178
CERTIFICATE OF DEPOSIT (CD)
• Investors can hold Certificate of Deposit (CD) in a

separate account or all its holdings in one account.
• The minimum size to be subscribed/ transacted by

investor through the depository system is Rs. 1 lakh.

179
DEMATERIALISATION-CD
The procedure for dematerialisation of CD is

same as that carried out for equity shares
Redemption-CD
The Issuer has to open a redemption account
with Depository Participant

180
Redemption-CD
BO
DIS
DP
At 3p.m.
2 days before the maturity date
Issuer’s
Redemption
Account BO
On sighting the securities in the redemption
account, the Issuer will initiate the steps to pay
the investors the redemption proceeds.

181
Redemption-CD
 The redemption account opened by the Issuer will be the
same for all the CDs issued by the Issuer.
 As per the FIMMDA guidelines, the Issuer will provide
the details of the redemption account in the form of a
certificate to the first investor of the CD.
 As per the RBI Monetary and Credit Policy of 2002-03,
effective June 30, 2002, banks and FIs require to issue
CDs only in the dematerialised form.

182
COMMERCIAL PAPER (CP)
An investor can subscribe to minimum of Rs. 5,00,000

or multiples since the face value of a Commercial Paper
in the depository system is taken as Rs. 5,00,000.

183
DEMATERIALISATION-CP
 For dematerialisation of CP, the client has to submit the CP

alongwith demat request form (which is available with DP) to the
DP.
 Only those commercial papers, which have been made available
for dematerialisation by its Issuer, can be dematerialised.
 Allotment of Commercial Paper can be made directly in
dematerialised form.

184
COMMERCIAL PAPER IN DEMATERIALISED
FORM
 Investors will have to provide demat account number along-
with DP ID to the Issuer.
 Issuer will provide these details to the Issuing & Paying
Agent (IPA).
 The Issuer will provide the details of the IPA certificate and
other documents required by the depository to credit the
IPAs CP allotment account one day prior to the value day.
 On the allotment date, the IPA can transfer the securities
from its allotment account to the subscribers account.

185
COMMERCIAL PAPER IN DEMATERIALISED
FORM
BO Details
BO Issuer
IPA Certificate Details

BO Details
One day before
Allotment date
Issuing and Depository

Paying Agent Credits IPA’s CP Allotment Account
On Allotment day
BO Account

186
REDEMPTION- CP
 IPA opens a redemption account with DP at the time of
issue of CP in demat mode.
 IPA’s send BO’s a copy of the IPAs certificate containing
details of the redemption account.
 The balance lying in the redemption account is
extinguished by carrying out debit-type corporate action.
 On receiving the confirmation from the IPA, the process
is initiated by Share Registrar in co-ordination with the
depository.
 For all secondary market transaction the seller forwards
the copy of IPA certificate to the buyer.
187
REDEMPTION- CP
The balance in the

Depository redemption account Share
is extinguished Registrar
Confirmation
for payment
Before 3 p.m on one day before the
maturity date
BO IPA’s
Account Redemption
Payment on the due date
Account

188
COMMERCIAL PAPER (CP)
 As per the RBI Monetary and Credit Policy 2001-02, effective

June 30, 2001 banks, financial institutions (FIs), primary
dealers (PDs) and satellite dealers (SDs) are permitted to
make fresh investments and hold CP only in dematerialised
form and outstanding investments in scrip form should also
be converted into demat by October, 2001.

189
GOVERNMENT SECURITIES
Government security means a security created

and issued by the Central Government or a State
Government for the purpose of raising a public
loan.

190
GOVERNMENT SECURITIES (G-SECS)
 There are two types of Government Securities.
∙ Dated Securities: Have a maturity period of more than
one year.
and
∙ Treasury Bills: have a maturity period of up to one year.
 All the activities relating to issue of G-Secs are

handled by the Reserve Bank of India through its
Public Debt Office (PDO).

191
SUBSIDIARY GENERAL LEDGER- SGL
 Investors have the option to have securities issued

either in physical form or in book-entry form (SGL
form).
 SGL is opened directly with RBI.
 There are two types of SGL facilities,

∙ SGL-1 : For own investments of the institution.
And
∙ SGL-2 : For keeping accounts of the constituent investors.

192
TRANSFERRING G-SECS IN SGL FORM TO
DEMAT ACCOUNT
 Client has to submit the following to the DP
∙ DRF-GS
∙ SGL credit advice
∙ Request letter for ‘Value free transfer’.
 DP does the initial scrutiny and verification of the
documents
 RBI will not register transfer of securities during the
‘Shut Period’. Therefore, dematerialisation requests
entertained during shut period may take long time to
get confirmed.
193
Demat of G-SEC
Things to Remember
 Diff. Loan Codes - Separate DRF-GS and Form of Transfer.
 If cert. Nos. are in consecutive order -single Loan Code, a single Form of
Transfer can be used.
 On receipt of cert, DP ascertains whether PDO Mumbai or any other PDO
has issued .
 PDO outside Mumbai: DP accepts the Form of Transfer attested by the
respective PDOs.
 If certi. are mutilated, or are defaced in such that material information is not
readable, the DP does not accept the certificates for dematerialisation
 The DP fills details on the DRF-GS pertaining to ISIN and Loan Code.
 After verification, the demat request is entered in the DP system.
 DRN generated by the system has to be entered in the space provided in the
DRF-GS.

194
Demat of G-SEC
 DP to endorse on reverse of cert by writing
'Tendered for Cancellation and credit to SGL A/c No.
___________, Mumbai'.
 DP should not punch holes on G-Secs certificates.
 DP should dispatch certificate and DRF-GS to the depository,

within 7 working days.
 Depository fills-in & signs relevant portion of Form of Transfer &
submit docs to RBI for credit in the SGL-2 a/c of depository.
 On receiving necessary confirmation from RBI, depository
confirms acceptance of the request for demat.
 DP informs the client, of the changes in the client's a/c following
the confirmation of the request.

SETTLEMENT OF DEPOSITORY TRADES
Purchase by Depository Client
Inter-SGL trade purchase instructions
Buying BO DP
Enter on the Depository System
Confirmation (one day prior)
of Receipt of Funds
Inter-SGL trade purchase instructions
securities
Executes the designated form

Depository RBI
RBI credits the SGL-2 account of
depository and debit its current account
for funds.

196
SETTLEMENT OF DEPOSITORY TRADES
Sale by Depository Client
Credits The Current Account
Selling BO DP
Inter-SGL trade Sale Instructions
Enter on the Depository System

(one day prior)
Inter-SGL trade sale instructions
Executes the form (iii)

Depository RBI
Credits The Current Account of Depository
RBI debits the SGL-2 account of depository and
Receipt of
credits its current account for funds on
securities
settlement date.
Credits The Current Account of DP
197
CORPORATE BENEFITS WITH RESPECT
TO GOVERNMENT SECURITIES
 The depository distributes interest to clients having
balances in government securities when it’s due.
 The depository pays the redemption amount to clients
after the redemption amount has been made available to
depository by RBI on redemption date.
 The depository makes the payment directly to the clients
or to the bank account of the clients as per the
instructions received from the clients.
198
REMATERIALISATION OF GOVERNMENT
SECURITIES
Rematerialisation Request Form (RRF-GS).
BO DP
RRF-GS Intimates
Physical within seven Remat request
Block balance
Certificate days electronically
RBI Depository
RRF-GS + Form of Transfer
 If request is for transfer to an SGL account, the Depository should

confirm the acceptance of RRF to the DP.
 On receipt of such confirmation from RBI, the Depository removes the
balance from the client's account.
 The DP then informs the client accordingly.

199
OBJECTIONS BY DEPOSITORIES
SHAREHOLDERS SYSTEM FOR G-SECS
 In case of a mismatch, the depositories G-Sec’s
cell will send a letter/fax to the DP intimating
them of the mismatch.
 The DP has to resolve the mismatch.
Chapter 11 Complete

200
Recap Questions
1. Who resolves the mismatch during

rematerialisation of government securities?
(a) Depository Participant
(b) Depositories G-Sec cell
(c) SEBI
(d) RBI

Recap Questions
2. State whether the statement is true or false: An

investor in government securities holding
electronic balances in the depositories SGL-1
account can convert them into physical
certificates by the process of rematerialisation.
(a) False
(b) True

Recap Questions
3. RBI does not register transfer of securities during

________.
(a) Closure Period
(b) Shut Period
(c) Lock Period
(d) Enclose Period

Recap Questions
4. What is the maturity period of Treasury Bills?

(a) Upto One year
(b) Upto 3 months
(c) Upto 6 months
(d) More than 10 years

SPECIAL SERVICES - WAREHOUSE RECEIPTS
 Depositories facilitates commodity exchanges to settle
trades of warehouse receipts
 Legal status of warehouse receipts
 The legal status is different from that of securities, hence,
 Separate DP-BO agreement has to be obtained for dealing
with warehouse receipts.
 DP’s can add more terms to the model DP-BO agreement
provided by the Depositories as long as they are not
contradictory.
 Accounts opened under this agreement can only hold
electronic warehouse receipts and should not be mixed with
securities

205
ICIN- INTERNATIONAL COMMODITY
IDENTIFICATION NUMBER
 ICIN is equivalent to ISIN in securities.
 ICIN for same commodity differs from exchange to exchange.
 Depending on the type of commodity, grade, validity, expiry
date, name and location of warehouse, the exchanges allot
ICIN to each commodity.
 The depository issues circular whenever such ICINs are
activated in the system.
 Initial credit of electronic warehouse receipts into demat
account will be effected by way of corporate action.

206
COMMODITIES
 Account opening Procedure:

 Itis same as that of securities.
 Same precautions & procedures to be followed.
 DP related Services:
 Procedure for transfer, pledge and freeze will be the
same as is applicable to securities.
 Inter-depository transfer of warehouse receipts is not
possible.

207
REMAT- ELECTRONIC WAREHOUSE
RECEIPTS TO PHYSICAL COMMODITIES.
 At the time of taking delivery in physical mode, client initiates a
remat request through the DP using the Physical Delivery Request
Form (PDRF).
 DP issues acknowledgment for receipt.
 Client submits this acknowledgment to the warehouse at the time
of taking physical delivery.
 Once the commodity’s expiry date is over, investor has to take
physical delivery by way of remat.
Chapter 12 Complete
208
Recap Questions
1. Identify the incorrect underlined portion of the
sentence: Accounts opened under agreement
with DPs shall hold electronic warehouse
receipts along with other securities.
(a) Alongwith other securities
(b) Accounts opened
(c) Agreement with DPs
(d) Electronic warehouse re-ceipts

Recap Questions
2. State True or False: DPs are free to add any more

terms and conditions to the agreement to the
extent they are not contradictory to the terms
and conditions of the model agreement.
(a) True
(b) False

Recap Questions
3. Which of the following Statement is False?
(a) The depositories also provide depository facility to the
commodity exchanges for settlement of trades
pertaining to warehouse receipts for commodities
(b) The legal status of warehouse receipts is different from that
of securities
(c) DPs are free to add any more terms and conditions to the
agreement to the extent they are not contradictory to the
terms and conditions of the model
(d) For electronic trading of warehouse receipts, a DRF- WR
portion has to be filled by the client
Recap Questions
4. PDRF is the acronym for__________?

(a) Physical Delivery Request Form
(b) Physical Deposit Request Form
(c) Physical Deposit Remat Form
(d) Physical Delivery Remat Form

213

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NISM DOCE

HR – L & D Team , HDFC Bank Internal 1

RTA, Custodians and Depositories

 The Securities Contracts (Regulation) Act, 1956

HR – L & D Team , HDFC Bank Internal

 Securities are freely transferable

# Securities includes shares, debentures, bonds, mutual funds,

b) It provides for standard of disclosure in public

 Contracts for Purchase / sale of gold securities

1. Which of the following is NOT a part of the

HR – L & D Team , HDFC Bank Internal

2. An active ________ promotes the growth of the

HR – L & D Team , HDFC Bank Internal

4. ________ has powers to register and regulate all

HR – L & D Team , HDFC Bank Internal

b) Registered Owner/ Beneficial Owner – The securities held

c) Free Transferability of shares – Transfers take place freely

HR – L & D Team , HDFC Bank Internal

 A depository must start functioning within one year

 Sponsor of the depository should hold atleast 51% of

 Minimum networth to register Depository is 100 crore

HR – L & D Team , HDFC Bank Internal

HR – L & D Team , HDFC Bank Internal

HR – L & D Team , HDFC Bank Internal

1. With the introduction of depository system in

HR – L & D Team , HDFC Bank Internal

2. During the time when there was no demat of

HR – L & D Team , HDFC Bank Internal

3. Can either of the account holders sign in case of

HR – L & D Team , HDFC Bank Internal

4. DP has to be registered with

HR – L & D Team , HDFC Bank Internal

 As per the provisions of these regulations, an entity

HR – L & D Team , HDFC Bank Internal

HR – L & D Team , HDFC Bank Internal 20

 Bound by an agreement under Depositories Act

 Agent of depository-Depositories Act, 1996

 Entity registered with SEBI under provisions of SEBI (D &

 Offer depository-related services after obtaining a

HR – L & D Team , HDFC Bank Internal

ENTITY WITHIN 30 DAYS OF

HR – L & D Team , HDFC Bank Internal

HR – L & D Team , HDFC Bank Internal

HR – L & D Team , HDFC Bank Internal

 Renewal application to be made 3 months before expiry date

 Renewal application made through depository along with

 Renewal is dealt in same manner as if fresh application

HR – L & D Team , HDFC Bank Internal

HR – L & D Team , HDFC Bank Internal

 a. FII (those who are not registered with SEBI)

 b. International Multilateral Agency,

 Separate A/c for each BO

HR – L & D Team , HDFC Bank Internal

HR – L & D Team , HDFC Bank Internal

 Failed to furnish information relating to its activity as a DP

 Not furnished / furnished false or misleading information

 Not co-operated in inspection/investigation/enquiry by SEBI;

 Failed to comply with any direction of SEBI; or

 Failed to pay annual fee as specified

HR – L & D Team , HDFC Bank Internal

HR – L & D Team , HDFC Bank Internal

 Admitted for clearing & settlement of securities traded on their

 Needs to have electronic connectivity with depository for