Dp System in India
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Transcript of Dp System in India
DEPOSITORY SYSTEM IN INDIA
Introduction to depository
The Depositories Act:
The Depositories Act, 1996 was enacted to provide for regulation of depositories in securities
and for matters connected therewith or incidental thereto. It came into force from 20th
September, 1995.
The Depositories Act, 1996, ushered in an era of efficient capital market
infrastructure, improved investor protection, reduced risks and increased transparency of
transactions in the securities market. It also immensely benefited the issuer companies, in terms
of reduced costs and the effort expended in managing their shareholder populace. Perhaps, no
other single act other than the Depositories Act has had such profound all round impact on every
single stakeholder in the Indian capital markets. This legislation envisaged multiple depositories
in India to ensure benefits of competition for the users of the depository
system. The Depositories Act which facilitated establishment of depositories (like CDSL,
NSDL) in India sought to effectively curb irregularities in the capital market, and protect the
interests of the investors, and paved a way for an orderly conduct of the financial
markets through free transferability of securities with speed, accuracy, transparency etc.
India has adopted the Depository System for securities trading in which
book entry is done electronically and no paper is involved. The physical form of securities is
extinguished and shares or securities are held in an electronic form. Before the introduction of
the depository system through the Depository Act 1966, the process of sale, purchase and
transfer of securities was a huge problem, and there was no safety at all.
Key Features of the Depository System in India
1. Multi-Depository System: The depository model adopted in India provides for a competitive
multi-depository system. There can be various entities providing depository services. A
depository should be a company formed under the Company Act, 1956 and should have been
granted a certificate of registration under the Securities and Exchange Board of India Act, 1992.
Presently, there are two depositories registered with SEBI, namely:
National Securities Depository Limited (NSDL), and
Central Depository Service Limited (CDSL)
2. Depository services through depository participants: The depositories can provide their
services to investors through their agents called depository participants. These agents are
appointed subject to the conditions prescribed under Securities and Exchange Board of India
(Depositories and Participants) Regulations, 1996 and other applicable conditions.
3. Dematerialisation: The model adopted in India provides for dematerialisation of securities.
This is a significant step in the direction of achieving a completely paper-free securities market.
Dematerialization is a process by which physical certificates of an investor are converted into
electronic form and credited to the account of the depository participant.
4. Fungibility: The securities held in dematerialized form do not bear any notable feature like
distinctive number, folio number or certificate number. Once shares get dematerialized, they lose
their identity in terms of share certificate distinctive numbers and folio numbers. Thus all
securities in the same class are identical and interchangeable. For example, all equity shares in
the class of fully paid up shares are interchangeable.
5. Registered Owner/ Beneficial Owner: In the depository system, the ownership of securities
dematerialized is bifurcated between Registered Owner and Beneficial Owner. According to
the Depositories Act, ‘Registered Owner’ means a depository whose name is entered as such in
the register of the issuer. A ‘Beneficial Owner’ means a person whose name is recorded as such
with the depository.
6. Free Transferability of shares: Transfer of shares held in dematerialized form takes place
freely through electronic book-entry system.
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.
“A Depository is a file or a set of files in which data is stored for the purpose of safe keeping or
identity authentication”, defined by Germany Depository.
In India, the Depositories Act, 1996 defines a depository to mean “A Company formed and
registered under the Companies Act, 1956 and which has been granted a certificate of
registration under sub-section (1A) of section 12 of the Securities and Exchanges Board of India
Act, 1992”.
Meaning of Depository Participant:
A Depository Participant (DP) is an agent of the depository through which it interfaces with the
investor and provides depository services. Public financial institutions, scheduled commercial
banks, foreign banks operating in India with the approval of the Reserve Bank of India, state
financial corporations, custodians, stock-brokers, clearing corporations /clearing houses, NBFCs
and Registrar to an Issue or Share Transfer Agent complying with the requirements prescribed by
SEBI can be registered as DP. Banking services can be availed through a branch whereas
depository services can be availed through a DP.
Minimum Net worth: The minimum net worth stipulated by SEBI for a depository is Rs.100
crore.
How many Depository Participants are registered with SEBI?
There are total 863 DPs registered till January 31,2013 (of which 580 of CDSL and 283 of
NSDL).
No. of Depository in the country
Currently there are two depositories operational in the country.
1. National Securities Depository Ltd. - NSDL
2. Central Depository Services Ltd. - CDSL
Central Depository Services (India) Limited
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 holdings 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,
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 Jan 2012, over 10,000 issuers have admitted their securities (equities, bonds,
debentures, commercial papers), units of mutual funds, certificate of deposits etc. into the
CDSL system.
Promoters
CDSL was promoted by Bombay Stock Exchange Limited (BSE) in association with Bank of
India, Bank of Baroda, State Bank of India and HDFC Bank. BSE has been involved with this
venture right from the inception and has contributed overwhelmingly to the fruition of the
project. The initial capital of the company is Rs.104.50 crores. The list of shareholders with
effect from 5th July, 2010 is as under.
Sr.
No.
Name of shareholders Value of holding
(in Rupees Lacs)
% terms to
total equity
1 Bombay Stock Exchange Limited 5,663.46 54.20
2 Bank of India 582.00 5.57
3 Bank of Baroda 530.00 5.07
4 State Bank of India 1,000.00 9.57
5 HDFC Bank Limited 750.00 7.18
6 Standard Chartered Bank 750.00 7.18
7 Canara Bank 674.46 6.45
8 Union Bank of India 200.00 1.91
9 Bank of Maharashtra 200.00 1.91
10 The Calcutta Stock Exchange Limited 100.00 0.96
11 Others 0.08 0.00
TOTAL 10,450.00 100.00
WHY A
DEMAT ACCOUNT WITH CDSL?
Convenience:
Wide DP Network: CDSL has a wide network of DPs, operating from over 10,000 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.
Dependability:
On-line Information to Users: CDSL's system is built on a 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 updation 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.
Security:
Computer Systems: All data held at CDSL 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 is 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.
How to open a DEMAT account?
Any Individual eligible to acquire and hold securities in his name can open a demat account in
the CDSL system through a registered Depository Participant (DP) of CDSL of his choice. While
choosing his DP the individual may take into consideration the service standards, charges and
convenience of location etc.
Points To Be Noted for Opening a Demat A/C
Obtain and personally submit the duly completed account opening form.
Provide to DP a copy of your PAN card along with a copy of your passport or driving license or
voter-ID card or ration card or Aadhar card as your proof of address. If you are already registered
with a KRA, you are not required to submit PAN card and proof of address again.
Execute the DP-Investor agreement to be made available by DP.
Obtain your unique account number (BO-ID) from your DP.
Obtain pre-printed Delivery Instruction slips for effecting delivery of securities
Understand the cut-off timings from DP for depositing delivery instructions for trades done by
you on the stock exchange.
Minimum Account Balance :
There is no requirement of holding minimum-security balance in a demat account; you can
maintain zero balance in your account. Ready availability of account enhances your transaction
making ability.
Nomination :
Individuals holding beneficiary (demat) accounts either singly or jointly, have the facility of
making nomination. (Non-individuals including societies, trusts, body corporate, partnership
firms, kartas of HUF, holders of power of attorney however, cannot nominate). If the sole or all
the joint holders are deceased, the shares will be transmitted in the name of the nominee.
It may be noted that in the event of the death of one of the joint holders, the securities will be
transmitted in the names of the surviving holders.
Statement of Account :
A periodical statement of holdings and transactions is provided by DP. The same can also be
downloaded through CDSL internet facility by registered users. You may click on e asi link for
obtaining more information about the CDSL internet facility – easi and easiest.
Credit Confirmation:
In order to receive all the credits coming to demat account automatically, a one time standing
instruction can be given to the DP at the time of opening your account. Otherwise, a receipt
instruction has to be given to the DP every time credit is expected in the demat account.
Number of Accounts :
Though there is no restriction on number of demat accounts that can be opened by a beneficial
owner, the DPs will exercise due diligence before opening such accounts.
Change of Address:
For any change of address, if any, communication to your DP in writing is sufficient. The DP
will ensure that the change is incorporated for all securities held in your demat account. You
need not write to all the companies separately.
Benefits:
As an investor you will enjoy many benefits if you open a demat account and maintain securities
in electronic form. Some of the benefits provided by CDSL are: - -
No bad deliveries.
Reduced paper work.
No risk of loss, mutilation or theft of share certificates.
Elimination of all risks associated with physical certificates.
Pay - in and pay - out of securities will take place on the same day.
Problems related to change of address of investor, transmission, etc are eliminated.
Fast settlement cycles.
No stamp duty for transfer of securities.
Low transaction cost for buying and selling .
Low interest rates on loans granted against pledge of dematerialised securities by banks.
Low margin on securities pledged with banks.
DP:
CDSL's demat services are extended through its agents called Depository Participants (DP). The
DP is the link between the investor and CDSL. An investor who opens a demat account with a
DP can utilise the services offered by CDSL. While the DP processes the instructions of the
investor , the account and records thereof is maintained with CDSL. A DP is thus a "Point of
Service" for the investor.
Services
The Depository Participant (DP) is the link between the investor, the company and CDSL and
provides the following services:
Account Opening
To utilise the services offered by a depository, any person having investment in any security or
intending to invest in securities needs to have a demat account with a CDSL-DP. The holder of
such demat account is called as "Beneficial Owner (BO)". A BO can maintain a demat account
with zero balance in such account. A BO can open more than one account with the same or
multiple DPs, in the same name/s and order, if he/she desires so. The investor can approach any
DP/s of his/her choice to open a demat account.
Dematerialisation
Dematerialisation is a process by which physical certificates (of shares / debentures / other
securities) are converted into electronic balances. A BO has to submit the request for
dematerialisation by submitting the demat request form (DRF) duly completed along with the
concerned physical certificates, to his/her DP.
Processing Delivery & Receipt Instructions
To settle trades done on a stock exchange (on-market trades) and trades, which are directly
settled between two BOs (off-market trades), BOs submit duly completed delivery instructions in
the prescribed form to DP. For receipt of securities into his/her account, a BO can give one time
"standing instruction" to DP. Once such a standing instruction is given to the DP, there is no
need to submit separate instructions for receipt every time the investor buys securities.
Account Statement
Generally a DP sends to the BO, a statement of his account, monthly, if there is any transaction
in the account or every quarter if the account is not operated during that period.The balances and
transactions can also be viewed by the BOs through CDSL web based facility 'easi'.
Rematerialisation
Rematerialisation is the process by which the electronic balances held in the demat account can
be converted back into physical certificates.
Pledging
If the BO decides to pledge any securities in his BO account, he can avail of the same by
submitting the pledge creation form duly completed, to his DP.
Nomination
Individual BOs have a facility for nomination in favour of an individual. If the sole or all the
joint holders are deceased, the shares of different companies held in the demat account will be
transmitted easily to the demat account of the nominee on submission of the death certificate and
transmission form.
It may be noted that in the event of the death of one of the joint holders, the securities will be
transmitted in the demat account of the surviving holders.
Transmission of securities
CDSL offers a facility for transmission of balances held in BO account/s (to other BO account/s)
if so required due to death, lunacy, bankruptcy, insolvency or required due to operation of any
law.
Change in Address
A BO who wishes to register his change in address submits his/her request in writing to his/her
DP. The changes entered by the DP in the CDSL system will be automatically downloaded to all
the companies in which the BO is holding securities. This facility offered by CDSL saves
money, time and effort for the BO.
Bank Account Details
SEBI has made it mandatory for companies to print details of bank account of the BO on
dividend/interest warrants etc. to prevent possibilities of misuse of the warrants. All BOs should
submit a request in writing to the DP if they wish to record / change their bank account details.
SMS
CDSL sends SMS regarding transactions and modifications in account details to the mobile
number registered in the account.
Eligibility:
In terms of the Depositories Act, 1996 and SEBI (Depositories & Participants) Regulations,1996,
only the following entities are eligible to become a Depository Participant:
Public Financial Institution
Banks including Foreign Banks
State Financial Corporation
An Institution engaged in providing financial services promoted by above mentioned jointly and
severally.
Custodian of Securities
Clearing Corporation or Clearing House of a Stock Exchange
Stock Broker
Non Banking Financial Company
Registrar & Transfer Agents
Electronic Access To Securities Information
1. What is easi?
easi (electronic access to securities information) is a convenient, easy to operate internet based
facility, which allows registered Beneficial Owners (BOs) & Clearing Members (CMs) to access
their demat account through the internet to check the details of their holdings and/or
transactions,anytime anywhere, through CDSL’s .
About NSDL
NSDL, the first and largest depository in India, established in August 1996 and promoted by
institutions 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.
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 institutions of national stature
responsible for economic development of the country has since established a national
infrastructure of international standard that handles most of the trading and settlement in
dematerialised form in Indian capital market.
Using innovative and flexible technology systems, NSDL works to support the investors and
brokers in the capital market of the country. NSDL aims at ensuring the safety and soundness of
Indian marketplaces by developing settlement solutions that increase efficiency, 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 in depository accounts, which is more or less similar
to holding funds in bank accounts. Transfer of ownership of securities is done through simple
account transfers. This method does away with all the risks and hassles normally associated with
paperwork. Consequently, the cost of transacting in a depository environment is considerably
lower as compared to transacting in certificates.
Promoters / Shareholders
NSDL is promoted by Industrial Development Bank of India (IDBI) - the largest development
bank of India, Unit Trust of India (UTI) - the largest mutual fund in India and National Stock
Exchange (NSE) - the largest stock exchange in India. Some of the prominent banks in the
country have taken a stake in NSDL.
Promoters
Industrial Development Bank of India Limited (Now, IDBI Bank Limited)
Unit Trust of India (Now, Adminstrator of the Specified Undertaking of the Unit Trust of India)
National Stock Exchange of India Limited
Other shareholders
State Bank of India
HDFC Bank Limited
Deutsche Bank A.G.
Axis Bank Limited
Citibank N.A.
Standard Chartered Bank
The Hongkong 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 it’s 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 securities
trade.
In exercise of the rights conferred by the Depositories Act, NSDL framed
its ByeLaws and Business Rules. The ByeLaws are approved by SEBI.
Depository System - Business Partners
NSDL carries out its activities through various functionaries called "Business Partners" who
include Depository Participants (DPs), Issuing companies and their Registrars and Share
Transfer Agents, Clearing corporations/ Clearing Houses of Stock Exchanges.
Depository Participant (DP)
The investor obtains Depository Services through a DP of NSDL. A DP can be a bank, financial
institution, a custodian, a broker, or any entity eligible as per SEBI (Depositories and
Participants) Regulations, 1996. The SEBI regulations and NSDL bye laws also lay down the
criteria for any of these categories to become a DP.
Just as one opens a bank account in order to avail of the services of a bank, an investor opens a
depository account with a DP in order to avail of depository facilities. Though NSDL
commenced operations with just three DPs, Depository Participant Services are now available in
most of the major cities and towns across the country.
Issuing Companies / their Registrar & Transfer Agents
Securities issued by issuers who have entered into an agreement with NSDL can be
dematerialised in the NSDL depository. As per this agreement, issuer agrees to verify the
certificates submitted for dematerialisation before they are dematerialised and to maintain
electronic connectivity with NSDL. Electronic connectivity facilitates dematerialisation,
rematerialisation, daily reconciliation and corporate actions.
Clearing Corporation / House
The clearing corporations/houses of stock exchanges also have to be electronically linked to the
depository in order to facilitate the settlement of the trades done on the stock exchanges for
dematerialised shares. At present, all the major clearing corporations/houses of stock exchanges
are electronically connected to NSDL.
Why NSDL
Benefits
In the depository system, the ownership and transfer of securities takes place by means of
electronic book entries. At the outset, this system rids the capital market of the dangers related to
handling of paper. NSDL provides numerous direct and indirect benefits like
Elimination of bad deliveries - In the depository environment, once holdings of an investor are
dematerialised, the question of bad delivery does not arise i.e. they cannot be held "under
objection". In the physical environment, buyer was required to take the risk of transfer and face
uncertainty of the quality of assets purchased. In a depository environment good money certainly
begets good quality of assets.
Elimination of all risks associated with physical certificates - Dealing in physical securities
have associated security risks of theft of stocks, mutilation of certificates, loss of certificates
during movements through and from the registrars, thus exposing the investor to the cost of
obtaining duplicate certificates etc. This problem does not arise in the depository environment.
No stamp duty for transfer of any kind of securities in the depository. This waiver extends to
equity shares, debt instruments and units of mutual funds.
Immediate transfer and registration of securities - In the depository environment, once the
securities are credited to the investors account on pay out, he becomes the legal owner of the
securities. There is no further need to send it to the company's registrar for registration.
Faster settlement cycle - The settlement cycle follow rolling settlement on T+2 basis i.e. the
settlement of trades will be on the 2nd working day from the trade day. This will enable faster
turnover of stock and more liquidity with the investor.
Faster disbursement of non cash corporate benefits like rights, bonus, etc. - NSDL provides
for direct credit of non cash corporate entitlements to an investors account, thereby ensuring
faster disbursement and avoiding risk of loss of certificates in transit.
Reduction in brokerage by many brokers for trading in dematerialised securities - Brokers
provide this benefit to investors as dealing in dematerialised securities reduces their back office
cost of handling paper and also eliminates the risk of being the introducing broker.
Reduction in handling of huge volumes of paper
Periodic status reports
Basic Services
Under the provisions of the Depositories Act, NSDL provides various services to investors and
other participants in the capital market like, clearing members, stock exchanges, banks and
issuers of securities. These include basic facilities like account maintenance, dematerialisation,
rematerialisation, settlement of trades through market transfers, off market transfers & inter-
depository transfers, distribution of non-cash corporate actions and nomination/ transmission.
The depository system, which links the issuers, depository participants (DPs), NSDL and
Clearing Corporation/ Clearing house of stock exchanges, facilitates holding of securities in
dematerialised form and effects transfers by means of account transfers. This system which
facilitates scripless trading offers various direct and indirect services to the market participants.
Account Maintenance
To avail of the various services offered by NSDL an investor/ a broker/ an approved
intermediary (for lending & borrowing) has to open a NSDL depository account with any of its
DPs.
Depository accounts are of three types
Beneficiary account
An investor who wants to hold securities in dematerialised (demat) form and receive or deliver
securities by inter-account transfers must have a depository account called beneficiary account
with a DP of his choice.
Clearing member account
Member brokers of those stock exchanges which have established electronic connectivity with
NSDL need to open a clearing member account, with a DP of his choice, to clear and settle
trades in the demat form. This account is popularly known as Settlement account or “Pool
account”. This account is meant only to transfer securities to and receive securities from the
clearing corporation/ house and hence, the member broker does not have any ownership
(beneficiary) rights over the shares held in such an account.
Further, clearing members of stock exchanges permitting Automatic Lending or Borrowing
Mechanism (ALBM) transactions can request for a "clearing member ALBM" account to
participate in ALBM transactions. These additional CM Accounts maintained for the purpose of
ALBM transactions will have to be necessarily opened with the clearing house of the concerned
stock exchange e.g. a BSE clearing member's "normal clearing member account" could be with a
DP XYZ, but his "clearing member ALBM" account will have to necessarily be with the clearing
house of the BSE.
Intermediary account
Any person choosing to act as an approved 'intermediary' for stock lending and borrowing needs
to open an intermediary account with any DP of his choice. An intermediary account may be
opened with the DP only after the intermediary has obtained registration from the Securities &
Exchange Board of India and with the prior approval of NSDL. This account is meant only to
deposit the securities received from the lender and lend them to the borrower under stock lending
and borrowing scheme. The intermediary does not have any ownership (beneficiary) rights over
the shares held in such an account.
Various services offered by DPs with respect to these accounts are as follows
Standing Instruction Facility
DP enters the advise for the transfer of securities to or from a beneficial owner's account only on
receipt of instructions from the client. The clients need to give delivery instruction to transfer
securities from their account & receipt instruction to get credit into their account. However, for
ease of operation, a facility of standing instruction is provided to the clients for receiving
securities to the credit of their accounts without any further instruction from them.
Change in Address
The client can change his address by submitting the changes in writing to the DP along with
proof of identity, proof of new address with original document of new address for verification
and latest transaction statement received from the DP of the client. The changes conveyed to the
DP will be automatically communicated to the companies in which he is holding shares in
dematerialised form.
Bank Account Details
Details of bank account of the client, including the 9-digit code number of the bank and branch
appearing on the MICR cheques issued by the bank have to given to the DP at the time of
account opening. Companies use this information for printing them on dividend/interest warrants
to prevent its misuse. In case the client wish to change this bank account details, he can do so by
submitting the changes in writing to the DP.
Nomination
A client can make a nomination of his account in favour of any person by filing the nomination
form with his DP. Such nomination is considered to be conclusive evidence of the account
holder'(s) disposition in respect of all the securities in the account for which the nomination is
made. The nomination can be changed/deleted anytime by the account holder/s by simply filling
the nomination form and submitting it to the DP.
Transposition cum Demat
This is a facility whereby securities held jointly can be dematerialised in an account of same joint
holders but having different sequence of names. e.g. securities held in joint names of X and Y
can also be dematerialised in an account opened in the names of Y and X by submitting an
additional form called Transposition Form alongwith Dematerialisation Request Form
(DRF) to the DP.
Consolidation of Accounts
Some clients could have opened multiple accounts to dematerialise their shares held in multiple
combinations & sequence of names. However, they may not need so many accounts after they
have dematerialised their securities and may want to bring all their shareholdings into one or
fewer accounts. Using off-market account transfer instruction such consolidation can be done.
Closure of Account
A client can close a depository account by giving an application in the prescribed form. In
case there is any balance in the account sought to be closed, the following steps are necessary:
Re-materialisation of all securities standing to the credit of the account at the time of making the
application for closure; or
Transferring the balance to the credit of another account opened by the same account older(s)
either with the same DP or with a different DP.
Freezing of Accounts
Account freezing means suspending any further transaction from the depository account till the
account is de-frozen. A depository account maintained with a DP can be frozen if the DP
receives a written instruction in prescribed form from the client. A frozen account can be de-
frozen or re-activated if the client submits written instruction in prescribed form to the DP.
Dematerialisation
Dematerialisation is the process by which a client can get physical certificates converted into
electronic balances.
An investor intending to dematerialise its securities needs to have an account with a DP. The
client has to deface and surrender the certificates registered in its name to the DP. 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 dematerialisation. 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.
Features
Holdings in only those securities that are admitted for dematerialisation by NSDL can be
dematerialised.
Only those holdings that are registered in the name of the account holder can be dematerialised.
Names of the holders of the securities should match with the names given for the demat account.
If the same set of joint holders held securities in different sequence of names, these joint holders
by using ‘ Transposition cum Demat facility’ can dematerialise the securities in the same account
even though share certificates are in different sequence of names. e.g., If there are two share
certificates one in the name of X first and Y second and another in the name of Y first and X
second, then these shares can be dematerialised in the depository account which is in any name
combination of X and Y i.e., either X first and Y second or Y first and X second. Separate
accounts need not be opened to demat each share certificate. If shares are in the name
combinations of X and Y, it cannot be dematerialised into the account of either X or Y alone.
Check the demat performance of the companies whose shares are to be given for
dematerialisation.
Demat requests received from client (registered owner) with name not matching exactly with the
name appearing on the certificates merely on account of initials not being spelt out fully or put
after or prior to the surname, can be processed, provided the signature of the client on the
Dematerialisation Request Form (DRF) tallies with the specimen signature available with the
Issuers or its R & T agent.
A client may, in the normal course, receive demat confirmation in about 30 days from the date of
submission of demat request to the DP.
There are special processes for Securities issued by Government of India and simultaneous
transmission and demat.
Procedure
The client (registered owner) will submit a request to the DP in the Dematerialisation Request
Form for dematerialisation, along with the certificates of securities to be dematerialised. 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.
The DP will scrutinize the form and the certificates. This scrutiny involves the following
o Verification of Client's signature on the dematerialisation request with the specimen signature
(the signature on the account opening form). If the signature differs, the DP should ensure the
identity of the client.
o Compare the names on DRF and certificates with the client account.
o Paid up status
o ISIN (International Securities Identification Number)
o Lock - in status
o Distinctive numbers
In case the securities are not in order they are returned to the client and acknowledgment is
obtained. The DP will reject the request and return the DRF and certificates in case:
o A single DRF is used to dematerialise securities of more than one company.
o The certificates are mutilated, or they are defaced in such a way that the material information is
not readable. It may advise the client to send the certificates to the Issuer/ R&T agent and get
new securities issued in lieu thereof.
o Part of the certificates pertaining to a single DRF is partly paid-up; the DP will reject the request
and return the DRF along with the certificates. The DP may advise the client to send separate
requests for the fully paid-up and partly paid-up securities.
o Part of the certificates pertaining to a single DRF is locked-in, the DP will reject the request and
return the DRF along with the certificates to the client. The DP may advise the client to send a
separate request for the locked-in certificates. Also, certificates locked-in for different reasons
should not be submitted together with a single DRF
In case the securities are in order, the details of the request as mentioned in the form are entered
in the DPM (software provided by NSDL to the DP) and a Dematerialisation Request Number
(DRN) will be generated by the system.
The DRN so generated is entered in the space provided for the purpose in the dematerialisation
request form.
A person other than the person who entered the data is expected to verify details recorded for the
DRN. The request is then released by the DP which is forwarded electronically to DM (DM -
Depository Module, NSDL's software system) by DPM.
The DM forwards the request to the Issuer/ R&T agent electronically.
The DP will fill the relevant portion viz., the authorisation portion of the demat request form.
The DP will punch the certificates on the company name so that it does not destroy any
material information on the certificate.
The DP will then despatch the certificates along with the request form and a covering letter to the
Issuer/ R&T agent.
The Issuer/ R&T agent confirms acceptance of the request for dematerialisation in his system
DPM (SHR) and the same will be forwarded to the DM, if the request is found in order.
The DM will electronically authorise the creation of appropriate credit balances in the client's
account.
The DPM will credit the client's account automatically.
The DP must inform the client of the changes in the client's account following the confirmation
of the request.
The issuer/ R&T may reject dematerialisation request in some cases. The issuer or its R&T
Agent will send an objection memo to the DP, with or without DRF and security certificates
depending upon the reason for rejection. The DP/Investor has to remove reasons for objection
within 15 days of receiving the objection memo. If the DP fails to remove the objections within
15 days, the issuer or its R&T Agent may reject the request and return DRF and accompanying
certificates to the DP. The DP, if the client so requires, may generate a new dematerialisation
request and send the securities again to the issuer or its R&T Agent. No fresh request can be
generated for the same securities until the issuer or its R&T Agent has rejected the earlier request
and informed NSDL and the DP about it.
Rematerialisation
Rematerialisation is the process by which a client can get his electronic holdings converted into
physical certificates. The client has to submit the rematerialisation 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, despatches the same to the
client and simultaneously electronically confirms the acceptance of the request to NSDL.
Thereafter, the client's blocked balances are debited.
Features
A client can rematerialise his dematerialised holdings at any point of time.
The rematerialisation process is completed within 30 days.
The securities sent for rematerialisation cannot be traded.
Procedure
The client will submit a request to the DP for rematerialisation of holdings in its account.
On receipt of the request form, the DP will verify that the form is duly filled in and issue to the
client, an acknowledgement slip, signed and stamped.
The DP will verify the signature of the client as on the form with the specimen available in its
records.
If the signatures are different the DP will ensure the identity of the client.
If the form is in order the DP will enter the request details in its DPM (software provided by
NSDL to the DP). While entering the details, if it is found that the client's account does not have
enough balance, the DP will not entertain the request.
The DP will intimate the client that the request cannot be entertained since the client does not
have sufficient balance.
If there is sufficient balance in the client's account, the DP will enter the request in the DPM and
the DPM will generate a Rematerialisation Request Number (RRN).
The RRN so generated is entered in the space provided for the purpose in the rematerialisation
request form.
Details recorded for the RRN should be verified by a person other than the person who entered
the data. The request is then released to the DM by the DP.
The DM forwards the request to the Issuer/ R&T agent electronically.
The DP will fill the authorisation portion of the request form.
The DP will then despatch the request form to the Issuer/ R&T agent.
While processing the request, the Issuer/ R&T agent may report some objections. Depending on
the nature of objection, the Issuer/ R&T agent may reject the request or process it partially,
seeking rectification for the remaining, and send an objection memo to the DP.
The Issuer/ R&T agent accepts the request for rematerialisation prints and despatches the
certificates to the client and sends electronic confirmation to the DM.
The DM downloads this information to the DPM and the status of the rematerialisation request is
updated in the DPM.
The DP must inform the client about the changes in the client account following the acceptance
of the request.
Market Transfers
Trading in dematerialised securities is quite similar to trading in physical securities. The major
difference is that at the time of settlement, instead of delivery/receipt of securities in the physical
form, the same is affected through account transfers.
Off - Market Transfers
Trading in dematerialised securities is quite similar to trading in physical securities. The major
difference is that at the time of settlement, instead of delivery/receipt of securities in the physical
form, the same is affected through account transfers.
Inter-Depository Transfers
Transfer of securities from an account in one depository to an account in another depository is
termed as an inter-depository transfer. This facility is quite similar to the account transfers within
NSDL.
It can be done only for securities that are available for dematerialisation on both the depositories.
The account in NSDL can be either a clearing account or a beneficiary account.
For debiting the clearing account or the beneficial account with NSDL, the form for "Inter-
depository delivery instruction" is required to be submitted by the clearing member/beneficial
owner to its DP.
For crediting the clearing account or the beneficial account, the standing instruction given for
automatically crediting the account is applicable. In case the standing instructions are not given,
then the form for "Inter-Depository Receipt Instruction" is required to be submitted by the
clearing member/beneficial owner to its DP.
As both the depositories are connected to each another, the batches to effect inter - depository
transfers are presently exchanged on each working day.
Online transfer of inter depository instructions has commenced w.e.f December 14, 2002. In the
online inter depository transfer (OLIDT) module, Inter Depository Transfer instructions for the
day will be exchanged online between the two depositories. Thus, the instructions executed by
DPs may get settled at shorter intervals.
The deadline time for DPs to verify & release Inter Depository Transfer delivery/ receipt
instructions is 6 p.m. on weekdays and 2.30 p.m. on Saturdays.
The Issuer/Registrar & Transfer Agent is informed about the transfer by both the depositories
and it amends its records accordingly.
Government securities cannot be transferred from one depository to another using this facility.
Transmission
One of the lesser-known but widely experienced problems with respect to dealing in share
certificates is transmission of shares. The Companies Act distinguishes transmission of shares
from transfer of shares. While transfer of shares relates to a voluntary act of the shareholder,
transmission is brought about by operation of law. The word 'transmission' means devolution of
title to shares otherwise than by transfer, for example, devolution by death, succession,
inheritance, bankruptcy, marriage, etc. While transfer of shares is brought about by delivery of a
proper instrument of transfer (viz, transfer deed) duly stamped and executed, transmission of
shares is done by forwarding the necessary documents (such as a notarised copy of death
certificate) to the company. On registration of the transmission of shares, the person entitled to
transmission of shares becomes the shareholder of the company and is entitled to all rights and
subject to all liabilities as such shareholder.
In case the deceased shareholder had holdings in different companies, then in order to effect
transmission of shares for these shares, the relevant documents must be sent to each of the
companies, alongwith the share certificates. This results in a heavy reliance on the postal system.
Follow-up may have to be made with each of the companies in order get the transmission
effected before the book closure, if the survivor(s) wishes to avail of the benefits accrued through
these shares.
Corporate Actions
Features
Corporate actions are benefits given by a company to its investors. These may be either monetary
benefits like dividend, interest or non-monetary benefits like bonus, rights, etc. NSDL facilitates
distribution of corporate benefits.
Monetary benefits (dividends etc)
NSDL will give the beneficiary ownership details to the Issuer/R & T Agent. The Issuer/R & T
Agent will carry out the necessary processing and the distribution of such benefits will be outside
the system.
Non-monetary benefits (rights bonus etc)
NSDL will give the beneficiary ownership details to the Issuer/ R & T Agent. The Issuer/R & T
Agent will carry out the necessary processing and upload the beneficiary ownership details to
NSDL. NSDL will then credit the beneficiary owners' accounts by downloading the data to the
DPs.
Value added services
Automatic Delivery Out Instructions (Auto DOs)
Delivery-out instructions for moving securities from CM Pool Account to CM Delivery Account
can be generated automatically by the respective Clearing Corporations based on the net delivery
obligations of its Clearing Members. The Clearing Corporation can generate Auto DOs on behalf
of those Clearing Members who have authorised it in this regard. The Auto DOs will be
generated around the time of download of the delivery obligations to the Clearing Members.
Such Clearing Members will not be required to give delivery-out instruction forms to the
Participants for Pay-in to the Clearing Corporation in respect of the automatically generated
DOs. The Clearing Members can know the Auto DOs either by way of download from the
Clearing Corporation or through the Auto DO Report from the Participants or from SPEED
facility on Internet.
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
Dividend Distribution
At present, NSDL merely facilitates distribution of cash corporate benefits like dividend etc., to
shareholders. Details in respect of all beneficial owners of the security as on the record date of
the concerned company are provided by NSDL to the company/ its registrar and share transfer
agent (R & T agent). Thereafter, the company/ R & T agent dispatches dividend entitlements to
the eligible beneficial owners in the same way as is done for shareholders holding physical
certificates.
NSDL intends to extend the service of distributing cash benefits directly to beneficial owners.
On a pilot basis NSDL had extended the dividend distribution service to shareholders of certain
companies. Keeping in view this successful experiment, NSDL, in future, may consider
extending this service to other issuers too who have joined the NSDL depository system.
Advantages
Issuer will be giving a single cheque to NSDL.
Savings in administrative cost for printing of paper instruments in MICR format and dispatching
by registered post.
Loss of instrument in-transit and fraudulent encashment thereof can be totally eliminated.
Effortless receipt for investor - no need to visit the bank for depositing the warrant.
Reconciliation will be smooth.
Investor grievances will be handled by NSDL.
Issuer can ensure better investor service.
Stock Lending and Borrowing
The transactions involving lending and borrowing of securities are executed through approved
intermediaries duly registered with SEBI under the Securities Lending Scheme, 1997. Such an
intermediary may deal in the depository system only through a special account (known as
Intermediary Account) opened with a DP. An intermediary account may be opened with the DP
only after the intermediary has obtained SEBI approval and registered itself with SEBI under the
Securities Lending Scheme. The intermediary has also to obtain approval of NSDL.
Pledge / Hypothecation
Features
Securities held in a depository account can be pledged/hypothecated to avail of loan/credit
facility. Pledge of securities in NSDL depository requires that both the borrower (pledgor) and
the lender (pledgee) should have account in NSDL depository.
The pledge/hypothecation transactions go through the following procedures:
Pledge/hypothecation creation
Pledge/hypothecation closure
Pledge/hypothecation invocation
Public Issues
Investors have an option to seek allotment of public issues in electronic form. As per SEBI
guidelines trades in shares issued through public issue shall be settled only in demat form.
Therefore, it is advisable that investors seek allotment in demat form.
Features
NSDL depository system provides facility for allotments of securities directly in to the
depository account of the investors in the dematerialised form.
Dematerialisation and Settlement of Warehouse Receipts
NSDL, the first depository in the country was established in the year 1996 to remove the
difficulties arising out of use of physical (paper) certificates for settlement of trades on stock
exchanges and improving settlement efficiency. The depository system has successfully met its
objectives. On the basis of the success of demat, rolling settlements were introduced and today,
India is one among the few countries that have T + 2 rolling settlement system.
With the increase in activity in the commodities futures market and establishment of national
level screen-based multi-commodities exchanges, need for an efficient settlement system in that
market is felt. Broadly, a commodity futures contract may be settled either by cash or by delivery
of commodity depending upon the terms of the trade, demand of the buyer and rules of the
exchange. If the trade is expected to be settled by way of delivery of commodity, the clearing
house of the commodity exchange will receive warehouse receipts from the seller instead of
actual commodities and pass such warehouse receipts over to the buyer. In case of national
commodity exchanges, buyers and sellers could operate from different parts of the country and if
warehouse receipts are in physical form, the warehouse receipts have to be delivered across the
country from the seller to the buyer which could lead to systemic inefficiencies.
Warehouse receipts are title documents issued by warehouses to depositors against the
commodities deposited in the warehouses. These documents are transferred by endorsement and
delivery. Either the original depositor or the holder in due course (transferee) can claim the
commodities from the warehouse. Warehouse receipts in physical form suffer all the
disadvantages of the paper form of title documents. Some of these limitations are as follows
Need for splitting the warehouse receipt in case the depositor has an obligation to transfer only a
part of the commodities;
Need to move the warehouse receipt from one place to another with risk of theft/mutilation, etc.
if the transferor and transferee are at two different locations;
Risk of forgery
Drawing lessons from the depository system for securities, NSDL and national level multi-
commodity exchanges have worked out a scheme to extend depository services for settling trades
in commodity futures. Investors trading in commodity futures may follow the steps enumerated
below to avail of depository services for receiving and delivering warehouse receipts.
SMS Alert Facility for NSDL demat account holders
Introduction
NSDL provides SMS Alert facility for demat account holders whereby they can receive alerts
directly from NSDL for following:
All Debit Transfers
Credits for IPO, sub-division and bonus
Failed instructions
Overdue instructions
Change of mobile number
Change of address
Debit of Mutual Fund units
Invocation of pledged securities
Registration and De-registration of Power of Attorney
Modification / Cancellation of nominee name
Charges
No charge is levied by NSDL on Depository Participants (DPs) for providing this facility to
investors.
Registration
This facility will be available to the investors provided they have given their mobile numbers to
their DPs and the DPs have captured the numbers in the DPM system and have also enabled
(ticked) the SMS flag in their DPM system.
Contact
The investors may contact their respective DPs in case they do not receive SMS alert inspite of
registering for this facility. Those investors who have provided their mobile numbers to their
DPs but do not wish to avail this facility may also inform their DPs accordingly provided such
accounts are not operated by Power of Attorney.
E-services
SPEED-e
NSDL launched SPEED-e (pronounced as speedy) in September, 2001. Any Participant of
NSDL can subscribe to SPEED-e, the common infrastructure of NSDL. SPEED-e enables
demat account holders (including Clearing Members) to submit delivery instructions directly on
the Internet through SPEED-e website https://eservices.nsdl.com. SPEED-e is available only to
those Participants who have subscribed to it and the Users sign an agreement with the
Participant.
A demat account holder will have the option of accessing SPEED-e either as a Password User or
as a Smart Card / e-Token User. A Clearing Member must be a Smart Card / e-Token User to be
able to access SPEED-e. Password Users can debit their demat accounts only in favour of
specified Pre-Notified Clearing Member accounts (upto three), while Smart Card / e-Token User
can submit instructions in favour of any number of accounts.
IDeAS
IDeAS (Internet-based Demat Account Statement) is the facility for viewing balances and
transactions in the demat account updated on an online basis with a delay of maximum 30
minutes. This facility is available to the Users of SPEED-e, Clearing Members who have
subscribed to IDeAS and to those clients whose Participants are registered for IDeAS. A demat
account holder or a Clearing Member will have the option to access IDeAS either as a Password
or a Smart Card / e-Token User.
NSDL has launched a facility called IDeAS from January 1, 2004 for investors to view balances
and transactions in demat accounts updated on an online but not real time basis. This facility is
available to all the clients including Clearing Members (CMs) who have opened an account with
any of the Participants under NSDL system.
STeADY
[Securities Trading Information easy Access and DeliverY]
What is STEADY?
STEADY is a facility which enables the brokers to deliver/submit contract notes to custodians/
fund managers electronically by transmitting digitally signed trade information with encryption.
It further enables fund managers to enrich the contract note and convert it into instructions for
the custodian.
SMILE
SMILE is an secured internet based facility which provides an online interface enabling
subscribers to validate DP ID, Client ID and PAN of investors through a file upload. This facility
is available to Book Running Lead Managers, Syndicate Members, etc., for Initial Public Offer,
Public Issues etc.
SPICE (Submission of Power of attorney based Instructions for Clients Electronically)
Clearing Members (Clients who have given Power of Attorney (POA) in favour of the Clearing
Member) can submit auto pay-in instructions to Participants (where Clients maintain demat
accounts) on SPEED-e facility to debit the demat accounts of the Clients and credit their
Clearing Member (CM) Pool Accounts. Thus, eliminating the need to give paper based delivery
instructions to the Participants.
SIMPLE (Submission of Instruction through Mobile Phone Login Easily)
SIMPLE, a facility that enables the password based users of SPEED-e facility to submit Client to
Clearing Member Pool Account transfer instructions on SPEED-e website through their mobile
phones (enabled with GPRS).