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Summer Internship Project report on

FUNCTIONS OF DEPOSITORY PARTICIPAN

LSELudhiana Stock exchange

Submitted by- Amandeep SinghFPB0709/10Indian Business Academy

Bangalore

In partial fulfillment of the requirement for the summer internship project duri

the Post Graduate Diploma in Business Management.

Under the guidance of:

Project Guide MentorMiss Pooja Sharma Prof. Arvind DholakiaSr. Executive (Training & Education Cell) Indian Business AcademLudhiana Stock Exchange Bangalore (INDIA)Ludhiana (INDIA)

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CEOs Certificate

This is to certify, that Mr Amandeep Singh is a bonafide student of Indian Busine

Academy, Bangalore and is presently pursuing a Post Graduate Programme

Business Management.

Under my guidance, he has submitted his project report titled Functions of DP

partial fulfillment of the requirement for the summer internship project during the Po

Graduate Diploma in Business Management.

This report has not been previously submitted as part of another degree or diploma

another Business School or University.

Mr. Manish. Jain, CEO, Indian Business Academy

INDIAN BUSINESS ACADEMY

Lakshmipura, Thataguni Post

Kanakapura Main Road

Bangalore 560 062

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Deans Certificate

This is to certify, that Mr Amandeep Singh a bonafide student of Indian Business

Academy, Bangalore and is presently pursuing a Post Graduate Diploma in Business

Management.

Under my guidance, he has submitted his project report titled Functions of DP

partial fulfillment of the requirement for the summer internship project during the Po

Graduate Diploma in Business Management.

This report has not been previously submitted as part of another degree or diploma

another Business School or University.

Dr. Subhash Sharma, Dean, Indian Business Academy

INDIAN BUSINESS ACADEMY

Lakshmipura, Thataguni Post

Kanakapura Main Road

Bangalore 560 062

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Mentors Certificate

This is to certify, that Mr Amandeep Singh a bonafide student of Indian BusinessAcademy, Bangalore and is presently pursuing a Post Graduate Diploma in Business

Management.

Under my guidance, he has submitted her project report titledFunctions of DP

partial fulfillment of the requirement for the summer internship project during the Po

Graduate Diploma in Business Management.

This report has not been previously submitted as part of another degree or diploma

another Business School or University.

Prof . Arvind Dholakia

INDIAN BUSINESS ACADEMY

Lakshmipura, Thataguni Post

Kanakapura Main Road

Bangalore 560 062

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Student Declaration

I, Amandeep Singh, the undersigned, a student of Indian Business Academ

Bangalore, declare that this project report titled Functions of DP is submitted

partial fulfillment of the requirement for the Summer internship project during the Po

Graduate Diploma in Business Management, at Indian Business Academy, Bangalore

This is my original work and has not been previously submitted as a part of anoth

degree or diploma of another Business school or University.

The findings and conclusions of this report are based on my personal study a

experience, during the tenure of my summer internship.

Amandeep Singh

INDIAN BUSINESS ACADEMYLakshmipura, Thataguni PostKanakapura Main RoadBangalore 560 062INDIA

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INDEX

TOPICS

PART-A

INTRODUCTION OF STOCK EXCHANGE ORGANIZATIONAL CHART OF LUDHIANA STOCK EXCHANGE. PROFILE OF LUDHIANA STOCK EXCHANGE ASSOCIATION LIMITED. ORGANIZATIONAL CHART OF LUDHIANA STOCK EXCHANGE

SECURITIES LIMITED.

RISK MANAGEMENT SYSTEM OF LSE SECURITIES LTD. DEPARTMENTS.

PART-B

DEPOSITORY SYSTEM REGULATIONS OF DEPOSITORIES

FUNCTIONS OF DEPOSITORY SPECIAL SERVICES BANKING SYSTEM FUNCTIONS OF BANKS OPERATIONAL MODEL OF BANK

PART-C

ANALYSIS CONCLUSION BIBLIOGRAPHY

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ACKNOWLEDGEMENTS

After three trimester of hectic schedule full of case studies,exams and presentatio

two month of summer training in PGPM course provides the opportunity to ga

some practical knowledge in the industry and my summer training at Ludhiana Sto

Exchange Association Ltd .provides me one such opportunity. It gave me mu

needed knowledge of the capital market that a student of finance much possess. I g

the chance to understand the activities performed. However, this would not have be

possible without the noble attitude of some persons in the exchange & college.

In preparing this project I have drawn on materials from a variety of book

and journals that have a bearing on different facets of project.

I also wish to extend sincere gratitude to Mr.Manish jain(CEO-IBA), M

A. Dholakia ( Sr. Prof. & HOD-HR), Mrs. Pratima Verma (Prog. Coordinator

PGPM),Mrs. Pooja M. Kohli (Executive Director ,officiating) , Mr. Jagit Singh

Arneja (Senior Manager) , Miss. Pooja Sharma (Sr. Executive, Training &

Education cell)

Mr. Gurbhagwant Singh(C.E.O.Margin Section), Mr. Vinay Mahajan

(Depository Section) and other members of LSE.

Last but not the least , I thank my parents and friends who helped and

assisted us in their various capacities during the various activites.

AMANDEEP SINGH

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PREFACE

In order to make the students competent, all students are requested to take a real time project

work. This exposure to real life situation gives an insight to the students about what problem

can expect to face during his/her career.

Efficient management of material, time and financial resources is very important for th

accomplishment of any objective. Above to this coordination is must, which determines the

degree of success. Theoretical studies are not sufficient to understand the complexities of larg

scale organization and whenever we have to solve any problem the partial study assist with th

theoretical aspect in order to solve any problem so if we have the practical knowledge than onthat problem can be solved.

So in order to undergo for practical work I took my training at Ludhiana Stock

Exchange. At Ludhiana stock Exchange I have done a project on FUNCTIONS OF

DEPOSITORY PARTICIPANT

The present report is well arranged in a coherent manner. In project first of all I ha

made the study of depository and banks.

An annexure at the end of this report shows a real scene of explained matter and ab

some unexplained matter also.

Actually this report is a result of an assignment, to improve myself and gain confiden

In this I have done my best to make it a genuine study but as we all know a maxim TO ER

IS HUMAN so there is a chance of mistakes.

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INTRODUCTION OF STOCK EXCHANGE

A Stock exchange is the nervous system of the capital market. Change in the capital market a

brought are about by a complex set of factor, all operating on the market simultaneously. Suc

changes are subject to secular trends set by the economic progress of the nation, and govern b

the factors like general economic situation, financial and monetary policies, tax changes,

political environment, international economic and financial development etc. It is pillar of the

private sector and corporate economy where the buyer of the security may find an immediate

seller who is ready to sell his holding at a reasonable and fair price and similarly the seller of

security may find a buyer for his security which he is ready to sell. The securities contracts

(Regulations) Act, 1956 define stock Exchange as

An Association, Organization or Body of individuals, whether incorporated or assisti

regulating and controlling business in buying selling and dealing in securities.33

A stock exchange provides necessary mobility to capital and directs the flow of the capital in

profitable and successful enterprises.

A stock exchange is a place or a market where security, shares, debentures, bon

mutual funds of joint stock company, central and state government organizations, local bod

and foreign government are bought and sold. A stock exchange is a platform for the trade

already issued securities through primary market.. It is the open auction market where buy

and seller meet and involve a competitive price for the securities. It reflects hope aspiratio

and fears of people regarding the performance of the economy. It exerts a powerful a

significant influence as a depressant or stimulant of business activity.

The trade in market is through the authorized members who have duly registered w

concerned stock exchange and SEBI.

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Functions of Stock Exchange :

Ready Market :A holder of securities can get back his securities by selling through broke

Similarly a person who wants to make investment can do so through brokers.

Liquidity of Capital: A stock exchange provides a place where securities are easily convert

into cash. Because a stock exchange provides a ready market for securities.

Evaluation of securities : Stock Exchange record and make public the prices at wh

securities are traded. On the basis of this investors can evaluate the value of their holdings.

Center of business information: Companies listed with the stock exchange are required

provide financial statements and other reports. Thus, stock exchanges are the centers providing business information relating to the enterprises whose securities are traded.

The stock exchange discharges these functions by laying down a number of regulatio

which is to be compiled with while making public issues e.g. offering at least a prescrib

%age of capital to the public, keeping subscription list open at least for three days maki

provisions for receiving applications, allotting shares against on a fair and unconditional basi

Traditionally, trading of scripts was done under a tree where three or four came and

traded. The earliest records in security dealing indicate that trading in securities was vogue in

India as early as 1793 but with the development of the capital market, the need for proper pla

to trade was recognized. Thus, the first stock exchange in India i.e. BOMBAY STOCK

EXCHANGE (BSE) Came into being in 1875.The setting up of AHMEDABAD STOCK

EXCHANGE in 1894 and another at CALCUTTA in 1908 followed this being the first Stock

Exchange in India. At present there are 24 Stock Exchanges in India recognized by the Govt.

under the SC r Act, 1956

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HISTORY OF INDIAN CAPITAL

MARKET AT A GLANCE

In India only registered stock exchange can operate the stock market activities &

recognition is government under provisions of securities & contract (regulation) act, 19

there are 24 regional stock exchange in India BSE & NSE daily turnover of all the sto

exchange is about 30,000 crores daily. BSE is old, which was established in 1875 where N

is just 13 years old and was established in 1993.

19th Century

1800 Trading of shares of East India Co.s in kolkata and mumbai

1850 Joint Stock Co.s came into existence.

1860 Speculation and feverish dealing in securities.

1875 Formation of Stock Exchange Mumbai.

1894 Formation of Ahmedabad Stock Exchange

20th

Century

1908 Formation of Calcutta Stock Exchange

1939 Formation of Lahore and Madras Stock Exchange

1940 Formation of U.P and Delhi Stock Exchange

1956 Securities contract Regulation Act enacted landmark.

1957 Scam of Hari Das Mundra

1988 Securities and exchange board of India. SEBI

1991 Scam of M.S.Shoes

1992 SEBI given statutory power under SEBI Act, 1992

1993 National Stock Exchange

1995 Scam of Harshad Mehta

1995 Scam of Sesa Goa

1997 Scam of C.R.B.

1998 Scam of BPL and Videocon.

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21st

Century

2000 Depository came into existence (Electronic form of shares.)

2001 Trading of futures trading, scam of ketan parekh.

2002 Start of rolling settlement and banning of badla trading

2002 Introduction of T +3 settlements of April

2003 Introduction of T+2 settlements.

2005 BSE sensex touches all the high time of 7100 in july.

2005 BSE fluctuated 200 points 100( ) and 100 ( ) in July.

2006 BSE sensex touches all the high time of 11307 in March.

2006 BSE sensex falls down by 565 points in may 17

2007 BSE sensex goes upto 15500 in July 2007 record.

2007 BSE sensex goes upto 15800 on 23 July 2007 record.

2008 BSE sensex goes upto 21077 on 8 Jan 2008,all time high

2008 BSE sensex faces struggling 15000 basic points in May due

Global economic slowdown & rising inflation.

WHO BENEFITS FROM STOCK MARKET?.

INVESTORS: It provides them liquidity marketability, safety etc. of investments

COMPANIES: It provides them access to market funds, higher rating and public interests.

BROKERS: They receive commission in lieu of their services to investors.

ECONOMY AND COUNTRY: There is large flow of savings, better growth, and moves

industries, higher incomes.

The recognition accorded to a stock exchange is normally valid for the period of five ye

subject to the satisfactory performance of Bombay, Delhi, Chennai , Hyderabad and Bangal

have been granted permanent recognition.

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ORGANISATION CHART OF LUDHIANA STOCK EXCHANGE

BOARD OF

DITECTORS

CHAIRMAN

EXECUTIVE DIRECTOR

GENERAL

MANAGER CUM

COMPANY

SECRETARY

MANAGER

LEGEL

DEPAR

T-

MENT

LISTING

DEPARTMENT

MAINTENANCE

DEPARTEMET

SURVEILLANCE COPPUTER

DEPARTMENT

OR

EDP SECTION

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THE LUDHIANA STOCK EXCHANGE ASSOCIATION LIMITED

PROFILE

The Ludhiana Stock Exchange Association Limited Was established in 1983, with 2

members by Sh. S.P. OSWAL and Sh. B.M. MUNJAL leading industrial luminaries, to fulfi

vital need of having a Stock Exchange has grown phenomenally. It switched from man

trading to screen based trading on 18th

November 1996 and number of listed compan

increased from 160 in 90s to 405 in 2008 of which 271 are regional 132 are non-regio

companies.

The Stock Exchange has played an important role in channeling saving into capital

the various industrial and commercial units of the State of Punjab and other parts of

country.

Number of members

293

205 88

Individual Corporate

Number of listed companies

405

271 132

Regional non-regional

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Trading System:

On-line screen based trading system commenced at Ludhiana Stock Exchange on Novemb

18, 1996.On-Line Trading Through VSATS:

With the objective to broad-base business opportunities to the investors and members,

exchange has set up 37 trading terminals at remote sites in the State of Punjab , delhi and uni

territory of Chandigarh. Now from October 1999, trading through VSATS is being smoot

conducted .

Settlement Guarantee Fund (SGF) :

Ludhiana Stock Exchange implemented a SGF w.e.f. April 6, 1998. It provides assurance of

the trades made through the screen based trading system of the stock Exchange . The SGF ha

corpus of Rs.55.38 crore as on 28.02.2008 and membership of 176 brokers.

Depository System:

By becoming participant of NSDL, LSE commenced trading and settlement in Demat

Securities, LSE has set up in house DP services.

Investor Related Services:

Investor GrievancesThe Exchange has made special arrangements to handle investors complaints and grievanc

It has established an Investor Grievance cell that receives complaints from investors a

follows up the complaints with companies and member brokers to ensure their satisfacto

redressal . Recording of complaints and monitoring of their redressal has been fu

computerized The Committee meets periodically to concile the grievance between invest

and broker members

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Investor Protection Fund

The Exchange has set up an Investor Protection Fund in the month of January 1990

providing compensation to investors in case of default by a member of the Exchange. The Fu

has a corpus of Rs. 408.27 lac as on February 28,2008. In case any member broker defaults

meet his obligation toward investors in respect of deal that took place through the tradi

system of the Stock Exchange then the concerned investors are compensated from this fund.

Investor Service CenterThe Exchange has set up an Investor Service Center in its premises for providing informat

relating to the general public. The center has a well equipped library which subscribes

leading economic financial dailies and periodicals. It also stock Exchange the inves

service center is also equipped with a terminal for providing live rates of trading

NSE .A large number of the investors visit the center to utilize the services be

provided by the Exchange.

Trading on Bigger Stock Exchanges Through Subsidiary Route

The Exchange acquired the membership of NSE s BSE through its subsidiary the L

Securities Limited, with the objective of providing an enabling mechanism to its memb

to its member brokers of LSE Securities Limited.

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AGM

At every Annual General Meeting, one third of the elected Directors retire by rotati

Administration of the Exchange is managed by the Executive Director Who is assist

by the General Manager Cum Company Secretary and a team twenty five Advisory aStanding committees including the Investor Grievance Committee to assist t

administration.

Corporate Governance

Although the Ludhiana Stock Exchange is not a listed company, yet it has followed a model

corporate governance, which is evident from the composition of the statutory committees,

investor grievance committee and audit sub-committee. The committee comprises of th

public representatives and three broker members. It is headed by Sh. Dina nath sharma, Re

Additional sessions Judge and under his leadership; the stock exchange is able to redress

investor grievances by following the corporate governance model. Sh. P.C. goyal, chart

Accountant who is also a non-broker, heads the audit committee. Brokers and non-brokers

40-60 ratios represent statutory committee.

Objectives of Ludhiana Stock Exchange:

1. The main objective of LSE is the development of healthy orderly and transplant capitamarket.

2. To protect the interest of investors.3. The LSE also aims to assist, requests and control trade.4. To maintain high standard of commercial honour.

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LSE SECURITIES LIMITED: BRIEF PROFILE

Introduction:

LSE securities ltd. Was incorporated in January 2000 with a view to revive the capital mark

in the region and for taking full advantage of the emerging opportunities being provided expansion of bigger stock exchange like NSE and BSE. The company since its inception

marched forward rapidly and achieved many milestones in a short span of existence.

Objectives of the company

LSE securities limited is a subsidiary of the Ludhiana Stock Exchange which was formed w

an objective to enhance business and investment opportunities for the investors members

Ludhiana Stock Exchange at large, through innovative products by encompassing a variety

activities related to the capital market. The company has an authorized and paid up capital

Rs. 5,50,00,000.

Governing council

The council of the management of the company comprises of 11 directors of which six

broker member and five non brokers. Among the non brokers members, three are independ

directors of eminent status from the field of finance, law and management. Remaining two

gm cum company secretary and executive director of the holding company (ludhiana sto

exchange ) who are the board of the company as ex officio directors. Thus the council

management has representation of sub broker as well as professionals and subject specia

representation various fields of business activities. Operations of the company are run in

professional, transparent and fair manner keeping in view of the interest of investors as well

other stakeholders.

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Corporate Membership Of NSE & BSE

SEBI, at the initiative of LSE, permitted smaller Stock Exchanges, to trade on bigger Sto

Exchanges through their subsidiary companies. The Ludhiana Stock Exchanges floated

subsidiary company, the LSE Securities Limited, with the objective of obtaining trading rig

on bigger Stock Exchanges. It has obtained corporate membership of both NSE and BSE in

first half of year 2000.

F&O Segment Of NSE

The LSE Securities Ltd. Commenced trading operations in Future and Options Segment

NSE in February 2002. The Company became the first subsidiary of any Regional Sto

Exchange, which commenced trading in F&O Segment of NSE. Response to trading facilit

in the F&O segment of NSE has been very encouraging and volumes generated in t

segment soon exceeded those in Capital Market segment.

Trading Through V-SATS

The LSE Security Ltd. Has also provided facility to its sub-brokers for trading on NSE a

BSE through VSAT counters, which are located outside Stock Exchange Building. Present

23 sub-brokers of the company have been trading through VSAT on NSE and four on BSE.

Certification In Financial Market

In order to provide professional services to the investors of LSE Security Limited through

sub-brokers, the company motivated its sub-brokers and its staff to qualify the certification

financial markets conducted by NSE. As a result, the persons having qualified the s

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certification are operating 97 trading terminals for Capital Market Segment and 44 for F&

segment.

Depository Participant Services- National Security Depository Limited (NSDL)In order to further strengthen its services to sub-broken and investors, the Company applied

the DP of CDSL. It started DP operations of CDSL, in December 2001. With t

operationalisation of DP Service of CDSL, the company has been able to provide delivery

shares to sub-brokers and investors on the day of payout, which in turn helps the sub-brokers

give timely deliveries to their clients. Introduction of CDSL operation has also enabled the su

brokers and investors of the Company to timely meet the pay in obligations of securit

purchased by the investors on BSE and sold next day on NSE through the company and vi

versa.

Expansion Project

To increase its presence in the region further, the company plans to open its branches of

Depository services in the major cities of the region. To start with, it has already opened its

branches at Jalandhar, Amritsar, Ferozepur, Sirsa (Haryana), Una (H.P), Chandigadh.

Also having plans to open branches in Moga and Sangroor.

Risk Management system of LSE Securities Limited

Deposit

Every member of LSE registered with SEBI as sub-brokers of LSE Securities limited tradi

through LSE Securities

Limited on NSE has deposited an interest free security Deposit 1.50 lac with the form of cash .

Trading System

LSE Securities limited has been using CTCL based Neat . XS Trading Software developed

NSE,IT for trading on NSE . The said trading software has the features like setting up of Intra D

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Trading Limits, Gross Exposure Limits and MTM Limits . The system has also the feature

viewing top n

Number of Sub-Brokers in order of MTM loss incurred by them at particular of time.

Gross Exposure Limits

Sub-brokers have an Intra Day Trading Limit of 8 times of their Interest Free Security Deposit

Rs.1.50 lac. The sub-broker desirous of availing higher limits is required to deposit additio

capital in the form of Cash /FDRs.

It is important to mention here that validation by the systems done on the basis of orders input by

sub-broker not on the basis of trades As such, a sub-broker cannot exceed his Gross Expos

Limit at any point of time. As soon as a sub-broker reaches 100% of his Gross Exposure Limit, h

terminal is deactivated automatically by the system and for activation the concerned sub-broker

required to deposit additional capital in the form of Cash/FDR.

Day and Reports

1. LSE Securities Limited generates a report detailing sub-broker wise open purchase positi

MTM loss, MTM gain and deposits available with the Exchange at the end of a particular tradi

day to monitor the overall positions of the sub-broker to take preventive measures wherev

required in the subsequent trading days.

2. LSE Securities Limited also generates a sub-broker wise report detaining the Mark-to-Mar

loss incurred by the sub-brokers during a specific period along with their deposits available with t

Exchange so as to monitor those cases closely where the Mark-to Market Loss during a speci

period are very high.

3. LSE Securities Limited also generates a report with regard to the trades executed between

sub-brokers so as to check whether there have been any trades between the sub-brokers of L

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Securities Limited especially illiquid scrips leading to creation of artificial market so as to ta

preventive measures/actions at the end of subsidiary itself.

Action in case of delay in meeting obligations by the sub-brokers towards pay-in a

margin

All the sub-brokers are required to meet their obligations towards pay-in and margin on T

day. In case any sub-broker fails to meet his obligations towards pay-in and/or margin on T

day and then the terminal of the concerned sub-broker is deactivated on T+2 day and the sa

is activated only on clearance of obligations with the reduced exposure limits fit by L

Securities Limited.

It is important to mention here that since LSE Securities Limited is required to meet

obligations towards pay-in in T+2 day, the sub-brokers of LSE securities Limited a

required to meet their obligations towards pay-in on T+1day so as to avoid any default

pay-in by LSE Securities Limited on NSE.

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DEPARTMENTS OF LSE

1. LEGAL DEPARTMENT

When the broker or outside client do not settle the claim in between themselves and move

the legal courts, the legal department comes into the picture to fight for the cause of invest

and against the defaulting members. Legal department also assist the members, investors

settle their disputes through the arbitration committee, investor grievance committee so that

dispute may be settled at the earliest with out incurring heavy dues or amount regarding co

fee, advocate fee etc. The main objectives of the legal department is to streamline and ma

effective, the rules and regulation of the exchange and to see that the guidelines circular a

any amendments in rules made by SEBI are enforced at the appropriate time so that futu

complication may be reduced or avoided.

Whenever the point of law is involved, it is the duty of legal department to take the le

opinions from senior advocate in accordance with the present law and circulate them amon

the member for their benefits.

As the name, Legal Department suggests, it is clear that the department will solve eve

matter involving legal work.

2. SECRETARIAL DEPARTMENT

The functions and duties of the secretarial department include maintenance of records

minutes like:

a) Meeting of Board of Director

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b) Meeting of Various committeec) Meeting of Members

d) Minutes of Annual General Meeting (AGM)e)

Minutes of Extra ordinary General Meeting (EGM)

These minutes are statutory requirements and are preserved by the secretarial department.

Another function of secretarial department is to send notices with the directio

of B.O.D. to the respective director to attend Board Meeting. It is also a duty of secretar

department to ensure that every meeting held is a valid meeting having the quorum requir

by the law otherwise it would effect towards unlawfulness. The decision taken at such meet

cannot be rectified in another meeting.

It also sends notices to members for attending various committee meetin

Notices are also sent to members for attending annual general meeting and extraordin

general meeting. The notices are prepared very carefully because these contain the agen

pertaining to the meeting. Only the agenda shows the purpose of holding the meeting.

All this makes it necessary for the secretarial department to have a proper

dating data, up dating of law and timely show of latest information so that the objective of

functioning are properly accomplished. This department also deals with transfer of shares.

Order to be a member of stock exchange a person has to hold at least one share. If the memb

wishes to sell his ticket, he has to intimate the secretarial department in advance. A notice

given thereafter in newspaper for objection within 10 days of such a notice; the clients c

lodge their claims . A 10 days notice is also displayed in the notice board of the exchange

objections to be raised by the members.This department covers:

Listing department Membership

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Investor grievance cell

(a) LISTING DEPARTMENT

Listing is one of the major functions of stock exchange wherein the securities of the compan

are enlisted for trading purpose. Any company incorporated under companies Act, 19

coming out with an IPO (Initial public offering ), has to mandatory list its shares on a sto

exchange .

The Listing Department of Ludhiana stock exchange deals with listing of securiti

further listing of issues like bonus and rights issues; post listing compliance of the compan

which are already listed with ludhiana stock exchange. The Companies desirous of listing

securities on the exchange have to sign a listing agreement with the stock exchange.

(b) MEMBERSHIP

This department deals with the membership of individual & corporate members . t

trade in market is done through the authorized members who have duly registered w

concerned stock exchange & SEBI. The total member brokers in exchange are 301.

MEMBERS

CORPORATE INDIVIDUAL

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(c) L.G.C. (investor grievance cell)

The exchange has made special arrangement to handle investors complaints a

grievance. It has established an I.G.C which receive complaints from investors and follo

up the complaints with company and member brokers to ensure satisfactory redress

Recording of complaints and monitoring of their redress are fully computerized.

Investor Protection Fund

The exchange has set up an I.P.F. in the month of January,1990 for provid

compensation to individual investor in case of default by a member of exchange.

Investor services centre

The exchange has set up an I.S.C in the premise of exchange, which provid

information related to capital market. the centre has a well-equipped library.

The exchange introduced a computer based stock-tel-system for provid

online real time information on a telephone through a fully automatic system, to the inves

and members of general public such ass prices of scrip, new listing etc. centre is also w

equipped with a screen for providing live rates of trading at LSE,BSE and NSE.

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3. TECHNICAL DEPARTMENT

This department of LSE is regulating the activities related to the fields of electric

mechanical and civil engineering besides having other functions like that of security. H

are some important aspects: Air conditioning plant Electrification of building Maintenance of lifts Maintenance of generators Maintenance of telephone exchange

4.EDP SECTION

The growing technicalities and the increasing workload have enhanced the importan

of computer dept. at L.S.E. now days. The computer section of stock exchange is the backbo

of this organization as it remains active all the time and is directly or indirectly involved in

the activities of the exchange from beginning of the settlement period till its end. T

department is mainly referred as to EDP SECTION i.e. electronic data processing sectio

The computer section of LSE prepares several reports namely.

1. Scrip wise statement of each member for each settlement period.2. Scrip status report for each settlement period.3. Receive order detail statement.4. Statement of transaction of each settlement period for each broker.5. Difference bill statement.6. Trial balance.7. Supplementary Report.8. Main Statement.

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9. Bank entry statement.10. Bank entry statement.

Some of the above mentioned reports are given to the broken, some are kept by the stoexchange for their own records, and last report is sent to bank.

Scrip status Report:

Scrip status report is for the internal use of exchange. It contains total number

transactions, quantity sold, value of transaction at highest, lowest and weighted average rate

the settlement

Receive order detail statement:

The computer system generates this report for each member. The statement tells t

broker regarding their net position of shares i.e. how many shares they are to receive fr

which broker.

Statement of transaction:

Statement of transaction gives scripwise transaction of the broker. It contains haw

rate and according to hawala rate difference payable/receivable statement is prepared. T

statement is also prepared for individual broker. It contains information on net amou

payable/receivable from individual brokers.

Supplementary Report :

After the preparation of trial balance supplementary reports it contains information for

payment may against the Debit Note . After this main statement and main trial is prepare

main statement has the information regarding outstanding position of each member and

main trial has the information regarding net outstanding position of each member .

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Bank Entry Statement :

This statement lists the amount to be Debited/Credited in each broker account .

It contains: Serial Number . Broker Name Account Number . Debit Amount . Credit Amount . Grand Total.

5. ACCOUNTS DEPARTMENT

Accounts department deals with maintenance of records regarding income a

expenditure of the exchange. It prepares annual accounts of

the exchange . Most of the work in the accounts department of LSE is done manua

although help is taken from computer for making Trial balance , Income & expendit

statement & Balance Sheets . The manual report of LSE is generally published in Au

every year .The account department of LSE performs the following functions:

To make receive payments to the outside agencies . outside agencies inclucompanies listed at LSE and brokers working in LSE .

To keep the record of all incoming and outgoing money & preparation of financmatters at the end of the financial year .

To get their accounts audited from the third party .

Some of the accounts polices followed are :

Accrual system of accounting is followed . Fixed assets are stated at the historical cost less deprecation .

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Deprecation is provided on W.D.V method in accordance with schedule 15th of companies A

1956.

6. MARGIN SECTION

It is necessary for every Stock Exchange to establish margin section in the exchange

basic function is to collect different type of margin from brokers as per regulations given

SEBI.. The idea behind this section is:-

To prevent the members form doing excessive speculative trading. To keep track of the members who are expected to default in future .

Function of margin section

1. To collect BMC, ABMC.2. To keep a track on the members / brokers.3. Collection of the margins.4. Release of the margins .

Margin section is an important section . This section apart from dealing in securities

regulation the trading of brokers , keep a check on excessive trading in speculation . margin

the amount, which is collected from the brokers for the safety of transaction . as the transact

are to be finalized on T+2basis , in the mean time the rates may fluctuate which may lead

default . so to make a transaction safe , daily margins are collected from brokers . when

member gets registered in the exchange and with SEBI than before starting trading he

supposed to deposit some money , which is fixed by SEBI as security . now in SEs rolli

statement prevails . Ultimately margin is the difference between the limit and the trade done

the member any member wants to do trade up to greater limit than he can deposit Addition

Base Minimum Capital.

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Net Exposure limit:

Each member would have a net position limit i.e. net of volume of purchases and sa

of each scrip would be equal to 8 times of the sub total of BMC&ABMC. So, it indicates

difference between sale and purchase and calculate on daily basis. Net position of eamember at the end of the day would be carried over to the next day.

6. PERSONNEL DEPARTMENT

This department carries out all activities relating to

The recruitment of the personal, whenever and where ever a vacancy arises, Maintenance of attendance registers, Appointment or removal of floor clerks or authorized representatives of brokers. Records of leaves and overtime of employees, Promotion, Demotion, Resignation, Conveyance allowance etc. `

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DEPOSITORY SYSTEM

Introduction:

Inherently, Indians are found of possession, which may be flat or house, financial ass

or jewelry. Investors love to hold the physical share certificate acquired by them long ba

The globalization of Indian capital market has introduced the concept of depository, wh

deprives. The principal function of a depository is to dematerialize securities and enab

their transactions in book entry form. Dematerialization of securities occurs when securit

issued in physical form, are destroyed and an equivalent number of securities are credi

into the beneficiary owners account.

The first depository in the word was set up way back in 1947 in Germany. Depository

India is relatively a new concept as it was introduced in 1996 with the enactment

depositories act 1996. The1use of depository in India is voluntary or option.

Meaning of Depository

In India ,the Depositories Act defines a depository to mean, a company formed a

registered under the Companies Act, 1956 and which has been granted a certificate

registration under sub-section (IA)of section 12 of the Securities and Exchange Boa

of India Act, 1992.

The term Depository means a place where something is deposited for safekeeping

bank in which other deposit funds or securities, usually under the terms of speci

depository agreement. Depository means one who receives a deposit of money, securiti

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instruments or other property, a person to whom something is entrusted or trustee, a pers

or group entrusted with the preservation of safe keeping of something. A depository is

organization where the securities of the shareholders are held in the electronic form at t

request of shareholders through the medium of depository participant. The depository hoelectronic custody of securities on the settlement dates.

Depository cannot act as depository unless it obtains a certificate of commencement

business from SEBI. National Securities Depository Ltd. (NSDL)promoted by IDBI.NSE is

countrys first depository. Later on Central Depository Services ltd. (CDSL) was promoted

BSE, Bank of Baroda etc.

The Depository System

The depositories are important intermediaries in the securities market. Deposito

system is concerned with conversion of securities from physical to electronic form, settlem

of electronic segments, electronic transfer of ownership of shares and electronic custody

securities. The system results in instant transfer as compared to 6 & 8 weeks time und

physical mode.

In a depository system, the investors stand to gain by way of lower risks of theft

forgery, problem of fraudulent transfer etc. electronic transfer is faster in comparison to pap

work. Stamp duty is exempted and turns over & liquidity enhances manifold.

The securities are transferred by debiting the transferees depository account. T

implementation of the system has to be secure and well governed. The intermediaries in

system have to follow strict rules.

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ELECTRONIC LINKAGE

ISSUER

NSDL /CDSL EXCHANGE

(CC/CH)

DP DP

Broker Investor Investor Broker

Depository Participants:

A depository Participant is described as an agent of the depository. In legal sense, a DP is

entity that is registered with SEBI under the provisions of the SEBI (Depositories

Participants) Regulations, 1996.

As per the provisions of this Act, a DP can offer depository related services only af

obtaining a certificate of registration from SEBI.

As per SEBI guidelines, financial institutions, banks etc. can become the participants

the depository. A DP maintains your securities accounts and intimates the status of yo

holding from time to time. The relationship between the DPs and the depository is governed

an agreement made between the two under the Depositories Act.

EL.LINK

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In India, Two Depositories Have Got Registration From SEBI.

These are:

1.NSDL National Securities Depository Ltd.

2. CDSL Central Depository Services Ltd.

NSDL:

It is the first depository in India, registered on 7th

June 1996 with SEBI and commenced

operations on 8th November 1996. NSDL is promoted by for major institutions- Unit Trust of

India, Industrial Bank of India , National Stock exchange, and State Bank of India. The

depository has now become one of the critically important institutions providing infrastructur

support to Indian Capital Market. As on April 30,2003, there are 37,89,416 Investor accounts

from within the country and abroad. The following table shows the growth in investor accoun

over a period of three years.

Month-Year Client Account

No. Of Accounts(lakhs)

Apr-01 34.54

Apr-02 37.02

Apr-03 37.89

Apr-04 43.48

Apr-05 53.30

Apr-06 66.73

Apr-07 80.01

Apr-08 95.00

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CDSL:

It is the second depository in India, secured its certificate of commencement of business on

February 8,1999 from SEBI. CDSL is promoted by-The Bombay Stock Exchange (BSE)in

association with Bank of India, bank of baroda, State Bank of India and HDFC Bank. The BShas been involved with this venture right from the inception and has contributed towards the

project. The main objective of CDSL is to accelerate scrip less trading and to create a

competitive environment, which willl be responsive to users interests and concern.

REGULATIONS OF DEPOSITORIES

DEPOSITORIES ACT 1996

SEBI

SEBI ACT 1992 SEBI(Depositories &

Partifipants)

Regulations, 1996

DEPOSITORY

Business Rules Bye Laws Agreement Application of

acts/ regulations

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COMMENCEMENT OF BUSINESS

To get a business commence by depository the following is required to be performed:

Registration: As per the provisions of the SEBI act, a depository can deal in securities only

after obtained a certificate of registration from SEBI. On being satisfied with the eligibility

parameters of a company to act as a Depository SEBI may grant a certificate of registration

subject to certain conditions.

Commencement Of Business: A Depository , which has obtained a registration, c

start operations only after getting a certificate of commencement of business from SE

A depository must apply for and obtained a certificate of commencement of business fro

SEBI with in I year from the date of receiving a certificate of registration from SEBI

SE

grants a certificate if it is satisfied that depository has adequate systems & safeguard

prevent manipulation of records and transactions. SEBI takes in to account all matt

relevant to the efficient and orderly functioning of the depository. It particula

examines if:

1) The Depository has a net worth of not less than Rs. 100 lakhs.2) The Byelaws of depository has been approved by SEBI.3) The automatic data processing system of depository have been protected agai

alterations, destructions, disclosure of records and data.

4) The network, through which continuous electronic means of communication established between depository, DPs, issuers and R&T agents, is secure agai

unauthorized entry.

5) The physical or electronic access to premises, facilities, automatic dataprocessing system, data storage sites and facilities including backup sites and t

the electronic data connecting the DPs, issuers and R&T agents is controlled,

monitored & recorded.

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6) The depository has made adequate arrangements including insurance, indemnifying the beneficial owner any loss that may be caused by such benefic

owners by wrong full act default of the depository or its DPs participants or a

employee of the depository.7) The granting of certificate of commencement is in the interest of the investors in

securities market.

8) The depository has detailed operational manual explaining all aspect or itsfunctioning the interface and method of transmission of information between the

Depository, issuers and R&T agents, DPs & beneficial owners.

9) The granting of certificates of commencement of business in the interest of investin securities market.

Rights And Obligations Of Depositories

Depository have the rights and obligation conferred upon them under the Depositories A

1996, the regulations made under the Depositories Act, Byelaws approved by SEBI, and

agreement made with DPs, issuers and their R&T agents.

Every depository must nave adequate mechanisms for reviewing, monitoring a

evaluating its control, systems, procedures and safeguards. It should conduct an ann

inspection of these procedures and forward a copy of the inspection report to SEBI. T

depository is also required to ensure that the integrity of the automatic data processing syste

is maintained at all times and take all precautions necessary to ensure that the records are

lost, destroyed or tampered with. In the event of loss sufficient backup of records should

available at different place. Adequate measures should be taken including insurance, to prot

the interest of beneficial owners against any risk.

The depository should indemnify beneficial of security of any loss caused to them due to

negligence ofDP.

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Bye laws:

The depository is required to make byelaws governing its operations. The byelaws have to be

conformity with Depositories Act, 1996 and the regulations made there under and need to approved by SEBI before becoming effective

Services Of Depository

A depository established under the Depositories Act, 1996 can provide any services connecti

with recording of allotment of securities or transfer of ownership of securities in a record of

depository. A depository can provide depository services through DP. Generally the followi

securities are eligible for dematerialization.

Shares, scripts, stock, bonds, debentures or other marketable security ofalike nature in or other body corporate.

Units of mutual fund, rights under collective investment schemes andventure capital funds, commercial paper, certificates of deposit, securitis

debt, money market instruments, government securities and unlisted

securities.

Securities admitted to NSDL depository are notified to all DPs through circulars sent.

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FUNCTIONS OF DEPOSITORY

Transfer and registration:A transfer is a legal change of ownership of securities in the records of the issuer. For affecti

the transfer, certain legal steps have to be taken like endorsement, execution of transinstrument and payment of stamp duty. The depository accelerates the transfer process

registering the ownership of entire issue in the name of the depository. Under a deposito

system, transfer of security occurs mainly by passing book entries the records of

depositories, on the instruction of the beneficial owners.

Pledge and hypothecationDepositories allow the securities placed with them to be used as collateral to secure loans a

other credits. In the manual environment, borrows are required to deliver pledged securities

physical form to the lender or its custodian. These securities are verified for authenticity a

often need to be transferred in the name of lender. All this takes time. It also has a money c

by way of transfer fees or stamp. If the borrows wants to substitute the pledge securities, th

steps have to repeated. Use of depositary services for pledging/hypothecating the securit

make the process very simple and cost effective. The securities pledge/ hypothecated

transferred to a segregated or collateral account through book entry in the records of deposita

Dematerialization:One of the primary functions of depository is to eliminate or minimize the movement

physical securities in the market. This is achieved through dematerialization of securiti

Dematerialization is the process of converting securities held in physical form into holding in

book entry form.

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Account transfer:The depository gives effect to all transfers resulting from the settlement of trades and the oth

transactions between various beneficial owner.

Corporate actions:A depositary may handle corporate action in two ways. In first case, it merely provid

information to the person entitled to receives the corporate benefits. In other, case deposito

itself takes the responsibility of the distribution of the corporate benefits.

Linkages with the clearing system:Whether it is separate clearing corporation attached to a stock exchange, or a clearinghouse o

stock exchange, the clearing system performs the functions of ascertaining the pay-in(sell)

pay-put (buy)of brokers who have traded on the stock exchange . Actual delivery of securit

to the clearing system from the selling brokers and delivery of securities from the cleari

system to the buying brokers is done by the depositary. To achieve this, depositaries a

clearing system should be electronically linked.

Account OpeningFor an depositary account opening is very important and major function. It is a demat accou

and by Lse only Rs. 500 charged for account opening. And account opening form are as und

and also their formalities.

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RECORDS, WHICH ARE TO BE MAINTAINED BY DEPOSITORY

The record and documents which are required to be mainted by every depository, can be stateas below which have to be reserved for a minimum period of

5 Years: Records of securities dematerialized and rematerialized. The names of the transferor , transferee. A registrar and index of beneficial owner. Details of the holdings of the securities of beneficial owner as at the end of each Details of Dps Detail of securities declared to be eligible for dematerialization in the depositary Record of approval, notice, entry and cancellation of pledge or hypothecation. Record of instruction received from and send to participant, issuers, issuers agents and

beneficial owner.

Such other records as may be specified by SEBI for carrying on the activities as adepositary.

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VARIOUS OPERATIONS PERFORMED BY DEPOSITORY

Account Opening:

Any investor can avail depository services but first an account must be opened with adepository participant just as in a bank. Any person desiring to become a client of the DP sha

make an application as per the forms, which have been laid out in Annexure. The participant

shall ensure that the application form submitted by the client is completely filled & properly

signed by the client.

Type of Account

Beneficial owner A/c

Clearing member A/c

Intermediary A/c

House Non House

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A DP may be required to open three categories of account for clients Beneficiaryaccount, Clearing Member Account and Intermediary Account.

A Beneficiary Account is an ownership account. The holders of securities in this type account own those securities.

The clearing member account and intermediary account are transitory accounts. Thesecurities in these accounts are held for commercial purpose only.

A clearing member account is opened by a broker or a clearing member for the purposof settlement of trades.

An intermediary account can be opened by a SEBI registered intermediary for thepurpose for the purpose of stock lending and borrowing.

Beneficiary Account

This is an account opened by investors to hold their securities in dematerialized form with a

depository and to carry out the transactions of sele and purchase of such securities

In book entry from through the depository system a beneficiary account holder is legally

entitled for all rights and liabilities attached to the securities held in that account is called

beneficial owner account this is further classified as;

i. House accountii. Non-house account

House Account ;- an account by a DP for the custody of and transactions in its own

investment is referred to as a house account

Non house account ;-all other beneficiary accounts are referred to as

Non house

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Clearing member account

The entities that are authorized to pay in and receive the pay out from a clearing corporationclearing house against trades done by themor their clients are known as clearing

members(CM). all pay in and pay out transactions are carried out through their accounts.

There are two types of clearing members

1. All members of stock exchange properly known as brokers, and clearingmembers;

2. custodians who are permitted by the stock exchange to act as a clearing membe

Intermediary Account

As per SEBI Regulations on Stock lending and borrowing only an approved intermediary c

and borrow stocks from clients. This intermediary borrows from lenders and lends

borrowers. Intermediate registered with SEBI as approved intermediary account with a DP

its choice executing stock lending and boring transaction made through them.

intermediary account may be opened only after obtaining registration from SEBI under

approved stock lending scheme and getting the approval of the depository for opening

account. The process of opening an intermediary account is same as for opening a corpor

be3nriciary account securities may be transferred to or from an intermediary account only

per the reproduce prescribed for this by the depository

Transmission And Nomination

One of the lesser-known but widely experienced problems of dealing in securities is w

regard to their transmission The companies Act distinguishes transmission of shares fr

transfer of shares. While transfer of shares relates to a voluntary act of the sharehold

transmission is brought about by operation of law. The word transmission means devoluti

of title to shares, for example. Devolution by death, succession, inheritance, bankrupt

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marriage etc. the person on whom the shares devolve has to prove his entitlement

submitting appropriate documents and seek transmission. If the securities are held in

depository system documents have to be submitted to the DP.

Nomination Facility

The Companies (Amendment) Act, 1999 has introduced provisions for nominations in resp

of shares, debentures, fixed deposits, etc. The nomination facility fulfils one of the long

needs of the investors. This facility was already in place for deposits in banking indust

Under the provisions, a shareholder , a debenture-holder, a bondholder or deposits would ve

in the event of original investor s origin investor s death. Then facility can be availed of

any person whether Indian or a non-resident Indian investor.

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DEMAT & REMAT;

Dematerialisation

One of the methods of preventing all the problems that occur with physical securities i

through dematerialization (demat). India has adopted the demat route in which the book entry

made electronically against securities that are cancelled.

After this process each security is identified in the depository system by ISIN and short name

International security Identification Number(ISIN) is a unique for each security issued in a

of the International Standards Organization (ISO) member countries in accordance with the

ISIN standard (ISO 6166). ISIN is a 12-character long identification mark. It has three

components- a pre- fix, a basic number and a check digit.

Steps:

1) Client / Investor submits the DRF (Demat Request From) and physical certificatesDP.DP checks whether the securities are available for demat. Client defects

certificates by stamping Surrendered for Dematerialisation. DP punches two holes

the name of the company and draws two parallel lines across the face of certificate.

2) DP enters the demat request in his system to be sent to NSDL. DP dispatches physical certificates along with the DRF to the R&T Agent.

3) NSDL records the details of the electronic request in system and forwards the requeto the R&T Agent.

4) R&T Agent, on receiving the physical documents and the electronics request, verifand checks them. Once the R&T Agent is satisfied, dematerialistion of the concern

securities is electronically confirmed to NSDL.

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5) NSDL credits the dematerialized securities to the beneficiary account of the investor aintimates the DP electronically. The DP issues a statement of transaction to the client.

REMATERIALISATION

The process of getting the securities in an electronic form , converted in to the physical form

known as rematerialisation . An investor can rematerialize his shares by filling a

Remat request form (RRF) . The whole process as follow :

REMATERIALISATION PROCESS

1. Investor makes a request for rematerialisation to the DP2. DP informs depository about the the request.3. Depository confirm the request to the registar of the issuer company4. Account are updated by the depository and detail are provided to the DP5. Investor receive the certificate from the registar

TRADING AND SETTLEMENT

One of the basic service provided by NSDL is to facilitate transfer of securities from oaccount to another at the instruction of the account holder. transfer of securities from o

account to another may be done for any the following purpose:

a. Transfer due to a transaction done on a person-to-person basis is called off-marktransaction.

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b. Transfer arising out of a transaction done on a stock exchangec. Transfer arising out of transmission and account closure.

OFF-MARKET TRADE

1. Seller gives delivery instructions to his DP to move securities from his account to the

buyers account.

2. Buyer automatically receives the credit of the securities into his account on the basis ostanding instruction for credits.

3. Buyer receives credit of securities into his account only if he gives receipt instructions

standing instructions have not been given.

4. DP needs to be extra carefull in verifying the signature of the client if unusual quantiti

of securities are being debited to the account.

5. Funds move from buyer to seller outside the NSDL system.

DP1 DP2

NSDL

SELLER

BUYER

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A market trade is one that is settled through participation of a clearing corporation in t

depository environment, the securities move through account transfer. Once the broker

on the stock exchange executes the trade, the seller gives delivery instructions to his D

to transfer securities to his brokers account.The broker has to than complete the pay-in before the deadline prescribed by the stock

exchange. The broker removes securities from his account to CC/CH of the stock

exchange concerned, before the deadline given by the stock exchange.

The CC/CH gives pay-out and securities are transferred to the buying brokers accoun

The broker then gives delivery instructions to his DP to transfer securities to the buyer

account. The movement of funds takes place outside the NSDL system.

1. Seller gives delivery instructions to his DP to move securities from his account to his

brokers account.

2. Securities are transferred from brokers account to CC on the basis of a delivery out

instruction

3. On pay-out , securities are moved from CC to buying brokers account.

4. Buying broker gives instructions and securities move to the buyers account.

SPECIAL SERVICES

Pledge and Hypothecation:The depositories Act permits the creation of pledge and hypothecation against securities.

For this purpose , both the parties to the agreement, i.e. the piedgor and the pledge must have

beneficiary account with NSDL .However . both parties need not have their

Depository account with the same DP The nature of on the securities offered as collateral

determines whether the transaction is a pledge or hypothecation . if the lender (pledgee

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has unilateral right (without reference to borrower) to appropriate the securities the

securities to his account if the borrower (pledgor)defaults or otherwise, the transaction

called a pledge .

If the lender needs concurrence of the borrower (pledge ) for appropriating securitiesTo his account the transaction is called hypothecation.

PLEDGE OF DEMAT SHARES

Steps:

1) Agreement is signed between the pledgor and pledgee outside the NSDL system .2) Pledgor gives a pledge creation request to DP who enters it in the system .3) The request reaches the pledgees DP through the NSDL system . his DP intimates pledge4) Pledge gives a pledge creation confirmation to his DP who it in the system .5) Securities are transferred free balances head t pledged balances head.6) Loan is given by pledge to pledgor outside the NSDL system .

PLEDGE CLOSURE

The pledgor can request for closure of pledge /hypothecation after the performance of the

underlying agreement.

STEPS:

1) Pledgor repays the loan to pledgee .2) Pledgor gives a pledge closure request to his DP.DP forwards the request to pledgees DP

through NSDL.

3) Pledge gives a pledge closure confirmation form to DP.DP confirms the on the system .

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4) The pledge is closed and the securities are moved from pledged balances to free balancsin the pledgors account.

STOCK LENDING AND BORROWING

The transaction involving lending and borrowing of securities are executed through approved

intermediaries duly registered with SEBI under the Securities Lending Scheme, 1997 Such a

intermediary may deal in the depository system only through a special account (known as

intermediary account ) opened with intermediary account may be opened with the DP only af

the intermediary has obtained SEBI approval and registered itself with SEBI under the

securities Lending Scheme . the intermediary also needs to obtain an approval of NSDL.

CORPRORATE ACTIONS

Benefits acquiring to shareholders in the nature of diviedends and bonus,etc are generally

referred to as corporate actions in the context of depository operations . corporate actions

are the events , which affects the rights obligataions and/ or interest of the beneficial owners

the securities hsld in a depository. the most common examples are payment of interest ,

dividend bonus shares rights splits merger, redemption calling of call-money due, liquidation

etc..

`Public Issues

Primary market is a market for raising funds from the primary source of savings i.e. investors

The issue of securities in the primary market can be made by a new company, promoted by an

existing company, an existing public listed company, or an existing public unlisted public

unlisted company. According to the Companies Act (section 6&B) every listed public

company, making an initial offer of any security of Rs.10 crore and above has to issue it only

dematerialised from in accordance with Depositories Act, 1996.

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DEBT INSTRUMENTS & GOVERNMENT SECURITIES

Debt InstrumentsThe interest bearing securities are called debt instruments. Depending on features like issuer,

tenure, interest rate, etc., debt instruments can be classified into different categories like bond

debentures, commercial paper, government securities, etc. These are further classified broadl

into subordinate bonds, floating rate bond/ debenture, deep discount bond, secured/ unsecured

debentures, zero coupon bonds, debentures and commercial paper, government securities are

issued by governments State or Central.

GOVERNMENT SECURITIES

Government securities meansa security created and issued by the Central Government or Stat

Government for the purpose of raising a pubic loan. There are two types of Government

Securities and Treasury Bills. Dated securities have a maturity period of more than one year

and the maturity period of treasury bills is to one year. RBI through its Public Debt Office

(PDO) handles all the activities relating to issue of government securities, settlement of trade

SPEED-e

NSDL has set-up an Internet based service called SPEED-e. Demat account holders (includin

brokers) can submit delivery instructions to their Depository Participants (DPs) electronically

thus eliminating the need to submit instructions in paper form. The facility features high leve

of security for server authentication and data encruption. The instructions submitted by the

account holders are digitaly signed. SPEED-e allows both interactive and batch file operation

with digital signatuer. Thus, data entered by the account holder is received in to the depositor

participants system and executed.

Freeze Facility on Speed-e

The clients can freeze/ un-freeze their accounts through Speed-e website.

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The freeze/ unfreeze indtructions given through Speed-e will be directly

applined cn the depositry system and the DP cannot override such freeze/

unfreeze instructions.

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BANKING SYSTEM

We are beginning the study of commercial banking by looking its meaning .this safe place

ultimayely evolved into financial institutions that accept deposits and make loans i.e. the

modern commercial banks. Banks accept money for the safe custody, which is repayable on

order of the depositor.

MEANING:

Banking means the accepting for the purposes of lending or investment of deposit of

money from the public, repayable on demand or otherwise & withdraw able by cheque, draft

otherwise.

In short we can say :

1. A bank is a commercial establishment- a dealer in debts which

2. Aims at earning profits

3. By accepting deposit form the public, which

4. Are payable on demand or otherwise, through

5. Cheque, drafts or otherwise; and

6. Which are used for lending or investment

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FUNCTIONS OF MODERN BANKS

ACCEPTING LENDING CREDIT CHEQUE

DEPOSITS LOAND & CREATION SYSTEM

ADVANCES OF PAYMENT

OF FUNDS

Fixed or Current A/c

Time Deposit

A/C Recurring

Deposit A/c

Saving bank

Deposit A/c

Money at Cash credit Credit toCall Overdraft govt.

Term Loans

Banks performs different functions & services so that they can be described as departmental

stores of financial service

1.Accepting Deposits

The major function of modern bank is acceptance of deposit form the public. Banks accepts

deposit by mobilizing the saving of public. to mobilize the saving and to hold deposits, banks

pay interest on the deposits. To attract the depositors banks maintains different types of

accounts like:

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Fixed or time deposit account:

Fixed deposit account is one where in money is deposited for a fixed and is not supposed to b

withdrawn before the expiry of the said period.this period usually varies from 15 days to 5

years.the rate of interest allowed on such accounts is also known as term deposits account.buta customer does need money before the expiry of the fixed period,he can either take a lian

against the fixed deposit or the bank may allow him to withdraw a deposit before the expiry o

the due date.

Saving bank deposit account:

This is an account in which the customer deposit small saving in the bank. This account mean

for the benefit of middle class and low-income group people .in person minimumspecified

deposits could open a saving bank deposit account. deposits can be made naresh this account

for any number of times in a week. at present 50 withdrawals are permitted in a half-year By

most of the banks. interest is allowed on a minimum balance standing to the credit of an

account during the period frm the 10th day of the month to the last day of every month.

Current account

Current accounts,some times also called asopen account is one in which money can be

deposited and withdrawn at any time during working hours without giving any notice to the

bank.this account can be defined as running account between a banker and customer.current

accounts suit the requirement of a businessmen,companies,corporations,institutions,firms etc

Recurring deposit account : In this account, a predetermined amount is deposited in the

account every month. The rate of itererst in normally equal to the rate of interest payable on a

term deposits account of same period i.e. the tenure of a recurring deposit. In a case of need,

premature withdrawal is allowed. Private sector banks are using latest technology in banking

and are presenting certain innovative accounts different names. These are:

Flexible account: These accounts combine the features and benefits of saving account & fixe

deposit accounts.

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ATM (Automatic Teller Machines): The banks, which have computerised high tech branches

are providing round the clock banking facilities through ATM. The facilities through ATM c

differ depending upon the software being used.

2. Lending or Advancing loans

Lending loans and advances is another function of a modern bank. A bank must lend deposits

or make advances to the public directly or indirectly. LENDING MUST BE ON THE BASI

OF FUNDS RAISED THROUGH ACCEPTANCE OF DEPOSITS FROM THE

PUBLIC. The usual methods adopted by banks to make advances are:

Money at Call: It is the money lent for a very short period, generally varying from 1 to 14 day

Such advances are usually made to other banks and financial institutions only.

Overdraft: An overdraft is an advance given by allowing a customer to overdraw his current

account upto an agreed amount. An overdraft account is opened in the same way as a current

account. In overdraft the interest is charged only on the credit actually utilised, i.e. to the exte

account is overdrawn.

Cash Credit: Advancing credit as cash credit is also very popular. Under this system, the bank

advances loans to the customer on the basis of his current assets, receivables or fixed assets b

hypothecating them in favour of the banker.

Discounting of bills: This is another very popular method of advancing credit. In a bill of

exchange, the debtor accepts a bill drawn upon him by the creditor and thus agrees to pay the

amount mentioned on maturity. In discounting the bank takes the bill and after making

deductions for the margin makes the payment to the holder.

Term loans: This is a lump sum loan advanced with a fixed maturity period of more than one

year. Term loans are usually secured and provide medium to long-term funds to the borrower

Repayment is made either on maturity or in installments

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Credit to Government:- Banks provide indirect credit to the central or state government by

investing in their securities. Investment in securities makes an important part of the portfolio

a bank. It enables it to meet requirement of statutory liquidity ration SLR.

3. Credit CreationCredit creation is another distinct function performed by banks. This function is

automatically performed while advancing credit or loans or by accepting deposits.Banks are

able to create credit because the demand deposits i.e. a claim against the bank is accepted by

the public in settlement of their debts. Thus, when a bank advances a loan or credit, it does no

lend cash but opens an account in favour of the customer and credits the amount to the accou

It creates a claim against itself, which is acceptable by the public for settlement of debts. As t

public for settling their debts accepts these claims against the banks, it is an important

constituent of money supply. In this process bank creates money.

Banks need not keep the entire deposits in cash. Only a part of the deposits is required

be kept in cash because the bank in practice is never required to repay all the deposits in cash

This enables the bank to create money many times more than the deposits with it.

4. Cheque system of payment of funds.

The cheque system was evolved in very early stages of banking and now it has becom

the credit instrument in the banking world. Banks perform the functions of payment of funds.

Because of clearing houses and clearing operation of banks, cheques can be and are used for

transferring funds from one centre to another. In modern days they can also be used for

transferring funds from one country to another.

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OPERATIONAL MODEL OF A BANK

HEAD OFFICE

BRANCES BRANCES

CLIENTS CLIENTS CLIENTS CLIENTS

BANKS NORMALLY PERFORM FOLLOWING OPERATIONS:

1. Account Opening:

There are various types of accounts such as :

Fixed deposit account Saving deposit account Current deposit account Recurring deposit account

Accounts

Fixed deposit Saving Deposit Current Account Recurring Deposit

Steps for opening and operations of Bank Account:

a. The first step to open an account if that a client has to give an application in aprescribed form giving particulars such as name of the applicant, occupation, fu

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address, specimen signature and bank my also call for references from the

applicant.

b. If a company wants to open a current account with bank the following documenwill have to be submitted:

i. A certified copy of the resolution of Board of Directors for opening of thaccount.

ii. A copy of memorandum and Articles of Association of the company.iii. Copy of certificate of incorporation and certificate of commencement of

business.

iv. Specimen signature of the person authorised to operate the account.

C. The next step is that the applicant deposits the initial amount and the banker opens theaccount in the name of an applicant. Generally, the minimum amount to be deposited

initially varies from bank to bank. When the banker opens the account in the name of

applicant, it provides him with:

Pass book Cheque book, and Pay-in-slip book2. TRANSFER BETWEEN INTRA BRANCH ACCOUNTS

Steps:

1. if any person wants to transfer the funds, then he/she has to give written instructions to

bank.

2. The bank will debit the applicants account credit beneficiarys account.

BRANCH BRANCHonline

Transfer of money

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In case bank has centralised banking system, then transfr is made through on-line transfer

of funds, else the debiting branch of the bank sends a postal advise to the branch having

beneficiarys account.

3. INTER-BANK TRANSRERS

Steps:

1. A person who wants to transfer money issues cheques in favour of beneficiary.

2. Beneficiary deposits.

3. The collecting bank will send cheque to the clearing house and after the settlement

through clearing house cheque in his/her bank credits beneficiary account.

4. TRANSMISSION AND NOMINATION

Transmission:- The act distinguishes transfer from transmission, while transfer is a

voluntry act; transmission is brought by operation of law. Transmissin means the

devolution of the titles of property in mveable assets that is devolved by death,

succession, inheritance, bankruptcy and marriage etc:

Nomination :Under this provision, an account holder nominates a person in whom the

funds would vest in the event of death of the original account holder. The facility can be acai

by any person whether Indian resident or NRI.

BANK MAINTAINING

APPLICANTS

CLEARING

HOUSE

BANK MAINTAINING

BENEFICIARIES

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5) DEPOSITS AND WITHDRAWAL:

PAY IN SLIP

PAY OUT SLIP

CASH WITHDRAW

(CHEQUE)

STEPS.

I. A Person has to fill a pay-in slip of required amount, Which is to bedeposited.

II. Then afterdepositing the cash to the cashier the data is feeded in to the cliet ,saccount, which is electronically maintained in computer-based systerns.

III. In the case of withdrawal of money, a person has to fill up a withdrawal slip oa cheque.

IV. Blanks debits the clients account while encashing his cheque or withdrawan slip.V. Required amount is taken from the cashier.

6) PLEDGE AND HYPOTHECATION:Nature of control on the securities offered as collateral ;determines whether the

transaction is a pledge or hypothecation. If the lender that is the pledge has a

unilateral right to appropriate to his account in case the borrower defaults, the

CURRENCY WITH

ACCOUNT HOLDER

INVESTORS

ACCOUNT WITH

BANK

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transaction is called as a pledge. If a lender meeds concurrence of the borrower

for appropriating securities to his account, the transaction is called

hypothecation.

STEPS:

I. to start with, the pledges as to fill up a request form to get lienmarked his/hproperty in favour of specified pledge.

II. The bank then marks the lien in favour of the pledge at the request of pledg

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ANALYSIS

After compiling and interpreting information gathered and after meeting some key perso

working in both of the systems. My analysis is that although the objective for being in busineand logic behind doing various functions of banks and depositories are totally different yet th

operational models have many similarities, some of which are following:

ACCOUNT OPENING

1. In both of the systems to avail the services a customer has to open an account.

2. In both of the systems there are different types of accounts such as fixed, saving, curre

accounts in banks and individual, HUF and corporate accounts in Depositories. An

investor client can choose any of the accounts as per his/her needs.

3. In both of the systems, in order to open an account, the client has to fill up an applicati

form which includes different information about the client such as name, address,

identity(photograph), speciman signatures, nominees, refrences etc.

1. Depository account in banks and individual system is somewhat parallel to current accoumaintenance system of bank. It can be seen from the following factors.

DEPOSITORY BANKS

In depository system a share In Banks a chequebook is Transfer book is given to given to client.

Client.

No minimum balance is Minimum balance isRequired. Required.

No. restriction in operating No restriction in operatingIn transfer of scrips. In current account.

Allocated client ID number. Allocates account number. Transfer securities between Transfer funds between

Account account.

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Safeguarding of securities. Safeguarding of money. Different types of services Different types of services

Are provided by depository are provided by banks such

Such as pledge, transfer of as pledge, transfer ofScrips etc. money etc.

Function through depository Function throughFarticipants. Branches.

Transfer without physical Transfer without physicalHandling of securities. Handling of money.

DP charge account opening Charges commission/And closing fee. Demat and service charges.

Remat fee, transaction fee

And custody.

Transmission means the devolution of the titles of property in moveable. Assets that is

devolved by death , succession, inheritance, bankruptcy and marriage etc.

NOMINATION : Under this provision and account holder nominates a person in whom the

funds would vest in the event of death of the origional account holder. The facitlity can be

availed by any person whether Indian resident or NRI .

DEPOSITS AND WITHDRAWAL :

STEPS:

1. A person has to fill a pay in slip of required amount which is to bedeposited.

2. Then aferdepositing the cash to the cashier the data is feeded in to thclient account . which is electronically maintained in computer based

systems.

3. In the case of withdrawal of money, a person has to fill up awithdrawal slip or a cheque.

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TRANSFER OF SCRIPS/ MONEY:

In both depository and banking system written instructions are necessary for debiting accoun

In depository system one can transfer the scrips directly from one account to another without

physical handling or movement of scrips. In the same manner banks can transfer from oneaccount to another without physical handling of cash.

TRANSMISSION:

In depository system the scrips can be transferred to the nominee after death of the account

holder. Similarly , in banking system funds can be transferred to the nominee after death of th

account holder.

NOMINATION:

In both of the system aclient can nominate any person of his/her choice as a nominee. It mean

that nominee is a legal owner of the funds in he bank or scrips in the depository after death.

DEMAT AND REMAT / PAY IN AND PAY OUT:

In depository system, physical scrips can be transferred from physical to electronic from

through the process of Dematerialization and vice-versa from electronic from to the physical

scrips through the process of Dematerialization.

In the same manner, in the banking system cash is transformed into electronic form through p

in and from electronic to cash form through withdrawal process.

PLEDGE AND HYPOTHECATION:

In both depository and banking system, transferring the securities from FREE BALANCE

head to PLEDGED BALANCES does pledge creation in favour of third party.

After analyzing the similarities between the operation and maintenance of DP account of

deposi