Lecture - Depository Participants v2.0

8/22/2019 Lecture - Depository Participants v2.0

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8/6/2013 Ludhiana Stock Exchange 1

Depository

Participants

Presented by:-Mr. Vinay MahajanAssistant General Manager &Compliance Officer

PART - I


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Constituents of a DP System

o DEPOSITORIES

o DEPOSITORY PARTICIPANTS

o

ISSUER OF SHARES OR COMPANYo REGISTRAR AND TRANSFER AGENT

o CLEARING CORPORATION/ CLEARING MEMBER

o STOCK BROKERS

o INVESTORS


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o DEPOSITORIES


o



o STOCK BROKERS

o INVESTORS


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Depository Means

o A place where a deposit of securities is deposited for

safekeeping under the terms of depository

agreement.

o In Capital Markets terms it is an institution which

deals in securities as a bank deals in funds.


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Is Depository system better??

o Before introduction of Depository system, the

problems faced by investors and corporate in

handling large volume of paper were as follows:

o Bad deliveries and Loss of certificates in transit

o Fake certificates and Mutilation of certificates

o Delays in transfer and Long settlement cycles

o Mismatch of signatures

o Delay in refund and remission of dividend etc


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Bank vs Depositories


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Interface of Investor with Depository


InvestorDPContacts DP and Opens accountsReceives client identification number

SubmitsDem

at

ApplicationF

orm

Informs RTABank

Account Statement evidencingAllotment

Send

sAllotmentadvice

Investor Eligible to Trade


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Depositories is for safe keeping

o Its a company formed and registered under

Companies Act, 1956

o Holds securities of share holders in electronic form

o Arranges for transfer of ownership of securities

o Facilitates Dematerialization and Rematerialization

processes

o Currently there are two Depositories in India

National Securities Depository Limited (NSDL) and

Central Depository Services Limited (CDSL)


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About NSDL and CDSL


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Legal Frameworks related to

Depositories

Primary Rules

o Depositories Act, 1996

o SEBI (Depositors and Participants) Regulations, 1996

o Bye-laws approved by SEBI

o Business Rules framed in accordance with the

regulations and bye-laws

Other Acts

o Companies Act 1956; Indian Stamp Act 1989; SEBI Act 1992;

Securities Contract (Regulation Act) 1956; Borrowers Transaction

(Prohibition) Act 1988; Income Tax Act 1961 and Bankers Book

Evidence Act 1981


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o DEPOSITORIES


o



o STOCK BROKERS

o INVESTORS


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DP: An agent of the Depository

o Interface between depository and investors

o Regulated by SEBI

o Should have minimum Net Worth of Rs. 1crore

o Following categories are eligible to become a DP-

o Financial institutions like Banks (Indian or international), State

financial corporations

o

SEBI registered custodian of securitieso Clearing corporations of stock exchanges

o SEBI registered stock broker or R&T Agent

o Non-Banking Financial Companies


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DP: Basic Eligibility Criteria

o Following categories are eligible to become a DP:

o Public financial institution.

o Bank

o

Foreign bank operating in India with approval of the RBIo State Financial Corporation.

o Institution engaged in providing financial services

o SEBI registered Custodian of securities

o Clearing corporation or a clearing house of a stock exchange.

o SEBI registered Stockbroker.

o Non-Banking Finance Company (NBFC).

o SEBI registered R&T agent


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Eligibility Criteria on basis of Net worth

Category Minimum Networth

As per SEBI

Stock Broker/NBFC

RTANBFC

(on behalf of others)

50 Lakhs

10 CroreAdditional Networth of Rs. 50 Crore

As per NSDL and CDSL

Stock Broker/NBFCRTA

NBFC

(on behalf of others

Rs. 200 Lakhs for all the categories


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DP: Steps for joining

o Application to Depository and its verification by

Depository.

o Grant of approval to the application by depository

o Applicant establishes electronic connectivity withdepository.

o Recommendation to SEBI by depository.

o Grants of in-principle approval by SEBI, if foundsatisfactory.


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DP: Steps for joining contd

o Payment of registration fees to SEBI and

security deposits, insurance charges and other

collateral to depository

o Execution of agreement between DP anddepository.

o Grant of Registration Certificate by SEBI.

o Activation of DP module

o Start of DP Operations


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DP: Conditions for grant of certification

The Applicant :

o Have adequate infrastructure and systems.

o Redress the grievance of beneficial owners within 30

days of the date of receipt of the complaint and keep thedepository informed about the number and nature of

redressals.

o Furnish information and details of its business history for

a minimum period of three years.o Not have been convicted in any of the five years

immediately preceding the filing of the application in anymatter involving misappropriation of funds and securities,theft, embezzlement of funds etc.


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Conditions for grant contd

Not have been expelled, barred or suspended by SEBI.

have minimum networth of Rs. 1 crore.

Furnish details of its Board of Directors/ authorisedofficials, who would be responsible for acting in behalf of

DP. Make adequate arrangements for conducting effective

and safe depository operations.

Depository may conduct entrance examinations toexamine the knowledge of DP (and its staff). Depository

may make it mandatory to appoint a Compliance Officer. Depository requires at least one person in each DP

Service Centre must be qualified in NCFM (NSEscertification in Financial Markets)- Depository OperationsModule


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DP Certificate is suspended when

o Contravened any of the provisions of the Depositories

Act, 1996 Bye-Laws.

o Failed to furnish any information relating to its activity.

o Not furnished information called for by SEBI.

o Furnishing information which is false or misleading.

o Not co-operated in any inspection or investigation or

enquiry conducted by SEBI.o Failed to comply with any direction of SEBI.

o Failed to pay the annual fee.


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DP Certificate is cancelled when

1. DP is guilty of fraud, or has been

convicted of an offence involving moral

turpitude.

2. DP has been guilty of repeated defaults

specified for suspension of registration.


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o DEPOSITORIES


o



o STOCK BROKERS

o INVESTORS



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Issuers and RTAs

o An Issuer of share is the company which had

launched its shares in the market via IPO

o Registrar and Transfer Agents(RTA) are appointed

by Issuer companies to act on their behalf.

o RTA is a trust company, bank or similar financial

institution assigned by a corporation to maintain

records of investors and account balances and

transactions, to cancel and issue certificates, toprocess investor mailings and to deal with any

associated problems


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o DEPOSITORIES


o



o STOCK BROKERS

o INVESTORS


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Clearing Corporation / Clearing Member

o A clearing corporation is an independent central

organisation created to facilitate efficient, fast and

economical settlement of transactions at SE.

o It acts as a central mechanism for consolidating andsettling transactions instead of the member firms

settling each trade individually amongst themselves.

o The members of Clearing Corporation are called as

clearing members.

o Eg: All trades done at NSE are settled through

National Securities Clearing Corporation Limited

(NSCCL)


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o DEPOSITORIES


o ISSUER OF SHARES OR COMPANY

o REGISTRAR AND TRANSFER AGENT


o STOCK EXCHANGES/STOCK BROKERS

o INVESTORS


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STOCK EXCHANGES / STOCK BROKERS

o Stock Exchange (SE) is an organised market for

dealings in securities commonly referred as

secondary market. One of its main functions is price

discovery i.e to cause prices to reflect currently

available information about a security.

o Stock Brokers (SB) are members of SE primarily

engaged in 2 main activities i.e buy and sell

securities for their clients charging a commission and

as dealers or traders they buy and sell on their own

account for trading gains.


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o DEPOSITORIES


o ISSUER OF SHARES OR COMPANY

o REGISTRAR AND TRANSFER AGENT


o STOCK EXCHANGES/STOCK BROKERS

o INVESTORS


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Investors

o May be individuals or corporate who have

acquired shares either in primary market

or in secondary market


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BENEFITS of DP SYSTEM



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Benefit to Investors

o Eliminates bad deliveries and stamp dutytransfer of shares

o Effects immediate transfer of securities andfaster settlement trade and cycle.

o Reduces handling huge volumes & transactioncosts which leads to convenient portfoliomanagement

o

Eliminate all risks of physical certificates likeloss, theft mutilation, forgery

o Elimination of problems like change of address,transmission, nomination etc.


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Benefit to Companies

o Reduction in huge paperwork.

o Less requirement of manpower.

o Reduction in time and cost.

o Increase in efficiency and effectiveness.

o Easy availability of shareholding.

o Easy capital restructuring.

o Quick and easy corporate actions.


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Benefit to Nation

o Growing and more liquid markets

o Increase in competitiveness in the international

market place attracting many investors

o Improved prospects for privatisation of public

sector units by creating a conducive environment

o Considerable reduction in delay

o Minimises settlement risk and fraud restoring

investors faith in the capital markets


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Some good and bad practicesrelated to DP System



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Recommended Actions

o Ensure both holding and transaction statements arereceived periodically as instructed to DP.

o Check statement on receipt.

o Contact DP for clarification in case of anyunauthorized debits or credits.

o Inform DP in case of change in address, telephonenumber etc. as early as possible.

o While sending securities for demat, record thedistinctive numbers of the securities sent.

o Check the demat performance of the issuer companywith DP before sending certificates for demat


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Recommended Actions Contd..

o Just like a cheque book, keep your delivery instruction slip(DIS)

book in safe custody.

o Accept the DIS book from DP only if each slip has been pre-

stamped with a serial number and demat account number.

o Always mention details like ISIN, number of securities

accurately. If in doubt, contact DP or broker.

o Authorize any corrections, over- writing or cancellations on the

instruction slips by signing against the same.

o Ensure that all joint holders of the demat account sign the slip.

o If there is space for multiple instructions and it is not used fully,

strike out the blank space for furnishing securities details.


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Latest Developments in DP System

o Details of PAN made compulsory w.e.f. 01.12.2006.

o ISINs to be activated only after commencement of trading

on the stock exchanges.

o Thru Internet, clients can view and transfer their holdingfrom anywhere.

o Clients can see their value of holding daily.

o KYC In Capital Market

o RGESS (RAJIV GANDHI EQUITY SAVING SCHME)

o BSDA (BASIC SERVICE DEMAT ACCOUNT)


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Gaps in DP System

o Different DPs charge different amounts.

o Some DPs also take hidden charges.

o

Account Maintenance charges are high.o Adds to extra burden of account holder.

o More than one account for one person leads to

mis-utilizing the DP systems.

o DP system has also resulted in thefts etc


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Depository

Participants

Presented by:-Mr. Jaswinder SinghSr. Officer DP Operations

PART - II


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HOUSE NON-HOUSE

BENIFICIARY A\C CLEARING MEMBER A\C INTERMEDIARY A\C

ACCOUNT

Type of Accounts


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BENIFICIARY

A\C

Holder of securities own the

securities

CLEARING

MEMBER A\C

Opened by a broker or a clearing

member for the purpose of

settlement of trades.INTERMEDIARYA\C

Opened by a SEBI registeredintermediary for the purpose Of

stock lending and borrowing.

Accounts Characteristics


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RESIDENT - Ordinary, HUF

Financial Institutions- Government-sponsoredFI, State Financial Corporation

FIIs - Mauritius-based, Others

NRI - Repatriable (NRE), Non-Repatriable(NRO), Depository Receipt

Body Corporate

CM (Clearing Member)

Mutual Fund - Depository Receipt Trust

Bank

Intermediary

Client Types


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NAME OF THE HOLDER

DATE OF BIRTH (FOR INDIVIDUALS)

OCCUPATION, INCOME RANGE

ADDRESS AND PHONE NUMBER, E-MAIL ID

BANK DETAILS

PAN NUMBER

DETAILS OF NOMINATION SPECIMEN SIGNATURES

Common Details


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Some Major Functions



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KYC form

In person verification with original documents allholder

Identification proof Address proof

Photograph of applicant

Agreement

Nomination form

Bank Details

PAN

Introduction by existing Account holder

COMMON REQUIREMENTS FOR

OPENING DEMAT ACCOUNT


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Copy of Board Resolution

List of Auth. Sign. & List of Directors

Copy of Memorandum and Articles ofAssociation

Introduction by existing account holder or

by applicants bank

ADDITIONAL REQUIREMENTS FOR

CORPORATE APPLICANTS


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PROOF OF IDENTITY Passport

Voter Id Card

Driving License

PAN Card with

photograph

Identity Card/documentsissued with applicantsphotograph issued byCentral/ State Govt. & itsDepartments/ Statutory/Regulatory Authorities/

Public SectorUndertakings/ ScheduledCommercial Banks/Public FinancialInstitutions/ ProfessionalBodies/ CreditCards/ Debit Cardsissued by Banks

PROOF OF ADDRESSRation Card

Passport

Voter Id Card

Driving License

Bank Passbook

Verified Copies of Electricitybills, residence telephone bills,lease and license agreement,agreement for sale.

Self declaration by High Courtand Supreme Court Judges.

Identity Cards issued as above.

DOCUMENTS FOR VERIFICATION


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DEMAT Process

o Conversion of Securities from Physical (Paper)

Mode to Electronic Mode is Called Dematerialisation.

o The Client can open Demat Account with any DP.

o Upon Demat, the Certificates are destroyed and

credit entry of exactly equal number of Securities is

created in Depository in Electronic mode.

o

The B.O. account of holder is credited.o The securities loose their identities.


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DEMAT Process

o Securities that can be Demated:

1. Shares, bonds, debentures.

2. Units of mutual funds,3. Certificate of deposit,

4. Unlisted securities


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Shareholder

With Physical Certificate

DP

Shareholder goes to DP withphysical share certificates

Account Opening

Shareholder opens account withDP

Demat RequestForm (DRF)

Shareholder files DRF in duplicate,defaces the shares and hands it

over to DP

R&T Agent

Depository

DP sends share certificates toR&T agent for dematerialisation

DP sends informationelectronically to Depository

Dematerialization

Upon confirmation of Dematby R&T agent, the depositoryconfirms dematerialization

Credit the BO A/cOf the Investor

DEMAT Process


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REMAT Process

o Reverse of Demat

o Issuance of physical securities in place of the

securities held electronically in book-entry

form with a depository.

o Electronic holding can be converted into

physical holding at any time.


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NOMINATION

o Under this provision, any investor can nominate a person, inwhom the securities would vest, in the event of originalinvestors death.

o Nomination can be made/Cancelled/Changed at any time byIndividuals only.

o In case of Joint holding all joint holders to sign nomination form.

o The Nominee shall not be a trust, society, body corporate,partnership firm, karta of Hindu Undivided Family or a power of

Attorney holder.

o A non-resident Indian can be a Nominee, subject to the

exchange controls in force, from time to time.

o A minor can be nominated.

o Transfer of securities in favour of a Nominee shall be validdischarge by the Depository against the legal heir.


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TRANSMISSION

o Transmission" means devolution of title to shares by Death.

o Transmission is different from Transfer as Transfer refers tovoluntary act whereas Transmission refers to an act brought byoperation of law.

o Transmission can be of two forms based on number of securityholders

1. Single Holding

2. Joint Accounts

o Transmission can be of two forms based on type of holding

1. Physical Holding

2. Demat Holding


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Transmission Based on Holdings

o Procedure for Physical Holding

o Documents are sent to company for effecting transmission.

o If deceased shareholder had holdings in several companies,the relevant documents must be sent to each company.

o Survivors have to follow-up with each company in order to getthe transmission effected before the book closure.

o Procedure for Demat Holding

o Successor to the title interacts only with one entity, his DP.

o DP does the entire act of transmission and the process madeeasy.

o Transmission can be for sole holding cases as well as for jointholdings.


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Transmission Based on Number of holders

o Single Holding Cases

o If valid nomination has not been made, the claimants/successors/legal heirs of the deceased can get the securitiestransmitted in their favour.

o A request to DP is made along-with copy of death certificate andsuccession certificate/court order/Probate or Letter of Administration

duly notarised.

o In case holding is less than Rs 1Lac, copy of death certificate along-with letter of indemnity, an affidavit and NOC from all legal heirs will besufficient

o Joint Holding Cases

o The surviving Joint holders can get securities transmitted in theirfavour.

o Notarised copy of Death certificate required.

o New Account to be in same order of names of surviving holders as oldone.


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Transposition-cum-demat

If the names of the clients appearingon the security certificates match

with

the names in which the account

has been opened but are in a

different order,such securities can

be dematerialized.


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The Participant shall forward the DRF to theIssuer or its Registrar & Transfer Agent.

RTA ascertains that the number of certificatesannexed with the DRF tallies with the number of

certificates mentioned on the DRF. In case of transposition/transmission and

dematerialization cases, the Participant shallalso forward Annexure OA/OB alongwith the

DRF to the Issuer or RTA.


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The dematerialised securities shall be credited to theaccounts maintained by a Participant only when thepattern of holdings in the account of the Client matcheswith the pattern of holdings as per the securitycertificates.

In cases where the names appearing on the certificatesmatch with the names in which the account has beenopened but are in a different order, the Client can getthe security certificates dematerialised by submitting

the security certificates along with the TranspositionForm as per Annexure OA and the DematerialisationRequest Form (DRF) to the Participant.


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Corporate Actions

o These are the events which affect the rights,

obligations and/or interests of the B.O. of the

securities held in a DP

o

The examples are payment of interest, dividend,bonus shares, rights, splits, merger, redemption, call

money, liquidation etc

o Type of corporate actions

o Monetary Benefits like dividends, interest etc

o Non-Monetary Benefits like bonus right shares, split and

consolidation of shares etc


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Corporate Actions Process

o Announcement of Corporate Actions.

o Information by R&T Agent to Depository

about the proposed corporate action.

o Information by Depository to all DPs about

the corporate action & the cut-off date and

procedure to be followed.

o Update of BO details well in advance by DP

i.e. tax status, bank details, address change

etc


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Corporate Actions Process Contd..

o Submission of B.O. details by Depository to

the issuer company or its R&T Agent.

o Transfer of all holding in transit a/c to BO A/c.

o Distribution of dividend, interest and other

monetary benefits directly to the beneficial

owners.

o Issue of statement by DP to clients.


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Pledge / Hypothecation

o Securities that are in demat mode can bepledged and hypothecated against a loan, creditor otherwise.

o There is an agreement between and pledgee

and both must have demat account but need notwith same DP.

o A lender of securities through depository systemis entitled to all corporate benefits in respect of

the securities lent by him.o Intermediary collects the value of lender's

entitlement to the corporate benefits from theborrower and pays the same to the lender


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Other Functions

o Freeze and Unfreeze

o Modifications [Bank details, Address Change,

Change of Nomination, SMS Alert]

o Billing, Compliance & Audits

o Holding, transactions & Modification Letters

sent to clients.o Account Closure.


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ISIN


International Sec rities Identification


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International Securities Identification

Number (ISIN)

o Issued by International Standards Organisation (ISO)member countries in accordance with ISO 6166.

o ISIN is 12 digit alpha numeric number.

o It has three components, prefix, basic & check digit.o Prefix is a two letter country code i.e. IN for India.

o The basic number has nine alpha numericcharacters.

o The last digit is check digit. It ensures the ISIN isvalid.


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Components of ISIN

Characters Meaning Example

First two Country Code IN

3rd Category E

4th till 7th

Company Serial

Number 475C

8th and 9th Security Code 01

10th and 11th

Issue Serial

Number 01

12th Check Digit 2

The overall ISIN Code is - INE475C01012


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RGESS

o RGESS benefits will be available upto Rs.50,000, Investment any amount.

o Help in promoting an equity culture in India.

o Improve the depth of domestic capitalmarkets. The top 100 stocks at NSE and BSEi.e., CNX-100 / BSE -100

o Stocks of public sector enterprises like,

Maharatna, Navaratna and Miniratna.

RGESS VS ELSS


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8/6/2013Ludhiana Stock Exchange

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RGESS VS ELSSELSS RGESS

Investments are in mutual funds Investment in top BSE 100 & top

NSE 100

100% deduction (upto Rs. 1,00,000)is allowed under ELSS

Only 50% deduction (upto max.of Rs. 25,000) is allowed underRGESS.

The ELSS benefit is coming underSection 80C of the IT Act which hasan aggregate limit of Rs. 1,00,000for all such eligible instruments likeLIC policy, PPF etc

RGESS deduction is availableunder Section 80CCG. This is aseparate investment limitexclusively for RGESS, over andabove the Section 80C Limit

Lock-in period of 3 years Lock-in period of 3-years.However, trading allowed after

one-year, subject to conditions.

Since investments are in mutualfunds, it is perceived to be less risky

Since investments are in equity /risk / ownership capital, risk isperceived to be higher


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BASIC SERVICES DEMAT ACCOUNT

A special category of demat accountwhich can be opened by onlyindividual investors.

Only one account can be openedunder BSDA Category, where theinvestor is a first / sole holder.

SMART registration is mandatory forBSDA accounts.



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Annual Maintenance charge (BSDA)

No AMC shall be levied, if the valueof holding is up to Rs. 50,000.

Value of holding from Rs 50,001 to

Rs 200,000, AMC not exceeding Rs100 may be charged.

Value of holding in such BSDAexceeds Rs. 200,000 at any date, the

DPs may levy charges as applicableto regular accounts (non-BSDA) fromthat date onwards.



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THANK

YOU

Lecture - Depository Participants v2.0

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