nancy report
-
Upload
vipin-khurana -
Category
Documents
-
view
228 -
download
0
Transcript of nancy report
-
8/7/2019 nancy report
1/97
A PROJECT REPORT
On Working of
Depository systemA project Report submitted in partial fulfillment of the
requirements
For the award of the degree of
MASTER OF BUSINESS ADMINISTRATION
AT
RELIGARE SECURITIES LTD.
UBMITTED TO: SUBMITTED BY:
r. Ashish Mehrotra Nency
ranch Manager) M.B.A. 3rd Semester
Doon Valley Institute ofEngineering & Technology
(Affiliated to Kurukshetra University)
1
-
8/7/2019 nancy report
2/97
KURUKSHETRA
TO WHOMSOEVER IT MAY CONCERN
This is to certify that the project report titled Working of depository
system carried out by Ms.Nency, has been accomplished under my
guidance & supervision as a duly registered MBA student of the Doon
Valley College of engineering and technology, Karnal. This project is being
submitted by her in the partial fulfillment of the requirements for the award
of the Master of Business Administration from Doon Valley College of
engineering and technology.
His project work represents his original work and is worthy of consideration
for the award of the degree of Master of Business Administration.
___________________________________
(Name & Signature of the Faculty Advisor)
Title: Working of depository system
Date: ______________________________
2
-
8/7/2019 nancy report
3/97
ACKNOWLEDGEMENT
It is my pleasure to thank to various respected persons who directly or
indirectly guide, help, motivate and provide knowledge to me time to time
for the development of this project.
I would like to express my sincere gratitude to Mr. Ashish Mehrotra
(Branch Manager) & Mr. Naveen Kumar ( Relationship Manager) who
directly guide to me time to time about how to make this project more
effective.
I am also very thankful to respected Ms. Monika Sharma (H.O.D. MBA)
for giving me this to topic to do deep study and guidance regarding trainingand project report.
Lastly, I also want to thank to all the employees of Religare (Karnal
Branch), friends and almighty god for their direct and indirect support to me
for the accomplishment of this project.
3
-
8/7/2019 nancy report
4/97
INDEX
S.NO. PARTICULARS PAGE NO.
1. CERTIFICATE 05
2. DECLARATION 06
3. PREFACE 07
4. INTRODUCTION 08
Depository 09
Deposiory system 13
Leagal framework of DS 14
Functions of DS 19
Benefits of DS 21
Safety feature in the DS 22
Difference b/wBank and Depository 35
4
-
8/7/2019 nancy report
5/97
Some important process in DS 36
5. NATIONAL SECURITIRS DEPOSITORY SYSTEM 42-50
About NSDL 43
Management of NSDL 45
Fee structure of NSDL 47
Technology and connectivity in NSDL48
Common software use in NSDL
50
6. CENTRAL SECURITIRS DEPOSITORY SYSTEM 51-55
About CDSL 52
Shareholders of CDSL 53
Board of directors and management 54
7 RESEARCH METHODOLOGY 56-58
Objectives of the study
5
-
8/7/2019 nancy report
6/97
Types of research 57
Methods of data collection 58
Tools of analysis 58
Research design 58
8. DATA ANALYSIS AND INTERPRETATION 59-65
9. OBSERVATIONS 66
10. SUGGESTIONS 68
11. LIMITATIONS 69
12. CONCLUSION 70
13. BIBLIOGRAPHY 71
6
-
8/7/2019 nancy report
7/97
INTRODUCTION TO COMPANY
RELIGARE SECURITIES Ltd. (RSL) is a wholly owned subsidiary of
RELIGARE Financial Services Ltd. (RFSL), a Company promoted by the
late Dr. Parvinder Singh, Ex-CMD of Ranbaxy Laboratories Ltd.
The primary focus of Religare Securities Ltd. is to cater to services in
Capital Market Operations to Institutional Investors. The Company is a
member of the National Stock Exchange (NSE) and OTCEI. The growing
list of financial institutions with whom RSL is empanelled as approved
Broker is a reflection of the high levels of services maintained by the
Company.
7
-
8/7/2019 nancy report
8/97
As on date the Company is empanelled with UTI, IDBI, IFCI, SBI,
BOI-MF, Punjab National Bank, PNB-MF, Oriental Insurance, GIC, UTI
Offshore, ICICI Can bank MF, Punjab & Sind Bank, Pioneer ITI, SUN
F&C, IDBI Principal, Prudential ICICI, ING Baring and J M Mutual Fund.
RELIGARE was founded with the vision of providing integrated financial
care driven by the relationship of trust. The bouquet of services offered by
RELIGARE includes Broking (Stocks and Commodities), Depository
Participant Service, and Advisory on Mutual Fund Investments and
Portfolio Management Services. RELIGARE is a pioneer in the
concept of partnership to reach multiple locations in order to
effectively service its large base of individual clients. Besides the
reach of RELIGARE, the clients of the company greatly benefit by
its strong research capability, which encompasses fundamentals as
well as technical knowledge.
8
-
8/7/2019 nancy report
9/97
RELIGARE SECURITIES LIMITED
1. Member of National Stock Exchange of India and Bombay Stock
Exchange of India.
2. Depository Participant with National Securities Depository Limited
(NSDL) and Central Depository Services Limited (CDSL).
3. A SEBI approved Portfolio Manager. RSL provides platform to all
segments of the investor to leverage the immense opportunity offered by
equity investing in India either on their own or through managed funds in
Portfolio Management.
4. The ARN No. of the Religare Securities Ltd. is 33764. The ARN No. is
required by to be available with the broker who deals on behalf of investors
or sell the mutual funds of the different companies present in the market.
9
-
8/7/2019 nancy report
10/97
-
8/7/2019 nancy report
11/97
RELIGARE financial services group comprises of Religare Securities
Limited, RELIGARE Comdex Limited and RELIGARE Fin vest Limited
which provide services in Equity, Commodity and Financial Services
business & Religare Insurance Advisory Ltd.
SERVICES
RELIGARE SECURITIES LIMITED
Equity Broking
Online Investment Portal
Portfolio Management Services
Depository Services
RELIGARE COMMODITIES LIMITED
Commodity Broking
11
-
8/7/2019 nancy report
12/97
RELIGARE CAPITAL MARKETS LIMITED
Investment Banking
Proposed Institutional Broking
RELIGARE INSURANCE BROKING LIMITED
Life Insurance
General Insurance
Reinsurance
RELIGARE ARTS INITIATIVE LIMITED
Business of Art
Gallery launched - arts-i
RELIGARE REALTY LIMITED
In house Real Estate Management Company
RELIGARE HICHENS HARRISON
Corporate Broking Institutional Broking
RELIGARE VENTURE CAPITAL LIMITED
12
-
8/7/2019 nancy report
13/97
Private Equity and Investment Manager
RELIGARE ASSET MANAGEMENT
Derivatives Sales
Corporate finance
DIRECTORS OF RELIGARE SECURITIES
LIMITED
Chairman: Mr. Harpal Singh
Managing Director: Mr. Sunil Godhwani
Director: Mr. Vinay Kumar Kaul
Director: Mr. Malvinder Mohan Singh
Director: Mr. Shivinder Mohan Singh
13
-
8/7/2019 nancy report
14/97
MISSION
To be India's first Multinational providing complete financial services
solution across the globe.
VISION
Providing integrated financial care driven by the relationship of
trust and confidence.
14
-
8/7/2019 nancy report
15/97
BROKERAGE
INTERADAY: 3 paisa (.30%) (NEGOTIABLE)
COMPETITITORS OF RELIGARE
There are several financial security companies playing their roles in Indian
equity market. But faces competitions from these few companies.
ICICI Direct.com
Share Khan (SSKI)
Kotak Securities.com
India Bulls
HDFC Securities
5paisa.com Motilal Oswal
Karvy
15
-
8/7/2019 nancy report
16/97
CERTIFICATE
This to certify that NENCY ,M.B.A 3rd Semester ,DOON VALLEY
INSTITUTE OF ENGINEERING & TECHNOLOGY KARNAL under
K.U.K. Kurukshetra has done project on Working of depositary system and
has successfully completed his project on my guideline.
It is only for academic purpose and is a bonfires work done by researcher.
NENCY
16
-
8/7/2019 nancy report
17/97
DECLARATION
I Nency do here by declare that the project work entitle
on the Working of depositary system is the original work
done by me.
This project report presented as a partial fulfillment
requirement for the degree of Master of Business
administration.
NENCY
17
-
8/7/2019 nancy report
18/97
PREFACE
Dissertion is a very important and significant part of the M.B.A.
programme as it tries to bridge the gap between theory and practice.it
skiilfully blends the theortical aspect with practical business situation, thus,
preparing as M.B.A. in a better manner for the future responsibilities and
challenges that she is likely to face when she enters the business world to
start her carrier or growth.
The successful completion of this project was a unique experience for
me because by visiting many place and interacting various person, I
achieved a better knowledge about this system. The experience which I
gained by doing this project was essential at this turning point of my carrier
this project is being submitted which content detailed analysis of the
research under taken by me.
The research provides an opportunity to the student to
devote his/her skills knowledge and competencies requiredduring the technical session.
The research is on the topic Working of Depositary system
This study is divided into different chapters:
18
-
8/7/2019 nancy report
19/97
The first chapter contains the introduction about
Depository and Depopository system.
The second chapter contains two types of
Depositories and their working.
The third chapter contains Research Methodology.
The fourth chapter contains the analysis and
interpretation.
The last chapter contains conclusions,
recommendations and limitations of the study.
19
-
8/7/2019 nancy report
20/97
INTRODUCT
ION
INTODUCTION
One of the biggest problem faced by the indian capital market
has been the manual and paper based settlement system. Under this system,
the clearing and settlement of transaction take place only with the use of
paper work. The system of physical delivery of scrips poses many problemsfor the purchaser as well as the seller in the form of delayed settlements,
long settlement periods, high level of failed trade, high cost of transaction,
bad deliveries etc. In many cases transfer process takes much longer time
then two month as stipulated in section 113 of companies Act, 1956 or
20
-
8/7/2019 nancy report
21/97
section 22 A of the securities Contracts (Regulations) Act, 1956. Moreover,
a large number of transactions end up as bad deliveries due to faulty
compliance of paper work, mismatch of signatures on transfer deeds with
specimen record of the issuer or other procedural reasons. Besides, theft,
forgery, multination of certificates and other irregularities have also become
rampant.
However, as a consequence of implementation of reforms
measures, the Indian capital market has shown rapid growth in the recent
past with foreign investors, more stock exchanges and increased market
intermediaries. The old manual system of settlement and transfer has almost
failed to handle the growing volume of paper that has loaded the market.
Thus, to eliminate paperwork, facilitate scrip less trading and electronic
book entry of the transfer of securities, shorten settlement periods, and to
improve liquidity in the stock market, it was found necessary to replace the
old system of transfer and settlement with the new and modern system of
depositories. Accordingly the government of India enacted the depositories
Act in 1996 for the orderly growth and development of the Indian capital
market. It is a system whereby the transfer and settlement of scrips take
place not through the traditional method of transfer deeds and physical
delivery of scrips but through the modern system of effecting transfer of
ownership of securities by means of book entry on the ledgers or the
depositary without the physical movement of scrips. The new system, thus ,
eliminates paper work, facilities automatic and transparent trading in scrips,
shortens the settlement period and ultimately contributes to the liquidity ofinvestment in securities. The system is also known as scrip less trading
system.
There are essentially four players in the depository system:
The Depositary participant
21
-
8/7/2019 nancy report
22/97
The Beneficial owner/investor
The issuer
The depository
A depositary is a firm wherein the securities of an investor are
held in electonic form in the same way a bank holds money. It carries out the
transactions of securities by means of book entry, without any physical
movement of securities. The depositary based settelment system is also
called book entry transfer settelment. The depositary acts as a defecto owner
of the securities lodged with it forn the limited purpose of transfer of
ownership. It functions as a custodian of securities of its clients. The name
of the depositary appears in the records. With increase in the number of
transactions in the stock market, it had become difficult for the investors to
hold share certificates and debt instruments in bulk. But now, depositary
institutions handle this job. At present there are two depositories in india.
Number of Depositories in India
National securities depositary Ltd. (NSDL)
Central depositary services (india) Ltd. (CDSL)
NSDL was formed and registered under the companies act 1956 during
December 1995 and commenced operations during november1996. NSDL
was promoted by Industrial Development Bank of India (IDBI)-the largest
development bank in India, Unit trust of India (UTI)-the largest mutual fund
in India and National stock exchange (NSE)-the largest stock exchange in
India. Some of the prominent banks in the country also have a stake in
NSDL.Central Depository services (India) limited which commenced operations
during February 1999.CSDL was promoted by stock exchange, Mumbai In
association with Bank of Baroda, Bank of India, State Bank of India and
HDFC Bank.
22
-
8/7/2019 nancy report
23/97
23
-
8/7/2019 nancy report
24/97
DEPOSITORY
SYSTEM
WHAT IS DEPOSITORY
Electronic revolution has brought about a number of changes in the
functioning of Indian capital market. The most revolutionary change that
was brought in the entire history of the Indian market is the introduction of
depository.
The century old Indian market has been vibrant all along but itspaper- based settlement of trades caused problems like bad delivery, delayed
transfers etc., until the enhancement of depository act in 1996. The
depository model in India is a competitive multi depository system in India
the system of dematerialization is followed, wherein the securities will be
24
-
8/7/2019 nancy report
25/97
cancelled as against the system of immobilization in which the securities are
kept in custody.A depository is an organization where the securities of an
investor are held in electronic form and carries out the securities transaction
by book entry.
A depository is a file or set of files in which data is stored for the
purpose of safekeeping or identity authentication. In a biometric security
system, a depository contains data about people's physical characteristics
such as iris prints and finger images.
In general information storage applications, a depository are a
physical site where data is kept in the form of hard copies, magnetic disks,
magnetic tapes, compact disks (CDs), and similar media. A good example is
the safe deposit vault in a financial institution. An ideal
Depository is secure, in the sense that only authorized persons or
institutions can gain access to the data it contains. However, experience has
shown that many depositories, no matter how secure they claim to be, can be
compromised by a determined hacker or thief.
WHAT IS DEPOSTORY SYSTEM
The erstwhile settlement system on Indian stock exchanges was also
inefficient and increased risk, due to the time that elapsed before trades were
settled. The transfer was by physical movement of papers. There had to be a
physical delivery of securities -a process fraught with delays and resultant
risks. The second aspect of the settlement relates to transfer of shares infavour of the purchaser by the company. The system of transfer of
ownership was grossly inefficient as every transfer involves physical
movement of paper securities to the issuer for registration, with the change
of ownership being evidenced by an endorsement on the security certificate.
25
-
8/7/2019 nancy report
26/97
In many cases the process of transfer would take much longer than the two
months stipulated in the Companies Act, and a significant proportion of
transactions would end up as bad delivery due to faulty compliance of paper
work. Theft, forgery, mutilation of certificates and other irregularities were
rampant. In addition, the issuer has the right to refuse the transfer of a
security. All this added to costs and delays in settlement, restricted liquidity
and made investor grievance redressal time consuming and, at times,
intractable.
To obviate these problems, the Depositories Act, 1996 was passed. It
provides for the establishment of depositories in securities with the objective
of ensuring free transferability of securities with speed, accuracy and
security. It does so by (a) making securities of public limited companies
freely transferable, subject to certain exceptions; (b) dematerialising the
securities in the depository mode; and (c) providing for maintenance of
ownership records in a book entry form. In order to streamline both the
stages of settlement process, the Act envisages transfer ownership of
securities electronically by book entry without making the securities
move from person to person. The Act has made the securities of all public
limited companies freely transferable, restricting the company's right to use
discretion in effecting the transfer of securities, and the transfer deed and
other procedural requirements under the Companies Act have been
dispensed with. Two depositories, viz., NSDL and CDSL, have come up to
provide instantaneous electronic transfer of securities.
In any stock exchange, trades or transactions have to be settled by
either squaring up the carrying forward positions or settling by payment of
net cash or net delivery of securities. This account settlement period, if it is
26
-
8/7/2019 nancy report
27/97
long leads to several price distortions and allows for market manipulation. It
increases the chances of speculation resulting in volatility, which hurts the
small investors. With the application of IT in the securities market - screen-
based trading and trading through the Internet - it has been possible to
reduce this settlement period.
LegalFramework of depositary system
The operations of the depositories are primarily governed by the
Depositories Act, 1996, Securities and Exchange Board of India
(Depositories & Participants) Regulations, 1996, Bye- Laws approved by
SEBI, and Business Rules framed in accordance with the Regulations and
Bye-Laws.The Depositories Act passed by Parliament received the President's
assent on August 10, 1996. It was notified in a Gazette on August 12 of the
same year. The Act enables the setting up of multiple depositories in the
27
-
8/7/2019 nancy report
28/97
country. This was to see that there is competition in the service and there is
more than one depository in operation. At present, two depositories are
registered with SEBI - The National Securities Depository Limited (NSDL)
and Central Depository Services (India) Limited (CDSL).
Only a company registered under the Companies Act, 1956 and
sponsored by the specified category of institutions can set up a depository in
India. Before commencing operations, depositories should obtain a
certificate of registration and a certificate of commencement of business
from SEBI.
The rights and obligations of depositories, depository participants, issuers
and beneficial owners are spelt out clearly in the Depositories Act 1996.
As per the Act :
Section 4 : DP is an agent of the Depository: A DP is an agent of the
depository, who provides various services of the depository to investors. The
DP has to enter into an agreement with the depository to this effect. Any
investor who would like to avail the services of a depository has to enter into
an agreement with any DP of his choice. The DP will then make the
depository services available to the investor.
Section 7: Free Transferability: The securities held by an investor in the
depository are freely transferable from one beneficial owner to another.
section 8: Option to hold securities in demat form : In the depository
system, every investor subscribing to securities offered by an issuer has anoption to receive the same in physical form or dematerialised form. If an
investor opts for receiving the securities in dematerialised form, the issuer
intimates the depository the details of allotment of security. On receipt of
this information,
28
-
8/7/2019 nancy report
29/97
The depository enters the name of the allottee as the beneficial owner of that
security in its record. Section 9: Securities held in a depository are fungible :
All securities held by the depository are in dematerialised and fungible form.
Section 10: Registered Owner and Beneficial Owner : The depository is
deemed to be the registered owner for the purpose of effecting transfer of
ownership of security on behalf of a beneficial owner. But as a registered
owner, it does not have any voting rights or any other rights in respect of
those securities. The beneficial owner is entitled to all rights and benefits as
well as subject to all liabilities in respect of his securities held in the
depository.
Section 14: Option to opt out of depository : A beneficial owner may opt
out of a depository in respect of any security by requisite intimation to the
depository.
Section 16: Depository to indemnify losses : A depository shall indemnify a
beneficial owner, any loss caused due to negligence of the depository or its
participant. Eligibility Criteria for a Depository. Any of the following may
promote a depository:
1. A public financial Institution as defined in section 4A of the
Companies Act, 1956;
2. A bank included in the Second Schedule to the Reserve Bank of
India Act, 1934;
3. A foreign bank operating in India with the approval of the Reserve
Bank of India;
4. A recognised stock exchange;5. An institution engaged in providing financial services where not
less than 75% of the equity is
held jointly or severally by these institutions;
6. A custodian of securities approved by Government of India, and
29
-
8/7/2019 nancy report
30/97
7. A foreign financial services institution approved by Government of
India.
The promoters of a depository are also known as its sponsors. A
depository company must have a minimum net worth of Rs. 100 crore. The
sponsor(s) of the depository have to hold at least 51% of the equity capital of
the depository company. Participants of that depository, if
any, can hold the balance of the equity capital. However, no single
participant can hold, at any point of time, more than 5% of the equity capital.
No foreign entity, individually or collectively either as a sponsor or as a DP,
or as a sponsor and DP together, can hold more than 20% of the equity
capital of the depository.
Registration - As per the provisions of the SEBI Act, a depository can deal
in securities only after obtaining a certificate of registration from SEBI. The
sponsors of the proposed depository should apply to SEBI for a certificate of
registration in the prescribed form. 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 ofBusiness - A depository that has obtained registration
as stated above, can function only if it obtains a certificate ofcommencement of business from SEBI. A depository must apply for and
obtain a certificate ofcommencement of business from SEBI within one year
from the date of receiving the certificate of registration from SEBI.
30
-
8/7/2019 nancy report
31/97
SEBI grants a certificate of commencement of business if it is
satisfied that the depository has adequate systems and safeguards to prevent
manipulation of records and transactions. SEBI takes into account all
matters relevant to the efficient and orderly functioning of the depository. It
particularly examines whether :
1. The depository has a net worth of not less than Rs. 100 crore;
2. The Bye-Laws of the depository have been approved by SEBI;
3. The automatic data processing systems of the depository have been
protected against unauthorised access, alteration, destruction, disclosure or
dissemination of records and data;
4. The network, through which continuous electronic means of
communication are established between the depository, participants, issuers
and issuers' agents, is secure against unauthorised entry or access.
5. The depository has established standard transmission and encryption
formats for electronic communication of data between the depository,
participants, issuers and issuers' agents;
6. The physical or electronic access to the premises, facilities, automatic data
processing systems, data storage sites and facilities including back-up sites,
and to the electronic data communication network connecting the DPs,
issuers and issuers' agents is controlled, monitored and recorded;
7. The depository has a detailed operational manual explaining all aspects of
its functioning, including the interface and method of transmission of
Information between the depository, issuers, issuers' agents, DPs andbeneficial owners;
8. The depository has established adequate procedures and facilities to
ensure that its records are protected against loss or destruction and
31
-
8/7/2019 nancy report
32/97
arrangements have been made for maintaining back-up facilities at a location
different from that of the depository;
9. The depository has made adequate arrangements including insurance for
indemnifying the beneficial owners for any loss that may be caused to such
beneficial owners by the wrongful act, negligence or default of the
depository or its participants or of any employee of the depository or
participant;
10. The granting of certificate of commencement of business is in the
interest of investors in securities market.
Agreement between Depository and Issuers If either the issuer (a company
which has issued securities) or the investor opts to hold his securities in a
demat form, the issuer enters into an agreement with the depository to enable
the investors to dematerialise their securities.
No such agreement is necessary where:
i. Depository, is the issuer of securities, or;
ii. The State or Central Government is the issuer of government securities.
Where the issuer has appointed a registrar to the issue or share
transfer, the depository enters into a tripartite agreement with the Issuer and
Registrar & Transfer (R&T) Agent, as the case may be, for the securities
declared eligible for dematerialisation. At present, NSDL is discharging the
responsibility of R&T Agent for the securities issued by State and Central
Governments.Rights and Obligations of Depositories Depositories have the rights
and obligations conferred upon them under the Depositories Act, the
regulations made under the Depositories Act, Bye- Laws approved by SEBI,
32
-
8/7/2019 nancy report
33/97
and the agreements made with the participants, issuers and their R&T
agents.
Every depository must have adequate mechanisms for reviewing,
monitoring and evaluating the depository's controls, systems, procedures and
safeguards. It should conduct an annual inspection of these procedures and
forward a copy of the inspection report to SEBI. The depository is also
required to ensure that the integrity of the automatic data processing systems
is maintained at all times and take all precautions necessary to ensure that
the records are not lost, destroyed or tampered with. In the event of loss or
destruction, sufficient back up of records should be available at a different
place. Adequate measures should be taken, including insurance, to protect
the interests of the beneficial owners against any risks.
Every depository is required to extend all such co-operation to the
beneficial owners, issuers, issuers' agents, custodians of securities, other
depositories and clearing organizations, as is necessary for the effective,
prompt and accurate clearance and settlement of securities transactions and
conduct of business.
The depository should indemnify beneficial owners of securities for
any loss caused to them due to the negligence of the DP. However, where
the loss is caused due to the negligence of a DP, the depository shall have
the right to recover it from such DPs.
Bye-Laws - A depository is required to make Bye-Laws governing its
operations. The Bye- Laws have to be in conformity with the Depositories
Act and the regulations made there under, and need to be approved by SEBIbefore becoming effective.
Depository - Every depository is required to maintain the following records
and documents.
33
-
8/7/2019 nancy report
34/97
These have to be preserved for a minimum period of five years.
1. Records of securities dematerialised and rematerialised.
2. The names of the transferor, transferee, and the dates of transfer of
securities.
3. A register and an index of beneficial owners.
4. Details of the holdings of the securities of beneficial owners as at the end
of each day.
5. Records of instructions received from, and sent to, participants, issuers,
issuers' agents and beneficial owners.
6. Records of approval, notice, entry and cancellation of pledge or
hypothecation.
7. Details of participants.
8. Details of securities declared to be eligible for dematerialisation in the
depository.
9. Such other records as may be specified by SEBI for carrying on the
activities as a depository.
Services of Depository - A depository established under the Depositories
Act can provide any service connected with recording of allotment of
securities or transfer of ownership of securitiesin the record of a depository.
Any person willing to avail the services of the depository can do so by
entering into an agreement with the depository through any of its
participants. A depository can provide depository services only through aDP. A depository cannot directly open accounts and provide services to
clients. Every depository in its Bye-Laws must state which securities are
eligible for demat holding. Generally, the following securities are eligible
for dematerialisation:
34
-
8/7/2019 nancy report
35/97
(a) Shares, scrips, stocks, bonds, debentures, debenture stock or other
marketable securities of a
like nature in or of any incorporated company or other body corporate.
(b) Units of mutual funds, rights under collective investment schemes and
venture capital funds, commercial paper, certificates of deposit, securitised
debt, money market instruments, government securities, national saving
certificates, kisan vikas patra and unlisted securities.
(c) Securities admitted to NSDL depository are notified to all DPs through
circulars sent by email. Investors are informed about these securities through
Functions of Depository
Dematerialisation: One of the primary functions of depository is to
eliminate or minimise the movement of physical securities in the market.
This is achieved through dematerialisation of securities. Dematerialisation is
the process of converting securities held in physical form into holdings inbook entry form.
Account Transfer: The depository gives effects to all transfers
resulting from the settlement of trades and other transactions between
35
-
8/7/2019 nancy report
36/97
various beneficial owners by recording entries in the accounts of such
beneficial owners.
Transfer and Registration: A transfer is the legal change of ownership
of a security in the records of the issuer. For effecting a transfer, certain
legal steps have to be taken like endorsement, execution of a transfer
instrument and payment of stamp duty. The depository accelerates the
transfer process by registering the ownership of shares in the name of the
depository. Under a depository system, transfer of security occurs merely by
passing book entries in the records of the depositories, on the instructions of
the beneficial owners.
Corporate Actions: A depository may handle corporate actions in
two ways. In the first case, it merely provides information to the issuer about
the persons entitled to receive corporate benefits. In the other case,
depository itself takes the responsibility of distribution of corporate benefits.
Pledge and Hypothecation: The securities held with NSDL may be used as
collateral to secure loans and other credits by the clients. In a manualEnvironment, borrowers are required to deliver pledged securities in
physical form to the lender or its custodian. These securities are verified for
authenticity and often need to be transferred in the name of lender. This has
a time and money cost by way of transfer fees or stamp duty. If the borrower
wants to substitute the pledged securities, these steps have to be repeated.
Use of depository services for pledging/ hypothecating the securities makes
the process very simple and cost effective. The securities
pledged/hypothecated are transferred to a segregated or collateral account
through book entries in the records of the depository.
36
-
8/7/2019 nancy report
37/97
Linkages with Clearing System: Whether it is a separate clearing corporation
attached to a stock exchange or a clearing house (department) of a stock
exchange, the clearing system performs the functions of ascertaining the
pay-in (sell) or pay-out (buy) of brokers who have traded on the stock
exchange. Actual delivery of securities to the clearing system from the
selling brokers and delivery of securities from the clearing system to the
buying broker is done by the depository. To achieve this, depositories and
the clearing system should be electronically linked.
BENEFITS OF DEPOSITORY SYSYEM
No risks associated with physical certificates such as loss of
share certificate, Fake securities, Etc.
No bad delivery.
Faster settlement cycles.
Low transaction cost for purchase and sale of securities
compared to physical mode.
37
-
8/7/2019 nancy report
38/97
Increase liquidity of securities
Reduction of paper work
Allotment of IPO, Bonus, Rights shares etc. in electronic form
Wavier of stamp duty on transfer of securities
Facilities offered by depository system
Dematerialisation
Rematerialisation
Electronic settlement of trades in stock exchanges
connected to depositories.
Pledging/hypothecation of dematerialized securities.
Electronic credit of securities allotted in public, rights,
bonus issue.
Nomination facility.
Freezing of De-mat accounts, so that the debits from the
dematerialization are not permitted.
Services related to change of address, nomination,
mandate, transmission, etc.
Other services viz.holding debt instruments in the same
demat account.
Safety features in the depository system
To ensure safety to the investors the following measures exist-
Strict norms for becoming depository participant- Net worthcriteria, SEBI approval etc. is mandatory. DP cannot effect ant
debit or credit in the demat account of the investor without the
valid authorization of the investor. Regulation reconciliation
between DP and the depositories. Periodic inspection by
38
-
8/7/2019 nancy report
39/97
Depositories of the office of the DP and Registrar. All
investors have a right to receive their statements of accounts
periodically from the DP.
In the depository system, the depository holds the investor
accounts on trust. Therefore if the DP goes bankrupt the
creditors of the DP will have no access to the holdings in the
name of the clients of the DP.
Compulsory internal audit of operations of DP by practicing
company secretary of the chartered accountant every quarter.
Various procedures for backup and safe keeping of data at all
the levels.
SEBI has made compulsory trading of shares of all the
companies listed in Stock Exchange in demat form w.e.f 2
January 2002. Hence, if the investor wants to trade in respect of
the companies, which have established connectivity with NSDL
& CDSL, he may have to open a beneficiary account.
Beneficiary account
A beneficiary account is an account opened by the investor or a broker with
a DP of his choice, to hold shares in dematerialized form and undertake scrip
less trading.
Investor contacting the depository
The investor must open a demat account with a Depository Participant.
Opening a demat account with a DP is similar to opening an account with
39
-
8/7/2019 nancy report
40/97
bank. The selection of DP is to be done by the investor based on fee payable,
proximity, service levels, etc.
Documents required for opening demat account
For demat account opening the following documents are required to
be given-
Demat account opening form duly filled.
Address proof.
Photograph
Identity proof
Other formalities in Demat account opening
Once a demat account is opened, the investor must sign an agreement
with the DP. The investor will be allotted an account no. known as client
identity. The client identity number along with the DP identity number
forms a unique combination. Both these numbers should be quoted in all the
future dealing with Depositories /DP /RTA /Company. However in case of
CDSL there is no DP identity and the 16-digit Client identity itself is a
40
-
8/7/2019 nancy report
41/97
unique number. The investor must collect forms like dematerialization
request form (DRF), Delivery instruction slips etc.
Certain points to be considered while opening Demat account
Demat account cannot be opened in the name of the partnership firms, as a
partnership
firm is not a legal entity. However, a demat account can be opened in the
name of the partners.
Demat account cannot be opened in the name of the HUF. It has to be
opened in the name of the Karta of the HUF.
In the case of a minor, the depository account should be opened in the
name of the minor and the guardians name should be mentioned. The
guardian will sign as signatory on behalf of the minor.
Investor can open any number of DP accounts with any number of DPs.
However, investorhas to incur cost for each of such account.Investor must
open different Demat accounts for shares held in different combination of
names. Alternatively investor can submit the certificate for Demat along
with transposition form.
Minimum balance of securitiesn required to be maintained in
Demat account
There is no minimum balance required to be maintained in a Demat account
and an investor can even maintain nil balance. Other steps the investor
41
-
8/7/2019 nancy report
42/97
should take The investor should inform his DP of any change in his address,
bank account, nomination, etc. immediately upon change thereof.
Charges for Demat account opening and other depository trading
The depository does not charge any fee directly from the investors.
The depository charges only the DPs. However, the DP is free to charge its
clients for the services offered. The charges of DPs also vary.
Stock exchanges connected to the Depositories for Demat trading
At present the following 10 stock exchanges are connected to the
Depositories-
National Stock Exchange
The Stock Exchange Mumbai
Calcutta Stock Exchange
Delhi Stock Exchange Ludhiana Stock Exchange
Banglore Stock Exchange
Over the counter stock exchange of India
Madras Stock Exchange
Inter connected Stock Exchange
Ahmedabad Stock Exchange
Market trade and off market trade
42
-
8/7/2019 nancy report
43/97
Trade done and settled through a stock exchange and clearing
corporation is market trade. Trade done privately without the involvement of
the Stock Broker of Stock Exchange is off market trade.
Buying and selling of shares by the investor
The investor can buy and sell shares only through a stockbroker and
not through a DP. DP helps in delivering the shares against a sale transaction
or receiving the shares for a purchase transaction.
Corporate benefits
Corporate benefit is a corporate event. It can be cash corporate benefit like
dividend, interest, etc.or non-cash corporate benefits like rights, bonus etc.
When any corporate event such as right or bonus or dividend is
announced for a particular security, depository will give the details of all
clients having electronic holdings in thatsecurity as of the record date to the
RTA/Company will then calculate the corporate benefits due to all the
shareholders. The disbursements of cash benefits such as dividend/interests
will be done by the RTA/Company directly to the shareholders. Non-cash
benefits will be distributed through depository by crediting the entitled
quantity of shares into shareholders demat account.
Direct credit of shares in electronic form:
In the public/Right issue application form of depository eligible companies,
there will be a provision for the investor to indicate the manner in which
hewants the securities allotted to him. Even in the case of bonus issue the
43
-
8/7/2019 nancy report
44/97
investor is given an option for getting the shares allotted in physical or
electric form. The investor must mention his client ID. Number and DP ID
No.
Advantage of getting allotment in electronic form:
SEBI has announced that the shares of all the companies going in for public
issue will have to be compulsorily settled in demat form by all investors. It is,
therefore, advantageous for an investor to prefer the allotment in demat form,
so that the shares have higher liquidity.
In case of Discrepancies in corporate benefits the investor can approach his
DP who in turn will contact the RTA/Company for clarifications regarding
allotment of securities. Clearing members, Clearing corporations and other
intermediaries cannot have voting rights in respects of the shares held in
pool account. Further the clearing member or cleaning corporation is also
responsible for distribution of bonus, right and other corporate benefits lying
in his account to the investor.
Meaning of Transfer, Transmission and Transposition
Transfer
44
-
8/7/2019 nancy report
45/97
Depository is electronically linked to depository participants, issuer
company or Registrar & transfer agent and the clearing corporation/ clear
house of the stock exchange. This is done in order to facilitate settlement of
trades and to perform a daily, reconciliation of all the account balances held
with depository. Thus, an integrated system is set up for maintenance of
investor accounts.
Transmission
In the case of transmission, the claimant will have to fill a transmission
request form, supported by documents like death certificates, etc. The DP,
after ensuring that the application is genuine, will transfer securities to the
demat account of the claimant. For this purpose claimant must have a
depository account. The major advantage in transmission of dematerialized
holdings is the transmission formalities for all securities held with the DP
can be completed in one go, unlike in the case of share certificate, where the
claimant will have to interact with each RTA/Company.
Transposition
In case of transportation-cum-dematerialization, the investor can get the
securities dematerialized in the same account if the names appearing on the
certificate match with the names in which the demat account has been
opened but are in a different order, by submitting the security certificate
45
-
8/7/2019 nancy report
46/97
along with the transportation form and the Dematerialisation request form
(DRF) to the DP.
Pledging
Pledging of dematerialized securities:
Pledging dematerialized securities is easier and more advantageous as
compared to pledging physical securities. The procedure as follows
Both borrower (pledger) as well as the lender (pledgee) must have
depository account.
The pledger must initiate the pledge by submitting to his DP the details of
the securities to be pledged in a standard format. The pledge should confirm
the request through his DP.
Once this is done the securities are pledged. All financial transactions
between the pledger and the pledgee are handled outside the depository
system.
Procedure for the closure of pledge
After the borrower has repaid the loan, the borrower can request for a
closure of pledge by instructing his DP in a prescribed format. The lender on
receiving the repayment will instruct his DP confirmed the closure of the
pledge.
Change of securities offered in a pledgeIf the pledger (lender) agrees, the investor may change the securities offered
in a pledge.
46
-
8/7/2019 nancy report
47/97
Nomination
Shares held in physical as well as electronic form can be nominated.
Nomination can be made only by individuals holding beneficiary accounts
on their own behalf either singly or jointly. On individuals, society, trust,
body corporate ,partnership firm, Karta or Hindu undivided Family, holder
of power of attorney cannot nominate.
Nomination is permitted for accounts with joint holder, but in case of
death of any of the joint holder, the securities will be transmitted to the
surviving holder(s) only in the event of death of all the joint holders, the
securities will be transmitted to the nominee.
Only an individual can be a nominee. A nominee shall not be a society, trust,
body corporate, partnership firm, karta of Hindu undivided Family or a
power of attorney holder.
A minor cannot nominate either directly or through its guardian.
A minor can be a nominee. In such a case, the guardian will sign on behalf
of the nominee and in addition to the name and photograph of the nominee,
the name, address and the photograph of the guardian must be
given.Separate nomination cannot be made for each security. Nomination
can be made Demat account wise and not security wise.
The investor must fill in and submit to his DP the nomination form.
The account holder, Nominee and two witnesses must sign this form and the
name; address and photograph of the nominee must be submitted.
The nomination can be changed anytime by the account holder byfilling up the revised nomination form and submitting it to the DP. The
account holder, Nominee and two witnesses must sign this form and the
name; address and photograph of the nominee must be submitted. In case of
joint holders, all joint holders must sign.
47
-
8/7/2019 nancy report
48/97
Demat of debt instrument
Debt instrument can also be held in demat form. Instruments like bond,
debentures, commercial papers, certificates of deposit, etc. irrespective
whether these instruments arelisted/unlisted/privately placed or even issued
to a single holder can be dematerialized. Commercial paper can also be kept
in demat form. As per RBI Monetary and credit policy banks, Financial
Institutions, primary Dealers and satellite dealers are directed to convert
their outstanding investment in commercial papers in script form, into
Demat form. The above entities have also been directed to make fresh
investment in commercial paper only in demat form.Bonds and debentures
can also kept in demat form. In its midterm review of the monetary and
credit policy RBI has mentioned that banks and financial institutions shall
make investment in debentures and bonds only in demat form. Any new
instrument can be issued directly indematerialized form without recourse to
printing of either letter of allotment or certificates.Securities will be directly
credit into the demat accounts of the investor by the depositories on receipt
of allotment details from RTA/Company. The investor need not open
separate demat account for demat of debt instrument. The procedure of
dematerialization of debt instrument is same as that carried out for equity
shares. In order to dematerialized his/her certificates; an investor will have
to first open a demat account with a DP and the a request for the
dematerialization of certificates by filling up a dematerialization requestform (DRF), which is available with DP and submitting the same alongwith
the physical certificates. The investor has to ensure that before the
certificates are handedover to the DP for demat, he marks Surrendered for
Dematerialization on the face of thecertificates.
48
-
8/7/2019 nancy report
49/97
Account opening
Demat/Remat
Account Maintenance
Custody
Transaction, etc.
Knowing of securities balance in demat account The investor is provided
with a transaction statement by his DP at regular intervals. Based on
that the investor will know his security balances.
Receiving Transaction statement by investor :The DP will send a
transaction statement once in a quarter if there is no transaction during the
quarter. If there are any transactions DP will send the statements within
fifteen days of the transaction.
Freezing of demat account
The depository system provides the facility to freeze the demat account for
any debits or for both debits and credits. In an account, which is free zed of
debits, no debits will be permitted from the account, till the time it is
defreeze. This is in additional security feature of the investors.
Standing instruction to DP
49
-
8/7/2019 nancy report
50/97
The investor can give one time standing instruction to his DP to receive all
the credits coming to his depository account automatically. However, the
investor cannot give standing instruction for any debits in his account.
Access of investor accounts by all DPs
A DP cannot access the investors account of any other DP.The DP can
access only those investors accounts serviced by them.
Furnishing of bank account particulars in DP. Details of bank account of the
client, including the 9-digit code number of the bank and branch appearing
on the MICR cheque issued by the bank have to be given to the DP at the
time of account opening. Companies use this information for printing them
on dividend/interest warrants etc., to prevent its misuse. In case the client
wishes to change this bank account details, he can do so by submitting the
change in writing to the DP.
Procedure of closure of demat account
An investor can close a demat account by giving an application in prescribed
form. In case there is any balance in the demat account sought to be closed,
the following steps are necessary-
1. Rematerialisation of all securities standing to the credit of the demat
account at the time of making the application for the closure.
2. Transferring the balance to the credit of another demat account , with the
same participant or with a different participant.
50
-
8/7/2019 nancy report
51/97
Dematerialization
Dematerialization is the process of conversion of shares or other securities
held in physical form into electronic form.
Whom to approach
The investor must approach his DP for Dematerialization
The shares that an investor can dematerialize
The investor can demat the shares of any company that has established
connectivity with NSDL or CDSL
Steps involved in dematerialization
1. Investor must submit request form and share certificate to DP.
2. DP will check whether security is available for Demat. Investor must
deface the sharecertificate by stamping surrendered for dematerialization
and DP will punch two holes on the name of the company and will draw two
parallel lines across the face of the certificate.
3. DP enters the Demat request in their system to be sent to the depository.
DP dispatches the physical certificates along with the DRF to the RTA/
Company.
4. Depository records the details of the system and forwards the request to
Registrar and transfer agent or issuer i.e. the company whose shares aresought to be dematerialized.
5. RTA Company on receiving the physical documents verifies request and
check them. Once the RTA/Company finds that shares are in order,
51
-
8/7/2019 nancy report
52/97
dematerialization of the concerned securities is electronically confirmed to
the depository
6. Depository credits the dematerialized securities to the beneficiary account
of the investor and intimates the DP electronically. The DP issues
a statement of transaction to the client.
Signing of the demat request form in case of joint holders
All joint holders should sign the DRF.
Company identification number for demat purposes
Once the company is admitted in the depository system, the depository allots
an ISIN. This number is unique for each security of the company that is
admitted in the depository.
Mentioning of the ISIN in the DRF
The ISIN should be mentioned in the DRF.This to certain extent ensures that
the security mentioned in the DRF is the one which the investor intends to
dematerialize.
Distinguishing between partly paid-up share and fully paid up shares in
the depository
52
-
8/7/2019 nancy report
53/97
Parties paid up shares and fully paid up shares are identified by separate
ISINs (International security identification number). These are also traded
separately at the stock exchanges. The company issues call notices to the
beneficial holders of partly paid up securities in the electronic form. The
details of such beneficial holders will be provided to the RTA/company will
automatically convert the partly paid up shares to fully paid shares.
Rematerialisation
Rematerialisation is conversion of electronic holdings into physical
certificate form.
Steps involved for Rematerialisation
The investor must fill up a remat form (RRF) and give it to the DP. The DP
will forward the request depository after verifying that the shareholder has
necessary balances. Depository in turn will intimate the RTA/Company will
print the certificate and dispatch the same to the investor.
Electronic settlement of the Trades
Procedure for selling dematerialization securities in the stock exchanges is
similar to the procedure for selling physical securities Instead of delivering
physical securities to the broker, the investor must instruct his/her DP to
debit his/her demat account with the number of securities sold by him/her
and credit brokers clearing account.
Procedure for selling securities is given below:
53
-
8/7/2019 nancy report
54/97
Investor sells securities in any of the stock exchange linked to depository
through a broker. Investor gives instruction to DP to debit his account and
credit the brokers (clearing account pool) account before the pay-in-day.
Investors broker transfers the securities to clearing corporation. The broker
receives payment from the stock exchange (Clearing Corporation). The
investor receives payment from the broker for the sale in the same manner
payment is received for a sale in the physical mode.
Procedure for purchase of dematerialized shares
The procedure or buying dematerialized securities in stock exchanges is
similar to the procedure for buying physical securities. Investor may give a
one time standing instruction to receive credits into his /her account or may
give separate instruction each time in he prescribed format. The transaction
relating to purchase of securities are summarized below. Investor purchases
securities in any of the stock exchanges connected to depository through a
broker.
Broker receives payment from investors.
Broker arranges payment to clearing corporation.
Broker receives credit of securities in clearing account on the payout
day.
Broker gives instruction to DP to debit clearing account and credit
clients account.
Investor receives shares in his account.The investor should ensure that the broker transfer the securities
purchased to hisaccount, before the book closure. If the securities remain in
the clearing account of thebroker, the company may give corporate benefits
to the broker. Therefore, the investor has tocollect benefits from the broker.
54
-
8/7/2019 nancy report
55/97
Some important Processes in depositary system
Dematerialization
Rematerialization
Initial public offers
Trading & settlements
On Market transactions
Off market transactions
Inter Depository transactions
55
-
8/7/2019 nancy report
56/97
Dematerialization Process
Physical Securities Electronic Form.
Pre-requisites:
Demat Account with any DP of the Depository.
ISIN for the securities available with the Depository.
Investor should be registered holder for the securities in the books of the
company.
Rematerialization
56
-
8/7/2019 nancy report
57/97
Rematerialization or remat is a compiler optimization which saves time by
recomputing a value instead of loading it from memory. It is typically tightly
integrated with register allocation, where it is used as an alternative to spilling
registers to memory. It was conceived by Preston Briggs, Keith D. Cooper,
and Linda Torczon in 1992.Rematerialization works by keeping track of the
expression used to compute each variable, using the concept of available
expressions. Sometimes the variables used to compute a value are modified,
and so can no longer be used to rematerialize that value. The expression is
then said to no longer be available. Other criteria must also be fulfilled, for
example a maximum complexity on the expression used to rematerialize the
value; it would do no good to rematerialize a value using a complex
computation that takes more time than a load. Usally the expression must also
have no effects.
Rematerialization process
Initial public offers
57
-
8/7/2019 nancy report
58/97
An initial public stock offering (IPO) referred to simply as an
"offering" or "flotation," is when a company (called the issuer) issues
common stock or shares to the public for the first time. They are often issued
by smaller, younger companies seeking capital to expand, but can also be
done by large privately-owned companies looking to become publicly
traded.
In an IPO the issuer may obtain the assistance of an underwriting firm,
which helps it determine what type of security to issue (common or
preferred), best offering price and time to bring it to market.
An IPO can be a risky investment. For the individual investor, it is tough to
predict what the stock or shares will do on its initial day of trading and in the
near future since there is often little historical data with which to analyze the
company. Also, most IPOs are of companies going through a transitory
growth period, and they are therefore subject to additional uncertainty
regarding their future value.
The first sale of stock by a private company to the public. IPOs are
often issued by smaller, younger companies seeking the capital to expand,
but can also be done by large privately owned companies looking to become
publicly traded. In an IPO, the issuer obtains the assistance of an
underwriting firm, which helps it determine what type of security to issue
(common or preferred), the best offering price and the time to bring it to
market.Also referred to as a "public offering".
IPOs can be a risky investment. For the individual investor, it is tough to
predict what the stock will do on its initial day of trading and in the near
future because there is often little historical data with which to analyze the
company. Also, most IPOs are of companies going through a transitory
58
-
8/7/2019 nancy report
59/97
growth period, which are subject to additional uncertainty regarding their
future values.
Initial public offers process
59
-
8/7/2019 nancy report
60/97
Trading & settlements
60
-
8/7/2019 nancy report
61/97
Transfer of securities in/ out of the Demat A/c can arise in the following
instances:
For execution of Off Market Transactions.
For settling On Market Transactions.
For Inter depository transactions.
Off Market Transactions
Transaction done on person to person basis without going through stock
exchange mechanism.
Pre-requisites:
Transfer of securities from one BO A/c to another BO A/c.
Both A/cs are with same Depository though with different DPs.
Neither buyers A/c nor sellers A/c is with clearing house/clearing
corporation.
61
-
8/7/2019 nancy report
62/97
Off market transaction process
On Market Transaction
62
-
8/7/2019 nancy report
63/97
Trades done by investors through stock exchange mechanism and settled
using same stock exchange mechanism. Seller as well as buyer account is
with CH/CC
Inter Depository Transactions.
SEBI (Depository and participants) Regulations, 1996 requires depositories
to be inter connected.
Debit/ credit instructions have to given on inter-depository delivery or
receipts forms to the DPs of seller and the buyer.
These instructions are exchanged online for each day between the
depositories.
Securities available for dematerialization on both depositories.
63
-
8/7/2019 nancy report
64/97
National Securities Depository Limited
64
-
8/7/2019 nancy report
65/97
In a span of about nine years, investors have switched over to
electronic [demat] settlement and National Securities Depository Limited
(NSDL) stands at the centre of this change. In order to provide quality
service to the users of depository, NSDL launched a certification programme
in depository operations in May 1999. This certification is conducted using
NCFM infrastructure created by NSE and is called "NSDL - Depository
Operations Module". The programme is aimed at certifying whether an
individual has adequate knowledge of depository operations, to be able to
service investors. Depository Participants are required to appoint at least one
person who has qualified in the certification programme at each of their
service centres. This handbook is meant to help the candidates in their
preparation for the certification programme.
This handbook has been divided into four volumes for readers'
convenience. The first volumegives an overview of the Indian capital market
and NSDL depository system. The second volume deals with admission
procedure for different business partners of NSDL, their obligations,
practices, systems and procedures to be followed by them and benefits and
safety of depository system. The third volume helps in acquiring a working
level understanding of certain basic services offered by NSDL like account
opening, dematerialisation, and transfer of securities and related operations.
The last volume deals with special services offered by NSDL like Pledge,
Stock Lending and Borrowings, Corporate Actions, National Savings
Certificates / Kisan Vikas Patra (NSC/KVP) in demat form, Warehouse
Receipts, Market Participants and Investor Database (MAPIN) and Tax
Information Network (TIN).
The procedures explained in the handbook are based on the
Depositories Act, Securitiesand Exchange Board of India (Depositories &
65
-
8/7/2019 nancy report
66/97
Participants) Regulations and Byelaws & Business Rules of NSDL. The
book contains illustrations, flow charts and checklists for better
understanding of various concepts and procedures. A sample test paper is
given at the end of the fourth volume to help the candidates appearing for
NCFM test form an assessment of their preparedness. A thorough
understanding of this handbook will form a good base for qualifying the
certification test.
Readers may like to visit NSDL website www.nsdl.co.in for updates and to
know the new procedures introduced or changes brought about in the
existing procedures. A feedback form is given at the end of the fourth
volume. Readers may give their feedback, which will be of great help in
enhancing the value of this Handbook in its subsequent editions.
National Securities Depository Limited
National Securities Depository Limited is the first depository to be
set-up in India. It was incorporated on December 12, 1995. The Industrial
Development Bank of India (IDBI) - the largest development bank in India,
Unit Trust of India (UTI) - the largest Indian mutual fund and the National
Stock Exchange (NSE) - the largest stock exchange in India, sponsored the
setting up of NSDL and subscribed to the initial capital. NSDL commenced
operations on November 8, 1996.
Ownership
NSDL is a public limited company incorporated under the Companies
Act, 1956. NSDL had a paidup equity capital of Rs. 105 crore. The paid up
capital has been reduced to Rs. 80 crore since NSDL has bought back its
66
-
8/7/2019 nancy report
67/97
shares of the face value of Rs. 25 crore in the year 2000. However, its net
worth is above the Rs. 100 crore, as required by SEBI regulations.
The following organizations are shareholders of NSDL as on March 31,
2005.
1. Industrial Development Bank of India
2. Administrator of the Specified Undertaking of the Unit Trust of India -
DRF
3. National Stock Exchange
4. State Bank of India
5. Oriental Bank of Commerce
6. Citibank N.A.
7. Standard Chartered Bank
8. HDFC Bank Limited
9. The Hongkong and Shanghai Banking Corporation Limited
10. Deutsche Bank A.G.
11. Dena Bank
12. Canara Bank
Management of NSDL
NSDL is a public limited company managed by a professional Board of
Directors. The day-today operations are conducted by the Chairman &
67
-
8/7/2019 nancy report
68/97
Managing Director (CMD). To assist the CMD in his functions, the Board
appoints an Executive Committee (EC) of not more than 15 members. The
eligibility criteria and period of nomination, etc. are governed by the Bye-
Laws of NSDL in this regard.
Bye-Laws of NSDL
Bye-Laws of National Securities Depository Limited have been
framed under powers conferred under section 26 of the Depositories Act,
1996 and approved by Securities and Exchange Board of India. The Bye-
Laws contain fourteen chapters and pertain to the areas listed below :
Amendments to NSDL Bye-Laws require the approval of the Board of
Directors of NSDL and SEBI.
1. Short title and commencement
2. Definitions
3. Board of Directors
4. Executive Committee
5. Business Rules
6. Participants
7. Safeguards to protect interest of clients and participants.
8. Securities
9. Accounts/transactions by book entry
10. Reconciliation, accounts and audit
11. Disciplinary action
12. Appeals
13. Conciliation
14. Arbitration
68
-
8/7/2019 nancy report
69/97
Business Rules of NSDL
Amendments to NSDL Business Rules require the approval of NSDLExecutive Committee and
filing of the same with SEBI at least a day before the effective date for the
amendments.
Functions.
NSDL performs the following functions through depository participants:
(dematerialization and rematerialisation).
_ Maintains investor holdings in the electronic form.
_ Effects settlement of securities traded on the exchanges.
_ carries out settlement of trades not done on the stock exchange (off-market
trades).
_ Transfer of securities.
_ Pledging/hypothecation of dematerialised securities._ Electronic credit in public offerings of companies or corporate actions.
_ Receipt of non-cash corporate benefits like bonus rights, etc. in electronic
form.
_ Stock Lending and Borrowing.
Services Offered by NSDL
NSDL offers a host of services to the investors through its network of DPs:
_Maintenance of beneficiary holdings through DPs
_ Dematerialisation
_ Off-market Trades
_ Settlement in dematerialised securities
_ Receipt of allotment in the dematerialised form
69
-
8/7/2019 nancy report
70/97
_ Distribution of corporate benefits
_ Rematerialisation
_ Pledging and hypothecation facilities
_ Freezing/locking of investor's account
_ Stock lending and borrowing facilities
Fee Structure of NSDL
NSDL charges the DPs and not the investors directly. These charges
are fixed. The DPs in turn, are free to charge their clients, i.e., the investors
for their services. Thus, there is a twotier fee structure.
Inspection, Accounting and Internal Audit
NSDL obtains audited financial reports from all its DPs once every
year. NSDL also carries out periodic visits to the offices of its constituents -
R&T agents, DPs and clearing corporations to review the operating
procedures, systems maintenance and compliance with the Bye-Laws,
Business Rules and SEBI Regulations.
Additionally, DPs are required to submit to NSDL, internal audit reports
every quarter. Internal audit has to be conducted by a chartered accountant
or a company secretary in practice. The Board of Directors appoints a
Disciplinary Action Committee (DAC) to deal with any matter relating to
DPs clients, Issuers and R&T agents. The DAC is empowered to suspend or
expel aDP, declare a security as ineligible on the NSDL system, freeze a DP
account and conductinspection or call for records and issue notices.
If a DP is aggrieved by the action of the DAC, it has the right to
appeal to the EC againstthe action of the DAC. This has to be done within
70
-
8/7/2019 nancy report
71/97
30 days of the action by DAC. The EC has to hear the appeal within two
months from the date of filing the appeal. The EC has the power tostay the
operation of the orders passed by the DAC. The information on all such
actions has to befurnished to SEBI.
Settlement of Disputes All disputes, differences and claims arising
out of any dealings on the NSDL, irrespectiveof whether NSDL is a party to
it or not, have to be settled under the Arbitration and Conciliation Act 1996.
Account holders (investors) open account with the DPs. The account details,
entered in a computer system maintained by Depository Participants called
DPM, are electronically conveyed to the central system of NSDL called DM.
Companies who have agreed to offer demat facility to their shareholders use
a computer system called DPM (SHR) to connect to the NSDL central
system. DPM (SHR) may be installed by the company itself or through its
R&T Agent. This system is used to electronically receive demat requests,
confirm such requests or to receive beneficial owner data (Benpos) from the
depository. Stock exchanges receive pay-in (receiving securities against
sales made by brokers) or to payout (giving securities to brokers against
their purchases) using a computer system connected to NSDL called DPM
(CC).
All the computer systems installed by DPs (DPM-DP), companies
(DPM-SHRs), and stock exchanges (DPM-CC) are connected to NSDL
central system (DM) through V-SAT (very small aperture terminal) or
leased lines. These are collectively called Business Partner Systems. Any
transaction conducted by any computer system in the NSDL depository
system which is targetted to reach any other computer system first gets
recorded in DM and then will reach the target. No two business partners'
systems can communicate to each other without passing through the DM.
71
-
8/7/2019 nancy report
72/97
Maintenance of Accounts at the Central System
The NSDL central system known as DM maintains accounts of all
account holders in thedepository system. All the transactions entered at any
point in the computer system connected toit are first effected in the central
system and subsequently at these computers. Thus, the central system of
NSDL has the records of all details of every transaction conducted in the
depositorysystem.
Distributed Database
Each of the computer systems connected to NSDL system has its
owndatabase relating to its clients. This helps in giving prompt and accurate
service to the clients. However each of the databases is reconciled with the
data at the central system everyday in order to ensure that the data in the
distributed database tallies with the central database.
Common Software
NSDL develops software required by depository participants, companies,
R&T Agents and clearing corporations for conducting depository operations.
Thus, the computer systems used by all the entities will have common
software given by NSDL. However, depending on the business potential,
branch networks and any other specific features, DPs may develop software
of their own for co-ordination, communication and control and provide
service to their clients. Such exclusive software is called "back office
software". DPM system given by NSDL gives "export and import" facility to
take out the transaction details to be used by back office software and to feed
in transaction details generated from the back office software.
72
-
8/7/2019 nancy report
73/97
Connectivity
The computer system used by DPs, companies, R&T Agents and
stock exchanges may be connected to NSDL central system through V-SATnetwork or leased line network. NSDL uses NSE's V-SAT network for the
connectivity purposes. Thus, V-SATs used by NSE brokers can connect to
NSDL. V-SAT uses satellites for communication purposes. Some business
partners may connect using leasedlines provided by MTNL/ BSNL. V-SAT
or leased line connections are called primary connectivity. If primary
connectivity fails for any reason, BPs must have the ability to connect
through other means. Such other meansare PSTN lines, ISDN lines, POP
lines(normal telephone lines) through which they can dial in to the NSDL
system and conduct their transactions.
73
-
8/7/2019 nancy report
74/97
Central Depository Services (India)
Limited
Central Depositary Securities Limited
A Depository facilitates holding of securities in the electronic form
and enables securities transactions to be processed by book entry by a
Depository Participant (DP), who as an agent of the depository, offers
depository services to investors. According to SEBI guidelines, financial
74
-
8/7/2019 nancy report
75/97
institutions, banks, custodians, stockbrokers, etc. are eligible to act as DPs.
The investor who is known as beneficial owner (BO) has to open a demat
account through any DP for dematerialisation of his holdings and
transferring securities.
The balances in the investors account recorded and maintained with
CDSL can be obtained through the DP. The DP is required to provide the
investor, at regular intervals, a statement of account which gives the details
of the securities holdings and transactions. The depository system has
effectively eliminated paper-based certificates which were prone to be fake,
forged, counterfeit resulting in bad deliveries. CDSL offers an efficient and
instantaneous transfer of securities.
CDSL was promoted by Bombay Stock Exchange Limited (BSE)
jointly with leading banks such as State Bank of India, Bank of India, Bank
of Baroda, HDFC Bank, Standard Chartered Bank, Union Bank of India and
Centurion Bank.
CDSL was set up with the objective of providing convenient, dependable
and secure depository services at affordable cost to all market participants.
Some of the important milestones of CDSL system are:
CDSL received the certificate of commencement of business from SEBI in
February, 1999
1) Honourable Union Finance Minister, Shri Yashwant Sinha flagged off theoperations of CDSL on july 15,1999.
2) Settlement of trades in the demat mode through BOI Shareholding
Limited, the clearing house of BSE, started in july 1999.
75
-
8/7/2019 nancy report
76/97
3) All leading stock exchanges like the National Stock Exchange, Calcutta
Stock Exchange,Delhi stock Exchange, The Stock Exchange, Ahmedabad,
etc have establishedconnectivity with CDSL.
4) As at the end of Dec 2007, over 5000 issuers have admitted their
securities (equities, bonds, debentures, commercial papers), units of mutual
funds, certificate of deposits etc. into the CDSL system.
Shareholders of CDSL
CDSL was promoted by Bombay Stock Exchange Limited (BSE) in
association with Bank of India, Bank of Baroda, State Bank of India and
HDFC Bank. BSE has been involved with this venture right from the
inception and has contributed overwhelmingly to the fruition of the project.
The initial capital of the company is Rs.104.50 crores. The list of
shareholders with effect from 11th December, 2008 is as under.
Sr. Name of shareholders Value of % terms to total equity
No. holding (in
Rupees Lacs)
1 Bombay Stock Exchange Limited 3,825.46 36.61
2 Bank of India 1,000.00 9.57
3 Bank of Baroda 1,000.00 9.57
76
-
8/7/2019 nancy report
77/97
4 State Bank of India 1,000.00 9.57
5 HDFC Bank Limited 1,500.00 14.36
6 Standard Chartered Bank 750.00 7.18
7 Canara Bank 674.46 6.45
8 Union Bank of India 200.00 1.91
9 Bank of Maharashtra 200.00 1.91
10 The Jammu and Kashmir Bank Limited 200.00 1.91
11 The Calcutta Stock Exchange 100.00 0.96
Association Limited
12 Others 0.08 --
TOTAL 10,450.00 100.00
77
-
8/7/2019 nancy report
78/97
RESEARCHMETHODOLOGY
RESEARCH METHODOLOGY
While great devices are invented in the laboratory, great products are
invented in the Research Departments
78
-
8/7/2019 nancy report
79/97
Research Methodology refers to search of knowledge.one can also define
reseach methodology as a scientific and systematic search for required
information on aspecific topic.
The word research methodology comes from the word advance learner
s dictionary meaning of research as a careful investigation or inquiry
especially through research for new facts in my branch of knowledge for
example some author have define research methodology as systemstized
effort to gain new knowledge.
In my case I am Choosing the problem Working of depository
system To study the opinion of the customers about the different type of
Depositories available in the market and to know why they are using that
particular Depository.
OBJECTIVES OF THE STUDY
To acquaint myself with the Depository system
79
-
8/7/2019 nancy report
80/97
To Know about Depositories NSDL and CDSL
To know more about the likings of the customers towards a
particular Depository.
To find out that factors or speculations those are responsible for
creating a negative image of DS in the mind of investor.
Getting the information about the awareness of depository
system.
Find out the satisfactory level of the investors regarding this
system.
To find out the truth which is hidden and which has not been
discovered as yet.
To find out the suggestions of the dealers as well as customers.
To know the major factors influencing their buying decisions.
TYPES OF RESEARCH
ANALYTICAL RESEARCH: It has to used facts or information already
available and analyze these to make a critical evaluation of material.
80
-
8/7/2019 nancy report
81/97
SAMPLE SIZE:Considering the constraints it was decided to conduct the
study based on sample size of 100 people in specific age groups.
METHODS OF DATA COLLECTION
In the project work Primary and secondary (both) sources of data has been
used:
PRIMARY SOURCE:I have gathered information about our project from
the interaction with the customers of our company i.e. Religare Securities
Limited. The sampling method used was basically convenience sampling
and most of the calls made were cold calls made on the generateddatabase
of recipients of other companies.
SECONDARY DATA: The secondary data, I have collected from the
various websites of reliance money, various journals, magazines etc.
TOOL OF ANALYSIS
In the project work quantitative technique & percentage method has been
used.
RESEARCH DESIGN
Chapter Overview
For the proper analysis of data simple quantitative technique such as
percentage were used. It help in marketing more accurate generalization
81
-
8/7/2019 nancy report
82/97
From the data available .The data which was collected from a sample of
population was assumed to be representing entire population was interested .
Restatement of the Problem
The problem is to be studied under the following research design in finding
out the consumer perception of working of depositories in the area of
Karnal.
Description of the Research Design
For the purpose of my survey I decided to follow the conclusive research
design. Under this I selected the descriptive design.
Research Instrument
For my survey, I used personal Interview of the respondents by asking them
a list of questions from the questionnaire prepared by me for collecting the
desired information & have been fulfilling the questionnaires there & then
according to information given by each person.
82
-
8/7/2019 nancy report
83/97
DATA ANALYSISAND
INTERPRETATION
Ques. 1 Knowledge about Depository system.
83
-
8/7/2019 nancy report
84/97
A) Yes 97
B) No 03
97%
3%
0%
20%
40%
60%
80%
100%
120%
YES NO
KNOWLEDGE LEVEL
PERCENTAGE
Series1
INFERENCE: This shows the awareness about the Depository system.100
people are