INTRODUCTION OF THE DEPOSITORY

SYSTEM IN INDIA

1.1 INTRODUCTION:-

A Depository is an organization, which assists in the allotment and

transfer of securities. The shares in a depository are held in the from of
electronic accounts i.e. in dematerialized from and the depository system
revolves around scrip less trading. An effective depository systems
essential for maintaining and enhancing the market efficiency, which is
one of the core characteristic of a mature capital market in such 1989, the
group of thirty had emphasized the importance of a central depository by
highlighting the adverse effect on global investment brought about the
inefficiencies of international settlement & clearing facilities in their
report on “clearance & settlement system in the worlds securities
market.” The depository and custodial services is one of the key
ingredients of the developed markets like Japan, U.K and countries like k
Korea, Hong Kong ,Malasiya, Srilanka and Thailand have also set up
depository system provides a wider range of service vise primary market
services, secondary market services and ancillary services In the case of
primary market services, secondary market services and ancillary services
in the case of primary market services, the depository through link
between the investor and clearing house of the exchange to facilities
settlement of the security transactions through book keeping entries
further the depository can provide ancillary services like collecting
dividend sand interest and responding corporate information
In India the need for setting up a depository was realized after the
large scale irregularities in securities transaction of 1992 exposed the
limitations of the prevailing settlement system .the need for depository
system was also realized for the healthy growth of primary market. which

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would reduce the time between transfer Of entitlements which would
reduce the time between allotment of shares and transfer of entitlement
As India has large number of listed companies investing a massive
amount of paper work there have been stolen share, certificates etc.
Which pose a threat to the security of threat to the securities of
investment .the idea of setting up a depository and the introduction of
scriptures trading and settlement were thus conceived for improving the
efficiency of the markets and associated with dealing in physical
certificates, a depository system benefits the investing public, the issuers
of securities the intermediates and the nation as a whole

1.2 MEANING OF DEPOSITORY: -

Depository means a place where something is depository for

safekeeping, a bank in which others deposit funds securities, usually
under the terms of specific depository agreement. Depository means one
who receives a deposit of money, securities, instruments, organization
other property a person to when something is entrusted, a trustee, and a
person organization group entrusted with the preservation organization
safe keeping of something.
The Depository is an organization where the securities of
shareholders are held in the form of electronic accounts, in the same ways
as a bank holds money. The depository holds electronic custody of
securities &also arranges for transfer of ownership of securities on the
settlements dates this system is know as “scrip less trading system “Any
body to be eligible to provide depository services must register with
SEBI.
A depository is an organization that holds the securities of the
investors in the form of electronic book entries in the same way a bank
holds money. Depository Transfer securities without physically handling

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securities, the way a bank transfers funds without actually handling
money.

1.3 NEED OF DEPOSITORY:-

The large-scale irregularities in securities transaction of 1992
exposed the limitation of prevailing settlements system .It was also
realized that a depository could reduce the time between allotments of
shares and transfer of entitlements arising out of each allotment that
would facilities the growth of primary market. Finally the massive
amount of paper work associated with transfer of large number of listed
companies often gave rise to problems of stolen shares.
To over come the problem of large number of transfer deeds share
certificates the concepts of jumbo transfer deed and jumbo certificate had
been introduced. In a jumbo transfer deed only on transaction for deed is
to be executed for a large number of transfer while a funds certificates
large number of securities.
The depository system in India in India operates within the
framework of depository Act1996 and SEBI regulations Act1996.

1.4 The Depository Participant:-

A depository is an agent of the depository & function as the

interacting medium between the depository &the investor. A depository
is a person registered with SEBI & must possess the requester
qualifications prescribed by the depository of which he is a participant’s
depository is responsible for marinating the investors securities account
in accordance with the investors written instruction . A depository could
be linked to a broker who deals/ trades on the investor’s behalf.
As per Regulations SEBI 19(A) the depository participant include that are
eligible to become depository participants system:-

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 ⇒ Insurance companies
⇒ Stock Exchange Clearing corporation
⇒ Registrar and share transfer Agents
⇒ Fund Managers and Custodian
⇒ Stock broker
⇒ Non balancing finance company , State financial Corporation ,
⇒ Scheduled Bank.

1.5 DEPOSITORY PARTICIPANT GUIDED

SYSTEM: -
The Participant will have its own I.T. set up installed, which will
be connected to the Depository system situated at National Securities
Depository Limited, Trade world, 4th Floor, Kamala Mills Compound,
Lower Parel, Mumbai 400 013, using appropriate telecommunication
links. The hardware, software & telecommunication equipment should be
as specified by NSDL. The Participant should ensure continuous
electronic means of communication (connectivity) with NSDL.
The minimum I.T. set up required for a Participants entry level
system would comprise of single CPU Server (upgradeable to dual or
quad CPUs), at least one client/ node and networking hardware. The
Participant may configure additional CPU, memory, disks and nodes
based on the volume of business envisaged.

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1.6 LEGAL FRAMEWORK: -
The legal framework for all depository system has been lain down n
the following enactments.
⇒ Securities and Exchange Board of India Act,1992
⇒ The Depositories Act,1996
⇒ The SEBI Regulation,1996
⇒ By Laws of depositories.
⇒ The Companies ACT, 1956.
As a part of its on-going market reforms, the Government of India
promulgated the Depositories Ordinance in September 1995. Based on
this ordinance, Securities and Exchange Board of India (SEBI) notified
its Depositories and Participants Regulations in May 1996 in order to
provide the regulatory framework for depositories. The enactment of the
Depositories Act the following August paved the way for the launch of
National Securities Depository Ltd. (NSDL) in November 1996. In
exercise of the rights conferred by the Depositories Act, NSDL framed its
Byelaws and Rules. The Byelaws are approved by SEBI. While the
Byelaws define the scope of the functioning of NSDL and its business
partners; the Business Rules outline the operational procedures to be
followed by NSDL and its business partners.

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 HISTORY OF THE COMPANY
2.1 HISTORY:-

South Gujarat Shares and Share Brokers LTD. (SGSSL) is a public

Ltd. Company registered under co. act 1956. Company established with
authorized share capital of Rs. 3 crores and its paid up capital 1.27 crores.
Company was started in 1996 in Baroda and had main office over there
and this office is shifted from Baroda to Surat in July 1996.In 1996,
company got direct membership of NSE of India. Company is registered
broker of SEBI.
In 1998, Company takes National Securities Depository Ltd.
Participation. In South Gujarat, SGSSL is the 1st company, who takes the
depository participant (D.P). In DP there are 11500 holders which having
demate account in SGSSL. The company is 2nd largest in demat account.
Accordingly the company SGSSL brokers Limited was registered
under the companies act on the 5h January 1995.To begin with it
conducted its trading business through other members of the National
Stock Exchange. During the first year of its operation ending on the 31st
March 1995 it suffered a loss of Rs. 80,000.
The company had another poor year during 1995-96 and suffered a
further loss if Rs.1.18 Lacs this was mainly because the company
couldn’t procure the national Stock Exchange membership during the
year and also because of the prevailing poor Market conditions.
Company has computer-to-computer links (CTCL) networks,
which are connected with LAN and also with WAN. In Surat City
Company given many register sub broker CTCL. Company also provide
in outside of Surat like Hazira, Navsari and also in Bilimora.

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 In Company there are 28 persons working. Company has five
servers. In this 1 server connected with NSE CTCCL AND SECOND
WITH DISESTER MGT. In NSDL also one main server. Company
provides three different rooms for online trading to its clients and sub
brokers. There is BOLT and in back office with account package at
compteque also works activity with NSDL Server. Company also provide
very useful and modern service to this account member which is
interactive voice Response (IVR) telebanking Service Connect with the
help of this customer can know about their D.D. Although the telephone,
fax organisation Internet. It is very useful to customer.
Shri Anil Choksy, Mr. Bhadresh G. Kapadia, Mr. Shahikant R.
Yadav,Mr. Aiyub M. Yacoobali ,Mr. Bipinchandra Lineswala who are
the permanent directors of the Company.
The Company now purposes to become depository participants
with the National Securities Depository Ltd., so as to provide cleaner
trading and settlement environment for its clients. The investors dealing
through the company are enthusiastic about the said proposal of the
company and company is expected that the company will be able to
generate substantial depositary business.

 SGSSL different activities:-

• Stock Market Operation
⇒ Online Trading for NSE
⇒ Depository Segment for Demat
⇒ Trading.

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2.2 COMPANY PROFILE :-

⇒ Name of the company:-

South Gujarat Shares & Shares Broker Ltd.
⇒ Board of Directors :-
Mr. Anil. Choksy (Chairman and M.D.)
Mr. Bhadresh. G. Kapadia (Director)
Mr. Shahikant .R. Yadav(Director)
Mr. Aiyub. M. Yacoobali (Director)
Mr. Bipinchandra. Lineswala(Director)
⇒ Bankers :-
Canara Bank
HDFC Bank Ltd.
⇒ Registered Office:-
3rd Floor,Belgium Chamber
Opp. Linear Bus Stop,
Ring Road
Surat-395003
⇒ Statutory Auditors :-
Ashok Rajpara
(Chartered Accounts, Surat)
⇒ Internal Auditors :-
Amish Sanghavi & Company
(C.A. Surat)
⇒ Company Secratory:-

Kanti bhai Savalia

Kunjanbhai Dalal

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FINANCIAL POSITION:-

Financial Results

31.03.03 31.03.02
Particulars
(Rs. In lacs) (Rs. In lacs)

Total Income 96.58 108.80

Profit Before Depreciation 30.99 15.80

Depreciation 12.13 13.99

Profit Before Tax 18.86 1.81

Provision for Tax 7.00 0.76

Profit After Tax 11.86 1.05

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2.4 MILESTONE:-

 In 1992 SGSSI had started their activities as an

association of person
 On 5th January 1995 the company register under the
company act 1956
 On 31st March 1995 the company suffered the loss of
Rupees 80000
 In 1995-96 the company suffered the further loss of
Rs. 1.18 lacs
 On 27 February 1996 the company got SEBI
registration
 The activity of NSE started on 18 April 1996
 On 23rd July 1996 the company operation were
shifted from Vadodra to Surat
 Another terminal installed as J.K. Tower in March
1997
 The total volume per day now crossed Rs. 2 Carore.
 During the year ended 31st March 1997 the company
has turned the corner
 The company ahs taken approval form NSDL to
work as DP
 At present there are more than 12000 holders having
demat account in SGSSL
 Company has 35 registered sub brokers
 Total income of current year 96.58 lacs

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  Profit after Tax for current year is 11.86 lacs as
against 1.05 lacs as compared to previous year.

TYPES OF DEPOSITORY SYSTEM

3.1 NSDL (NATIONAL SECURITIES DEPOSITORY

LIMITED):-

Although India had a vibrant capital market that is more than a

century old, the paper-based settlement of trades caused substantial
problems like bad delivery and delayed transfer of title till recently. The
enactment of Depositories Act in August 1996 paved the way for
establishment of NSDL, the first depository in India. This depository
promoted by institutions of national stature responsible for economic
development of the country has since established a national
infrastructure of international standard that handles most of the trading
and settlement in dematerialized form in Indian capital market.
Using innovative and flexible technology systems, NSDL works
to support the investors and brokers in the capital market of the country.
NSDL aims at ensuring the safety and soundness of Indian marketplaces
by developing settlement solutions that increase efficiency, minimize
risk and reduce costs. At NSDL, we play a quiet but central role in

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developing products and services that will continue to nurture the
growing needs of the financial services industry.
In the depository system, securities are held in depository
accounts, which is more or less similar to holding funds in bank
accounts. Transfer of ownership of securities is done through simple
account transfers. This method does away with all the risks and hassles
normally associated with paperwork. Consequently, the cost of
transacting in a depository environment is considerably lower as
compared to transacting in certificates.

 Transaction of the NSDL:-

The transaction of the stock market generally full into two
categories namely
1. NEW ISSUE
2. SECONDARY MARKET TRANSACTION

1. NEW ISSUE
The investor has the option to take the share either in
physical mode or in the electronic mode .The investor in his application
has to specify his choice and the depository participants to which the
allotted shares are to be delivered. The allotment of shares will take
place according to SEBI guidelines but the shares are to be sent to the
depositors
Participants as per the institution given by the investor .At
present, SEBI has made it mandatory for the companies to have new
issues in the dematerialized.

2. SECONDARY MARKET

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 In the secondary market transaction the trading procedures would
be the same but the settlement and clearing procedures are different. The
seller may opt to deliver the shares from the depository mode but the
buyer may be willing to take them on the electronic mode buyer and
seller may prefer the electronic mode.

In the last case cited above ,the transaction would be smooth

because both of them prefer the same mode .In the earlier cases the
transaction would be little bit difficult for the broker .In both cases the
transfer of shares from one mode to another mode is involved. In the
first case the broker has to withdraw from the account mode into
physical mode to keep the shares ready for delivery. In the second event
the seller has to convert the physical mode of securities into deposit
accounts by opening accounts or by utilizing he accounts of an other
broker

 NSDL’S First Participants:-

1. Industrial Development Bank of India

2. Unit trust of India
3. National stock Exchange
4. State Bank of India
5. Global Trust Bank limited
6. Citibank NA
7. Standard Chartered bank
8. HDFC Bank Limited
9. Dena Bank
10. Canara Bank

 Management of NSDL:-

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 NSDL is a public limited company managed by a professional
Board of Directors. The Managing Director conducts the day-to-day
operations. To assist the MD in this function, the Board appoints an
executive committee of not more than 15 members. The eligible criteria
and period of nomination of the member of EC, etc.

 Owner Ship:-

NSDL is public limited company in corporate under the

companies Act, 1996. NSDL had a paid up equity capital of Rs.105
crore. The paid-up capital has been reduced to Rs.80 crore since NSDL
has bought back its 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.

 Facilities Offered By NSDL:-

The various facilities offered by depositories are as follows.
⇒ Opening of depositories Accounts and Account Transfer.
⇒ Dematerialization and Rematerialisation
⇒ Settlement of trades in dematerialized Securities.
⇒ Transfer, Transmission and Transposition
⇒ Pledge and Hypothecation
⇒ Redemption or Repurchase
⇒ Stock lending and borrowing.

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 ⇒ Corporate action.
⇒ Account freezing.
⇒ Nomination
⇒ Demat of dept instruments.
⇒ Dealing in Government securities.

 NSDL MILESTONES:-

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September 1995 Drafting of the Depositories Ordinance
December 1995 NSDL incorporation
May 1996 SEBI Regulations
August 1996 Enactment of the Depositories Act
Inauguration of NSDL; commencement of
November 1996
dematerialization
Commencement of trading in dematerialized
December 1996
shares on NSE
Total value of demat securities at NSDL
June 1997
crosses US $ 1 bn.
Compulsory demat trading for institutional
January 1998
investors commences
Demat shares treated as good delivery in
April 1998
physical segments of NSE and BSE
Commencement of trading in dematerialized
June 1998
shares on CSE
November 1998 Investor accounts cross 1,00,000
Commencement of dematerialization of
December 1998
Government Securities
Compulsory demat trading for retail investors
January 1999
commences
NSDL launches the NSDL-Depository
May 1999
Operations Module
October 1999 Investor accounts cross One million mark
NSDL launches internet based service-
February 2000
SPEED for clearing members
May 2000 Investor accounts cross 2.5 million
Commencement of dematerialization of Debt
June 2000
instruments
June 2000 98% Settlement in demat form
Introduction of T+5 Rolling Settlement &
July 2001
Uniform Settlement Cycle
April 2002 Introduction of T+3 Rolling Settlement
Launch of STEADY - an STP initiative by
November 2002
NSDL
December 2002 Investor accounts cross 5 million
April 2003 Introduction of T+2 Rolling Settlement

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3.2 CDSL (Central Depository Security Ltd.) :-
In establish 1995 the government have accepted in principle the
proposed law for setting up of depository and of a central depository for
immobilization of physical certificates .The central depository is to be
set up as a Trust to hold the physical custody of shares and effect
transfers by book entries without the need to deal and transfer the
physical certificates between parties. This is to be sponsored by public
financial institutions and banks and will have a minimum net worth of
Rs.50-100 crores as sponsored by the SEBI. This central depository can
be connected to a number of share depositories for effecting transfers in
book entries. The foreign institutional agencies, NRIs and OCBs have
for long required the depository of this type of facilitating their trade in
the Indian stock market. The foreign security forms who were licensed
by the SEBI. The operating is India, but physical custody of the Indian
securities has to be handled by Indian custodian such as a bank which
can now be converted into the depository to be licensed by the SEBI.
Above all these depository there will be central depository which will
co-ordinate these depository and the models operands of these operation
here worked but by the SEBI. The guideline and regulation in respect of
the operations of depository will help smooth interoperations among
depository and their operations with the central depository.

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Inter Depository Transactions:-

Any transfer of securities from a demat account with one of the

depository to a demat account maintained with the other depository,
termed as an “Inter Depository “transfer. Inter depository instructions
are done through inter-depository instruction slip furnishing particulars
of the DP/BO-ID of the transfer in the other depository.

Delivery of Securities across depositories arises in the following

circumstances:

⇒ For settlement of trades –when beneficial owners/sub-

brokers/clearing members do not have demat account within the same
depository system.
⇒ When transfer of security from one depository to the other is
made as an off market transaction either in response to an open
offer/buy back or otherwise.

CDSL has a single instruction slip, which can be used for both
intro and inter depository transfers by using the appropriate columns.
The other depository has separate instruction slip for effecting inter
depository transfer. It is therefore advisable for the Bos holding account
in the other depository to have issued inter depository transfer slip from
their DPs so as to avoid last minutes anxiety in case where the transferee
has an account in CDSL.

Presently, inter-depository transfers are effected DPs twice a day

i.e. 10:00 A.M. and 6:00 .p.m.. This facility is proposed to be more
online to facilitate ring depository transfers any time during the business
hours.

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 Since CDSL does not collect from its DPs any custody fee and
also offers other unique features, CM use the CDSL system for
settlement purpose

 CDSL-Adding value month after month :-

The new server installed as CDSL has not only increased its
processing and storage capacities, but also resulted into efficiency gains
of around 60%.This has improved the response time and the system
availability significantly. With the reduced time taken for EOD
processing and both ‘post’ EOD back-ups, the system is now available
to user’s right from 3:00 a.m. to 8:30 p.m. o n any business day.

⇒ Seamlessly operational Disaster Recovery Site(DRS)

After successfully relocating the Disaster Recovery Site to a

State-of-the-art data center at Navi Mumbai, DSL is currently
engaged in making the DRS seamlessly operational in terms
of connectivity. This will be an important milestone in
ensuring business continuity.

⇒ Faster availability of data

The master data kept at the front-end of CDSL system is

updated daily through a “Transfer and update”, which was
resulting in delays due to increased volumes. This procedure
has since been modified in such a way that now only the
incremental data is transferred, which enables DPs and
Issuers to update their master data quickly and commence
their business operations early.

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⇒ “Pulling” of reports

From the system of downloading reports to DPs when they

”registered” to the CDSL system, DSL system has now
introduced pull facility for reports. This gives DPs the
benefits of downloading & viewing the report “as and when
they require”

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DEMATERIALISATION & REMATERIALISATION

4.1 DEMATERIALISATION :-

Conversion of the physical certificates into dematerialized holding

at the request of the investor is called ‘Dematerialization ‘. Only shares
registered in the name of the account holder are accepted for
dematerialization at the depository. In dematerialization process,
investors surrender defaced certificates along with ‘Dematerialization
request Form’ (DRF) to the depository participant and depository
participant intimates the depository of the request through the system.
Depository Participant then submits the certificate along with
Dematerialization request Form to the Registrar who confirms the
dematerialization request from the depository. Registrar validates the
request, updates records and informs depository who in turn credits the
depository participant account and inform the depository participant.
Depository Participant updates the investor account and informs the
investor.
The entire process of the dematerialization completes in about 15 days
time. However, for those cases, where large numbers of the certificates
are submitted from institutions for dematerialization, it takes up to 30
days for dematerialization.

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 Procedure of Dematerialization:-
5

NSDL 2 SGSSL

3 4 1 6
2
2A
Registrar
Investor

⇒ Investor requests the DP for Dematerialization.

⇒ NSDL is informed by the DP through electronic connectivity.
⇒ Original share certificates are submitted to the Registrar by
the DP.
⇒ The request for dematerialization from NSDL to the Registrar.
The Registrar credits an equivalent number of shares in the account
and informs NSDL.
⇒ The NSDL updates its own account and the depository
participants are informs.
⇒ The depository agent credits it in the account of the investor
and the same is informed to the investors.

 Steps:-
1. Client/Investor submits the DRF (Demat Request Form) and Physical
Certificates to DP.DP checks whether the securities are available for
demat. Client defaces the certificate by stamping ‘Surrendered for
Dematerialization’. DP punches two holes on the name of the
company and draws two parallel lines across the face certificate.

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2. DP enters demat request in his system to be sent to NSDL. DP
dispatches the physical certificate along with the DRF to the R & T
Agent.
3. NSDL records the details of the electronic request in the system and
forwards the request to the R&T Agent.
4 R&T Agent., on receiving the physical documents and electronic
request, verify and check them. Once the R&T Agent is satisfied,
Dematerialization of the concerned securities is electronically
confirmed to NSDL.
5 NSDL credits the dematerialization securities to the beneficiary
account of the investor and intimates the DP electronically. The DP
issues a statement of the transaction to the client.

 The following points should be checked particularly:-

⇒ The security certificates sought to be dematerialized are

attached to DRF.

⇒ The attached security certificates are marked (defaced)

with the words ‘Surrendered for Dematerialisation’. This is a
precautionary measure to prevent misuse of the share certificates by
anyone.

⇒ The certificates are mutilated by punching two holes.

However, the certificates should not be mutilated or defaced in a
manner affecting any material information.

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⇒ The name of client on DRF had the certificate is
exactly the same as in the client’s account in DPM. However, minor
variations in the name may be permitted if it can be reasonably
established that both names are of the same person .the permitted if
it can be reasonably established that both names are of the same
person. The permitted variations refer to initials not being spelt out
prior to after the surname. In such cases, if the signature on the DRF
matches the specimen signature available with the DP, the securities
can be considered for demat.

⇒ In case of joint holding, the order of the names

appearing in the DRF and certificates has to be the same as in the
client’s account in DPM.

⇒ Details like securities type, face value, paid-up value,

pari passu status, certificate numbers, distinctive numbers, numbers
of certificates, total quantity of securities and lock-in status are
filled-in correctly.

⇒ Separate DRFs have to be submitted for:

• Free and locked-in securities;
• Securities locked-in for different reasons;
• Each ISIN;
• Securities of different paid-up value;
• For each client account.

⇒ DRF is signed by:

• The sole holder in case of single holding;

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 • All joint holder in case of joint holding;
• Authorized signatories in the case of
corporate accounts;
• Constituted attorney in the case of NRI
accounts.
• The signatures of the client as appearing on
DRF match with the signatures in the records of the DP .If the
signatures do not match, the DP should satisfy itself about the
identity of the client. If the client has a signature registered with
the company which is different from the specimen signature given
to the DP, the client may be advised / allowed to affix both
signatures on the DRF. on the DRF.

⇒ If the DRF and the accompanying security certificates are not

found in order, the DP should return the DRF and certificates.

⇒ If the DRF and the accompanying certificates are found in order,

the DP should accept the DRF and issue an acknowledgement to the
client.

⇒ The DP should enter the dematerialization request in DPM.DPM

generates a request number (DRN), which should be mentioned on
DRF.

⇒ An authorized person, other than one who entered the DRF

details in the DMP, should verify the details of the DRN and release a
request to NSDL.

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⇒ Once the DP has received the certificates defaced by the
investors, the DP punches two holes on the name of the Company and
draws two parallel lines on the face of the certificate. The DP should
forward the DRF and the relevant security certificates to the issuer or
it’s R&T Agent for dematerialization. DRF and enclosures have to be
sent at the “address to which physical certificates to be sent”
communicated by NSDL. The forwarding letter should refer to the
allotted DRN and should be sent within 7 days of accepting it from the
client.

⇒ The issuer or its R&T Agent verify the DRF and

the accompanying certificates for validity, completeness and
correctness. They also match the details with the intimation received
from NSDL against the same DRN.

⇒ In case DRF is not found in order ,the issuer or

its R&T Agent send an objection memo to the DP, with or without
DRF and security certificates depending upon the reason for rejection.

⇒ DRFs and Certificates are sent back on the

following grounds:
• DRN does not match with message from
DM
• Quantity of actual securities is less than
DRF
• Quantity of actual securities is more than
DRF

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 ⇒ DRF and certificates are not sent back:
• If the certificate is fake;
• If the certificate has been reported to be
stolen;
• If duplicates of the original certificates sent
for demat have already been issued;
• If the endorsements are forged;
• If the securities are not in the name of the
account holder as per DEF;
• If the details of the certificates do not match
with DRF;
• If the DRF/Securities do not pertain to the
R&T Agent;
• If the signatures differ;
• If there is any court order on the securities;
• If the certificates are received after 15 days
of the electronic Request.

⇒ The DP informs the client accordingly and

requests removal of Reasons for objection. The DP removes these or
provides additional information to the issuer or it’s R&T Agent within
15 days of receiving the objection memo.

⇒ If the DP fails to remove the objection within

15 days, the issuer or its R&T Agent may reject the request and return
DRF and accompanying certificates to the DP. The DP informs the
client accordingly. The DP also returns the securities to the client and
obtains an acknowledgement.

27
⇒ The DP, if the client so requires, may generate
a new dematerialization request and send the securities again to the
issuer to the issuer or its R&T Agent.

⇒ If the issuer or its R&T Agent finds the DRF in

order, it informs NSDL and authorizes it to create the appropriate
credit balance in the client’s account. DPM automatically credits the
client’s accounts when DM is updated. For the purpose of income tax
calculations, the date of credit of securities by dematerialization is
taken as the date of acquisition of shares.

⇒ The DP, on receiving confirmation of credit

entry in DPM, informs the client.

⇒ An R&T Agent is required to confirm / reject a

demat request within 15 days from the date of receipt of physical
shares.

28
 International Securities Identification Number (ISIN) :-

Each of the securities dematerialized in the NSDL depository bears

distinctive ISIN- an identification number. International
Securities Identification Number (ISIN) is unique for each
security issued in any of the international Standards organization
(ISO) member countries in accordance with the ISIN standard.
ISO 6166 was developed for use in an international as well
domestic trade.
Securities issued by the same company, issued at
different times or carrying different rights, terms and conditions are
considered different securities for the purpose of allocating ISIN and are
allotted distinct Insisting India; SEBI assigns ISIN to various publicly
traded securities. Different ISIN are allotted to the physical and
dematerialized securities of the same issue.

29
4.2 REMATERIALISATION

The conversion of dematerialization holding back into

certificates is called ‘Rematerialisation’. If the investor wish to get back
his securities in the physical form, all he has to do is to request his
depository participant for rematerialisation of the same by filling up
‘Rematerialisation Request Form’ (RRF). Depository Participant will
then forward the request to the depository after verifying that investor has
necessary balances. Depository, in turn will intimate the registrar usually
takes a maximum of 30 days.

NSDL Depository Participant

2A

2B
4 3 6
1

Registrar Investor

30
 ⇒ Investor requests the DP for rematerialization.
⇒ The depository participant informs it to the
NSDL
⇒ NSDL informs the registrar
⇒ The registrar of the company prints certificates
with new numbers and informs NSDL.
⇒ NSDL adjusts its accounts and passes on the
details to the depository Participants.
⇒ The certificates are dispatched to the investor.

Steps:-

1. The DP should provide re- materialization request forms (RRF) to

clients.
2. The client should complete RRF in all respects and submit it to the DP.
3. The DP should complete RRF for validity, completes and correctness.
In Particular, the following points should be checked.

⇒ There is sufficient free balance available in the

client’s account to honour the re- materialization request.
⇒ Incase of joint holding, the order of names
appearing in RRF is he same as in the client’s accounts
⇒ The name of client on RRF is exactly the same
as that in the client account.
⇒ Details like security type, face value, issuer’s
name and lock –in status are filled –in correctly.

31
 ⇒ The client has indicated his option to receive
physical certificates either in jumbo lot for the entire quantity
requested or in market lot.

⇒ Separate RRf are submits for

• Free and locked in securities
• Securities locked in- for different reasons
• Each ISIN
• Securities of different paid –up value and
• Each client account.

⇒ RRF is signed by
• The sole holder in case of single holding
• All joint holders in case of joint holding
• Authorized signatories in case of corporate accounts
• Constituted attorney in case of NRI accounts

4. If RRF is not found in order, the DP should return the RRF to the client
for rectification
5. If RRF is found in order the DP should accept RRF and issue an
acknowledgement to the client.
6. DP participant should enter the re-materialization request in DPM.
DPM will generate a request number (RRN) which should be
mentioned on RRF.
7. An authorized person, other than one who entered the RRF details in
DPM, should verify the details of RRN and release are quest to the
depository.

32
8. The DP should complete the authorization of RRF and forward it to
the Issuers or its R&T agent for re- materialization. The DP should
forward RRF to issuer or its agent within sever days of accepting it
from the client.

9. The issuer or its R&T agent should verify the RRF for validity,
competences and correctness. It should also match the details with the
intimation received from the depository against the same RRN.
10. In case the issuer or its R&T agent finds RRF in order it should
confirm the remat request the issuer or its R&T agent should then
proceed to issue the physical security certificates and dispatch them to
the beneficial owner.
11. The DP, on receiving confirmation of debit entry in DPM, should
inform the client accordingly.

33
4.3 SEBI (DEPOSITORY ACT 1996)

The depository ordinance was promulgated in September, 1995.

The SEBI circulated a consultative paper seeking views from the public
on the framework of depository system. This was followed by issues of
the SEBI (depository and participant) Regulations which were
promulgated by the government in May, 1996.

The scope of the legislation extends to the issue of scrip less

trading, transfer of ownership by means of book entries though electronic
media and holding of securities through depository system as also
fungibles of shares.

1) Depository institution:-
The act provides for creation of one or more depository institution
registered under the Companies Act and predominantly owned by the
participants.
The SEBI has proposed that the minimum net worth of a
depository should be Rs.100 crores.

2) Depository Participants:-
The Act envisages that a depository will interface
with the users through a set of depository participants (DP). They are
persons dealing directly with the depository for their clients. The DP is a

34
crucial link between the investor and depository. The DP will be deemed
an agent of the depository. The depository will be therefore being
responsible for the acts of omission and commission and commission on
the depository participants.
The SEBI has proposed that the following entities could be permitted
to be registered as depository participants, namely commercial banks,
financial institutions, stock exchanges, financial services companies
owned to the extent of 75 per cent by any of the above mentioned
institutions as well as companies registered abroad providing custodial,
clearing or settlement services in the securities market and approved by
the Central Government.

3) Investors’ Choice:-
An investor is given the option between holding physical
securities as at present and having a depository based ownership
recorded. Such option can be exercised by the investor either at the time
of an initial offer of securities by a company indicating his choice in the
application form or at any subsequent time. The investor will have also
the freedom to switch from the depository mode to non-depository mode
and vice versa.

4) Free Transferability:-
The Act has made free transferability of shares. The Act has taken
away the companies right to use their discretion in effecting transfer of
securities by deleting sec. 22A from the companies Act. This would mean
that, once the buyer pays the agreed consideration he is automatically
entitled to all the rights associated with the security. As soon as the
intimation regarding delivery of security is received, a depository
participant on delivery versus payment basis will affect the transfer. In

35
the depository mode, no transfer deed is required and the procedural
requirements under Sec. 108 of the Companies Act have been dispensed
with.

5) Rights of Transferee:-
The Act provides that the transferee of a security will be entitled
to all the rights including voting rights associated with the security.
However, if any transfer is made in contravention of any provisions of
SEBI can make an application to the Company Low Board (CLB).
Pending the completion of enquiry the CLB can suspend the voting rights
in respect of the securities so transferred. However the transferee in such
case will continue to enjoy the economic rights like bonus, rights and
dividend attached to the security. After the enquiry if the CLB is satisfied
about the contravention, it can direct the depository to make rectification
in ownership records.

6) Fungibility:-
Section 83 of the Companies Act requires that an appropriate
number shall distinguish each share in a company. The section is deleted
now and the Act has made that securities held by a depository are
fungible. As per the Act, share certificates need not carry distinctive
numbers and all shares will form parts of a fungible mess. All share
certificates will become interchangeable like withdrawing money from a
bank account without being concerned about the number printed on the
currency notes at the time of deposit into the bank and at the time of
withdrawal of money.

6) No Stamp Duty:-

36
 The Act has done away with stamp duty on secondary market
transactions in the depository mode. At the time of issue of securities
issued, whether through a depository or direct to investors in the form of
physical certificates. Where an investor opts to exit from a depository and
seeks to issue of physical certificates from the issuer, the issue of such
certificates. All transactions outside the depository made will attract
stamp duty as at present.

7) Depository Records as Legal Evidence:-

The ownership records maintained by the depository or the
participants will be accepted as prima facie evidence in legal proceedings.
The depository records will receive the same treatment as available to
bank under the Bankers’ Book Evidence Act.

37
4.4 STEPS FOR JOINING AS A DP:-

⇒ Entity desirous of becoming a DP makes an

application to NSDL.
⇒ NSDL verifies the application for completeness
and conformity to the instruction given for filling in the application
form. NSDL may reject, ask for further information and
clarification ,or ask to remove the defects in the application
⇒ NSDL ensures that all systems like hardware,
software, telecommucations, data processing , information stroge,
backup alternate connectivity ,internal controls are in place and
confirms to SEBI
⇒ NSDL forwards the application to SEBI for
registration along with its recommendations.
⇒ SEBI reviews the application for completeness
and correctness. It may reject the application, or ask for further
clarification from the DP OR NSDL.
⇒ SEBI grants certificate of registration.
⇒ The DP pays the registration fee to SEBI within
the stipulated period of 15 days.
⇒ The DP pays registration fee, security deposits,
insurances fee and other collateral to NSDL as stipulated under its
bye-laws.

38
 ⇒ The DP and NSDL sign an agreement n the
prescribed format.
⇒ NSDL activates the DP module at the
prescribed format.
⇒ NSDL activates the DP module at the
applicant’s premises.
⇒ DP begins operations.

4.5 ACCOUNTING OPENING:-

The purpose for which a depository account is opened determines

the natures of operation of such accounts .On this basis, depository
accounts of various market participants may be categorized into the
following types:-

1. Individual Accounts (Beneficiary Accounts)

2. Clearing Members Accounts
3. Corporate Accounts
4. Intermediary Accounts

1. Individual Accounts:-
⇒ Ordinary
⇒ NRI
⇒ HUF
⇒ NON NRI

39
 This is an account opened by investors to hold their securities in
dematerialized form with a depository and to settle the transactions of
sale and purchase of such securities in book entry form through the
depository system. An account holder is legally entitled for all rights and
liabilities attached to the securities (i.e., equity shares, debentures,
government securities, etc) held in that account .Therefore, the accounts
is called: beneficial owner accounts” also. A beneficiary account can be
in the name of an individual/corporate or the broker himself for the
purpose of his personal investments in demats form. The account is
opened with a DP.

House accounts vs. Non house accounts – An accounts opened by a

DP for the custody of and transactions in its own investments is referred
to as a house accounts ,and all other beneficiary accounts are referred to
as non house accounts. DPs are required to open house accounts for their
transaction to prevent co-mingling accounts. DPs are required to open
house accounts for their transactions to prevent co-mingling of their
securities investments with the investments of their clients.

 Documents for Verification:-

For the purpose of verification, All Investors have to submit the

following documents along with the prescribed account opening form.

a) Proof of Identity
In the form of applications signature & photograph authenticated
by an existing account holder or by applicant’s bank or due
verification made with the original of passport, voter ID, driving
licensed or PAN card with photograph.

40
 b) Prof of Residence
In the form of a ration card, passport, election voting card, income
tax PAN card, driving licenses, bill for electricity or gas, etc. This is
required to confirm and ascertain the correct identity and establish
correct address of the account holder.

c) Passport-size photograph

 Common Information:-

The process of opening an account with a depository, nature of such

an account and various factors to be considered for opening a depository
account are explained below. Some details are common to all types of
accounts. These are:

a) Name of the holder

b) Date of Birth(for individual accounts)
c) Occupation
d) Address & phone/fax number
e) Bank details, like, name of bank, type of
account(Current/Saving) account, account number,
branch address ,MICR No. etc.,
f) PAN number, if applicable
g) Details of nomination
h) Specimen signatures

41
 Procedure for opening an account with a
Depository Participant:-

A depository account opening with a DP is a very simple process

and is similar to opening a bank account. A person can open a depository
account with any registered Depository Participant of his choice. There is
no restriction on the number of depository account a person can open
with DPs. Just as a person can have savings or current accounts with
more than one bank, he can open depository accounts with more than one
DP.

The basic requirement of an individual for opening an account with a DP

is:
a) Account Opening Form
b) Identification (Passport/Election ID/Driving license)
c) Photographs of the applicants duly signed across
d) Standing instruction in written to DP for receiving credits
e) Agreement between the DP and the person seeking to open
account with the DP
f) Indemnity in respect of facsimile for operation of Depository
account (if desired)
g) Tariff structure of a DP, duly signed by account holders

 Types of Application form:-

For each kind of account, there is a different application form .A

DP must understand clearly the differences in the application forms, to

42
facilitate efficient and error-free services to investors. Separate forms are
prescribed for individuals (including HUF) and corporate clients/clearing
member accounts.

a) Forms for Individual Account :-

• Name of account holder

The DP should ensure that the name is identical to that which
appears on the certificate to be in the same order as appearing in the share
certificate to be dematerialized, if any.Investors are advised to open their
fully expanded name, i.e., to spell to the first name as well as the middle
name. This would obviate any doubts about the veracity of the
information. Investors can dematerialized all physical securities held in
his full name, abridged name, name with initials or any other fashion in
this account .By opening the account in the fullest/expanded name,
chances of wrong credits and debits and rejection of demat requests are
minimized.

• Mailing and communication Address

The veracity of the applicant’s address is determined through the
documents submitted for verification like ration card, voter ID, PAN card
driving license, bank passport, etc. For NRI accounts, proof is required
for both address that of the account holder as well as the constituted
attorney. For corporate accounts, a copy of Memorandum of Association,
Articles of Association, Board Resolution permitting operating of
account, the registered addresses of the company as well as address of the
person authorized to operate the account on behalf of the company have
to be furnished.

43
 • Details of guardian In case account holder is a minor
Only a guardian can open a depository account for minor. The
guardian remains the beneficial owner in the records of the depository for
the securities held on behalf of the minor till he becomes a major. The
guardian is required to sign the application form and details of his name
address need to be given in addition to the details of the minor.

• Foreign Address and RBI approval details for NRI,FII or OCB

accounts
For foreign-based clients like NRIs, OCBs, FIIs, etc. The DP must
obtain original or attested copies of the power of attorney and the
approval letter from RBI permitting them to invest. If the account holder
is an FII or an OCB,SEBI registration details along with attested copy of
registration certificate issued by SEBI and authorization letter is required.

• Clearing member details for a clearing account

A broker account as a clearing account can be opened only after
depository approves it and allots a clearing –member business partner
identification number. A broker member can have only one clearing
account per stock exchange of which he is a member .The DP should
obtain, with the account opening form, the necessary details from the
clearing member along with a letter from the clearing corporation
allotting a CC-MM-ID. In such case the clearing account is being
transferred from any other DP, a no objection from the earlier DP is also
required.

• Details of bank account

44
 Details of bank account of the account holder, including the nine
digit code number of the bank and branch appearing on the MICR cheque
issued by the bank have to be filled in the application form. Companies
used this information for printing them on dividend/interest warrants etc.

• Details of Income-TAX permanent account Number

In case the account holder is not an income tax assessed or he has
not yet been allotted a PAN or GIR No., the DP must obtain a declaration
to this effect from the account holder. In other cases, a photocopy of PAN
card or the acknowledgement of latest income-tax returns is required.

b) Forms for Joint Accounts:-

A depository account may be opened and maintained in the names

of more than one person. The names and signatures of the joint-holders
should however appear on the account opening form and in the records of
the depository and the DP in the order in which they appear on the
security certificates to be dematerialized. The entire joint holder has to
sign the application form and the agreement. The supporting documents
and photograph should also be provided for all joint holders. The account
opening module of NSDL system provides only for up to three joint
names as at present. Through the beneficial ownership of jointly held
securities vests equally in all joint-holders, communications about the
joint depository account are provided only to the first holder. The
dividend and interest warrants, annual reports and notices for meetings
are also issued to the first-named joint-holder only.

45
 In the event of the death of a joint holder, the balance lying in the
account can be transmitted, on request of the surviving holders, to a new
account to be opened by the surviving holders. The earliest account
having the deceased holder’s name is closed after such transmissions.

c) Form for HUF:-

When a depository account is opened in the name of an HUF, THE

BENEFICIAL WILL BE ITS Karta. DPs should clearly designate the
account in the name of the Karta as such.

d) Form for Companies :-

A company being an artificial person can open a depository

account, provided its memorandum authorized it to make investment in
the securities of other companies. A depository account in the name of a
company should be operated by the person authorized by a resolution
passed by its board of directors. The DP should obtain an attested copy of
its memorandum and board resolution authorizing the opening and mode
operation of the depository account.

e) Form for Minors:-

A minor may hold shares through guardian. Accordingly, a minor

may open a depository account only through his guardian. The DP should

46
obtain documents evidencing the age of minor. E.g. birth certificate,
along with the account opening form.

 Check List for Account Opening :-

⇒ Proof of Identity
⇒ Proof of Address

2. Clearing Member Account:-

The entities that are authorize to pay in and receive the pay out
from a clearing corporation/clearing house against trades done by them or
their clients are known as clearing members. Clearing Members are
identified in the system through their CMBP ID. All pay-in and payout
transaction are carried out through their accounts.

There are two types of clearing members:-

⇒ All members of a stock exchange popularly known as

brokers are clearing members.
⇒ Custodians who are permitted by the stock exchange to act
as a clearing member.

47
Procedure to open a Clearing Member Account:-

The step undertaken to open the account are same as those of

individuals, difference lies in the type of form and details to be filled in
and documents to be submitted. The only major difference is that the
clearing member has to first register itself with the depository and obtain
a business partner identification number. The clearing account is
identified by the combination of CC-CM-ID given by the clearing
corporation, CM-BP-ID given by the depository and the client-ID given
by the DP.
Immediately after opening a clearing account, the DP should
inform the depository the details of the clearing member’s name, CM-BP-
ID, client-ID and date of opening the account in the DPM system.

 Details to be filled in the form:-

⇒ Name of the Clearing Member

⇒ Company’s short name, if any
⇒ Address of the registered office, telephone number, fax
number, e-mail, if any
⇒ Name and address of the authorized signatories, their
designations and telephone number, status-code ,sub-status code
⇒ Bank account particulars, bank name and its branch ,current
account number, RBI reference number, RBI approval date ,PAN/GIR
number
⇒ Signature of authorized signatory

48
 A separate enclosure has to be attached to the accounting
form specifying the following details:-

⇒ Name and address of the Clearing Member

⇒Name and address of the Clearing corporation
⇒Clearing corporation ID(CC-ID)
⇒Clearing Member ID(CM-ID)
⇒Stock Exchange clearing code
⇒SEBI Registration number
⇒Trade name
⇒Copy of Board Resolution for authorized signatories should
also be submitted.
Once these details are entered in the system, a “Clearing member
Business Partner” identity number is generated. With this ID, the account
gets activated. Generally, there will be only once CM account per broker
for a stock exchange. However, if the stock exchange allow badla
transaction, a broker may open another CM account for vyaj badla
transaction .Deliveries in and out relating to vyaj badla transaction are
carried out through this CM account .
Intermediary Account
As per SEBI Regulation on stock lending and borrowing
intermediary can lend and borrow stocks from clients. This intermediary
borrows from lenders and lends to borrow. Intermediary registered with
SEBI as approved intermediary may open an intermediary account with a
DP of its choice, for executing stock lending and borrowing transaction
made through them. An intermediary account may be opened only after
obtaining registration from SEBI under an approve stock Lending
Scheme, and getting the approval of the depository for opening the

49
account .The processed of opening an Intermediary account is same as for
opening a corporate beneficiary account only as per the procedure
prescribed for this by depository .

3.Closure of Account:-

⇒ Closure on client’s Request

A DP can close a depository account on receipt of an application in

the prescribed format. The application should be made by the account
holder or by all the joint-holders. An account can be closed only when
there is no balance in the account .In case there is any balance in the
account sought to be closed,

The following steps are necessary:-

50
 • Re-materialization. Of all securities standing to the credit of the
account at the time of making the application for closure
• Transferring the balance to the credit of another account opened by
the same account holder either with the same DP or with a different
DP.
Before closing the account the DP should ensure that all pending
transactions have been settled . The request for closure should be
processed only after ensuring that there is no balance lying in the account
.
4. Freezing Of Accounts:-

Accounting freezing means suspending ant further transaction from

a depository account till the account is DEPOSITORY-frozen; a
depository account maintained with a DP may be frozen in certain cases

⇒ If a written introduction is received from the client by the DP

requesting freezing of account or

⇒ If written instruction are received from the depository pursuant to

an order the central or State government ,SEBI ,or ant order by
the court, tribunal, or any statutory authority.

An account can be frozen only for debits or for credits. No

transaction can take place in such an account until it is reactivated. A
frozen account may be defrozen or re-activated, by taking the reverse
step.

51
 • On the valid written request of the account holder where he
had requested freezing
• On directions of depository made in purchase of the order of
the appropriate authority

The DP should immediately inform the client about change in status

of the account from “active” to “suspended” and vice versa

5.Interemediary Account:-

As per SEBI Regulation on stock lending and borrowing only a

qualified intermediary can lend and borrow stocks from clients .This
intermediary borrow from lenders to borrows. Intermediary registered
with SEBI as approved intermediary may open an intermediary account
with a DP of a choice, for executing stock lending and borrowing
transactions made through them .An intermediary account may be opened
only after obtaining registration from SEBI under an approved stock
lending ,and getting the approval of the depository for opening the
account. The processed of opening an opening an intermediary account is
same as for opening a corporate beneficiary account. Securities may be
transferred to or from an intermediary account only as per the procedure
prescribed for this depository.

4.6 RIGHTS AND OBLIGATION DP & AGENT:-

A depository shall enter into an agreement, in the prescribed form,

with one or more depository participants (DP) as its agents.

52
⇒ Any person desirous of availing the services of depository may
enter into an agreement with any of the depository participants.
⇒ Any person who enters into an agreement for availing the services
of the depository shall surrender the physical securities held by him to
the depository participant for dematerialisation.
⇒ After dematerialisation the depository will be the registered owner
of the shares. The beneficial ownership will however remain with the
respective shareholders and they will be entitled to all benefits
accruing in respect of such securities.
⇒ The securities held by a depository shall not have any distinctive
or certificate numbers.
⇒ Ownership changes in the depository system shall be made
automatically on the basis of delivery and payment. There shall be
regular, mandatory flow of information about the details of ownership
in the depository's record to the company concerned.
⇒ No stamp duty will be payable on electronic transfer of scrips
through depository.
⇒ It will be possible to get the dematerialised scrip reissued in

physical form.
⇒ A beneficial owner, with previous approval of the depository shall
be able to create a pledge or hypothecation in respect of securities
owned by him through depository.
⇒ Person subscribing to securities offered by an issuer shall have the
option either to receive securities in physical form or through the
depository.
⇒ The depositories shall be liable to indemnify the beneficial owner
for any loss caused to the owner due to negligence of the depository.

53
 ⇒ An investor has the option to hold securities either in physical or

in dematerialised form.

Advantages & Service Charges of DP

5.1 SAFETY:-

 There are various checks and measures in the depository

system to ensure safety of the investor holdings. These
include:-

54
⇒ A DP can be operational only after registration by
SEBI, which is based on the recommendation from NSDL and their
own independent evaluation. SEBI has prescribed criteria for
becoming a DP in the regulations.
⇒ Depository Participants are allowed to affect any debit
and credit to an account only on the basis of valid instruction from the
client.
⇒ Every day, there is a system driven mandatory
reconciliation between participant and NSDL.
⇒ There are periodic inspections into the activities of both
DP and R&T agent by NSDL. This also includes records based on
which the debit/credit is affected.
⇒ The data interchange between NSDL and its business
partners is protected by protection measures of international standards
such as encryption hardware lock. The protection measures adopted
by NSDL are more than what is prescribed in the SEBI Regulations.
⇒ All transactions are recorded at NSDL Central System
and in the databases maintained by business partners.
⇒ All investors have a right to receive their statement of
accounts periodically from the DP.
⇒ Every month NSDL forwards statement of account to a
random sample of investors as a counter check.
⇒ In the depository, 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. These investors can transfer their holdings to an account held
with another DP.

55
 Freeze Facility:-

A depository account holder (beneficiary account) may freeze

securities lying in the account for as long as the account holder wants it.
By freezing the account, account holder can prevent unexpected debits or
credits or both, creeping into its account. The following types of freeze
facility available in the NSDL system may be availed of by submitting
freeze instruction to the Depository Participant (DP) in the prescribed
form.

⇒ Freeze for debits only

⇒ Freeze for debits as well as credits
⇒ Freeze a particular ISIN in the account
⇒ Freeze a specific number of securities held under an
ISIN in an account

 Certification in Depository Operations:-

NSDL has introduced a Certification Programmed in Depository

Operations, and it has been made compulsory for all DPs to appoint a
person qualified in this certification in each of its branches. This way,
NSDL wants to ensure that each branch of a DP that services investors
has at least one person who has thorough knowledge about depository
system.

 Insurance Cover:-

56
 NSDL has taken a comprehensive insurance policy to protect the
interest of the investors in cases of failure of the DP to resolve a genuine
loss.

 Periodic Review:-

The NSDL hardware, software and communication systems are

continuously reviewed in order to make them more secure and adequate
for the size of business. These reviews are a part of an ongoing exercise
wherein security considerations are given as much importance as
operational efficiency.

5.2 CHARGES:-

NSDL provides depository services to investors and clearing

members through market intermediaries called Depository Participants
(DPs). NSDL does not charge the investors and clearing members
directly but charges its DPs, who are free to have their own charge
structure for their clients. NSDL charges to DPs are uniform for all DPs.
Some charges are payable by Issuers also.

 FEE PAYABLE BY DEPOSITORY PARTICIPANTS

ENTRY FEES:-

Each Participant shall pay, to the Depository, a non-refundable

Entry Fee of Rs.25, 000.

 TRANSACTION RELATED FEES:-

57
 The following transaction related fees shall be payable by the
Participants to the Depository:

⇒ Settlement fee:

• A settlement fee at the rate of Rs. 10 per debit instruction in

a Client's account shall be charged to the Participant of the Client.
• A settlement fee at the rate of Rs.1.00 per instruction in
respect of securities received from the clearing Corporation into the
Receipt-in account of each Clearing Member maintained with the
Participant subject to a minimum of Rs.1000 and a maximum of
Rs.20,000 per quarter per CM Account shall be charged to the
Participant.
• A settlement fee at the rate of Rs.10 per debit instruction
for transfer of securities by way of inter-settlement transfers in the CM
Account(s) shall be charged to the Participant.
• A settlement fee at the rate of Rs.10 per debit instruction
for transfer of securities from the CM account of a Clearing Member
to the CM account of another Clearing Member shall be charged to the
Participant of the delivering Clearing Member.

 Provided however that no settlement fee shall be charged:-

In respect of commercial papers and short term debt instruments

such as certificate of deposits, MIBOR linked papers etc., no settlement
fee shall be charged to the Participant.

58
 ⇒ in case of :
a. transfers necessitated by transmission on death of the Client; and
b. Transfer of the accounts of Clients from one Participant to another as
a consequence of expulsion or suspension of such Participant.

⇒ Pledge fee:

A fee at the rate of Rs.25 per instruction for creation of pledge /

hypothecation shall be charged to the Participant of the pledgor/
hypothecator. No fee shall be charged when a pledge / hypothecation is
closed or invoked.

⇒ Lending and Borrowing fee:

A fee at the rate of Rs.25 per instruction shall be charged to the

Participant of the borrower in respect of credit of securities to the account
of the borrower. No fee shall be charged at the time of repay or recall of
securities.

⇒ Custody Fees:

A custody fee at the rate of Re.0.50 per month (Rs.6 per annum)
for securities held under each ISIN (International Securities Identification
Number) in each and every account maintained with the Participant shall
be charged to the Participant, on a monthly basis. In case an account has
no security balance, such an account shall also be charged at the rate of
Re.0.50 per month. Provided however that no custody fee will be charged
on the securities of companies which have paid one time custody fee to
NSDL.

59
 ⇒ Fee For Dematerialization & Rematerialisation:

No fee shall be charged by the Depository on dematerialization

requests. However, in case of rematerialisation request, a flat fee of Rs.10
per certificate shall be charged to the Participant.

⇒ Minimum Fee:

In case the total fee billed to the Participant in a financial year is

less than the minimum fee of Rs.1,50,000 then the Participant shall be
charged the difference thereof.
⇒ Security Deposit:

Every Participant shall pay to the Depository Rs.10 lakh by way of

interest free refundable security deposit. However, a Clearing
Corporation or a Clearing House of a Stock Exchange will be exempt
from payment of security deposit.

 Fee Payable By Issuers Fee:-

⇒ For Distribution Of Non-Cash Corporate Benefits:

• In case of offers for sale by an offered or disinvestment by GOI or

issue of shares arising out of bonus, rights, public issues, shares split,
merger, demerger, etc., a fee at the rate of Rs.10/- per record shall be
charged to the Issuer, subject to a minimum fee of Rs.500 per
corporate action.
• In case of conversion of shares of non pari-passu to pari-passu,
partly-paid to fully-paid etc., no fee shall be charged.

60
 • In case issue of Commercial Papers, a flat fee of Rs.10,000 shall be
levied on the Issuer for all issues of Commercial Papers during the
calendar year.
• In case of issue of short term debt instruments viz., certificate of
deposits, MIBOR linked papers etc., a flat fee of Rs.10,000 shall be
levied on the Issuer for 10 such issues made in a calendar year.
Provided however that an additional fee of Rs.1,000 shall be levied on
the Issuer for each subsequent issue.

⇒ ONE TIME CUSTODY FEES:

An Issuer may pay a one time custody fee to NSDL at the rate of
0.05% on the market capitalization of the company. The market
capitalization of a company will be determined on the basis of the
average market price for a period of 26 weeks preceding the date on
which the company agrees to make such payment. Consequent upon such
payment, NSDL shall not levy any custody fee on the Participants.
If a company opts to pay the aforesaid one time fee, it will also be
required to agree to pay on the newly issued shares, a custody fee at the
rate of 0.05% (five basis points) on the value of shares calculated on the
basis of issue price of newly issued shares. In case the company does not
pay this amount, NSDL shall charge custody fee as per provision
mentioned at Rule 21.2.2.4 hereunder. However, the Issuer shall not be
required to pay any custody fee on any subsequent issue of Bonus shares
by the company.
5.3 ADVANTAGES:-

In the depository system, the ownership and transfer of securities

takes place by means of electronic book entries. At the outset, this system

61
rids the capital market of the dangers related to handling of paper. NSDL
provides numerous direct and indirect benefits, like

⇒ Elimination Of Bad Deliveries:-

In the depository environment, once holdings of an investor are

dematerialized, the question of bad delivery does not arise i.e. they
cannot be held "under objection". In the physical environment, buyer was
required to take the risk of transfer and face uncertainty of the quality of
assets purchased. In a depository environment good money certainly
begets good quality of assets.

⇒ Elimination Of All Risks Associated With

Physical Certificates:-

Dealing in physical securities have associated security risks of

theft of stocks, mutilation of certificates, loss of certificates during
movements through and from the registrars, thus exposing the investor to
the cost of obtaining duplicate certificates and advertisements, etc. This
problem does not arise in the depository environment.

⇒ No Stamp Duty:-

For transfer of any kind of securities in the depository. This waiver

extends to equity shares, debt instruments and units of mutual funds.

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 ⇒ Immediate transfer and registration of securities:-
In the depository environment, once the securities are credited to
the investors account on pay out, he becomes the legal owner of the
securities. There is no further need to send it to the company's registrar
for registration. Having purchased securities in the physical environment,
the investor has to send it to the company's registrar so that the change of
ownership can be registered. This process usually takes around three to
four months and is rarely completed within the statutory framework of
two months thus exposing the investor to opportunity cost of delay in
transfer and to risk of loss in transit. To overcome this, the normally
accepted practice is to hold the securities in street names i.e. not to
register the change of ownership. However, if the investors miss a book
closure the securities are not good for delivery and the investor would
also stand to loose his corporate entitlements.

⇒ Faster settlement cycle:-

The exclusive demat segments follow rolling settlement cycle of
T+2 i.e. the settlement of trades will be on the 2nd working day from the
trade day. This will enable faster turnover of stock and more liquidity
with the investor.

⇒ Faster disbursement of non cash corporate benefits like

rights, bonus, etc.
NSDL provides for direct credit of non cash corporate entitlements
to an investors account, thereby ensuring faster disbursement and
avoiding risk of loss of certificates in transit

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 ⇒ Reduction in brokerage by many brokers for trading
in dematerialized securities:-
Brokers provide this benefit to investors as dealing in
dematerialised securities reduces their back office cost of handling paper
and also eliminates the risk of being the introducing broker.

⇒ Reduction in handling of huge volumes of paper

⇒ Periodic Status Reports to investors on their holdings

and transactions, leading to better controls.

⇒ Elimination of problems related to change of address

of investor, transmission, etc.:-
In case of change of address or transmission of demat shares,
investors are saved from undergoing the entire change procedure with
each company or registrar. Investors have to only inform their DP with all
relevant documents and the required changes are effected in the database
of all the companies, where the investor is a registered holder of
securities.

⇒ Elimination of problems related to selling securities on

behalf of a minor
A natural guardian is not required to take court approval for selling
demats securities on behalf of a minor.

⇒ Ease in Portfolio Monitoring since statement of account

gives a consolidated position of investments in all instruments.

64
5.4 DEPOSITORY SYSTEM:-
NSDL carries out its activities through various functionaries called
business partners who include Depository Participants (DPs), Issuing
companies and their Registrars and Share Transfer Agents, Clearing
corporations/ Clearing Houses of Stock Exchanges. NSDL is
electronically linked to each of these business partners via a satellite link
through Very Small Aperture Terminals (VSATs) or through Leased land
lines. The entire integrated system (including the electronic links and the

65
software at NSDL and each business partner's end) is called the "NEST"
[National Electronic Settlement & Transfer] system.

66
67
 Depository Participant (DP):-
The investor obtains Depository Services through a depository
participant of NSDL. A DP can be a bank, financial institution, a
custodian, a broker, or any entity eligible as per SEBI (Depositories and
Participants) Regulations, 1996. The SEBI regulations and NSDL bye
laws also lay down the criteria for any of these categories to become a
DP.
Just as one opens a bank account in order to avail of the services of
a bank, an investor opens a depository account with a depository
participant in order to avail of depository facilities. Though NSDL
commenced operations with just three DPs, Depository Participant
Services are now available in most of the major cities and towns across
the country.

 Issuing Companies/ their Registrar & Transfer Agents: -

Securities issued by issuers who have entered into an agreement with
NSDL are admitted into the NSDL depository. As per this agreement,
issuer agrees to verify the certificates submitted for dematerialization
before they are dematerialized and to maintain electronic connectivity
with NSDL. Electronic connectivity facilitates dematerialization,
rematerialisation, daily reconciliation and corporate actions.
NSDL is electronically linked to each issuer company or its R&T
agent. This facilitates dematerialization, rematerialisation, daily
reconciliation and corporate actions.

68
 Clearing Corporation / House: -
The clearing corporations/houses of stock exchanges also have to
be electronically linked to the depository in order to facilitate the
settlement of the trades done on the stock exchanges for dematerialised
shares. At present, all the major clearing corporations/houses of stock
exchanges are electronically connected to NSDL.
⇒ Joining NSDL as DP
⇒ Joining NSDL as Issuer
⇒ Joining NSDL as Registrar and Share Transfer Agent
⇒ Joining NSDL as CC / CH

69
5.5 SERVICE STANDARD:-
5.5.1 SPECIAL SERVICES:-

Depository is a facility for holding securities, which enables

securities transactions to be processed by book entry. In addition to the
core services of electronic custody and trade settlement services, NSDL
provides special services like pledge, hypothecation of securities,
automatic delivery of securities to clearing corporations, distribution of
cash and non-cash corporate benefits, stock lending, distribution of
securities to allot tees in case of public issues, Internet based services for
clearing members 'SPEED' & Internet based services for account holders
'SPEED-e'.

NSDL has taken the initiative for providing the facility of enabling
brokers to deliver contract notes to custodian / fund managers
electronically through its STEADY facility. STEADY (Securities
Trading - information Easy Access and DeliverY) was launched by
NSDL on November 30, 2002. STEADY is a means of transmitting
digitally signed trade information with encryption across market
participants electronically and efficiently, through Internet.

5.5.2 BASIC SERVICES:-

Under the provisions of the Depositories Act, NSDL provides

various services to investors and other participants in the capital market
like, clearing members, stock exchanges, banks and issuers of securities.
These include basic facilities like account maintenance, dematerialisation,
rematerialisation, settlement of trades through market transfers, off

70
market transfers & inter-depository transfers, distribution of non-cash
corporate actions and nomination/ transmission.

The depository system, which links the issuers, depository

participants (DPs), NSDL and Clearing Corporation/ clearing house of
stock exchanges, facilitates holding of securities in dematerialized form
and effects transfers by means of account transfers. This system, which
facilitates scrip less trading, offers various direct and indirect benefits to
the market participants.

The Depository Act, 1996 requires that clients can avail services of
a depository thought dps. This requirement has created a new business
entity Depository participant. A DP has to deal in business with the
following characteristics:
⇒ Sensitive and demanding clients
⇒ Intense competition on the prisce front due to which the
profit margins are under tremendous pressure
⇒ This profit margins require high volume of clients for
opening the DP services profitably
⇒ High volume of business is error-prone ,unless supported
by appropriate System and quality of manpower

71
  The services standard may be changed in response to client
requirements and competitive market demands

1. Office Ambience:-

The front ambience should be pleasant and should provide

minimum conveniences for the clients to conduct their transactions. The
waiting space should be proportionate to the number of clients that
transaction .The waiting space should be proportionate to the number of
clients that may visit the offices to conduct their business. The type of
access to the different areas should match with the specific transaction
requirements of the clients The following facilities should be available
for at every offices/branch of DP
⇒ Provision to write instructions
⇒ Introductory literatures /booklets
⇒ Display of offices timings
⇒ Display of a list of services offered from the service center /branch
,i.e ,whether account opening /demat/account transfer/pledge services
are available at that branch
⇒ Latest list of ISINs available for dematerialization
⇒ Compulsory demat list.
⇒ Display of deadline timing for various transactions
⇒ Settlement calendar and settlements number, if space for display is
available
⇒ Rubber stamp for cancellation of certificate
⇒ Inquiry counter for finding out balances in client accounts.

72
 ⇒ Forms for nomination, account opening and all other forms that

are not handed over to the clients to the clients at the time of account
opening.

2. BRANCH OFFICES
EMPOWERMENTS:-
Modern communication technology and IT have made it possible
to effectively decentralize operations even while reporting and
supervision controls are centrally maintained. Such decentralization
requires empowerment of branch offices.
The ability of a branch office to give good services to the client is
determined by the co –ordination and communication facility between
head offices and the branches. Head offices should take care of
informational needs of the branch. This should be given extra care if the
branch office is not electronically connected to head offices Head office
should provides the following information on a regular basis to branch
office to help the branch achieve customer satisfaction
⇒ ISIN list available for dematerialization.
⇒ List of scripts included in the compulsory list.
⇒ Adequate supply of accounts opening forms, nomination
forms and other forms.
⇒ Settlement calendars, settlement number and other settlement
related information.
⇒ Regular feed back on transaction as given below:-
• Status of account opening/account numbers
• Status on demat requests
• Return of rejected demat requests
• Status of transactions and holding

73
 • Information on credits arising out of corporate actions
5.6 TRANSMISSION & NOMINATION:-

5.6.1 TRANSMISSION:-

Transposition Change in the order of names in which certificates

are issued is termed as transposition. The Significance of Transposition
Sometimes, a title holder of securities holds them jointly with
one/two/three persons in different order of names for variety of reasons.
Since dematerialization can take place through a demat account only in
the identical order of names, such a situation, the investor would have to
open multiple demat accounts as per the order of names .To avoid such a
situation the investor could consider using the transposition facility
offered by CDSL. Transfer depository is electronic linked to depository
participant, issuer company or Registrar &transfer agent and the clearing
corporation /clearing house 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. Under a depository, transfer
of security occurs merely by passing book entries in the records of the
depositories, as and when instructed by the beneficial owners.

The process of transmission through NSDL is simple as well as

quick because the successor to the title interacts only with one entity, his
DP, Transactions can be for sole holding cases as well as for joint
holding.

74
1. Single holder:-
In the event of death of the sole holder, if no nomination had been
made, the claimants of the deceased can get the securities transmitted in
their favour by submitting their claim duly supported by the relevant legal
documents to Dp .If the claimants heaven existing beneficiary account in
their name, the securities to be transmitted would be credited to their
existing account

2. Joint Accounts:-
If ant one of the joint- holders of a security dies, the surviving joint
holders can get the securities transmitted in their favour by producing the
death certificates of the deceased joint holder. The surviving joint holder
will have to open a new account with the DP in their name
.
5.6.2 NOMINATION:-
The COMPANIES Act, 1999 has introduced provisions for
nomination in respect of shares, debentures, fixed deposited .the
nomination facility fulfils one of the long felt need of the investors .This
facility was already in place for deposit in banking industry. Under the
provision, a shareholder, a debenture-holder or deposit holder can
nominate a person, in whom the shares or debentures or bond or deposits
would vest, in the event of original investor’s death. The facility can be
availed of by ant person whether Indian resident or a non –resident India
investor.
Nomination is allowed only for the accounts with single names.
Nomination is not allowed for joint accounts with more than two names,
Huf and Corporate accounts.

75
 Who can nominate?
Individuals applying for debt securities on their own behalf singly
or jointly with one or two persons can make nomination, If the shares are
held jointly, all the joint holders are requires to sign the nomination form.

 Who cannot be appointed as nominee?

Trusts, societies, body corporate, partnership firms, Kartas of Hindu
undivided family or power of attorney holder cannot be appointed as
nominee

76
BUYING AND SELLING PROCESS OF DEMAT
SHARE

6.1 TRADING & SETTLEMENTS:-

 Sale of securities:-

The procedure for selling dematerialized securities through any

stock exchange is similar is similar to the procedure for selling
physical shares. However, the procedure for delivery of securities id
much simpler when compared to the sale of securities in physical
segment. In case of sale of demat security, immediately on receipt of
intimation of execution of trade from broker, the seller should issue
instruction to the DP with whom he maintains his demat accounts, for
delivery of security either directly to the clearing corporation or to the
broker’s clearing account, as advised by his broker.

 Purchase of securities:-

Purchase of securities can give one-time standing instruction to his

DP for receiving securities in his account. This standing instruction can
be given at the time of opening of account or later .Alternatively, an
investor mat choose to issue separate receipt instruction every time he
makes any purchase of securities.

77
6.2 SETTLEMENT OF OFF-MARKET
TRANSACTION:-

 Transfer of securities from one account to another may be done

for any of the following purposes:

⇒ Transfer due to a transaction done on a person to

person basis.(off-market transaction
⇒ Transfer arising out of a transaction done on a stock
exchange.

⇒ Transfer arising out of transmission and account

closure.

 OFF MARKET TRANSACTION:-

Off market transaction is one which is settled directly between two

BOS with or without using the broker and where no clearing
corporation /clearing house is involved

Any trade that is cleared and settled without the participant of a

clearing corporation is called off market trade.

OFF-MARKET TRADE

NSDL

DPI DP2

SELLER BUYER

78
 Steps:-

1. Seller gives delivery instruction to his DP to move securities from

his account to the buyer‘s account.

2. Buyer automatically receives the credit of the securities into his
account on the basis of standing instruction for credits
3. Buyer receives credit of securities into his account only if he gives

receipt instruction, if standing instruction has not been given.

4. DP needs to be extra careful in verifying the signature of the client

if unusual quantities of securities are being debited to the account.

5. Funds move from buyer to seller outside the NSDL system.
6. Execution date should be same on both the instruction (i.e.

Delivery Instruction of the seller and Receipt Instruction of buyer).

79
 ON MARKET TRANSACTION: -

Any transaction for sale and purchase of securities through a

broker on the stock exchange to be settled through clearing corporation is
generally termed as “on market transaction”

 Market Settlement-Demat Shares:-

A market trade is one that is settled through participant of a

clearing corporation. In the depository environment, the securities move
through move through account transfer. Once the trade is executed by the
broker o the stock exchange, the seller gives a delivery instruction to his
to transfer securities to his broker” account.

The broker has to then complete the pay –in before the deadline
prescribed by the stock exchange. The broker moves the securities from
his account to cc/ch of the stock exchange concerned, before the decline
given by the stock exchange

The cc/ch gives pay –out and securities are transfer to the buying
broker’s account. The broker then gives delivery instruction to his DP to
transfer securities to the buyer’s account the movement of funds takes
place outside the NSDL system.

⇒ Seller gives delivery instruction to his DP to move

securities from his account to his broker’s account.
⇒ Securities are transferred from broker’s account to cc
on the basis of a delivery out instruction.
⇒ On pay-out, securities are moved from cc to buying
broker’s account.

80
 ⇒ Buying broker gives instruction and securities move to
the buyer’s account.

 MARKET SETTLEMENT-DEMAT SHARES

NSDL

CC DP
DP

2
2 3
BROCKER BROCKER
1 4

1 4

SELLER SELLER BYUER BYUER

 How the settlement Number is indicated?

Settlement number has 7 digits, the first 4 digit s represents the

year and the remaining 3 digits represent the settlement number of the
exchange on which the transaction has been executed.

81
 What are the different Market types for settlements?

MARKET TYPE DESCREPTION CHARACTER CODES

Rolling Market RM
Normal Rolling (NSE) NR
Auction Rolling AR
Normal Auction(NSE) NA
Company Objection CO
Trade to Trade TT

 Check list for Settlement

⇒ DP to verify signature
⇒ DP to ensure strict adherence to submission of in instruction

within pre-defined settlement deadlines.

⇒ Advise and ensure that clients sign instruction by the entire joint

holder. Only in case of CM A/c the facility of any one or jointly is

permitted.
⇒ DP to verify all fields in instruction form.
⇒ DP to accept delivery instruction before 24hrs. Of pay –in

deadline.
⇒ Check RBI approval in case of NRI transactions.
⇒ In case of nature’s guardian, no court is needed for movement of

securities from the account held in name of the minor.

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6.4 PLEDGE & HYPOTHECATION:-

The depositories Act permits the creation of pledge and

hypothecation of securities. Securities held in a depositories account can
be pledge or hypothecation against loan, credit or such other facility
availed by the beneficial owner of securities. For this purpose, both the
parties to the agreement, i.e., the pledge and the pledge must have a
beneficiary accounts with NSDL. However, both parities need not have
their depository account with same DP.

The nature of the control on the securities offered as collateral

determines whether the transaction is a pledge or hypothecation. If the
lender has right to appropriate the securities to his account if the borrower
defaults or otherwise, the transaction is called a pledge.

 Pledge of Demat Shares:-

NSDL

3 2
4 5
PLADGEE’S DP PLEDGOR’S DP

CONFIRMATION

3 4 2 REQUEST
AGREEMENT
PLADGEE PLEDGOR
1
LOAN

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 Steps:-

1. Agreement is signed between the

pledge or and pledgee out side the NSDL system
2. Pledgor gives a pledge creation
request to a DP who entres it in the system.
3. The request reaches the pledgee’s
DP through the NSDL system. Pledgee is intimated by his DP
4. Pledge gives a pleade creation
confirmation to his DP who entres it in the system.
5. Securities are transferred from
’free balances ‘head to pledge balances head.
6. Loan is given by pledgee to
pledgor outsides the NSDL system.

 Pledge Closure:-

NSDL

2 2

3 4
PLEDGEE’S DP PLEDGOR’S DP

2 3 CLOSURE
2 REQUEST
CONFIRMATION
PLEDGEE PLEDGOR

1
REPAYMENT

84
 Steps: -

1. Pledgor repays the loan to

pledgee.
2. Pledgor gives a pledge clousure
request to his DP.DP forwards the request to pledgee’s DP through
NSDL.
3. Pledgee gives a pledge clouse
confirmation from to DP . DP confirms the closure on the system.
4. The pledge is closed and the
securities are moved from ‘pledged’balances to free balances in the
pledgor’s account.

 Pledge Invocation:-

NSDL

3
3 2 2
PLADGEE’S DP PLEDGOR’S DP

INVOCATION
3 2 4
PLADGEE
ORDER PLEDGOR

85
 1

NOTICE

 Steps:-

1. On repayment default, pledgee sends an invocation notice to

pledgor.
2. Pledgee submits a pledge invocation request to DP .DP forward the
request pledgor’s DP through the NSDL system.
3. Securities move automatically from pledgor’s account to pledgee’s
accounts through the NSDL system .
4. Pledgor is informed of the movement of securities by his DP.

 Checklist for pledge/hypothecation Points:-

1. Ensure that the instruction from
is submitted in duplicate.
2. On receipt of instruction for
creation of pledge, check whether pledgee has opened a depository
account.
3. On receipt of instruction for
creation of pledge, check whether there is enough balance in pledgor’s
account to effect the creation of pledge/hypothecation .If not advise
the client suitably.
4. Ensure that all compulsory
fields in the instruction form entered.
5. Ensure that request for
confirmation of pledge is given before the closure date mentioned in
the instruction form.

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6.5 DEBT INSTRUMENT: -

1. How can one dematerialize debt instrument?

Procedure for dematerialization of debt instrument is same

as that carried out for equity shares. In order to dematerialize
his/her certificates; an investor will have to first open an account
with a DP and then request for the dematerialization of certificates
by filling up a dematerialization request form [DRF], which is
available with DP and submitting the same along with the physical
certificates. The investor has to ensure that before the certificates
are handed over to the DP for demat, he marks "submitted for
dematerialization" on the face of the certificates.

2. What type of debt instruments can be admitted in NSDL?

NSDL has no restriction on type of instruments that can be

admitted in the depository. Instruments like Bonds, Debentures,
Commercial Papers, Certificate of Deposit, etc. irrespective
whether these instruments are listed/unlisted/privately placed or
even issued to a single holder can be dematerialized.

87
 3. How can a company admit its
debt instruments in NSDL?

Company has to send a request to NSDL detailing type of

instrument along with a Letter of Intent. On receipt of request, a
tripartite agreement will be signed between NSDL, Issuer and
Registrar & Transfer Agent. Ones admitted, these securities would
be made available for dematerialization by NSDL.

6.6 CORPORATE ACTIONS:-

When any corporate event such as rights or bonus or dividend is
announced for a particular security, NSDL will give the details of all the
clients having electronic holdings in that security as of the record date to
the registrar. The registrar will then calculate the corporate benefits due to
all the shareholders. The disbursement of cash benefits such as
dividend/interest will be done by the registrar whereas the depository will
do the distribution of securities entitlements based on the information
provided by the registrar to all those clients who have opted for electronic
allotment. In case of non-cash corporate actions such as a rights/bonus
issue, investors have a choice of either physical or electronic allotment.

88
 CONCLUSION

 Strengths:-
According to my project Report and research, there are some
weakness &strengths.

⇒ Reduce paper work and it increases the works of trading.

⇒ Demat is reduces the risk associated with bad delivery.
⇒ There are no stamp duties for transfer of the shares to one person
to another person.
⇒ There are no postage expenses in the demat.
⇒ Time can be saved in delivery pay –in and pay –out.
⇒ People can sale or purchase odd number of transfer.
⇒ Saving time in share transfer from one person to another person.
⇒ You can also receive your bonuses and rights in to your depository
account as direct credit ,thus eliminating risk of loss in transit

 Weakness:-

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 ⇒ Duplicate & fraud case can be possible.
⇒ Repetition of demats accounts
⇒ The only proof of ownership for demat shares is a receipt only.
⇒ The work becomes monotonous.
⇒ Some unsecured company mgt dislikes rapid unsupervised
The high amount of paper work involved in the demat process is also a
very painful.

Suggestion

According to my thinking power, there should make some

improvement in the depository system

⇒ Repetition of demat accounts

⇒ The only proof of ownership for demat shares is a receipt only.
⇒ The work becomes monotonous very high.
⇒ Duplicate &fraud case can be possible
⇒ Some unsecured company mgt dislikes rapid unsupervised.
⇒ Proper co-ordination and co-operation should be made
between different Depository participants because they are still
in competition in the charges.
⇒ The trading no demat should be made on the Internet.
⇒ The high amount of paper work involved in the demat process
is also a very painful
⇒ The stationary expences become very high.

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 ⇒ Duplicate &fraud case can be possible.

BIBLIOGRAPHY
Books
 Capital Market in India
By .E. Gorden &K. Natrajan.
 Investement Management
By V.A . Avdhani
 Annual Report of the Company
 Financial Management
By Ravi. M. Kishore

Magazines
 Capital Market
 Business World
Wed sites
 www.nsdl.com

 www.nsdl.co.in

 www. cdsl .com

 www.nseindia.com

 www.cdslindia.com

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