A PROJECT REPORT ON

A STUDY ON DEPOSITORY SYSTEM

AT
SHAREKHAN LTD.

BY

B. MADHURI
H.T No. 098-06-0141

Project Submitted In Partial Fulfillment for the Award Of The Degree of

MASTER OF BUSINESS ADMINISTRATION

By

ST.PAULS P.G.COLLEGE
(Affiliated to Osmania University, Approved by AICTE)
Osmania University, Hyderabad 500 007.
1

DECLARATION

I here by declare that this project report title A STUDY ON DEPOSITORY

SYSTEM submitted by me to the Department of Business Management , O.U.,
Hyderabad, is a bonafide work undertaken by me and it is not submitted to any other
University or Institution for the award of any degree diploma / certificate or published
any time before.

Name and Address of the Student

B. MADHURI
H.No.27-30, Subhash Nagar,
Tirumulagiri,
Secunderabad.

Signature of the Student

CERITIFICATION

This is to certify that the project report title A STUDY ON DEPOSITORY

SYSTEM: submitted in partial fulfillment for the award of MBA programme of
Department of Business Management, O.U., Hyderabad, was carried out by
B. MADHURI under my guidance. This has not been submitted to any other University
or Institution for the award of any degree/diploma/certificate.

Name and address of the Guide

(Vishwanath Sharma)

Signature of the Guide

ABSTRACT

This project is all about to know the following,

We may put the objectives of this study as follows.

Analyzing and understanding the operations of a depository system, to know the
importance of NSDL and its services offered to investor, to understand the operations
of a depository participants and procedure for dematerialization of securities..
To achieve the objectives of study, information and data that has been collected
and carried for the study can be of two type they are primary and secondary sources.
The following are recommendations for enhancement of services of DPs and
NSDL.
The requirements must be abolished for a/c opening and closing procedures
should be simplified.
Periodic meetings and seminars should be held so as to educate the account
holders.
All the procedure of opening a demat account and the demat request for shares
may be completed in a single day.
Transaction statements should be simple & understandable.
Even for a change in spelling name of an account holder, a new a/c needs to be opened.

ACKNOWLEDGEMENT

I take this opportunity to express my deep and sincere gratitude to the

management of SHAREKHAN LTD for allowing me to undertake this project and its
various employees who lent their hand towards the completion of this study.

The co-operation I received from the wide cross-section of employees of

SHAREKHAN LTD makes it difficult to style out individuals for acknowledgement.

How ever, I am particularly indebted to Mr. CH. SHYAM BABU (Branch

manager) for allowing me to carry out my project work in the organization for apprising
me of the situation with necessary back up.

I especially thank my external guide Mr. SUMAN SHARMA & for their
guidance towards this project.

I am also thankful to my college Director Mr. RAGHAVA REDDY,

and the principal Mrs. INDRA REDDY and Head of the Department Mrs. UMA
RANI & VISHWANATH SHARMA (faculty of finance) for providing their guidance
to complete this project work.

CHAPTER 1
INTRODUCTION

NEED OF THE STUDY

Trading in shares of the company is compulsory in dematerialized form for all

investors. An investor who wants to trade in securities he has to open an account with
depository participant (DP). In order to provide quality service to the users of
depository, NSDL launched a certification programme in depository operations in May
1999. Depository participants are required to appoint at least one person who has
qualified in the certification programme at each of their service centers.

Investors are not aware of NSDL services which are available for investors, if
investors are go through this project a study on depository services they can aware of
depository and NSDL services.

Above statement explains the importance of study on DEPOSITORY

SERVICES

OBJECTIVES

Analyzing and understanding the operations of a depository system.

To know the importance of NSDL and its services offered to investors.

To understand the operations of a depository participants

To know the procedure of dematerialization of securities.

RESEARCH METHODOLOGY

For achieving the objectives of this study I have used two kinds of research
methodologies they are primary and secondary in nature.
Primary data had pooled from fund managers and relationship managers
guidelines.
Where as secondary data gathered from hand books for NSDL depository
operations module and various publications and books issued by DP s.

CHAPTER 2
REVIEW OF LITERATURE

10

INTRODUCTION

Dematerialization (demat in short form) signifies conversion a share certificate

from its physical form to electronic form for the same number of holding stock, which
is credited to our demat account which we open with a depository participants (DP).

Dematerialization is a process by which the physical share certificate of an

investor is taken back by the company and an equivalent number of securities are
credited in electronic form at the request of the investor. An investor will have to first
open an account with a depository participants then request for the dematerialization of
this shares certificates through the participant so that the dematerialized holdings can be
credited in that account. This is very similar to a bank account, these balances are
transferable like physical shares .if at a later dates you with to have these demit
securities converted back in to paper certificates the depository helps you to do this.

The advent of automated electronic trading system in India brought with its
several associated benefits to large market for the investing community such asTransparency in trading and equal opportunity for market players all over the country.
However, the physical form of holding and trading in securities which has the problems
related to the settlement trades such as high instances of bad deliveries and long
settlement cycles, acted as bottlenecks in fully exploiting this potential.

11

But now, Due to introduction of Depository concept, an investor has the

convenience of converting his physical shareholdings to electronic shareholdings,
thereby having the facility of hassle- free trading and settlement of securities.
Depositories promoted by institutions of national stature have become responsible for
economic development of the country. The system works to support the investors and
brokers in the capital market of the country. Depositories aim at ensuring the safety and
soundness of Indian marketplaces by developing settlement solutions that increase
efficiency.

Also, It is heartening that SEBI has made it mandatory for all categories of
investors to settle trades in demat form with respect to a selected list of scrips since
January 4, 1999. Therefore, every investor who trades in securities must have to open a
depository account.

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Introduction to National Stock Exchange

The National Stock Exchange of India was promoted by leading financial institution at the
behest of the government of India, and was incorporated in November 1992 as a tax-paying
company. In April 1993 it was recognized as a Stock exchange under the Securities
Contracts (Regulation) Act, 1956. NSE commenced operations in the Wholesale Debt
Market (WDM) segment in June 1994. The Capital Market (Equities) segment of the NSE
commenced operations in November 1994, while operations in the Derivatives segment
commenced in June 2000.

The National Stock Exchange of India (NSE) is one of the largest and most advanced
stock markets in India. The NSE is the world's third largest stock exchange in terms of
transactions. It is located in Mumbai, the financial capital of India. The NSE VSAT has
2791 terminals that cover 334 cities across India.
NSE has remained in the forefront of modernization of India's capital and financial
markets, and its pioneering efforts include:

Setting up the first clearing corporation "National Securities Clearing Corporation

Ltd." in India. NSCCL was a landmark in providing notation on all spot equity
market (and later, derivatives market) trades in India.

Co-promoting and setting up of National Securities Depository Limited, first

depository in India.

Setting up of S&P CNX Nifty.

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NSE pioneered commencement of Internet Trading in February 2000, which le to the

wide popularization of the NSE in the broker community.

Being the first exchange that, in 1996, proposed exchange traded derivatives,
particularly on an equity index, in India. After four years of policy and regulatory
debate and formulation, the NSE was permitted to start trading equity derivatives
three days after the BSE.

Being the first exchange to trade ETFs (exchange traded funds) in India.

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Introduction to Bombay Stock Exchange

Bombay Stock Exchange Limited is the oldest stock exchange in Asia with a rich
heritage. Popularly known as "BSE", it was established as "The Native Share & Stock
Brokers Association" in 1875. It is the first stock exchange in the country to obtain
permanent recognition in 1956 from the Government of India under the Securities
Contracts (Regulation) Act, 1956.The Exchange's pivotal and pre-eminent role in the
development of the Indian capital market is widely recognized and its index, SENSEX, is
tracked worldwide. Earlier an Association of Persons (AOP), the Exchange is now a
demutualised and corporatised entity incorporated under the provisions of the Companies Act,
1956, pursuant to the BSE (Corporatisation and Demutualization) Scheme, 2005 notified
by the Securities and Exchange Board of India (SEBI).

In terms of organisation structure, the Board formulates larger policy issues and exercises
over-all control. The committees constituted by the Board are broad-based. The
Managing Director and a management team of professionals manage the day-to-day
operations of the Exchange.
The Exchange has a nation-wide reach with a presence in 417 cities and towns of India. The
systems and processes of the Exchange are designed to safeguard market integrity and
enhance transparency in operations. During the year 2004-2005, the trading volumes on the
Exchange showed robust growth.

The Exchange provides an efficient and transparent market for trading in equity, debt
instruments and derivatives. The BSE's On Line Trading System (BOLT) is a proprietary
15

system of the Exchange and is BS 7799-2-2002 certified. The surveillance and clearing &
settlement functions of the Exchange are ISO 9001:2000 certified.
The Sensex is an "index". What is an index? An index is basically an indicator. It gives
you a general idea about whether most of the stocks have gone up or most of the stocks
have gone down.
The Sensex is an indicator of all the major companies of the BSE. The Nifty is an
indicator of all the major companies of the NSE.
If the Sensex goes up, it means that the prices of the stocks of most of the major
companies on the BSE have gone up. If the Sensex goes down, this tells you that the
stock price of most of the major stocks on the BSE have gone down.
Just like the Sensex represents the top stocks of the BSE, the Nifty represents the
top stocks of the NSE.
Just in case you are confused, the BSE, is the Bombay Stock Exchange and the NSE is
the National Stock Exchange. The BSE is situated at Bombay and the NSE is situated at
Delhi. These are the major stock exchanges in the country. There are other stock
exchanges like the Calcutta Stock Exchange etc. but they are not as popular as the BSE
and the NSE.Most of the stock trading in the country is done though the BSE & the
NSE.
Besides Sensex and the Nifty there are many other indexes. There is an index that gives
you an idea about whether the mid-cap stocks go up and down. This is called the "BSE
Mid-cap Index". There are many other types of indexes.

16

INTRODUCTION TO DEPOSITORY SYSTEM

The Indian capital market provides the framework in which savings and
investment takes place. The capital market consists of primary and secondary markets.
The primary market deals with the issue of new instruments by the corporate sector,
whereas the secondary market or stock exchange is location where existing securities
are traded.
Although India has a vibrant capital market which is more than a century old,
the paper-based settlement of trades caused substantial problems like bad - delivery and
delayed transfer of title till recently. Therefore, with the objectives of improving market
efficiency, enhancing transparency, checking unfair trade practices and bringing the
Indian market up to the international standards, a package of reforms consisting of
measures to liberalize, regulate and develop the securities market was introduced during
the 1990 s. The enactment of Depositories Act in August 1996 paved the way for
establishment of depositories in India.
Depositories promoted by institutions of national stature have been responsible
for economic development of the country. National Infrastructure of international
standards that handles most of the trading and settlement in dematerialized form [Scripless] in Indian capital market has been established. As a result, physical securities have
almost disappeared. The settlement period has shortened to a week.
Using innovative and flexible technology, the system works to support the
investors and brokers in the capital market of the country. Depositaries aim at ensuring
the safety and soundness of Indian marketplaces by developing settlement solutions that
increase efficiency, minimize risk and reduce costs. They play a quiet but central role in
developing products and services that will continue to nurture the growing needs of the
financial services industry.

17

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 transacting
in certificates.

NSDL-BANK-AN ANALOGY
Bank

NSDL

Holds funds in accounts

Holds securities in accounts

Transfers funds between accounts

Transfers securities between accounts

Transfers without handling cash

Transfers without handling physical

Safekeeping of money

Safekeeping of securities

securities

In a bank the medium of exchange is money, whereas a depository deals in

securities.

In a bank, money is given for safe-keeping. in a depository, securities are kept

safely.

Banks hold and transfer funds, depositories perform the same function with
securities.

Banks can transfer funds from one account to another without handling cash,a
depository can do the same with physical securities.

In a bank a account is opened to avail of the banking services, an account has to

be opened with a Dp for holding scrips in the depository segment.

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NSDL-BANK DIFFERENCE

Bank

NSDL

Either of holders can sign instructions

All joint holders to sign instructions
Minimum balance to be maintained

No minimum balance required

Entitled for interest

Interest can be earned only by participating

in stock lending scheme

Uses balances in accounts

Does not move balances in account with out

account holders authorization.

Nomination is kept confidential

Signature and photograph of nominee to be

provided.

Incase of transactions in a bank account, any one of the joint holders can sign
the instructions (cheques), where as in the depository, all joint holders are
required to sign all the instructions.

Minimum funds balance prescribed by the bank has to be maintained in the

bank account, no minimum balance of securities is required to be maintained in
a depository account.

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What is depository?
A Depository is a facility for holding securities, which enables transactions to be
processed by book entry. To achieve this the depository may immobilize the securities
or dematerialize them exist only as electronic records). India has chosen the
dematerialization India, a depository is an organization, which holds the benefits
securities in electronic form, through a registered Depository Participant depository
functions somewhat similar to a commercial bank. To achieve services offered,
What is dematerialization?
Dematerialization is a process by which physical certificates a into electronic form.
Who is a Beneficial Owner (BO)?
Beneficial Owner is a person in whose name a demat account is CDSL for the
purpose of holding securities in the electronic form name is recorded as such with
CDSL.

Who is a Depository Participant?

A Depository Participant (DP) is an agent of the depository who to offer depository
services to investors. Financial institute custodians and stockbrokers complying with
requirements SEBI/Depositories can be registered as DP. Further information on DP,
can be accessed from CDSL www.cdslindia.com
Who is Issuer?
Issuer means any entity making an issue of securities.
What is an ISIN (International Securities Identification Number
ISIN is the unique identification number given to a security of an time of admitting
such security in the depository system

20

Whether different securities issued by the same issuer will have ISIN?
No, different securities issued by the same issuer will have different.
What services are provide by a DP?
Following services can be availed of through a DP.
a) Dematerialisation, i.e. getting physical securities converted into form.
b) Rematerialisation, i.e. getting electronic securities balances hel account converted
into physical form.
c) To maintain record of holdings in the electronic form.
d) Settlement of trades by delivering/receiving underlying security BO accounts.
e) Settlement of off-market trades i.e. transactions between BOs outside the Stock
Exchange.
f) Providing electronic credit in respect of securities allotted by issue IPO or
otherwise.
g) Receiving on behalf of demat account holders non-cash corporate such as, allotment
of bonus and rights shares in electronic form to resulting upon consolidation, stock
split or merger / amalgamation companies.
h) Pledging of dematerialized securities & facilitating loans against
i) Freezing of the demat account for debits, credits, or both.
j) Internet facilities easi and easiest, if the DP is registered for with CDSL.

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FUNCTIONS OF DEPOSITORY

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

minimize the movement of physical securities in the market. This is achieved through
dematerialization of securities. Dematerialization is the process of converting securities
held in physical form into holdings in book entry form.
Account Transfer: The depository gives effects to all transfers resulting from the
settlement of trades and other transactions between various beneficial owners by
recording entries in the accounts of such beneficial owners.
Transfer and Registration: A transfer is the legal change of ownership of a security in
the records of the issue. For effecting a transfer, certain legal steps to be taken like
endorsement, execution of a transfer instrument and payment of stamp duty.
Corporate Actions: A depository may handle corporate actions in two ways. In the first
case, it merely provides information to the issuer the persons entitled to receive
corporate benefits. In the other case, depository itself takes the responsibility of
distribution of corporate benefits.
Pledge and Hypothecation: Depositories allow the securities placed with them to be
used as collateral to secure loans and other credits. In a manual environment, borrowers
are required to deliver pledged securities in physical form to the lender or its custodian.
Linkage with Clearing System: Whether it is separate Clearing Corporation attached
to a stock exchange or a clearing house (department) of a stock exchange, the clearing
system performs the functions of ascertaining the pay-in (sell) or pay-out (buy) of
brokers who have traded on the stock exchange.

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KEY FEATURES OF THE DEPOSITORY SYSTEM IN INDIA

Multi Depository System: the depository model adopted in India provides for a
competitive system. There can be various entities providing depository services.
Dematerialization as against immobilization: The model adopted in India provides
only for dematerialization of securities.
Immobilization of securities id down by storing or lodging the physical security
certificate with an organization that acts as a custodian a securities depository.
Dematerialization of securities occurs when securities, issued in physical form, are
destroyed and an equivalent number of securities are credited into thee beneficiary
owners account.
Depository services through depository participants: The depositories can provide
their services to investors through their agents called depository participants. These
agents are appointed subject to the conditions prescribed under Securities and Exchange
Board of India (Depositories and Participants) Regulations. 1996 and other applicable
conditions.
Fungibility: In the depository system, the securities dematerialized are not identified
by distinctive numbers or certificate numbers as in the physical environment. Thus all
securities in the same class are identical and interchangeable. For example, all equity
shares in the class of fully paid up shares are interchangeable.
Registered Owner/Beneficial Owner: In the depository system, the ownership of
securities dematerialized is bifurcated between Registered Owner and Beneficial
Owner. For the securities dematerialized, NSDL is the Registered Owner in the books of
the issuer; but ownership rights and liabilities rest with Beneficial Owner. All the rights,
duties and liabilities underlying the security are on the beneficial owner of the security.

23

Free Transferability of shares: Transfer of shares held in dematerialized form takes

place freely through electronic book entry system.
Dematerialization
Dematerialization is the process by which a client can get physical certificates
converted into electronic balance.
An investor intending to dematerialize its securities needs to have an account with a DP.
The client has to deface and surrender the certificates registered in its name to the DP.
After intimating NSDL electronically, the DP sends the securities to the concerned
Issuer/ R&T agent. NSDL in turn informs the Issuer/ R&T agent electronically, using
NSDL Depository system, about the request for dematerialization. If the Issuer/ R&T
agent finds the certificates in order, it registers NSDL as the holder of the securities (the
investor will be the beneficial owner) and communicates to NSDL the confirmation of
request electronically. On receiving such confirmation, NSDL credits the securities in
the depositories in the depository account of the Investor with the DP.
Features:

Holdings in lonely those securities that are admitted for dematerialization by

NSDL can be dematerialized.

Only those holdings that are registered in the name of the account holder can be
dematerialized.

Names of the holders of the securities should match with the names given for the
demat account.

If the same set of joint holders held securities in different sequence of names,
these joint holders by using Transposition cum Demat facility can
dematerialize the securities in the same account even though share certificates
are in different sequence of names. e.g., If there are two share certificates one in
the name of X first and second Y and another in the name of Y first and X
24

second, then these shares can be dematerialized in the depository account which
is in any name combination of X and Y i.e., either X first and Y second or Y first
and X second. Separate accounts need not be opened to demat each share
certificate. If shares are in the name combinations of X and Y, it cannot be
dematerialized into the account of either X or Y alone.

Check the demat performance of the companies whose shares are to be given for
dematerialization.

Demat request received from client (registered owner) with name not matching
exactly with the name appearing on the certificates merely on account of initials
not being spelt out fully or put after or prior to the surname, can be processed,
provided the signature of the client on the Dematerialization Request Form
(DRF) tallies with the specimen signature available with the Issuers or its R&T
agent.

A client may, in the normal course, receive demat confirmation in about 30 days
from the date of submission of demat request to the DP.

There are special processes for Securities issued by Government of India and
simultaneous transmission and demat.

25

Procedure:

The client (registered owner) will submit a request to the DP in the

Dematerialization Request Form for dematerialization, along with the
certificates of securities to be dematerialized. Before submission, the client has
defaced

the

certificates

by

writing

SURRENDERED

FOR

DEMATERIALISATION.

The DP will verify that the form is duly filled in and the number of certificates,
number of securities and the security type (equity, debenture etc.) are as given in
the DRF. If the form and security count is in order, the DP will issue an
acknowledgement slip duly signed and stamped, to the client.

The DP will scrutinize the form and the certificates. This scrutiny involves the
following.
o Verification of Clients signature on the dematerialization request with
the specimen signature (the signature on the account opening form). If
the signature differs, the DP should endure the identity of the client.
o Compare the names on DRF and certificates with the client account.
o Paid up status.
o Lock-in status.
o Distinctive numbers.

In case the securities are not in order they are returned to the client and
acknowledgement is obtained. The DP will reject the request and return the DRF
and certificates in case.
o A single DRF is used to dematerialize securities of more than one
company.

26

o The certificates are mutilated, or they are defaced in such a way that the
material information is not readable. It may advise the client to send the
certificates to the Issuer/ R&T agent and get new securities issued in lieu
thereof.
o Part of the certificates pertaining to a single DRF is partly paid up; the
DP will reject the request and return and the DRF along with the
certificates. The DP may advise the client to send separate requests for
the fully paid-up and partly paid-up securities.
o Part of the certificates pertaining to single DRF is locked-in, the DP will
reject the request and return the DRF along with the certificates to the
client. The DP may advise the client to send a separate request for the
locked-in certificates. Also, certificates locked-in for different reasons
should not be submitted together with a single DRF.

In case the securities are in order, the details of the request as mentioned in
the form are entered in the DPM (software provided by NSDL to the DP)
and a Dematerialization Request Number (DRN) will be generated by the
system.

The DRN so generated is entered in the space provided for the purpose in the
dematerialization request form.

A person other than the person who entered the data is expected to verify
details recorded for the DRN. The request is then released by the DP which
is forwarded electronically to DM (DM-Depository Module, NSDLs
software system) by DPM.

The DM forwards the request to the Issuer/ R&T agent electronically.

The DP will fill the relevant portion viz., the authorization portion of the
demat request form.
27

The DP will punch the certificates on the company name so that it does not
destroy any material information on the certificate.

The DP will then dispatch the certificates along with the request form and a
covering letter to the Issuer/ R&T agent.

The Issuer/ R&T agent confirms acceptance of the request for

dematerialization in his system DPM (SHR) and the same will be forwarded
to the DM, if the request is found in order.

The DM will electronically authorize the creation of appropriate credit

balance in the clients account.

The DPM will credit the clients account automatically.

The DP must inform the client of the changes in the clients account
following of the request.

The issuer / R&T may reject dematerialization request in some cases. The
issuer or its R&T Agent will send an objection memo to the DP, with or
without DRF and security certificates depending upon the reason for
rejection. The DP/ Investor have to remove reasons for objection 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, if the
client so requires, may generate a new dematerialization request and send the
securities again issuer or its R&T Agent. No fresh request can be generated
for the same securities until the issuer or its R&T Agent has rejected the
earlier request and informed NSDL and the DP about it.

Processing of Demat Requests in Case of Account Holders Name not Matching

Exactly with physical Certificates
Procedure for Transposition cum Demat
28

Procedure for simultaneous Transmission and Demat

Procedure for Dematerialization of Government Securities
Precautions:

Holdings in those securities that have not yet been admitted for
dematerialization by NSDL cannot be dematerialized. List of securities admitted
for dematerialization should be verified before defacing the securities.

Holdings in street name cannot be dematerialized.

The combination of names of holders as printed on the physical certificate

should be identical with the names initiating the dematerialization request.

Separate dematerialization request will have to be filled for locked-in and free
holdings.

Separate dematerialization request will have to be filled for holdings locked-in

for different reasons.

Separate dematerialization request will have to be filled for fully paid up

holdings.

Separate dematerialization request will have to be filled for holdings in the

different ISINS of a company.

29

INTRODUCTION TO DEPOSITORY PARTICIPANT

Depository Participants are one of the important business partner to NSDL. The
relationship between the DPs and NSDL is governed by an agreement made between
the two under the Depositories act. The form of the agreement is specified
In the Bye-Laws of NSDL. Under the Depositories act,1996. a DP is described
as an agent of the depository. The form of the agreement is specified in the Bye-Laws of
NSDL. A DP is an entity who is registered as such with SEBI under the previsions of
the SEBI (Depositories & Participants) Regulations,1996. As per the provisions of
these regulations, an entity can offer depository- related services only after obtaining a
certificate from SEBI as a depository participant. These regulations also define the

ELIGIBILITY CRITERIA FOR REGISTRATION WITH SEBI AS A DP

A Depository Participant (DP) is an agent of the depository through which it
interfaces with the investor. A DP can offer depository services only after it gets proper
registration from SEBI. Banking services can be availed through a branch whereas
depository services can be availed through a DP.

ELIGIBILITY CRITERIA:
As per Regulations 19(A) of SEBI (depositories and participants) Regulations, 1996
following are the categories that are eligible to become DPs:

Public financial institutions

Scheduled banks

State financial corporations

Custodian

Clearing corporation/ clearing house of a stock exchange

30

Stockbrokers

Non-banking financial corporations

Registrar to an issue of share transfer agent

PROCEDURE TO BECOME A DEPOSITORY PARTICIPANT

Entity eligible and desirous of becoming a DP makes an application to NSDL.

NSDL verifies the application for completeness and conformity to the
requirements. NSDL may reject, ask for further information and / or
clarification, or ask to remove the defects in the application for recommendation
to SEBI.

Application is required to furnish details in the prescribed forms and procure

necessary hardware as per specifications issued by NSDL. Applicant is required
to provide the hardware set-up information to NSDL in the prescribed forms.
Applicant establishes electronic connectivity with NSDL.

NSDL forwards the application to SEBI for registration along with its
recommendation.

SEBI reviews the application and if found satisfactory, grants in principle

approval.

The DP pays the registration fees to SEBI within the stipulated period of 15
days. The DP also pays security deposits, insurance charges and other collateral
to NSDL.

SEBI grants certificate of registration to the applicant.

The DP and NSDL sign an agreement in the prescribed format.

NSDL activates the DP module at the applicants (now a DP) premises.

DP begins operations.
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DP- CHARACTERISTICS
The Depositories act,1996 requires that clients cab avail of a depository through
DPs.
This requirement has created a new business entity Depository Participant. DP has to
deal in a business with the following characteristics.

Sensitive and demanding clients.

Intense competition on the price front due to which the profit margins are under
tremendous pressure.

This profit margins require high volume of clients / transactions for operating
the DP services profitable.

High volume of business is error prone unless supported by appropriate systems and
quality of manpower.

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CHAPTER 3
THE COMPANY

33

SHAREKHAN
SSKI,a veteran equities solutions company with over 8 decades of experience in the
Indian stock markets. The SSKI Group comprises of Institutional Broking and
Corporate Finance. The Institutional broking division caters to domestic and foreign
institutional investors, while the Corporate Finance Division focuses on niche areas
such as infrastructure, telecom and media, SSKI has been voted as the Top Domestic
Brokerage House in the research category, by the Euro Money survey and Asia Money
survey.

Share khan is also about focus. Sharekhan does not claim expertise in too many
things. Sharekhan's expertise lies in stocks and that's what he talks about with authority.
So when he says that investing in stocks should not be confused with trading in stocks
or a portfolio-based strategy is better than betting on a single horse, it is something that
is spoken with years of focused learning and experience in the stock markets. And these
beliefs are reflected in everything Share khan does for you!
Share khan India's leading stockbroker is the retail arm of SSKI, An organization with
over eighty years of experience in the stock market. With over 240 share shops in 110
Cities, and India's premier online trading destinations-Www.sharekhan.com, ours
customer enjoy multi-channel access at the stock markets, share khan offer u trade
execution facilities for cash as well as derivatives on the BSE & NSE and most
importantly we bring you investment advice tempered by eighty years of broking
experience Through our portal Sharekhan.com, we've been providing investors a
powerful online trading platform, the latest news, research and other knowledge-based
tools for over 5 years now. We have dedicated terms for fundamental and technical
research so that you get all the information your need to take the right investment
34

decisions. With branches and outlets across the country, our ground network is one of
the biggest in India. We have a talent pool of experienced professionals specially
designated to guide you when you need assistance, which is why investing with us is
bound to be a hassle-free experience for you! Reason why you should choose Share
Khan

EXPERIENCE:
SSKI has more than eight decades of trust and credibility in the Indian stock
market. In the Asia Money Broker's poll held recently, SSKI won the 'India's best
broking house for 2004' award. Ever since it launched share khan as its retail broking
division in February 2000, it has been providing institutional-level research and
broking services to individual investors.

TECHNOLOGY:
With our online trading account you can buy and sell shares in an instant from
any PC with an Internet connection. You will get access to our powerful inline trading
tools that will help you take complete control over your investment in shares.

ACCESSIBILITY:

In addition to our online and phone trading services, we also have a ground network of
240 share shops across 110 cities in India where you can get personalized services.
Knowledge:

35

In a business where the right information at the right time can translate into
direct profit, you get access to wide range of information on our content- rich portal,
Sharekhan.com. You will also get a useful set of knowledge-based tools that will
empower you to take informed decisions.

CONVENIENCE:
You can call our Dial-n-Trade number to get investment and execute your
transaction. We have a dedicated call-centre to provide this service via a toll-free
number from anywhere in India.
CUSTOMER SERVICE:
Our customer service team will assist you for any help that you need relating to
transactions, billing, demat and other queries, our customer service can be contacted via
a toll-free number, email or live chat on sharekhan.com
INVESTMENT ADVICE:
Sharekhan has dedicated research teams for fundamental and technical research.
Our analysts constantly track the pulse of the market and provide timely investment
advice to you in the form of daily research emails, online chat, printed reports on SMS
on your phone
ASHARE KHAN OUTLET OFFERS THE FOLLOWING SERVICES

Online BSE and NSE executions (through BOLT and NEAT terminals)
Free access to investment advice from Share khan's research team
Share khan Value Line (a fortnightly publication with reviews of
recommendations, stocks to watch out for etc
Daily research reports and market review (High Noon, Eagle Eye)
Pre-market Report (Morning Cuppa)
Daily trading calls based on technical analysis
Cool trading products (Daring Derivatives, Trading Ring and Market Strategy)
36

 Personalized advice
Live market information
Depository services: Demat and Remat transactions
Derivatives trading (Futures and Options)
Commodity trading (MCX &NCDEX)
MUTUAL FUNDS
Portfolio and management services Internet-based online trading: Speed Trade, Speed
Trade Plus All you have to do is walk into any of their 588 share shops across 213 cities
in India to get a host of trading related services - Their friendly customer service staff
will also help you with any accounting related queries you may have.
Brief Introduction about the Services at Sharekhan.
GET EVERYTHING YOU NEED AT A SHARKEHAN OUTLET
DEMAT SERVICES:
Dematerialization and trading in the demat mode is the safer and faster
alternative to the physical existence of securities. Demat as a parallel solution
offers freedom from delays, thefts, forgeries, settlement risks and paper work.
This system works through depository participants (DPs) who offer demat
services and the securities are held in the electronic form for the investor directly
by the Depository.
Sharekhan Depository Services offers dematerialization services to individual
and corporate investors. We have a team of professionals and the latest technological
expertise dedicated exclusively to our demat department, apart from a national network
of franchisee, making our services quick, convenient and efficient. At Sharekhan, our
commitment is to provide a complete demat solution which is simple, safe and secure

37

ONLINE SERVICES TO SUIT YOUR NEEDS

With a Sharekhan online trading account, you can buy and sell shares in an
instant! Anytime you like and from anywhere you like!

We were amongst the pioneers of online trading in India and have launched
sharekhan.com in February 2000.Since then, we have been at the forefront in
understanding customer needs, analyzing trends and bringing innovation in our
offerings. We have online trading products that are customized to the habits and
preferences of investors as well as traders.

You can choose the online trading account that suits your trading habits and
preferences - the Classic Account for most investors and Speed trade for active day
traders. Your Classic Account also comes with Dial-n-Trade completely free, which is
an exclusive service for trading shares by using your telephone,

CLASSIC ACCOUNT: This account allows the client to trade through our
website and is suitable for the retail investor. Our online trading website also comes
with Dial-n-Trade service that enables you to buy and sell shares by calling our
dedicated toll free number 1-600-227050.
SPEED TRADE: Speed Trade is a next generation online trading products that brings
the power of your broker's terminal to your PC. It is ideal for active traders who transact
frequently during movements. SPEEDTRADE is an internet-based application available
on a CD, which provides everything a trader needs on one screen, thereby, reducing the
time required to execute a trade.

38

KEYFEATURES OF SPEED TRADE:

Single Screen Trading Terminal

Real - time Streaming Quotes

Live Tic-by-Tic Intra - day Charting
Instant Order / Trade Confirmations in the same window
Hot keys similar to Broker's Terminal
Customized Alerts based on multiple Parameters
Back-up Facility to Place Trading on Direct Phone Lines
FEATURES
Trading a/c with Demat a/c.
Online orders on Phone.
Timely Advice and Research Reports.
Banking gateways with five banks.
(HDFC, CITIBANK, UTI, IDBI, OBC)
Live streaming quotes.
First year free demat a/c.
Freedom from paper work.
Trade from any net enabled PC.
After- hour orders
Mobile Alerts*
Apply IPO'S Online*.

39

RESEARCH- the SCIENCE of INVESTING

Research and in-depth knowledge of markets provide better analysis that
speculations or reactions to rumors. Our teams of dedicated analysts are therefore,
constantly at work to track performance and trends and determine and winners. That's
why all our trading - products have extremely high success rates! Our research products
are tailor-made to suit all your needs.

LONG-TERM INVESTING
Intra-day & short-term trading
High-income yields
Hedging products and lots more

INVESTING IN MUTUALFUNDS THROUGH SHARE KHAN

We're glad to announce that you will now be able to invest in Mutual Funds
through us! We've started this service for a few mutual funds, and in the near future will
be expanding our scope to include a whole lot more. Applying for a mutual fund
through us is open to everybody, regardless of whether you are a Sharekhan customer.
To invest in a fund, all you have to do is download the application form, print it out, fill
it in and send it over to us. We'll do the rest for you

INVESTING IN COMMODITY

You can place your orders through our dealers across all our branch/franchisee
Toll free number 39702090 between 10 - 12 pm till market closes If you require
terminal for MCX/NCDEX or both need RS1 lac as margin money.

40

KEY BENEFITS OF COMMODITIES SHAREKHAN

You are getting 20time expose in MCX &10 time in NCDEX depends on
commodity to open an account We have sms facility where u getting market
information as well as buy/sell call You are also getting yahoo chat, where our
dealer/RM are always help for market information as well as buy/sell call.
PORTFOLIO MANAGEMENT SERVICES
Can you analyze the prices of 1,500 shares every morning? Can you afford to
gamble only on the recommendations from your friends and the information overload
from magazines and financial dailies? And, of course, more importantly, if you happen
to be a High Net worth Individual, do you have the time to judge which advice is
reliable, authentic and has the least chance of failure?
With the Sharekhan Team Managing Your Portfolio, you can be assured that
your investments are in safe hands!
We follow a multi-disciplined approach incorporating quantitative analysis,
fundamental analysis and technical analysis. This multi-pronged approach enables us to
provide risk-controlled returns for you.
Right from choosing the combination of stocks most suitable for you based on your risk
appetite to monitoring their movements and discussing them with you at special events.
This is how we make investing completely hassle-free for you

41

CHAPTER 4
DATA ANALYSIS AND PRESENTATION

42

Account Opening at DP :

Opening a DP Account with Sharekhan

You can open a Depository Participant (DP) Account, either through shakrekhan
branches or through Sharekhan Franchisee centre.

There is no fee for opening DP accounts with Sharekhan. However, deposit

(refundable) will be levied towards services which can be adjusted towards
billing charges.

All investors have to submit their proof of identity and proof of address along with the
prescribed account opening form.
1. I. Prof of Identity : Your signature and photograph must be authenticated by an
existing demat account holder with the same DP or by a bank manager.
Alternatively, you can submit a copy of Passport, Voters Id Card, Driving
Licence or PAN card with photograph.
2. II. Proof of Address : You can submit a copy of Passport, Voters ID Card,
Driving Licence, PAN card with photograph, ration card or bank passbook as
proof of address.
You must remember to take original documents to the DP for verification.
3. III Passport size photograph.
Charges:
Service
A/c. Opening
A/c. Closing
Dematerialisation

SSKI Charges
Remarks
NIL
Rs. 100/Rs.3/- per Certificate or Rs.15/- per Including Courier

Rematerialisation

request whichever is higher

Charges
Rs.25/- per certificate or 0.12% of the
value of the securities requested for
43

Rematerialisation,

whichever

is

Settlement Fee (Buy)

higher.
0.02% or Rs.15/- per transaction On Market Value

Settlement Fee (Sale)

whichever is higher.
0.04% or Rs.15/- per transaction

whichever is higher.
Custody Fee
NIL
Off Market (Buy Inter NIL
DP) From Other DP
Off Market (Buy-Intra-DP) 0.02% or Rs.15/- per

transaction On market Value.

from SSKI
Off Market (Sale)

whichever is higher.
0.04% or Rs.15/- per transaction On market Value

Account Maintaining fee

Pledge Creation

whichever is higher.
Rs.75 per Quarter
0.02% or Rs.15/- per transaction On Market Value

Pledge Closure

whichever is higher.
0.02% or Rs.15/- per transaction On Market Value

Pledge Invocation

whichever is higher.
0.03% or Rs.15/- per transaction On market value

Lend

whichever is higher
Up to 3 months 0.04% and above 3 On market value

Freezing/De-freezing

months 0.06%
of Rs.25/- per request.

account

TYPES OF ACCOUNTS
Account Maintenance
To avail of the various services offered by NSDL an investor/ a broker/ an approved
intermediary (for lending & borrowing) has to open a NSDL depository account with
any of its DPs.
Depository accounts are of three types:

44

 Beneficiary account: An investor who wants to hold securities in dematerialized

(demat) form and receive or deliver securities by inter-account transfers must
have a depository account called beneficiary account with a DP of his choice,

Clearing member account: Member brokers of those stock exchanges which

have established electronic connectivity with NSDL need to open a clearing
member account, with a DP of his choice, to clear and settle, trades in the demat
form. This account is popularly known as Settlement account or "Pool account".
This account is meant only to transfer securities to and receive securities from
the clearing corporation/ house and hence, the member broker does not have any
ownership (beneficiary) rights over the shares held in such an account. Further,
clearing members of stock exchanges permitting Automatic Lending or
Borrowing Mechanism (ALBM) transactions can request for a "clearing
member ALBM" account to participate in ALBM transactions. These additional
CM Accounts maintained for the purpose of ALBM transactions will have to be
necessarily opened with the clearing house of the concerned stock exchange e.g.
a BSE clearing member's "normal clearing member account" could be with a
DP XYZ, but his "clearing member ALBM" account will have to necessarily be
with the clearing house of the BSE.

Intermediary account: Any person choosing to act as an approved

'intermediary' for stock lending and borrowing needs to open an intermediary
account with any DP of his choice. An intermediary account may be opened
with the DP only after the intermediary has obtained registration from the
Securities & Exchange Board of India and with the prior approval of NSDL.
This account is meant only to deposit the securities received from the lender and
lend them to the borrower under stock lending and borrowing scheme. The
45

intermediary does not have any ownership (beneficiary) rights over the shares
held in such an account.
Various services offered by DPs with respect to these accounts are as
follows:
Standing Instruction Facility :
DP enters the advise for the transfer of securities to or from a beneficial owner's
account only on receipt of instructions from the client. The clients need to give delivery
instruction to transfer securities from their account & receipt instruction to get credit
into their account. However, for ease of operation, a facility of standing instruction is
provided to the clients for receiving securities to the credit of their accounts without
any further instruction from them.
Change in Address :
The client can change his address by submitting the changes in writing to the DP along
with proof of identity, proof of new address with original document of new address for
verification and latest transaction statement received from the DP of the client. The
changes conveyed to the DP will be automatically communicated to the companies in
which he is holding shares in dematerialized form.
Bank Account Details :
Details of bank account of the client, including the 9~digit code number of the bank
and branch appearing on the MICR cheques issued by the bank have to given to the DP
at the time of account opening. Companies use this information for printing them on
dividend/interest warrants to prevent its misuse. In case the client wish to change this
bank account details, he can do so by submitting the changes in writing to the DP.
Nomination :
46

A client can make a nomination of his account in favour of any person by filing the
nomination form with his DP. Such nomination is considered to be conclusive evidence
of the account holder'(s) disposition in respect of all the securities in the account for
which the nomination is made.
Transposition cum Demat :
This is a facility whereby securities held jointly can be dematerialized in an account of
same joint holders but having different sequence of names, e.g. securities held in joint
names of X and Y can also be dematerialized in an account opened in the names of Y
and X by submitting an additional form called Transposition Form alongwith.
Dematerialization request from (DRF) to the Dp.
Consolidation of Accounts

Some clients could have opened multiple accounts to dematerialize their shares held in
multiple combinations & sequence of names. However, they may not need so many
accounts after they have dematerialized their securities and may want to bring all their
shareholdings into one or fewer accounts. Using off-market account transfer
instruction\ such consolidation can be done.

47

Closure of Account :
A client can close a depository account by giving an application in the prescribed form.
Incase there is any balance
following

steps are

in

the

account

sought

to

be

closed,

the

necessary.

(a) Re-materialisation of all securities standing to the credit of the account at the time
of making the application for closure; or
(b) Transferring the balance to the credit of another account opened by the same
account holder(s) either with the same participant or with a different participant.
Freezing of Accounts :
Account freezing means suspending any further transaction from the depository account
till the account is de- frozen. A depository account maintained with a DP can be frozen
if the DP receives a Written instruction in prescribed form the client. A frozen account
can be de-frozen or re-activated if the client submits written instruction in prescribed
form to the DP.
Market Transfers
Trading in dematerialized securities is quite similar to trading in physical securities.
The major difference is that at the time of settlement, instead of deli very/receipt of
securities in the physical form, the same is affected through account transfers.
Features:
Delivery of securities to or from a clearing member are called "Market Trades" in the
depository system. A simple way of determining whether a trade is a market trade is
that, either source or target in a transfer instrument is a CM account; such a transfer is a
"Market Trade"

48

Procedure in Case of Market Transfer for Retail Investors:

In the diagram, the selling client and clearing member! have their respective accounts
with DPI and the buying client and clearing mernber2 have their respective accounts
with DP2. DPI, DP2 and the Clearing Corporation/ Clearing House have on line
electronic connectivity with NSDL The following paragraphs, explain the flow of
securities to effect settlement of a market trade:

49

History of NSDL
NSDL is the 1st depository in India which commenced its operations on NOV 8, 1996, it
has been promoted by industrial development Bank of India (IDBI), unit trust of India
(UTI), National stock exchange of India Ltd., Before the establishment the stock
holding corporation of India Ltd. (SHCL) was providing limited depositary services.
SHCIL was promoted by financial institutions i.e.,(IDBI) industrial development Bank
of India, industrial finance corporation of India Ltd.(IFICI) industrial credit &
investment corporation of India Ltd.(ICICI) life insurance corporation (LIC), unit trust
of India (UTI), General insurance corporation (GIC) and IRBI and its subsidiaries etc.
the corporation was established in 1986 and stared to all operators in 1988 especially to
render custodial services and started to all operations in 1988 especially to render
custodial services to all India financial institutions and mutual funds Recently another
depository called central depository of India Ltd (CDIL) in 1999 has also started to
operations. CDIL has been promoted by Mumbai stock exchange and banks including
HDFC, Bank of India & Bank of Baroda.
Promoters / Shareholders

NSDL is promoted by Industrial Development Bank of India Limited (IDBI) - the

largest development bank of India, Unit Trust of India (UTI) - the largest mutual fund in
India and National Stock Exchange of India Limited (NSE) - the largest stock exchange
in India; some of the prominent banks in the country have taken a stake in NSDL.
Promoters

Industrial Development Bank of India Limited

Unit Trust of India

National Stock Exchange of India Limited

50

Other Shareholders

State Bank of India

Oriental Bank of Commerce

Citibank NA

Standard Chartered Bank

HDFC Bank Limited

The Hong Kong and Shanghai Banking Corporation Limited

Deutsche Bank

Dena Bank

Canara Bank

Union Bank of India

Depository System - Business Partners

NSDL carries out its activities through various functionaries called "Business Partners"
who include Depository Participants (DPs), Issuing companies and their Registrars and
Share Transfer Agents, Clearing corporations/ Clearing Houses of Stock Exchanges,
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 software at NSDL and
each business partner's end) is called the "NEST" [National Electronic Settlement &
Transfer system.

51

Depository Participant (DP) :

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

52

Issuing Companies/ their Registrar & Transfer Agents

Securities issued by issuers who have entered into an agreement with NSDL can be
dematerialized in the NSDL
depository. As per this agreement, issuer agrees to verify the certificates submitted for
dematerialization before
they are dematerialised and to maintain electronic connectivity with NSDL. Electronic
connectivity facilitates
dematerialisation, rematerialisation, daily reconciliation and corporate actions.
Clearing Corporation / House:
The clearing corporations/houses of stock exchanges also have to be electronically
linked to the depository in order to facilitate the settlement of the trades done on the
stock exchanges for dematerialised shares. At present, all the major clearing
corporations/houses of stock exchanges are electronically connected to NSDL.
The following stock exchanges have linked up with NSDL to facilitate trading and
settlement of dematerialised securities:
Madras Stock Exchange Ltd. (MSE)
National Stock Exchange of India Ltd. (NSE)
Inter-connected Stock Exchange of India Ltd. (ISE)
OTC Exchange of India (OTCEI)
The Calcutta Stock Exchange Association Ltd. (CSE)
The Delhi Stock Exchange Association Ltd, (DSE)
The Stock Exchange, Mumbai (BSE)
The Stock Exchange, Ahmedabad (ASE)

53

Legal Framework
As a part of its on-going market reforms, the Government of India promulgated the
Depositories Ordinance in September 1995. Based on this ordinance, Securities and
Exchange Board of India (SEBI) notified its Depositories and Participants Regulations
in May 1996. The enactment of the Depositories Act the following August paved the
way for the launch of National Securities Depository Ltd. (NSDL) in November 1996.
The Depositories Act has provided dematerialization route to book entry based transfer
of securities and settlement of securities trade.
In exercise of the rights conferred by the Depositories Act, NSDL framed its Byelaws
and Business Rules. The Bye Laws are approved by SEBI. While the Bye Laws 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."

Functions of NSDL:

The NSDL performs the following functions through depository participants.

1. enables the surrender and with drawl of securities to and fro the depository
(dematerialization and rematerialization)
2. Maintains investor holdings in the electronic form.
3. Effects settlement of securities traded on the exchanges.
4. Carries out settlement of trades not done on the stock exchange (off-market
trades).
5. Transfer of securities.
6. Pledging/ hypothecation of dematerialized securities.

54

7. Electronic credit in public offerings of companies.

8. Receipt of non-cash corporate benefits like bonus, rights and so on in electronic
form.
9. Stock lending and borrowings.

Structure / Design of NSDL

NSDL

CLEARING
CORPORATION

STOCK
EXCHANGE

ISSUER/RT AGENT

CLEARING
MEMBER

TRADING MEMBERS

55

DP

INVESTORS

Dematerialization Process

NSDL

DEPOSITORY
PARTICIPANT

INVESTOR

REGISTAR

Dematerialization takes place through the following steps.

1. The investor surrender defaced certificates along with the dematerialization
request form (FRF) to his DP.
2. The DP intimates the NSDL of the request through the system.
3. The DP submits the certificates along with the DRF to the registrar.
4. The Registrar confirms the dematerialization request from the NSDL.
5. The Registrar validates the request. Updates records and informs the NSDL.
6. The NSDL credit the DPs account and informs the DP.
7. The DP updates the investors account and informs the investor.

56

The entire process of dematerialization takes about 15 days time. However, for
those cases where a very large amount of certificates are submitted from institutions for
dematerialization up-to 30 days are allowed for dematerialization.

Rematerialization Process:

NSDL

REGISTAR

DEPOSITORY
PARTICIPANT

OWNER

The conversion of dematerialization holdings back into physical certificates is called

rematerialization. Rematerialization takes place through the following steps.
1. The beneficial owner submits a rematerialization request form (RRF) to the DP.
2. The DP intimates the NSDL of the request through the system.
3. The DP submits the RRF to the registrar.
4. The NSDL the confirms rematerialization request to the registrar.
5. The registrar updates accounts and prints certificates and inform the NSDL.
6. The NSDL updates accounts and downloads details to the DP.
7. The Registrar dispatches the certificates to the investor.
The entire process of rematerialization takes a Maximum of 30 days.
57

NSDL Benefits
Benefits of Depository System
In the depository system, the ownership and transfer of securities takes place by
electronic book entries. At the outset, this system rids the capital market of the dangers
handling of paper. NSDL provides numerous direct and indirect benefits like :

Elimination of bad deliveries : In the depository environment, once holder investor

are dematerialized, the question of bad delivery does not arise i.e. they held under
object.

Elimination of all risks associated with physical certificates: Dealing securities

have associated security risks of theft of stocks, mutilation of certificates during
movements through and from the registrars, thus exposing to the cost of obtaining
duplicate certificates etc.

No stamps duty: for transfer of any kind of securities in the depository. This waive
to equity shares, debt instruments and units of mutual funds.

Immediate transfer and registration of securities : In the depository once the

securities are credited to the investors account on pay out, he becomes owner of the
securities. There is no further need to send it to the companys re registration.

Faster settlement cycle : The settlement cycle follow rolling settlement on T+2 the
settlement of trades will be on the 2nd working day from the trade day. This faster
turnover of stock and more liquidity with the investor.

Faster disbursement of non cash corporate benefits like rights, bonus etc.,
provides for direct credit of non cash corporate entitlement to an investors thereby
ensuring faster disbursement and avoiding risk of loss of certificates in transfer

58

Reduction in brokerage by many brokers for trading in dematerialized Brokers

provide this benefit to investors as dealing in dematerialized securities red back
office cost of handling paper and also eliminates the risk of being the broker.

Reduction in handling of huge volumes of paper

Periodic status reports to investors on their holdings and transactions, leading

controls.

Elimination of problems related to change of address of investor I change of

address, investors are saved fro undergoing the entire change process each company
or registrar.

Elimination of problems related to transmission of demat shares I

dematerialized holdings, the process of transmission is more convenient as the
formalities for all securities held in a demat account can be completed by documents
to the DP whereas, in case of physical securities the surviving job(s)/legal
heirs/nominee has to correspond independently with each company shares are held.

Elimination of problems related to selling securities on behalf of a natural

guardian is not required to take court approval for selling demat securities of a
minor.

Ease in portfolio monitoring since statement of account gives a consolidated

investments in all instruments.

Safety
There are various checks and measures in the depository system to ensure safety of the
holdings. These include :

A DP can be operational only after registration by SEBI, which is base

recommendation from NSDL and their own independent evaluation. SEBI has
criteria for becoming a DP in the regulations.
59

DPs are allowed to effect any debit and credit to an account only on the bas
instruction from the client.

Every day, there is a system driven mandatory reconciliation between DP and

NSD

All transactions are recorded at NSDL Central System and in the databases main
business partners.

There are periodic inspections into the activities of both DP and R & T agent by
also includes records based on which the debit/credit are effected.

All investors have a right to receive their statement of accounts periodically

from the

Every month NSDL forwards statement of account to a random sample of invent

counter check.

In the depository, the depository holds the investor accounts on trust. Therefore
goes bankrupt the creditors of the DP will have no access to the holdings in the
an clients of the DP. These investors can transfer their holdings to an account
another DP.

The data interchange between NSDL and its business partners is protected by
measures of international standards such as encryption hardware lock. The
measures adopted by NSDL are more then what is prescribed in the SEBI
Regulation

Freeze facility: A depository account holder (beneficiary account) may freeze

lying in the account for as long as the account holder wants it. By freezing the
account holder can prevent unexpected debits or credits or both, creeping into it
submitting freeze instruction to the DP in the prescribed form.

Freeze for debits only

60

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 C programme in

Depository Operations (popularly known as NCFM certification), a been made
compulsory for all DPs to appoint a person qualified in this certification of its
branches. This way, NSDL wants to ensure that each branch of a DP that
investors has atleast one person who has through knowledge about depository
system.

Investor grievance : All grievances of the investors are to be resolved by the

business partner. If they fail to do so, the investor has the right to approach NS
following address : Officer-In-Charge.

Investor Relationship Cell

NSDL

Machine level back-up : The IBM mainframe in which the data is processed
has redundancy built into its configuration. There is a standby central processing
un which processing can be switched over to in case of main system CPU
failure. The RAID implementation, which ensures that a failure of hard disk will
not lead to loss system has spare disk configuration where data is automatically
copied from the upon encountering the first failure (due to RAID
implementation first failure result in loss of data).

Periodic Review : The NSDL hardware, software and communication systems are co
reviewed in order to make them more secure and adequate for the size of business. They
are a part of an ongoing exercise wherein security considerations are given as much imp
operational efficiency.
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SERVICES OF NSDL

Value Added Services

Depository is a facility for holding securities electronically in which securities
transaction processed by book entry. IN addition to the core services of electronic
custody and trade services, NSDL provides special services like pledge, hypothecation
of securities, automatic of securities to clearing corporations, distribution of cash and
non-cash corporate benefit Rights, IPOs etc.), stock lending, demat of NSC/KVP, demat
of warehouse receipts and based services such as SPEED-e and IDEAS.

Special Services
NSDL launched SPEED-e (pronounced as speedy) in September, 2001. Any participant
of NSDL can subscribe to SPEED-e the common infrastructure of NSDL. SPEED-e
enables demat account holders (including Clearing Members) to submit delivery
instructions directly on the Internet through SPEED-e website https://speede.nsdl.com
SPEED-e is available only to those participants who have subscribed to it and the users
sign an agreement with the Participant.

A demat account holder will have the option of accessing SPEED-e either as a
Password users or as a Smart Card User. A clearing Member must be a Smart Card user
to be able to access SPEED-e. Password users can debit their demat accounts only in
favour of specified Pre-Notified clearing Member accounts (upto three), while Smart
Card users can submit instructions in favour of any number of accounts.

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IDeAS
IDeAS (Internet-based Demat Account Statement) is the facility for viewing balances
and transactions in the demat account updated on an online basis with a delay of
maximum 30 minutes. This facility is available to the Users of SPEED-e, Clearing
members who have subscribed to IDeAS and to those clients whose participants are
registered for IDeAS. A demat account holder or a Clearing Member will have the
option to access IDeAS either as a Password or a Smart Card User.

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, dematerialization, rematerialisation, settlement of trades through market
transfers, off market transfers & inter-depository transfers, distribution of non-cash
corporate actions and nomination/transmission.
The depository system, which links the issuers, depository participants (DPs), NSDL
and clearing corporation/clearing house of stock exchanges, facilitates holding of
securities in dematerialized form and effects transfers by means of account transfers.
This system which facilities scrip less trading offers various direct and indirect services
to the market participants.

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TRANSMISSION AND NOMINATION

TRANSMISSION
One of the lesser-known but widely experienced problems of dealing in
securities is with regard to their transmission. The companies act,1956. distinguishes
transmission

of shares from transfer of shares. While transfer of shares relates to

voluntary act of the share holder, transmission is brought about by operation of law.
The word transmission means devolution of title to shares, for example, devolution
by death, by secession, inheritance, bankruptcy, marriage, etc., the person on home the
shares devolve has to prove his entitlement by submitting appropriate documents and
seek transmission. If the securities are held in the depository system, documents have
to be submitted to the D.P.
If the securities are held in physical form, the documents have to be sent to the
company for effecting transmission. If the deceased share holder had holdings in
several company, to effect transmission of securities, the relevant documents must be
sent to each of the companies, along with

the securities. The process of the

transmission through N.S.D.L. is simple as well as quicker because the successor to

the title inter acts only with one entity

i.e., his DP. Transactions can be for sole

holding cases as well as joint holdings.

NOMINATION
Investors holding securities in dematerialized

form have the option of

nominating persons who would be entitled to receive securities outstanding in their

names in the event of their death. Share holders have the option of holding securities
in joint names without nomination or in single name with nomination. Nomination is
requested at the time of opening the depository account itself. Nomination can be made
only by individuals holding beneficiary owner accounts on their own behalf singly are
jointly. Non-individuals including society, trust, body corporate, kartha of hindu
undivided family (HUF), holder of power of attorney cannot nominate. If the account
is held jointly all joint holders will be required to sign the nomination form.
A client can make a nomination of his account in favors of any person by filing
the nomination form with HDFC Bank (DP). Such nomination is considered to be
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conclusive evidence of the account holder(s) disposition in respect of all the securities
in the account for which the nomination is made.
Eligibilities for nomination
Only the individuals holdings beneficiary accounts on their own behalf either
singly or jointly can make nomination. Non-individuals including society, trust, body
corporate, partnership firm, karta of Hindu Undivided Family, holder of
Power of attorney cannot nominate.
Joint Holders Nomination
Nominations are permitted for accounts with joint holders. But, in case of death
of any of the joint holder, the securities will be transmitted to the surviving holder(s).
Only in the event of death of all joint holders, the securities are transmitted to the
nominee.
NRI Nomination
NRI can nominate directly. But the power of attorney holder cannot nominate on
behalf of NRI. NRI can be a nominee subject to the exchange control regulations in
force from time to time.
Minor Nominate
A minor can be a nominate. In such a case, the guardian will sign on behalf of
the nominee and in addition to the name and the photograph of the nominee, the mane,
address and the photograph of the guardian must be
Enclosed.

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SPECIAL SERVICES
Depository is a facility for holdings securities, which enables securities
transactions to be processed by book entry. In addition to the core services of electronic
custody and trade settlement services many special services are also provided.
NSDL provides special services like:

PLEDGE AND HYPOTHECATION

STOCK LENDING AND BORROWING

CORPORATE ACTIONS

PUBLIC ISSUES

DEBT INSTRUMENTS AND GOVERNAMENT SECURITIES

NSC / KVP IN DEMAT FORM

WAREHOUSE RECEIPTS

MARKET PARTICIPANTS AND INVESTORS DATABASE (MAPIN)

TAX INFORMATION NETWORK (TIN)

NSDL has taken the initiative for providing the facility of enabling brokers to
deliver
PLEDGE AND HYPOTHECATION
The depositories act,1996 permits the creation of pledge and hypothecation
against securities.
Securities held in a depository account can be pledged or hypothecated against a loan,
credit, or such other facility availed by the beneficial owner of such securities. For this
purpose, both the parties to the agreement, i.e., the pledgor and pledge must have a
beneficiary account with NSDL. however, both parties need not have this depository
accounts with the same DP.
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HYPOTHECATION
If the lender needs concurrence of the borrower for appropriating securities to
his account, the transaction is called hypothecation.
PROCEDURE FOR PLEDGE/HYPOTHECATION
the pledgor initiates the creation of pledge/ hypothecation through its DP and the
pledge instructs its DP to confirm the creation of the pledge. The pledge/hypothecation
so created can either be closed on repayment of loan or invoked if there is a default.
After the pledgor has repaid the loan to the pledge, the pledgor initiates the clouser of
pledge/hypothecation.through its DP and the pledge instructsits DP to confirmthe
closure of the pledge/hypothecation.if the pledgor defaults in discharging his obligation
under the agreement,the pledge may invoke the pledge/hypothecation.This gas to be
done after taking the necessary steps under the terms of the agreement with the pledgor
and the bye-laws of NSDL and rules and regulation farmed by SEBI.

THE FOLLOWING STEPS ARE INVOLVED IN THE CREATION OF

PLEDGE/HYPOTHICATION
CREATION OF PLEDGE/HYPOTHICATION BY PLEDGOR
A beneficial owner may contract a loan against the scurities owned by him. He
may borrow from a bank or any other person. A pledge transaction needs an
identification which may be an agreement number.
The borrower is called a pledgor and the lender is called pledge.
There can be any number of pledge/hypothecation transactions between the same set of
pledges and pledgors.
Each of these transactions have to be identified separately by an agreement number in
the depository participants module(DPM).

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CREATION OF PLEDGE/HYPOTHECATION BY PLEDGEE

once a pledge/hypothecation request has been created, the details of the
pledge/hypothecation are electronically communicated to DPM of pledgees DP through
DM for confirmation. The pledge/hypothecation request is displayed at DPM of
pledgees DP.
UNILATERAL CLOSURE OF PLEDGE
The facility of unilateral closure of pledge by the pledge has been provided. The
pledge submits an instruction in the prescribed

form to its initiate unilateral of

pledge/hypothecation.
INVOCATION OF HYPOTHICATION
if the borrower fails to discharge his obligations under the agreement of
hypothication or for any other reason,the lender may invoke the hypothecation. He can
then claim the beneficial ownership of the concerned securities after taking the
necessary steps in terms of the hypothecation agreement,bye-laws of NSDL and SEBI
regulations
CORPORATE BENEFITS FOR PLEDGED/HYPOTHECATED SECURITIES
Ownership

of

pledged/hypothecated

securities

remains

with

the

pledgor(borrower) until the pledge is invoked. Hence all corporated benefits-cash and
non-cash-like dividends,bonus,rights,etcwill accrue to the borrower.divinds will be
given to the borrower in the usual manner and bonus shares will be credited to his
account as pledges balances.

Inter-Depository Transfers
Transfer of securities from an account in one depository to an account in another
depository is termed as an inter-depository transfer. This facility is quite similar to the
account transfers within NSDL.

It can be done only for securities that are available for dematerialization on both
the depositories.
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The account in NSDL can be either a clearing account or a beneficiary account

For debiting the clearing account or the beneficial account with NSDL, the form
the Inter-depository delivery instruction is required to be submitted by the
clearing member/benefical owner to its DP.

As both the depositories are connected to each another, the batches to effect inter
depository transfers are presently exchanged on each working day.

Online transfer of inter depository instructions has commenced w.e.f. December

14, 2002. In the online inter depository transfer (OLIDT module, Inter
Depository Transfer instructions for the day will be exchanged online between
the two depositories. Thus, the instructions executed by DPs may get settled at
shorter intervals.

The deadline time for DPs to verify & release inter Depository Transfer delivery
/ receipt instructions is 6 p.m. on weekdays and 2.30 pm on Daturdays.

The Issuer/Registrar & Transfer Agent is informed about the transfer by both the
depositories and it amends its records accordingly.

Government securities cannot be transferred from one depository to another

using this facility.

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CHAPTER 5
CONCLUSIONS

70

FINDINGS

Small investors find the charges of dematerialization (especially for below par
value shares) to be very high. At times, the cost of the shares is less than the
total cost of dematerialization.

Courier charges in case of demat accounts in respect of single family is being

charged separately to each account holder.

DPs charge @ Rs 3 per certificate for dematerialization even in the cases

pertaining to transfer-cum-demat.

Even though DP system is user friendly, many investors do not know about the
procedure of dematerialization due to lack of proper awareness.

Account opening, maintenance & closing charges are too high.

Even if there are no transactions during a particular quarter or no balances are

maintained in the account, DPs charge custody fees.

Minimum transaction charges of Rs.20 is very high in cases where share split
has taken place (as the price of the share comes down)

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Prior information is not provided by DPs to the clients that the balance from
S/B a/c will be deducted directly in case of any penalty levied to the client.

Transaction Statements and Bills do not reach in time to the clients. Further, for
paying the bills client has to go to the DPs office.

Basis of charges is not different for a frequent trader and a pure investor.

Sale and purchase charges are high for small investors.

The investors have the requirement of maintaining minimum balance in the S/B
a/c i.e. RS. 5000 is needed to open a S/B a/c.

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SUGGESTIONS

Incentive scheme for membership should be started.

A regulatory body should be formed, who may in turn formulate minimum

charge structure.

DPs like HDFC Bank must send statements not only to the defaulters but also to
the non-defaulters.

Even for a change in spelling name of an account holder, a new a/c needs to be
opened. This requirement must be abolished.

A/c opening and closing procedures should be simplified.

Facility of signature by either of survivors should be provided in case of joint

holdings, as it is provided in bank accounts.

Periodic meetings and seminars should be held so as to educate the account

holders.

Demat A/c may be opened on the basis of the Bank A/c or on providing some
certificate, instead of asking for further identity proof.

All the procedure of opening a demat account and the demat request for shares
may be completed in a single day.

Transaction statements should be simple & understandable.

When One account holder (single) is having a demat a/c then if he holds shares
jointly with somebody then the shares may be deposited in the single a/c instead
of opening another joint a/c especially when this is the only share.

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LIMITATIONS

Small investors are not attracted by the system.

What are the services offered by depositories that all are not aware by investors.

Most of the speculators not utilize demat account in day to day online trading.
Those are doing their trading through broker pool account.

Depository participants received higher charges from investors for demated

shares.

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CHAPTER 6
BIBLOGRAPHY

75

BIBLIOGRAPHY
ACADEMIC BOOKS

MY KHAN, II Edition 2000 & V Edition 2007,

Indian Financial System, Published by TMH,

I M PANDY, IX Edition 2005, Financial

Management, published by Vikas publishing
house Pvt. Ltd.,

BUSINESS DAILIES

Economic Times
Business Standards
Business Line.

MAGAZINES

Capital Market
Business Today
Business World.

WEB SITES

www.sharekhan.com
www.nsdl.co.in
www.google.com

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