NSDL

Handbook for NSDL Depository Operations Module
Capital Markets and NSDL-Overview

National Securities Depository Limited
PREFACE
In a span of about nine years, investors have switched over to electronic [demat
] settlement and National Securities Depository Limited (NSDL) stands at the cen
tre of this change. In order to provide quality service to the users of deposito
ry, NSDL launched a certification programme in depository operations in May 1999
. This certification is conducted using NCFM infrastructure created by NSE and i
s called "NSDL - Depository Operations Module". The programme is aimed at certif
ying whether an individual has adequate knowledge of depository operations, to b
e able to service investors. Depository Participants are required to appoint at
least one person who has qualified in the certification programme at each of the
ir service centres. This handbook is meant to help the candidates in their prepa
ration for the certification programme. This handbook has been divided into four
volumes for readers' convenience. The first volume gives an overview of the Ind
ian capital market and NSDL depository system. The second volume deals with admi
ssion procedure for different business partners of NSDL, their obligations, prac
tices, systems and procedures to be followed by them and benefits and safety of
depository system. The third volume helps in acquiring a working level understan
ding of certain basic services offered by NSDL like account opening, demateriali
sation, and transfer of securities and related operations. The last volume deals
with special services offered by NSDL like Pledge, Stock Lending and Borrowings
, Corporate Actions, National Savings Certificates / Kisan Vikas Patra (NSC/KVP)
in demat form, Warehouse Receipts, Market Participants and Investor Database (M
APIN) and Tax Information Network (TIN). The procedures explained in the handboo
k are based on the Depositories Act, Securities and Exchange Board of India (Dep
ositories & Participants) Regulations and Byelaws & Business Rules of NSDL. The
book contains illustrations, flow charts and checklists for better understanding
of various concepts and procedures. A sample test paper is given at the end of
the fourth volume to help the candidates appearing for NCFM test form an assessm
ent of their preparedness. A thorough understanding of this handbook will form a
good base for qualifying the certification test. Readers may like to visit NSDL
website www.nsdl.co.in for updates and to know the new procedures introduced or
changes brought about in the existing procedures. A feedback form is given at t
he end of the fourth volume. Readers may give their feedback, which will be of g
reat help in enhancing the value of this Handbook in its subsequent editions.
===xxx===
Index
Volume 1 Chapter 1 Chapter 2 Volume 2 Chapter Chapter Chapter Chapter Chapter Vo
lume 3 Chapter Chapter Chapter Chapter Volume 4 Chapter Chapter Chapter Chapter
Chapter Chapter Chapter Chapter Chapter Sample Test Feedback and Comments
: Overview of Capital Markets : Overview of NSDL
3 4 5 6 7
: : : : :
Business Partners of NSDL NSDL Application Software Service Standards Benefits a
nd Safety NSDL Charge Structure
8 9 10 11
: : : :
Account Opening Transmission and Nomination Dematerialisation Trading and Settle
ment
12 13 14 15 16 17 18 19 20
: : : : : : : : :
Pledge and Hypothecation Stock Lending and Borrowing Corporate Actions Public Is
sues Debt Instruments and Government Securities NSC-KVP in Demat Form Warehouse
Receipts Market Participants and Investors Database (MAPIN) Tax Information Netw
ork (TIN)
CONTENTS Volume 1
Capital Markets and NSDL-Overview
Chapter 1 Chapter 2 Chapter 3 - 7 : The Indian Capital Market – An Overview ....
................................... 1 : Overview of NSDL .......................
................................................... 21 : Volume 2
Chapter 8 - 11 : Volume 3 Chapter 12 - 20 : Volume 4
CHAPTER 1
The Indian Capital Market - An Overview
The function of the financial market is to facilitate the transfer of funds from
surplus sectors (lenders) to deficit sectors (borrowers). Normally, households
have investible funds or savings, which they lend to borrowers in the corporate
and public sectors whose requirement of funds far exceeds their savings. A finan
cial market consists of investors or buyers of securities, borrowers or sellers
of securities, intermediaries and regulatory bodies. Financial market does not r
efer to a physical location. Formal trading rules, relationships and communicati
on networks for originating and trading financial securities link the participan
ts in the market.
Organised money market: Indian financial system consists of money market and cap
ital
market. The money market has two components - the organised and the unorganised.
The organised market is dominated by commercial banks. The other major particip
ants are the Reserve Bank of India, Life Insurance Corporation, General Insuranc
e Corporation, Unit Trust of India, Securities Trading Corporation of India Ltd.
, Discount and Finance House of India, other primary dealers, commercial banks a
nd mutual funds. The core of the money market is the inter-bank call money marke
t whereby short-term money borrowing/lending is effected to manage temporary liq
uidity mismatches. The Reserve Bank of India occupies a strategic position of ma
naging market liquidity through open market operations of government securities,
access to its accommodation, cost (interest rates), availability of credit and
other monetary management tools. Normally, monetary assets of short-term nature,
generally less than one year, are dealt in this market.
Un-organised money market: Despite rapid expansion of the organised money market
through a large network of banking institutions that have extended their reach e
ven to the rural areas, there is still an active unorganised market. It consists
of indigenous bankers and moneylenders. In the unorganised market, there is no
clear demarcation between short-term and long-term finance and even between the
purposes of finance. The unorganised sector continues to provide finance for tra
de as well as personal consumption. The inability of the poor to meet the "credi
tworthiness" requirements of the banking sector make them take recourse to the i
nstitutions that still remain outside the regulatory framework of banking. But t
his market is shrinking.
The Capital market: The capital market consists of primary and secondary markets
. The primary market deals with the issue of new instruments by the corporate se
ctor such as equity shares, preference shares and debt instruments. Central and
State governments, various public sector industrial units (PSUs), statutory and
other authorities such as state electricity boards and port trusts also issue bo
nds/debt instruments.
The Indian Capital Market – An Overview 1
The primary market in which public issue of securities is made through a prospec
tus is a retail market and there is no physical location. Offer for subscription
to securities is made to investing community. The secondary market or stock exc
hange is a market for trading and settlement of securities that have already bee
n issued. The investors holding securities sell securities through registered br
okers/sub-brokers of the stock exchange. Investors who are desirous of buying se
curities purchase securities through registered broker/sub-broker of the stock e
xchange. It may have a physical location like a stock exchange or a trading floo
r. Since 1995, trading in securities is screen-based and Internet-based trading
has also made an appearance in India. The secondary market consists of 22 stock
exchanges. The secondary market provides a trading place for the securities alre
ady issued, to be bought and sold. It also provides liquidity to the initial buy
ers in the primary market to re-offer the securities to any interested buyer at
any price, if mutually accepted. An active secondary market actually promotes th
e growth of the primary market and capital formation because investors in the pr
imary market are assured of a continuous market and they can liquidate their inv
estments.
Capital Market Participants: There are several major players in the primary mark
et.
These include the merchant bankers, mutual funds, financial institutions, foreig
n institutional investors (FIIs) and individual investors. In the secondary mark
et, there are the stock exchanges, stock brokers (who are members of the stock e
xchanges), the mutual funds, financial institutions, foreign institutional inves
tors (FIIs), and individual investors. Registrars and Transfer Agents, Custodian
s and Depositories are capital market intermediaries that provide important infr
astructure services for both primary and secondary markets.
Market Regulation: It is important to ensure smooth working of capital market, a
s it is the
arena for the players associated with the economic growth of the country. Variou
s laws have been passed from time to time to meet this objective. The financial
market in India was highly segmented until the initiation of reforms in 1992-93
on account of a variety of regulations and administered prices including barrier
s to entry. The reform process was initiated with the establishment of Securitie
s and Exchange Board of India (SEBI). The legislative framework before SEBI came
into being consisted of three major Acts governing the capital markets: 1. The
Capital Issues Control Act 1947, which restricted access to the securities marke
t and controlled the pricing of issues.
The Indian Capital Market – An Overview
2
2.
The Companies Act, 1956, which sets out the code of conduct for the corporate se
ctor in relation to issue, allotment and transfer of securities and disclosures
to be made in public issues. The Securities Contracts (Regulation) Act, 1956, SC
(R)A which regulates transactions in securities through control over stock excha
nges. In addition, a number of other Acts, e.g., the Public Debt Act, 1942, the
Income Tax Act, 1961, the Banking Regulation Act, 1949, have substantial bearing
on the working of the securities market.
3.
Capital Issues (Control) Act, 1947
The Act had its origin during the Second World War in 1943 when the objective of
the Government was to pre-empt resources to support the War effort. Companies w
ere required to take the Government's approval for tapping household savings. Th
e Act was retained with some modifications as a means of controlling the raising
of capital by companies and to ensure that national resources were channelled i
nto proper lines, i.e., for desirable purposes to serve goals and priorities of
the government and to protect the interests of investors. Under the Act, any fir
m wishing to issue securities had to obtain approval from the Central Government
, which also determined the amount, type and price of the issue. This Act was re
pealed and replaced by SEBI Act in 1992.
Companies Act, 1956
Companies Act, 1956 is a comprehensive legislation covering all aspects of compa
ny form of business entity from formation to winding-up. This legislation (among
st other aspects) deals with issue, allotment and transfer of securities and var
ious aspects relating to company management. It provides for standards of disclo
sure in public issues of capital, particularly in the fields of company manageme
nt and projects, information about other listed companies under the same managem
ent and management perception of risk factors. It also regulates underwriting, t
he use of premium and discounts on issues, rights and bonus issues, substantial
acquisitions of shares, payment of interest and dividends, supply of annual repo
rt and other information. This legal and regulatory framework contained many wea
knesses. Jurisdiction over the securities market was split among various agencie
s and the relevant provisions were scattered in a number of statutes. This resul
ted in confusion, not only in the minds of the regulated but also among regulato
rs. It also created inefficiency in the enforcement of the regulations. It was t
he Central Government rather than the market that allocated resources from the s
ecurities market to competing issuers and determined the terms of allocation. Th
e allocation was not necessarily based on economic criteria, and as a result the
market was not allocating the resources to the best possible investments, leadi
ng to a sub-optimal use of resources and low allocational
3
efficiency. Informational efficiency was also low because the provisions of the
Companies Act regarding prospectus did not ensure the supply of necessary, adequ
ate and accurate information, sufficient to enable investors to make an informed
decision. The many formalities associated with the issue process under various
regulations kept the cost of issue quite high. Under the SC(R)A, the secondary m
arket was fragmented regionally, with each stock exchange a selfregulating organ
isation following its own policy of listing, trading and settlement. The listing
agreement did not have the force of law, so issuers could get away with violati
ons. The interests of the brokers, who were market players and dominated the gov
erning boards of stock exchanges, took priority over the interest of investors.
The market was narrow and investors did not have an opportunity to have balanced
portfolios. The settlement of trades took a long time, because it required phys
ical movement of securities, and the transfer of securities was very cumbersome
under the Companies Act and SC(R)A Act, thus depriving the investor of liquidity
. Law expressly forbade options and futures. These weaknesses were corrected by
passing SEBI Act and giving overall regulatory jurisdiction on capital market to
SEBI. SEBI framed regulations and guidelines to improve efficiency of the marke
t, enhance transparency, check unfair trade practices and ensure international s
tandards in market practices necessitated by the large entry of foreign financia
l institutions.
Securities Contracts (Regulation) Act, 1956
The previously self-regulated stock exchanges were brought under statutory regul
ation through the passage of the SC(R)A, which provides for direct and indirect
control of virtually all aspects of securities trading and the running of stock
exchanges. This gives the Central Government regulatory jurisdiction over (a) st
ock exchanges, through a process of recognition and continued supervision, (b) c
ontracts in securities, and (c) listing of securities on stock exchanges. As a c
ondition of recognition, a stock exchange complies with conditions prescribed by
Central Government. Organised trading activity in securities in an area takes p
lace on a specified recognised stock exchange. The stock exchanges determine the
ir own listing regulations which have to conform with the minimum listing criter
ia set out in the Rules. The regulatory jurisdiction on stock exchanges was pass
ed over to SEBI on enactment of SEBI Act in 1992 from Central Government by amen
ding SC(R)Act.
Securities and Exchange Board of India
With the objectives of improving market efficiency, enhancing transparency, chec
king unfair trade practices and bringing the Indian market upto international st
andards, a package of reforms consisting of measures to liberalise, regulate and
develop the securities market was introduced during the 1990s. This has changed
corporate securities market beyond recognition in this decade. The practice of
allocation of resources among different competing entities as well as
4
its terms by a central authority was discontinued. The secondary market overcame
the geographical barriers by moving to screen-based trading. Trades enjoy count
erparty guarantee. Physical security certificates have almost disappeared. The s
ettlement period has shortened to two days. The following paragraphs discuss the
principal reform measures undertaken since 1992. A major step in the liberalisa
tion process was the repeal of the Capital Issues (Control) Act, 1947 in May 199
2. With this, Government's control over issue of capital, pricing of the issues,
fixing of premia and rates of interest on debentures, etc., ceased. The office,
which administered the Act, was abolished and the market was allowed to allocat
e resources to competing uses and users. Indian companies were allowed access to
international capital market through issue of American Depository Receipts (ADR
s) and Global Depository Receipts (GDRs). However, to ensure effective regulatio
n of the market, SEBI Act, 1992 was enacted to empower SEBI with statutory power
s for (a) protecting the interests of investors in securities (b) promoting the
development of the securities market and (c) regulating the securities market. I
ts regulatory jurisdiction extends over corporates in the issuance of capital an
d transfer of securities, in addition to all intermediaries and persons associat
ed with securities market. SEBI can specify the matters to be disclosed and the
standards of disclosure required for the protection of investors in respect of i
ssues. It can issue directions to all intermediaries and other persons associate
d with the securities market in the interest of investors or of orderly developm
ent of the securities market; and can conduct inquiries, audits and inspection o
f all concerned and adjudicate offences under the Act. In short, it has been giv
en necessary autonomy and authority to regulate and develop an orderly securitie
s market. There were several statutes regulating different aspects of the securi
ties market and jurisdiction over the securities market was split among various
agencies, whose roles overlapped and which at times worked at cross-purposes. As
a result, there was no coherent policy direction for market participants to fol
low and no single supervisory agency had an overview of the securities business.
Enactment of SEBI Act was the first such attempt towards integrated regulation
of the securities market. SEBI was given full authority and jurisdiction over th
e securities market under the Act, and was given concurrent/delegated powers for
various provisions under the Companies Act and the SC(R)A. The Depositories Act
, 1996 is also administered by SEBI. A high level committee on capital markets h
as been set up to ensure co-ordination among the regulatory agencies in financia
l markets. In the interest of investors, SEBI issued Disclosure and Investor Pro
tection (DIP) Guidelines. Issuers are now required to comply with these Guidelin
es before accessing the market. The guidelines contain a substantial body of req
uirements for issuers/intermediaries. The main
5
objective is to ensure that all concerned observe high standards of integrity an
d fair dealing, comply with all the requirements with due skill, diligence and c
are, and disclose the truth, the whole truth and nothing but the truth. The Guid
elines aim to secure fuller disclosure of relevant information about the issuer
and the nature of the securities to be issued so that investor can take an infor
med decision. For example, issuers are required to disclose any material 'risk f
actors' in their prospectus and the justification for the pricing of the securit
ies has to be given. SEBI has placed a responsibility on the lead managers to gi
ve a due diligence certificate, stating that they have examined the prospectus,
that they find it in order and that it brings out all the facts and does not con
tain anything wrong or misleading. Though the requirement of vetting has now bee
n dispensed with, SEBI has raised standards of disclosures in public issues to e
nhance the level of investor protection.
Improved disclosures by listed companies: The norms for continued disclosure by
listed companies have also improved the availability of timely information. The
information technology helped in easy dissemination of information about listed
companies and market intermediaries. Equity research and analysis and credit rat
ing has improved the quality of information. SEBI has recently started a system
for Electronic Data Information Filing and Retrieval System (EDIFAR) to facilita
te electronic filing of public domain information by companies.
Introduction of derivatives: To assist market participants to manage risks bette
r through hedging, speculation and arbitrage, SC(R)A was amended in 1995 to lift
the ban on options in securities. However, trading in derivatives did not take
off, as there was no suitable legal and regulatory framework to govern these tra
des. Besides, it needed a lot of preparatory work - the underlying cash markets
needed to be strengthened with the assistance of the automation of trading and s
ettlement system; the exchanges developed adequate infrastructure and the inform
ation systems required to implement trading discipline in derivative instruments
. The SC(R)A was amended further in December 1999 to expand the definition of se
curities to include derivatives so that the whole regulatory framework governing
trading of securities could apply to trading of derivatives also. A three-decad
e old ban on forward trading, which had lost its relevance and was hindering int
roduction of derivatives trading, was withdrawn. Derivative trading took off in
June 2000 on two exchanges. Now different types of derivative contracts i.e. ind
ex future, index options, single stock futures and single stock options are avai
lable in the market.
The governing bodies of stock exchanges used to be dominated by brokers, leading
inevitably to conflicts of interest. To discipline brokers and cure typical sto
ck market ills such as price rigging, it was considered necessary for stock exch
anges to have a professionally managed environment. NSE started with the concept
of an independent governing body without any broker
6
representation. It was specified in 1993 that the governing boards of stock exch
anges must have 50% non-broker members, and that on committees handling matters
of discipline, default, etc., brokers would be in the minority. All stock exchan
ges were mandated to appoint a nonbroker executive director who would be account
able to SEBI for implementing the policy directions of the Central Government/ S
EBI. In course of time, the position of the executive director in the management
of stock exchange has been strengthened. Indian securities market is getting in
creasingly integrated with the rest of the world. Flls have been permitted to in
vest in all types of securities, including government securities. Indian compani
es have been permitted to raise resources from abroad through issue of ADRs, GDR
s, American Depository Receipts (ADRs), Global Depository Receipts (GDRs), Fully
Convertible Corporate Bonds (FCCBs), External Commercial Borrowings (ECBs). Res
erve Bank of India has recently allowed the limited two-way fungibility for the
subscribers of these instruments. Indian stock exchanges have been permitted to
set up trading terminals abroad. The trading platform of Indian exchanges can no
w be accessed through the Internet from anywhere in the world. In line with the
global phenomena, Indian capital markets have also moved to rolling settlements
on a T+2 basis where trades are settled on the second day after trading.
National Stock Exchange
The National Stock Exchange commenced its operations in 1994 as a first step in
reforming the securities market through improved technology and introduction of
best practices in management. It started with the concept of an independent gove
rning body without any broker representation thus ensuring that the operators' i
nterests were not allowed to dominate the governance of the exchange. Before the
NSE was set up, trading on the stock exchanges in India used to take place thro
ugh open outcry without use of information technology for immediate matching or
recording of trades. This was time consuming and inefficient. The practice of ph
ysical trading imposed limits on trading volumes as well as, the speed with whic
h new information was incorporated into prices. To obviate this, the NSE introdu
ced screen-based trading system (SBTS) where a member can punch into the compute
r the quantities of shares and the prices at which he wants to transact. The tra
nsaction is executed as soon as the quote punched by a trading member finds a ma
tching sale or buys quote from counterparty. SBTS electronically matches the buy
er and seller in an order-driven system or finds the customer the best price ava
ilable in a quote-driven system, and hence cuts down on time, cost and risk of e
rror as well as on the chances of fraud. SBTS enables distant participants to tr
ade with each other, improving the liquidity of the markets. The high speed with
which trades are executed and the large number of participants who can trade
7
simultaneously allows faster incorporation of price-sensitive information into p
revailing prices. This increases the informational efficiency of markets. With S
BTS, it becomes possible for market participants to see the full market, which h
elps to make the market more transparent, leading to increased investor confiden
ce. The NSE started nation-wide SBTS, which have provided a completely transpare
nt trading mechanism. Regional exchanges lost a lot of business to NSE, forcing
them to introduce SBTS. Today, India can boast that almost 100% trading takes pl
ace through electronic order matching. Prior to the setting up of NSE, trading o
n stock exchanges in India took place without the use of information technology
for immediate matching or recording of trades. The practice of physical trading
imposed limits on trading volumes as well as the speed with which the new inform
ation was incorporated into prices. The unscrupulous operators used this informa
tion asymmetry to manipulate the market. The information asymmetry helped broker
s to perpetrate a manipulative practice known as "gala". Gala is a practice of e
xtracting highest price of the day for "buy" transaction irrespective of the act
ual price at which the purchase was actually done and give lowest price of the d
ay for "sell" transactions irrespective of the price at which sale was made. The
clients did not have any method of verifying the actual price. The electronic a
nd now fully online trading introduced by the NSE has made such manipulation dif
ficult. It has also improved liquidity and made the entire operation more transp
arent and efficient. The NSE has set up a clearing corporation to provide legal
counterparty guarantee to each trade thereby eliminating counterparty risk. The
National Securities Clearing Corporation Ltd. (NSCCL) commenced operations in Ap
ril 1996. Counterparty risk is guaranteed through finetuned risk management syst
ems and an innovative method of on-line position monitoring and automatic disabl
ement. Principle of "novation" is implemented by NSE capital market segment. Und
er this principle, NSCCL is the counterparty for every transaction and, therefor
e, default risk is minimised. To support the assured settlement, a "settlement g
uarantee fund" has been created. A large settlement guarantee fund provides a cu
shion for any residual risk. As a consequence, despite the fact that the daily t
raded volumes on the NSE run into thousands of crores of rupees, credit risk no
longer poses any problem in the marketplace.
Depository System
The erstwhile settlement system on Indian stock exchanges was also inefficient a
nd increased risk, due to the time that elapsed before trades were settled. The
transfer was by physical movement of papers. There had to be a physical delivery
of securities -a process fraught with delays and resultant risks. The second as
pect of the settlement relates to transfer of shares in favour of the purchaser
by the company. The system of transfer of ownership was grossly
8
inefficient as every transfer involves physical movement of paper securities to
the issuer for registration, with the change of ownership being evidenced by an
endorsement on the security certificate. In many cases the process of transfer w
ould take much longer than the two months stipulated in the Companies Act, and a
significant proportion of transactions would end up as bad delivery due to faul
ty compliance of paper work. Theft, forgery, mutilation of certificates and othe
r irregularities were rampant. In addition, the issuer has the right to refuse t
he transfer of a security. All this added to costs and delays in settlement, res
tricted liquidity and made investor grievance redressal time consuming and, at t
imes, intractable. To obviate these problems, the Depositories Act, 1996 was pas
sed. It provides for the establishment of depositories in securities with the ob
jective of ensuring free transferability of securities with speed, accuracy and
security. It does so by (a) making securities of public limited companies freely
transferable, subject to certain exceptions; (b) dematerialising the securities
in the depository mode; and (c) providing for maintenance of ownership records
in a book entry form. In order to streamline both the stages of settlement proce
ss, the Act envisages transfer ownership of securities electronically by book en
try without making the securities move from person to person. The Act has made t
he securities of all public limited companies freely transferable, restricting t
he company's right to use discretion in effecting the transfer of securities, an
d the transfer deed and other procedural requirements under the Companies Act ha
ve been dispensed with. Two depositories, viz., NSDL and CDSL, have come up to p
rovide instantaneous electronic transfer of securities. In any stock exchange, t
rades or transactions have to be settled by either squaring up the carrying forw
ard positions or settling by payment of net cash or net delivery of securities.
This account settlement period, if it is long leads to several price distortions
and allows for market manipulation. It increases the chances of speculation res
ulting in volatility, which hurts the small investors. With the application of I
T in the securities market - screen-based trading and trading through the Intern
et - it has been possible to reduce this settlement period.
Testing and Certification
A critical element of financial sector reforms is the development of a pool of h
uman resources having the skills and expertise to provide quality intermediation
services in each segment of the industry. In order to dispense quality intermed
iation, personnel working in the industry need to (a) follow certain code of con
duct usually achieved through regulations and (b) possess requisite skills and k
nowledge generally acquired through a system of testing and certification. It is
necessary that they have a proper understanding of the business and skills to h
elp it remain competitive. Such testing and certification has assumed added sign
ificance in India as there is no formal education/training on financial markets,
especially in the area of market operations which have undergone a complete tra
nsformation in the recent years. Taking into account
international experience and needs of the financial markets, NSE launched NCFM (
NSE's Certification in Financial Markets). It tests practical knowledge and skil
ls that are required to operate in financial markets, in a very secure and unbia
sed manner, and certifies personnel with a view to improve quality of intermedia
tion. This has gained market acceptability, as there is a realisation that the f
inancial markets are soon going to be the turf of certified professionals due to
regulatory compulsions and/or initiatives of the industry. By imparting compreh
ensive knowledge and skill in the chosen field, NCFM enhances career opportuniti
es for NCFM certified persons and allows market participants and intermediaries
to build their own staff development strategies tailored to their specific needs
.
Capital Market Intermediaries
There are several institutions, which facilitate the smooth functioning of the s
ecurities market. They enable the issuers of securities to interact with the inv
estors in the primary as well as the secondary arena.
Merchant Bankers
Among the important financial intermediaries are the merchant bankers. The servi
ces of merchant bankers have been identified in India with just issue management
. It is quite common to come across reference to merchant banking and financial
services as though they are distinct categories. The services provided by mercha
nt banks depend on their inclination and resources - technical and financial. Me
rchant bankers (Category I) are mandated by SEBI to manage public issues (as lea
d managers) and open offers in take-overs. These two activities have major impli
cations for the integrity of the market. They affect investors' interest and, th
erefore, transparency has to be ensured. These are also areas where compliance c
an be monitored and enforced. Merchant banks are rendering diverse services and
functions. These include organising and extending finance for investment in proj
ects, assistance in financial management, raising Eurodollar loans and issue of
foreign currency bonds. Different merchant bankers specialise in different servi
ces. However, since they are one of the major intermediaries between the issuers
and the investors, their activities are regulated by: (1) SEBI (Merchant Banker
s) Regulations, 1992. (2) Guidelines of SEBI and Ministry of Finance. (3) Compan
ies Act, 1956. (4) Securities Contracts (Regulation) Act, 1956. Merchant banking
activities, especially those covering issue and underwriting of shares and debe
ntures, are regulated by the Merchant Bankers Regulations of Securities and Exch
ange Board of India (SEBI). SEBI has made the quality of manpower as one of the
criteria for renewal
10
of merchant banking registration. These skills should not be concentrated in iss
ue management and underwriting alone. The criteria for authorisation takes into
account several parameters. These include: (a) professional qualification in fin
ance, law or business management, (b) infrastructure like adequate office space,
equipment and manpower, (c) employment of two persons who have the experience t
o conduct the business of merchant bankers, (d) capital adequacy and (e) past tr
ack record, experience, general reputation and fairness in all their transaction
s. SEBI authorises merchant bankers (Category I) for an initial period of three
years, if they have a minimum net worth of Rs. 5 crore. An initial authorisation
fee, an annual fee and renewal fee is collected by SEBI. According to SEBI, all
issues should be managed by at least one authorised merchant banker functioning
as the sole manager or lead manager. The lead manager should not agree to manag
e any issue unless his responsibilities relating to the issue, mainly disclosure
s, allotment and refund, are clearly defined. A statement specifying such respon
sibilities has to be furnished to SEBI. SEBI prescribes the process of due dilig
ence that a merchant banker has to complete before a prospectus is cleared. It a
lso insists on submission of all the documents disclosing the details of account
and the clearances obtained from the ROC and other government agencies for tapp
ing peoples' savings. The responsibilities of lead manager, underwriting obligat
ions, capital adequacy, due diligence certification, etc., are laid down in deta
il by SEBI. The objective is to facilitate the investors to take an informed dec
ision regarding their investments and not expose them to unknown risks.
Credit Rating Agencies
The 1990s saw the emergence of a number of rating agencies in the Indian market.
These agencies appraise the performance of issuers of debt instruments like bon
ds or fixed deposits. The rating of an instrument depends on parameters like bus
iness risk, market position, operating efficiency, adequacy of cash flows, finan
cial risk, financial flexibility, and management and industry environment. The o
bjective and utility of this exercise is two-fold. From the point of view of the
issuer, by assigning a particular grade to an instrument, the rating agencies e
nable the issuer to get the best price. Since all financial markets are based on
the principle of risk/reward, the less risky the profile of the issuer of a deb
t security, the lower the price at which it can be issued. Thus, for the issuer,
a favourable rating can reduce the cost of borrowed capital.
11
From the viewpoint of the investor, the grade assigned by the rating agencies de
pends on the capacity of the issuer to service the debt. It is based on the past
performance as well as an analysis of the expected cash flows of a company, whe
n viewed on the industry parameters and performance of the company. Hence, the i
nvestor can judge for himself whether he wants to place his savings in a "safe"
instrument and get a lower return or he wants to take a risk and get a higher re
turn. The 1990s saw an increase in activity in the primary debt market. Under th
e SEBI guidelines all issuers of debt have to get the instruments rated. They al
so have to prominently display the ratings in all that marketing literature and
advertisements. The rating agencies have thus become an important part of the in
stitutional framework of the Indian securities market.
R&T Agents - Registrars to Issue
R&T Agents form an important link between the investors and issuers in the secur
ities market. A company, whose securities are issued and traded in the market, i
s known as the Issuer. The R&T Agent is appointed by the Issuer to act on its be
half to service the investors in respect of all corporate actions like sending o
ut notices and other communications to the investors as well as despatch of divi
dends and other non-cash benefits. R&T Agents perform an equally important role
in the depository system as well. These are described in detail in the second se
ction of this Workbook.
Stock Brokers
Stockbrokers are the intermediaries who are allowed to trade in securities on th
e exchange of which they are members. They buy and sell on their own behalf as w
ell as on behalf of their clients. Traditionally in India, partnership firms wit
h unlimited liabilities and individually owned firms provided brokerage services
. There were, therefore, restrictions on the amount of funds they could raise by
way of debt. With increasing volumes in trading as well as in the number of sma
ll investors, lack of adequate capitalisation of these firms exposed investors t
o the risks of these firms going bust and the investors would have no recourse t
o recovering their dues. With the legal changes being effected in the membership
rules of stock exchanges as well as in the capital gains structure for stock-br
oking firms, a number of brokerage firms have converted themselves into corporat
e entities. In fact, NSE encouraged the setting up of corporate broking members
and has today only 10% of its members who are not corporate entities.
Custodians
In the earliest phase of capital market reforms, to get over the problems associ
ated with paperbased securities, large holding by institutions and banks were so
ught to be immobilised.
Immobilisation of securities is done by storing or lodging the physical security
certificates with an organisation that acts as a custodian - a securities depos
itory. All subsequent transactions in such immobilised securities take place thr
ough book entries. The actual owners have the right to withdraw the physical sec
urities from the custodial agent whenever required by them. In the case of IPO,
a jumbo certificate is issued in the name of the beneficiary owners based on whi
ch the depository gives credit to the account of beneficiary owners. The Stock H
olding Corporation of India Limited was set up to act as a custodian for securit
ies of a large number of banks and institutions who were mainly in the public se
ctor. Some of the banks and financial institutions also started providing "Custo
dial" services to smaller investors for a fee. With the introduction of demateri
alisation of securities there has been a shift in the role and business operatio
ns of Custodians. But they still remain an important intermediary providing serv
ices to the investors who still hold securities in physical form.
Mutual Funds
Mutual funds are financial intermediaries, which collect the savings of small in
vestors and invest them in a diversified portfolio of securities to minimise ris
k and maximise returns for their participants. Mutual funds have given a major f
illip to the capital market - both primary as well as secondary. The units of mu
tual funds, in turn, are also tradable securities. Their price is determined by
their net asset value (NAV) which is declared periodically. The operations of th
e private mutual funds are regulated by SEBI with regard to their registration,
operations, administration and issue as well as trading. There are various types
of mutual funds, depending on whether they are open ended or close ended and wh
at their end use of funds is. An open-ended fund provides for easy liquidity and
is a perennial fund, as its very name suggests. A closed-ended fund has a stipu
lated maturity period, generally five years. A growth fund has a higher percenta
ge of its corpus invested in equity than in fixed income securities, hence the c
hances of capital appreciation (growth) are higher. In growth funds, the dividen
d accrued, if any, is reinvested in the fund for the capital appreciation of inv
estments made by the investor. An Income fund on the other hand invests a larger
portion of its corpus in fixed income securities in order to pay out a portion
of its earnings to the investor at regular intervals. A balanced fund invests eq
ually in fixed income and equity in order to earn a minimum return to the invest
ors. Some mutual funds are limited to a particular industry; others invest exclu
sively in certain kinds of short-term instruments like money market or governmen
t securities. These are called money market funds or liquid funds. To prevent pr
ocesses like dividend stripping or to ensure that the funds are available to the
managers for a minimum period so that they can be deployed to at least cover th
e administrative costs of the
13
asset management company, mutual funds prescribe an entry load or an exit load f
or the investors. If investors want to withdraw their investments earlier than t
he stipulated period, an exit load is chargeable. To prevent profligacy, SEBI ha
s prescribed the maximum that can be charged to the investors by the fund manage
rs.
Depositories
The depositories are an important intermediaries in the securities market that i
s scrip-less or moving towards such a state. In India, the Depositories Act defi
nes a depository to mean "a company formed and registered under the Companies Ac
t, 1956 and which has been granted a certificate of registration under sub-secti
on (IA) of section 12 of the Securities and Exchange Board of India Act, 1992."
The principal function of a depository is to dematerialise securities and enable
their transactions in book-entry form. Dematerialisation of securities occurs w
hen securities issued in physical form are destroyed and an equivalent number of
securities are credited into the beneficiary owner's account. In a depository s
ystem, the investors stand to gain by way of lower costs and lower risks of thef
t or forgery, etc. They also benefit in terms of efficiency of the process. But
the implementation of the system has to be secure and well governed. All the pla
yers have to be conversant with the rules and regulations as well as with the te
chnology for processing. The intermediaries in this system have to play strictly
by the rules. A depository established under the Depositories Act can provide a
ny service connected with recording of allotment of securities or transfer of ow
nership of securities in the record of a depository. A depository cannot directl
y open accounts and provide services to clients. Any person willing to avail of
the services of the depository can do so by entering into an agreement with the
depository through any of its Depository Participants. The services, functions,
rights and obligations of depositories, with special reference to NSDL are provi
ded in the second section of this Workbook.
Depository Participants
A Depository Participant (DP) is described as an agent of the depository. They a
re the intermediaries between the depository and the investors. The relationship
between the DPs and the depository is governed by an agreement made between the
two under the Depositories Act, 1996. In a strictly legal sense, a DP is an ent
ity who is registered as such with SEBI under the provisions of the SEBI Act. As
per the provisions of this Act, a DP can offer depositoryrelated services only
after obtaining a certificate of registration from SEBI.
SEBI (D&P) Regulations, 1996 prescribe a minimum net worth of Rs. 50 lakh for th
e applicants who are stockbrokers or non-banking finance companies (NBFCs), for
granting a certificate of registration to act as a DP. For R & T Agents a minimu
m net worth of Rs. 10 crore is prescribed in addition to a grant of certificate
of registration by SEBI. If a stockbroker seeks to act as a DP in more than one
depository, he should comply with the specified net worth criterion separately f
or each such depository. If an NBFC seeks to act as a DP on behalf of any other
person, it needs to have a networh of Rs. 50 cr. in addition to the networth spe
cified by any other authority. No minimum net worth criterion has been prescribe
d for other categories of DPs. However, depositories can fix a higher net worth
criterion for their DPs. NSDL stipulates a minimum net worth of Rs. 100 lakh to
be eligible to become a DP as against Rs. 50 lakh prescribed by SEBI (D&P) Regul
ations, except for R & T agents and NBFCs, as mentioned above. The role, functio
ns, responsibilities and business operations of DPs are described in detail in t
he second section of this book.
Instruments
The changes in the regulatory framework of the capital market and fiscal policie
s have also resulted in newer kinds of financial instruments (securities) being
introduced in the market. Also, a lot of financial innovation by companies who a
re now permitted to undertake treasury operations, has resulted in newer kinds o
f instruments - all of which can be traded - being introduced. The variations in
all these instruments depend on the tenure, the nature of security, the interes
t rate, the collateral security offered and the trading features, etc.
Debentures
These are issued by companies and regulated under the SEBI guidelines of June 11
, 1992. These are issued under a prospectus, which has to be approved by SEBI li
ke in the case of equity issues. The rights of investors as debenture holders ar
e governed by the Companies Act, which prohibits the issue of debentures with vo
ting rights. There are a large variety of debentures that is available. This inc
ludes: • Participating debentures • Convertible debentures with options • Third
party convertible debentures • Debt/equity swaps • Zero coupon convertible notes
• Secured premium notes • Zero interest fully convertible debentures
15
• •
Fully convertible debentures with interest Partly convertible debentures.
Bonds
Indian Development Financial Institutions (DFIs) in India, like IDBI, ICICI and
IFCI have been raising capital for their operations by issuing bonds. These too
are available in a large variety. These include: • Income bonds • Tax-free bonds
• Capital gains bonds • Deep discount bonds • Infrastructure bonds • Retirement
bonds In addition to the interest rates and maturity profiles of these instrume
nts, the issuer institutions have been including a put/call option on especially
the very long-dated bonds like deep discount bonds. Since the tenures of some o
f these instruments spanned some 20 or 25 years during which the interest rate r
egimes may undergo a complete change, the issuers have kept the flexibility to r
etire the costly debt. This they do by exercising their option to redeem the sec
urities at pre-determined periods like at the end of five or seven years. This h
as been witnessed in number of instruments recently much to the chagrin of inves
tors who were looking for secure and hassle-free long-dated instruments.
Preference Shares
As the name suggests, owners of preference shares enjoy a preferential treatment
with regard to corporate actions like dividend. They also have a higher right o
f repayment in case of winding up of a company. Preference shares have different
features and are accordingly available as: • Cumulative and non-cumulative • Pa
rticipating • Cumulative & Redeemable fully convertible to preference shares • C
umulative & Redeemable fully convertible to equity shares • Preference shares wi
th warrants • Preference shares
Equity Shares
As the name indicates, these represent the proportionate ownership of the compan
y. This right is expressed in the form of participation in the profits of the co
mpany. There has been some
16
innovation in the way these instruments are issued. Some hybrid securities like
equity shares with detachable warrants are also available.
Government Securities
The Central Government or State Governments issue securities periodically for th
e purpose of raising loans from the public. There are two types of Government Se
curities - Dated Securities and Treasury Bills. Dated Securities have a maturity
period of more than one year. Treasury Bills have a maturity period of less tha
n or up to one year. The Public Debt Office (PDO) of the Reserve Bank of India p
erforms all functions with regard to the issue management, settlement of trade,
distribution of interest and redemption. Although only corporate and institution
al investors subscribe to government securities, individual investors are also p
ermitted to subscribe to these securities. An investor in government securities
has the option to have securities issued either in physical form or in book-entr
y form (commonly known as Subsidiary General Ledger [SGL] form). There are two t
ypes of SGL facilities, viz., SGL-1 and SGL-2. In the SGL-1 facility, the accoun
t is opened with the RBI directly. There are several restrictions on opening SGL
-1 accounts and only entities, which fulfill all the eligibility criteria are pe
rmitted to open SGL-1 account. The RBI has permitted banks, registered primary d
ealers and certain other entities like NSCCL, SHCIL and NSDL to provide SGL faci
lities to subscribers. A subscriber to government securities who opts for SGL se
curities may open an SGL account with RBI or any other approved entity. Investme
nts made by such approved entity on its own account are held in SGL-1 account an
d investments held on account of other clients are held in SGL-2 account.
National Saving Certificates and Kisan Vikas Patra
Considering various benefits of dematerialisation to investors, Department of Po
sts (DoP) in association with National Securities Depository Limited (NSDL) has
introduced the facility of holding National Savings Certificates VIII issue (NSC
) & Kisan Vikas Patra (KVP) in dematerialised form. NSC and KVP can be held by i
ndividuals. Further, joint holders only upto two are allowed. Investors can hold
NSC/KVP in their existing demat account, which would enable the investors to co
nsolidate different types of investments in a single demat account and multiple
investments in these securities will also get reflected in a single account stat
ement. Investors can deal with any post office for effecting change in address,
change in bank account number, change in nominee, etc. On redemption, the invest
or need not go to the post office, his bank account will be credited directly or
he will receive a warrant at his residence.
17
Ware-house Receipts
NSDL has been approached by multi-commodity exchanges to provide depository faci
lity for warehouse receipts. As legal status of warehouse receipts is different
from that of securities, it is necessary for DPs to enter into a separate agreem
ent with persons seeking to open a demat account for the purpose of holding and
dealing in electronic warehouse receipts.
Capital Market Processes
There are various processes that Issuers of securities follow or utilise in orde
r to tap the savers for raising resources. Some of the commonly used processes a
nd methods are described below:
Initial Public Offering (IPO)
Companies, new as well as old, can offer their shares to the investors in the pr
imary market. This kind of tapping the savings is called an IPO or Initial Publi
c Offering. SEBI regulates the way in which companies can make this offering. Co
mpanies can make an IPO if they meet SEBI guidelines in this regard. The size of
the initial issue, the exchange on which it can be listed, the merchant bankers
' responsibilities, the nature and content of the disclosures in the prospectus,
procedures for all these are laid down by SEBI and have to be strictly complied
with. Exemption may be granted by SEBI in certain cases for minimum public offe
r or minimum subscription in the case of certain industry sectors like infrastru
cture or banking. Several changes have also been introduced in recent years in t
he manner in which the IPOs can be marketed. For example, they can now take the
book building route or they can even be marketed through the secondary market by
brokers or DPs. All these changes have been made with the objective of making t
he process more investor friendly by reducing risk, controlling cost, greater tr
ansparency in the pricing mechanism and protecting liquidity in the hands of the
investor. Some of the IPOs have been available for subscription online - where
the bids are made in real time and the information is made available on an insta
ntaneous basis on the screen. It is possible to subscribe for IPO shares in dema
t form through DPs.
Private Placement
Many companies choose to raise capital for their operations through various inte
rmediaries by taking what in marketing terms would be known as the wholesale rou
te. This is called in financial markets as private placement. The retail route o
f approaching the public is expensive as well as time consuming. SEBI has prescr
ibed the eligibility criteria for companies and instruments as well as procedure
s for private placement. However, liquidity for the initial investors in private
ly
18
placed securities is ensured as they can be traded in the secondary market. But
such securities have different rules for listing as well as for trading.
Preferential Offer/Rights Issue
Companies can expand their capital by offering the new shares to their existing
shareholders. Such offers for sale can be made to the existing shareholders by g
iving them a preferential treatment in allocation or the offer can be on a right
s basis, i.e., the existing holders can get by way of their right, allotment of
new shares in certain proportion to their earlier holding. All such offers have
also to be approved by SEBI which has laid out certain criteria for these routes
of tapping the public. These have to be complied with.
Internet Broking
With the Internet becoming ubiquitous, many institutions have set up securities
trading agencies that provide online trading facilities to their clients from th
eir homes. This has been possible since all the players in the securities market
, viz., stockbrokers, stock exchanges, clearing corporations, depositories, DPs,
clearing banks, etc., are linked electronically. Thus, information flows amongs
t them on a real time basis. The trading platform, which was converted from the
trading hall to the computer terminals at the brokers' premises, has now shifted
to the homes of investors. This has introduced a higher degree of transparency
in transactions. The investor knows exactly when and at what rate his order was
processed. It also creates an end-to-end audit trail that makes market manipulat
ion difficult. The availability of securities in demat form has given a further
fillip to this process. However, the emergence of what is known as "day-traders"
has resulted in the business environment of brokers which has changed. Investor
s, who can now trade directly, no longer require their intermediation. Service c
harges have therefore been declining - all of which has been in favour of invest
ors.
Internet Initiatives at NSDL
Securities Position Easy Electronic Dissemination-e (SPEED-e)
In order to extend the benefits of technological progress to investors, NSDL has
launched SPEED-e services. SPEED-e is a internet based facility for clients of
Depository Participants (DPs) that enables the accountholders to submit instruct
ions to their DPs through SPEED-e website on internet. The clients can submit in
structions at a time convenient to them from a place convenient to them using SP
EED-e website of NSDL. The accountholders can also view
the status of their instructions submitted through SPEED-e on the website itself
. SPEED-e is expected to greatly reduce the time and efforts required in process
ing the instructions.
Internet-based Demat Account Statement (IDeAS)
NSDL launched its first Internet-based initiative, SPEED (Securities Position Ea
sy Electronic Dissemination), in February 2000 now called IDeAS (Internet-based
Demat Account Statement). This facility is available on SPEED-e website for view
ing balances and transactions in demat accounts. It is available to the users of
SPEED-e, Clearing Members who have subscribed to IDeAS and to those clients who
se Participants are registered for IDeAS. The information (balances and transact
ions) is updated on an online basis with a delay of maximum 30 minutes.
Securities Trading Information Easy Access and Delivery (STEADY)
Using the infrastructure of SPEED-e, NSDL has developed its third Internet-based
application,
STEADY (Securities Trading Information Easy Access and Delivery), which is a mea
ns of
transmission of trade information electronically across market participants.
STEADY will enable electronic communication between brokers, custodians and fund
managers
in respect of Custodian trades. In order to use the STEADY facility, brokers, cu
stodians and fund managers will have to access STEADY website on Internet with s
mart card, bearing digital signature certificate issued by licensed Certifying A
uthority (CA), approved by NSDL. Further all batches and uploads from brokers /
custodians / fund managers will be digitally signed by the respective users and
will be accepted by STEADY only after successful verification of digital signatu
re. Also all downloads obtained by brokers / custodians / fund managers will bea
r the digital signature of STEADY site.
20
CHAPTER 2
Overview of NSDL
Key features of the depository system in India:
Multi-Depository System: The depository model adopted in India provides for a co
mpetitive multidepository system. There can be various entities providing deposi
tory services. Dematerialisation as against immobilisation: The model adopted in
India provides only for dematerialisation of securities. This is a significant
step in the direction of achieving a completely paper-free securities market. Ma
ny of the developed countries have opted either for immobilisation (e.g. Hongkon
g) or both immobilisation and dematerialisation (e.g. Japan) of securities. Immo
bilisation of securities is done by storing or lodging the physical security cer
tificates with an organisation that acts as a custodian - a securities depositor
y. All subsequent transactions in such immobilised securities take place through
book entries. The actual owners have the right to withdraw the physical securit
ies from the custodial agent whenever required by them. In the case of IPO, a ju
mbo certificate is issued in the name of the beneficiary owners based on which t
he depository gives credit to the account of beneficiary owners. Dematerialisati
on of securities occurs when securities issued in physical form are destroyed an
d an equivalent number of securities are credited into the beneficiary owner's a
ccount. India has adopted dematerialisation route to depository. In a depository
system, the investors stand to gain by way of efficient settlements, lower cost
s and lower risks of theft or forgery, etc. But the implementation of the system
has to be secure and well governed. All the players have to be conversant with
the rules and regulations as well as with the technology for processing. The int
ermediaries in this system have to play strictly by the rules. Depository servic
es through depository participants: The depositories can provide their services
to investors through their agents called depository participants. These agents a
re appointed subject to the conditions prescribed under Securities and Exchange
Board of India (Depositories and Participants) Regulations, 1996 and other appli
cable conditions. Fungibility - In the depository system, the securities demater
ialised are not identified by distinctive numbers or certificate numbers as in t
he 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 s
hares are interchangeable.
Overview of NSDL
21
Registered Owner/ Beneficial Owner - In the depository system, the ownership of
securities dematerialised is bifurcated between Registered Owner and Beneficial
Owner. For the securities dematerialised, NSDL is the Registered Owner in the bo
oks of the issuer; but ownership rights and liabilities rest with Beneficial Own
er. All the rights, duties and liabilities underlying the security are on the be
neficial owner of the security. Free Transferability of shares: Transfer of shar
es held in dematerialised form takes place freely through electronic book-entry
system.
The Depository System
The Depositories Act, 1996, defines a depository to mean "a company formed and r
egistered under the Companies Act, 1956 and which has been granted a certificate
of registration under sub-section (IA) of section 12 of the Securities and Exch
ange Board of India Act, 1992. The principal function of a depository is to dema
terialise securities and enable their transactions in book-entry form. The secur
ities are transferred by debiting the transferor's depository account and credit
ing the transferee's depository account. A depository is very much like a bank i
n many of its operations. We can draw an analogy between the two in order to get
a better understanding of the depository system. (See Fig.1, 2) Figure 1
NSDL - Bank -- An Analogy
BANK BANK
² Holds funds in accounts ² Transfers funds between accounts ² Transfers without
handling cash
NSDL NSDL
² Holds securities in accounts ² Transfers securities between accounts
² Transfers without handling physical securities ² Safekeeping of money ² Safeke
eping of securities
In a bank the medium of exchange is money, whereas a depository deals in securit
ies. 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 funct
ion with securities. Banks can transfer funds from one account to another withou
t handling cash; a depository can do the same with physical securities. Just as
in a bank an 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.
Overview of NSDL
22
Figure 2
NSDL - Bank -- The Difference
BANK BANK
² Either of holders can sign instructions ² Minimum balance to be maintained ² E
ntitled for interest ² Uses balances in accounts ² Nomination is kept confidenti
al
NSDL NSDL
² All joint holders to sign instructions ² No minimum balance required ² Interes
t can be earned only by participating in Stock Lending Scheme ² Does not move ba
lances in account without account holder’s authorisation ² Signature and photogr
aph of nominee to be provided
In case of transactions in a bank account, any one of the joint holders can sign
the instructions (cheques), whereas in the depository, all joint holders are re
quired to sign all the instructions. Minimum funds balance prescribed by the ban
k has to be maintained in the bank account; no minimum balance of securities is
required to be maintained in a depository account. A bank uses the funds held in
a bank account for lending purposes. The securities maintained in a depository
account by an investor can be moved from the account only on basis of a proper a
uthorisation from the account holder. A depository cannot use the client s secur
ity balances. Nomination is kept confidential in case of bank accounts. The phot
ograph and signature of the nominee is required to be affixed on the nomination
form for registering the nomination for a depository account.
Legal Framework
The operations of the depositories are primarily governed by the Depositories Ac
t, 1996, Securities and Exchange Board of India (Depositories & Participants) Re
gulations, 1996, ByeLaws approved by SEBI, and Business Rules framed in accordan
ce with the Regulations and Bye-Laws. The Depositories Act passed by Parliament
received the President s assent on August 10, 1996. It was notified in a Gazette
on August 12 of the same year. The Act enables the setting up of multiple depos
itories in the country. This was to see that there is competition in the service
and there is more than one depository in operation. At present, two depositorie
s are registered with SEBI - The National Securities Depository Limited (NSDL) a
nd Central Depository Services (India) Limited (CDSL). Only a company registered
under the Companies Act, 1956 and sponsored by the specified category of instit
utions can set up a depository in India. Before commencing operations, depositor
ies should obtain a certificate of registration and a certificate of commencemen
t of business from SEBI.
Overview of NSDL
23
The rights and obligations of depositories, depository participants, issuers and
beneficial owners are spelt out clearly in the Depositories Act 1996. As per th
e Act : • Section 4: DP is an agent of the Depository: A DP is an agent of the d
epository, who provides various services of the depository to investors. The DP
has to enter into an agreement with the depository to this effect. Any investor
who would like to avail the services of a depository has to enter into an agreem
ent with any DP of his choice. The DP will then make the depository services ava
ilable to the investor. Section 7: Free Transferability : The securities held by
an investor in the depository are freely transferable from one beneficial owner
to another. Section 8: Option to hold securities in demat form : In the deposit
ory system, every investor subscribing to securities offered by an issuer has an
option to receive the same in physical form or dematerialised form. If an inves
tor opts for receiving the securities in dematerialised form, the issuer intimat
es the depository the details of allotment of security. On receipt of this infor
mation, the depository enters the name of the allottee as the beneficial owner o
f that security in its record. Section 9: Securities held in a depository are fu
ngible : All securities held by the depository are in dematerialised and fungibl
e form. Section 10: Registered Owner and Beneficial Owner : The depository is de
emed to be the registered owner for the purpose of effecting transfer of ownersh
ip of security on behalf of a beneficial owner. But as a registered owner, it do
es not have any voting rights or any other rights in respect of those securities
. The beneficial owner is entitled to all rights and benefits as well as subject
to all liabilities in respect of his securities held in the depository. Section
14: Option to opt out of depository : A beneficial owner may opt out of a depos
itory in respect of any security by requisite intimation to the depository. Sect
ion 16: Depository to indemnify losses : A depository shall indemnify a benefici
al owner, any loss caused due to negligence of the depository or its participant
.
•
•
•
•
•
•
Eligibility Criteria for a Depository – Any of the following may promote a depos
itory:
1. 2. 3. A public financial Institution as defined in section 4A of the Companie
s Act, 1956; A bank included in the Second Schedule to the Reserve Bank of India
Act, 1934; A foreign bank operating in India with the approval of the Reserve B
ank of India;
Overview of NSDL
24
4. 5. 6. 7.
A recognised stock exchange; An institution engaged in providing financial servi
ces where not less than 75% of the equity is held jointly or severally by these
institutions; A custodian of securities approved by Government of India, and A f
oreign financial services institution approved by Government of India.
The promoters of a depository are also known as its sponsors. A depository compa
ny must have a minimum net worth of Rs. 100 crore. The sponsor(s) of the deposit
ory have to hold at least 51% of the equity capital of the depository company. P
articipants of that depository, if any, can hold the balance of the equity capit
al. However, no single participant can hold, at any point of time, more than 5%
of the equity capital. No foreign entity, individually or collectively either as
a sponsor or as a DP, or as a sponsor and DP together, can hold more than 20% o
f the equity capital of the depository.
Registration – As per the provisions of the SEBI Act, a depository can deal in s
ecurities only after obtaining a certificate of registration from SEBI. The spon
sors of the proposed depository should apply to SEBI for a certificate of regist
ration in the prescribed form. On being satisfied with the eligibility parameter
s of a company to act as a depository, SEBI may grant a certificate of registrat
ion subject to certain conditions. Commencement of Business – A depository that
has obtained registration as stated above, can function only if it obtains a cer
tificate of commencement of business from SEBI. A depository must apply for and
obtain a certificate of commencement of business from SEBI within one year from
the date of receiving the certificate of registration from SEBI.
SEBI grants a certificate of commencement of business if it is satisfied that th
e depository has adequate systems and safeguards to prevent manipulation of reco
rds and transactions. SEBI takes into account all matters relevant to the effici
ent and orderly functioning of the depository. It particularly examines whether
: 1. 2. 3. The depository has a net worth of not less than Rs. 100 crore; The By
e-Laws of the depository have been approved by SEBI; The automatic data processi
ng systems of the depository have been protected against unauthorised access, al
teration, destruction, disclosure or dissemination of records and data; The netw
ork, through which continuous electronic means of communication are established
between the depository, participants, issuers and issuers agents, is secure aga
inst unauthorised entry or access;
4.
Overview of NSDL
25
5.
The depository has established standard transmission and encryption formats for
electronic communication of data between the depository, participants, issuers a
nd issuers agents; The physical or electronic access to the premises, facilitie
s, automatic data processing systems, data storage sites and facilities includin
g back-up sites, and to the electronic data communication network connecting the
DPs, issuers and issuers agents is controlled, monitored and recorded; The dep
ository has a detailed operational manual explaining all aspects of its function
ing, including the interface and method of transmission of information between t
he depository, issuers, issuers agents, DPs and beneficial owners; The deposito
ry has established adequate procedures and facilities to ensure that its records
are protected against loss or destruction and arrangements have been made for m
aintaining back-up facilities at a location different from that of the depositor
y; The depository has made adequate arrangements including insurance for indemni
fying the beneficial owners for any loss that may be caused to such beneficial o
wners by the wrongful act, negligence or default of the depository or its partic
ipants or of any employee of the depository or participant; and
6.
7.
8.
9.
10. The granting of certificate of commencement of business is in the interest o
f investors in securities market.
Agreement between Depository and Issuers – If either the issuer (a company which
has issued securities) or the investor opts to hold his securities in a demat f
orm, the issuer enters into an agreement with the depository to enable the inves
tors to dematerialise their securities.
No such agreement is necessary where : i. ii. Depository, is the issuer of secur
ities, or; The State or Central Government is the issuer of government securitie
s.
Where the issuer has appointed a registrar to the issue or share transfer, the d
epository enters into a tripartite agreement with the Issuer and Registrar & Tra
nsfer (R&T) Agent, as the case may be, for the securities declared eligible for
dematerialisation. At present, NSDL is discharging the responsibility of R&T Age
nt for the securities issued by State and Central Governments.
Rights and Obligations of Depositories – Depositories have the rights and obliga
tions conferred upon them under the Depositories Act, the regulations made under
the Depositories Act, Bye-Laws approved by SEBI, and the agreements made with t
he participants, issuers and their R&T agents.
Overview of NSDL
26
Every depository must have adequate mechanisms for reviewing, monitoring and eva
luating the depository s controls, systems, procedures and safeguards. It should
conduct an annual inspection of these procedures and forward a copy of the insp
ection report to SEBI. The depository is also required to ensure that the integr
ity of the automatic data processing systems is maintained at all times and take
all precautions necessary to ensure that the records are not lost, destroyed or
tampered with. In the event of loss or destruction, sufficient back up of recor
ds should be available at a different place. Adequate measures should be taken,
including insurance, to protect the interests of the beneficial owners against a
ny risks. Every depository is required to extend all such co-operation to the be
neficial owners, issuers, issuers agents, custodians of securities, other depos
itories and clearing organisations, as is necessary for the effective, prompt an
d accurate clearance and settlement of securities transactions and conduct of bu
siness. The depository should indemnify beneficial owners of securities for any
loss caused to them due to the negligence of the DP. However, where the loss is
caused due to the negligence of a DP, the depository shall have the right to rec
over it from such DPs.
Bye-Laws – A depository is required to make Bye-Laws governing its operations. T
he ByeLaws have to be in conformity with the Depositories Act and the regulation
s made thereunder, and need to be approved by SEBI before becoming effective. Re
cords to be maintained by Depository – Every depository is required to maintain
the following records and documents. These have to be preserved for a minimum pe
riod of five years.
1. 2. 3. 4. 5. 6. 7. 8. 9. Records of securities dematerialised and rematerialis
ed. The names of the transferor, transferee, and the dates of transfer of securi
ties. A register and an index of beneficial owners. Details of the holdings of t
he securities of beneficial owners as at the end of each day. Records of instruc
tions received from, and sent to, participants, issuers, issuers agents and ben
eficial owners. Records of approval, notice, entry and cancellation of pledge or
hypothecation. Details of participants. Details of securities declared to be el
igible for dematerialisation in the depository. Such other records as may be spe
cified by SEBI for carrying on the activities as a depository.
Overview of NSDL
27
Services of Depository – A depository established under the Depositories Act can
provide
any service connected with recording of allotment of securities or transfer of o
wnership of securities in the record of a depository. Any person willing to avai
l the services of the depository can do so by entering into an agreement with th
e depository through any of its participants. A depository can provide depositor
y services only through a DP. A depository cannot directly open accounts and pro
vide services to clients. Every depository in its Bye-Laws must state which secu
rities are eligible for demat holding. Generally, the following securities are e
ligible for dematerialisation: (a) Shares, scrips, stocks, bonds, debentures, de
benture stock or other marketable securities of a like nature in or of any incor
porated company or other body corporate. (b) Units of mutual funds, rights under
collective investment schemes and venture capital funds, commercial paper, cert
ificates of deposit, securitised debt, money market instruments, government secu
rities, national saving certificates, kisan vikas patra and unlisted securities.
(c) Securities admitted to NSDL depository are notified to all DPs through circ
ulars sent by email. Investors are informed about these securities through NSDL
s Website www.nsdl.co.in and NEST Update - a monthly newsletter of NSDL.
Functions of Depository
Dematerialisation: One of the primary functions of depository is to eliminate or
minimise the
movement of physical securities in the market. This is achieved through demateri
alisation of securities. Dematerialisation is the process of converting securiti
es held in physical form into holdings in book entry form.
Account Transfer: The depository gives effects to all transfers resulting from t
he settlement of
trades and other transactions between various beneficial owners by recording ent
ries in the accounts of such beneficial owners.
Transfer and Registration: A transfer is the legal change of ownership of a secu
rity in the
records of the issuer. For effecting a transfer, certain legal steps have to be
taken like endorsement, execution of a transfer instrument and payment of stamp
duty. The depository accelerates the transfer process by registering the ownersh
ip of shares in the name of the depository. Under a depository system, transfer
of security occurs merely by passing book entries in the records of the deposito
ries, on the instructions of the beneficial owners.
Overview of NSDL
28
Corporate Actions: A depository may handle corporate actions in two ways. In the
first case,
it merely provides information to the issuer about the persons entitled to recei
ve corporate benefits. In the other case, depository itself takes the responsibi
lity of distribution of corporate benefits.
Pledge and Hypothecation: The securities held with NSDL may be used as collatera
l to secure loans and other credits by the clients. In a manual environment, bor
rowers are required to deliver pledged securities in physical form to the lender
or its custodian. These securities are verified for authenticity and often need
to be transferred in the name of lender. This has a time and money cost by way
of transfer fees or stamp duty. If the borrower wants to substitute the pledged
securities, these steps have to be repeated. Use of depository services for pled
ging/ hypothecating the securities makes the process very simple and cost effect
ive. The securities pledged/hypothecated are transferred to a segregated or coll
ateral account through book entries in the records of the depository. Linkages w
ith Clearing System: Whether it is a separate clearing corporation attached to a
stock exchange or a clearing house (department) of a stock exchange, the cleari
ng system performs the functions of ascertaining the pay-in (sell) or pay-out (b
uy) of brokers who have traded on the stock exchange. Actual delivery of securit
ies to the clearing system from the selling brokers and delivery of securities f
rom the clearing system to the buying broker is done by the depository. To achie
ve this, depositories and the clearing system should be electronically linked.
Having understood the depository system, let us now look at the organisation and
functions of National Securities Depository Limited (NSDL).
National Securities Depository Limited is the first depository to be set-up in I
ndia. It was incorporated on December 12, 1995. The Industrial Development Bank
of India (IDBI) - the largest development bank in India, Unit Trust of India (UT
I) - the largest Indian mutual fund and the National Stock Exchange (NSE) - the
largest stock exchange in India, sponsored the setting up of NSDL and subscribed
to the initial capital. NSDL commenced operations on November 8, 1996.
Ownership
NSDL is a public limited company incorporated under the Companies Act, 1956. NSD
L had a paidup equity capital of Rs. 105 crore. The paid up capital has been red
uced 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.
Overview of NSDL
29
The following organisations are shareholders of NSDL as on March 31, 2005:1 1. 2
. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. Industrial Development Bank of India Administ
rator of the Specified Undertaking of the Unit Trust of India - DRF National Sto
ck Exchange State Bank of India Oriental Bank of Commerce Citibank N.A. Standard
Chartered Bank HDFC Bank Limited The Hongkong and Shanghai Banking Corporation
Limited Deutsche Bank A.G. Dena Bank Canara Bank
Management of NSDL
NSDL is a public limited company managed by a professional Board of Directors. T
he day-today operations are conducted by the Chairman & Managing Director (CMD).
To assist the CMD in his functions, the Board appoints an Executive Committee (
EC) of not more than 15 members. The eligibility criteria and period of nominati
on, etc. are governed by the Bye-Laws of NSDL in this regard.
Bye-Laws of NSDL
2
Bye-Laws of National Securities Depository Limited have been framed under powers
conferred under section 26 of the Depositories Act, 1996 and approved by Securi
ties and Exchange Board of India. The Bye-Laws contain fourteen chapters and per
tain to the areas listed below : 1. 2. 3. 4. 5. 6. 7. Short title and commenceme
nt Definitions Board of Directors Executive Committee Business Rules Participant
s Safeguards to protect interest of clients and participants
1 2
See www.nsdl.co.in for latest information. The complete text of the bye-laws is
available on the NSDL Website - www.nsdl.co.in.
Overview of NSDL
30
8. 9.
Securities Accounts/transactions by book entry
10. Reconciliation, accounts and audit 11. Disciplinary action 12. Appeals 13. C
onciliation 14. Arbitration Amendments to NSDL Bye-Laws require the approval of
the Board of Directors of NSDL and SEBI.
Business Rules of NSDL
Amendments to NSDL Business Rules require the approval of NSDL Executive Committ
ee and filing of the same with SEBI at least a day before the effective date for
the amendments.
Functions
NSDL performs the following functions through depository participants : Enables
the surrender and withdrawal of securities to and from the depository (demateria
lisation and rematerialisation). Maintains investor holdings in the electronic f
orm. Effects settlement of securities traded on the exchanges. Carries out settl
ement of trades not done on the stock exchange (off-market trades). Transfer of
securities. Pledging/hypothecation of dematerialised securities. Electronic cred
it in public offerings of companies or corporate actions. Receipt of non-cash co
rporate benefits like bonus rights, etc. in electronic form. Stock Lending and B
orrowing.
Services Offered by NSDL
NSDL offers a host of services to the investors through its network of DPs: Main
tenance of beneficiary holdings through DPs Dematerialisation Off-market Trades
Settlement in dematerialised securities
Overview of NSDL
31
Receipt of allotment in the dematerialised form Distribution of corporate benefi
ts Rematerialisation Pledging and hypothecation facilities Freezing/locking of i
nvestor s account Stock lending and borrowing facilities
Fee Structure of NSDL
NSDL charges the DPs and not the investors directly. These charges are fixed. Th
e DPs in turn, are free to charge their clients, i.e., the investors for their s
ervices. Thus, there is a twotier fee structure.
Inspection, Accounting and Internal Audit
NSDL obtains audited financial reports from all its DPs once every year. NSDL al
so carries out periodic visits to the offices of its constituents - R&T agents,
DPs and clearing corporations - to review the operating procedures, systems main
tenance and compliance with the Bye-Laws, Business Rules and SEBI Regulations. A
dditionally, DPs are required to submit to NSDL, internal audit reports every qu
arter. Internal audit has to be conducted by a chartered accountant or a company
secretary in practice. The Board of Directors appoints a Disciplinary Action Co
mmittee (DAC) to deal with any matter relating to DPs clients, Issuers and R&T a
gents. The DAC is empowered to suspend or expel a DP, declare a security as inel
igible on the NSDL system, freeze a DP account and conduct inspection or call fo
r records and issue notices. If a DP is aggrieved by the action of the DAC, it h
as the right to appeal to the EC against the action of the DAC. This has to be d
one within 30 days of the action by DAC. The EC has to hear the appeal within tw
o months from the date of filing the appeal. The EC has the power to stay the op
eration of the orders passed by the DAC. The information on all such actions has
to be furnished to SEBI.
Settlement of Disputes
All disputes, differences and claims arising out of any dealings on the NSDL, ir
respective of whether NSDL is a party to it or not, have to be settled under the
Arbitration and Conciliation Act 1996.
Overview of NSDL
32
Technology and Connectivity System View of NSDL Depository System
Figure 4 depicts a system view of the NSDL depository system. Figure 4
Electronic Linkage
ISSUER
Electronic link
NSDL Electronic link
k
Exchange (CC/ CH)
ec El
ni c
lin
on tr
El ec tro
l ic k in
DP
BROKER/ CM INVESTOR
DP
INVESTOR BROKER/ CM

This figure depicts the electronic connectivity of NSDL with its business partne
rs - DPs, Issuer companies/ R&T Agents and Stock Exchanges/Clearing Corporations
. Connectivity between NSDL and business partners can be through V-SAT (Very Sma
ll Aperture Terminal) or leased line. No two business partners have direct linka
ge to each other in the NSDL system. DP has database (account details) of its in
vestor clients. This helps DP to service clients effectively. NSDL also has this
database. Every transaction is recorded in NSDL database as well as DP database
. Both these databases are reconciled on a daily basis.
Account holders (investors) open account with the DPs. The account details, ente
red in a computer system maintained by Depository Participants called DPM, are e
lectronically conveyed to the central system of NSDL called DM. Companies who ha
ve agreed to offer demat facility to
Overview of NSDL
33
their shareholders use a computer system called DPM (SHR) to connect to the NSDL
central system. DPM (SHR) may be installed by the company itself or through its
R&T Agent. This system is used to electronically receive demat requests, confir
m such requests or to receive beneficial owner data (Benpos) from the depository
. Stock exchanges receive pay-in (receiving securities against sales made by bro
kers) or to payout (giving securities to brokers against their purchases) using
a computer system connected to NSDL called DPM (CC). All the computer systems in
stalled by DPs (DPM-DP), companies (DPM-SHRs), and stock exchanges (DPM-CC) are
connected to NSDL central system (DM) through V-SAT (very small aperture termina
l) or leased lines. These are collectively called Business Partner Systems. Any
transaction conducted by any computer system in the NSDL depository system which
is targetted to reach any other computer system first gets recorded in DM and t
hen will reach the target. No two business partners systems can communicate to
each other without passing through the DM.
Maintenance of Accounts at the Central System
The NSDL central system known as DM maintains accounts of all account holders in
the depository system. All the transactions entered at any point in the compute
r system connected to it are first effected in the central system and subsequent
ly at these computers. Thus, the central system of NSDL has the records of all d
etails of every transaction conducted in the depository system.
Distributed Database
Each of the computer systems connected to NSDL system has its own database relat
ing to its clients. This helps in giving prompt and accurate service to the clie
nts. However each of the databases is reconciled with the data at the central sy
stem everyday in order to ensure that the data in the distributed database talli
es with the central database.
Common Software
NSDL develops software required by depository participants, companies, R&T Agent
s and clearing corporations for conducting depository operations. Thus, the comp
uter systems used by all the entities will have common software given by NSDL. H
owever, depending on the business potential, branch networks and any other speci
fic features, DPs may develop software
Overview of NSDL
34
of their own for co-ordination, communication and control and provide service to
their clients. Such exclusive software is called "back office software". DPM sy
stem given by NSDL gives "export and import" facility to take out the transactio
n details to be used by back office software and to feed in transaction details
generated from the back office software.
Connectivity
The computer system used by DPs, companies, R&T Agents and stock exchanges may b
e connected to NSDL central system through V-SAT network or leased line network.
NSDL uses NSE s V-SAT network for the connectivity purposes. Thus, V-SATs used
by NSE brokers can connect to NSDL if the software supplied by NSDL is used. V-S
AT uses satellites for communication purposes. Some business partners may connec
t using leased lines provided by MTNL/ BSNL. V-SAT or leased line connections ar
e called primary connectivity. If primary connectivity fails for any reason, BPs
must have the ability to connect through other means. Such other means are PSTN
lines, ISDN lines, POP lines(normal telephone lines) through which they can dia
l in to the NSDL system and conduct their transactions.
Overview of NSDL
35
Figure 3
NSDL KEY MILESTONES
Sept 1995 Dec 1995 August 1996 Nov 1996 Dec 1996 June 1997 De
ch 1998 April 1998 Nov 1998 Dec 1998 Jan 1999 May 1999 Feb 2000 May 2000 June 20
00 June 2000 July 2001 Sep 2001 April 2002 Nov 2002 Dec 2002 April 2003 Oct 2003
Oct 2003 Nov 2003 Nov 2003 Jan 2004 June 2004 : Drafting of the Depositories Or
dinance : NSDL Incorporation : Depositories Act : NSDL Inauguration : Commenceme
nt of Demat trading at NSE : Total value of demat securities at NSDL crosses US$
1 bn. : Commencement of Demat trading at BSE : Compulsory demat trading for Ins
titutional investors : Total value of demat securities at NSDL crosses US$ 5 bn.
: Demat delivery in physical segment at NSE and BSE : Investor accounts with NS
DL cross 100,000 : Introduction of Demat of Government Securities : Commencement
of compulsory trading for retail investors : NSDL launches NCFM - Depository Op
erations Module : NSDL launches internet based service - SPEED - for CMs : Inves
tor accounts with NSDL cross 2.5 million : Commencement of Demat of Debt Instrum
ents : 98% settlement in demat form : Introduction of T+5 Rolling Settlement and
Uniform Settlement Cycle : NSDL launches SPEED-e : Introduction of T+3 Rolling
Settlement : Launch of STEADY - An STP initiative by NSDL : Investor Accounts cr
oss 5 million : Introduction of T+2 Rolling Settlement : Investor Accounts cross
6 million : Demat of NSC / KVP : Launch of Market Participants and Investors Da
tabase (MAPIN) : Introduction of demat of Warehouse Receipts : Launch of IDeAS :
Launch of Tax Information Network (TIN)
===xxx===
Overview of NSDL 36
Salient points of the NSDL-Depository Operations Module
1. 2. 3. 4. 5. 6. The test is of 75 minutes duration. The total marks for the ex
amination are 100. Each participant should secure a minimum of 60% of the marks
to be eligible to receive the certificate in NSDL - Depository Operations Module
. Thus a participant should secure a minimum of 60 marks out of total 100 to pas
s the test. A participant should secure a minimum of 80% of the marks to be a ce
rtified trainer. Thus a participant should secure a minimum of 80 marks out of t
otal 100 to be certified as a trainer.
LIST OF TEST CENTRES TO APPEAR FOR NCFM EXAMINATION
TEST CENTRE CODES 1 TEST CENTRE TELEPHONE AND FAX NUMBERS
National Stock Exchange of India Ltd. ”Exchange Plaza”, Bandra Kurla Complex, Ba
ndra (East), Mumbai-400051 National Stock Exchange of India Ltd. ”Thapar House”,
Western Wing Mezzanine Floor, Janpath Lane 124, Janpath, New Delhi – 110 001 Na
tional Stock Exchange of India Ltd. 1st Floor, Park View Apartments 99, Rash Beh
ari Avenue Kolkata – 700 029 National Stock Exchange of India Ltd. 7th Floor, Ar
ihant Nitco Park 90, Dr.Rashakrishnan Salai Mylapore, Chennai - 600 004 National
Stock Exchange of India Ltd. H No.3-6-322 Mahavir House, IInd Floor Chamber no.
203 & 204 Basheerbagh, Hyderabad : 500029 National Stock Exchange of India Ltd.
406 Sakar II Near Ellis Bridge Ahmedabad – 380 006 Any other place (depending on
demand)
Tel : 022 - 26598252 022 - 26598100 - 114 Fax : 022 - 26598393
2
Tel : 011-23344313-27 Fax : 011-23366658
3
Tel : (033) 24631802-1805, 24631809-1812 (Board Nos) Fax : (033) 24631791, 24631
806 Tel : 044-28475100 Fax : 044-28473633
4
5
Tel : 040-23227084/5 Fax : 040-23227086
6
Tel : 079-26580212 - 13 Fax : 079-26576123
7
Additional information on the NCFM programme can also be obtained at NSE s web-s
ite: www.nse-india.com or by e-mailing at ncfm@nse.co.in.
Business Partners – Systems, Procedures and Practices
CONTENTS Volume 2
Business Partners – Systems, Procedures and Practices
Chapter 1 - 2 Chapter 3 Chapter 4 Chapter 5 Chapter 6 Chapter 7 : Volume 1 : Bus
iness Partners of NSDL .........................................................
..... 1 : NSDL Application Software ............................................
................ 19 : Service Standards ........................................
................................... 30 : Benefits and Safety ...................
..................................................... 35 : NSDL Charge Structure
.................................................................. 42
Chapter 8 - 11 : Volume 3 Chapter 12 - 20 : Volume 4
CHAPTER 3
Business Partners of NSDL
NSDL depository system comprises NSDL and its business partners, i.e., Depositor
y Participants (DPs), Issuers/R&T Agents and Clearing Corporations/ Stock Exchan
ges. This chapter deals with these business partners.
Depository Participants
The relationship between the DPs and NSDL is governed by an agreement made betwe
en 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 provis
ions of the SEBI ( Depositories & Participants) Regulations, 1996. As per the pr
ovisions of these regulations, an entity can offer depository-related services o
nly after obtaining a certificate of registration from SEBI as a depository part
icipant. These regulations also define the eligibility criteria for registration
with SEBI as a depository participant.
Eligibility Criteria
The eligibility criteria are prescribed by the SEBI (Depository & Participants)
Regulations, 1996 and the Bye-Laws of NSDL.
Basic Eligibility – Persons belonging to one of the following categories are eli
gible to become a DP:
1. 2. 3. 4. 5. 6. 7. 8. 9. A public financial institution as defined in section
4A of the Companies Act. A bank included for the time being in the Second Schedu
le to the Reserve Bank of India Act, 1934. A foreign bank operating in India wit
h approval of the Reserve Bank of India. A State Financial Corporation establish
ed under the provisions of section 3 of the State Financial Corporations Act, 19
51. An institution engaged in providing financial services, promoted jointly or
severally by any of the institutions mentioned in the four above-mentioned claus
es. A custodian of securities who has been granted a certificate of registration
by SEBI. A clearing corporation or a clearing house of a stock exchange. A stoc
kbroker who has been granted a certificate of registration by SEBI. A non-bankin
g finance company.
10. An R&T Agent who has been granted a certificate of registration by SEBI.
1
Net Worth – SEBI (Depositories & Participants) Regulations, 1996 prescribe a min
imum net worth of Rs. 50 lakh for the applicants who are stockbrokers or non-ban
king finance companies (NBFCs), for granting a certificate of registration to ac
t as a DP. For R & T Agents a minimum net worth of Rs. 10 crore is prescribed in
addition to a grant of certificate of registration by SEBI. If a stockbroker se
eks to act as a DP in more than one depository, he should comply with the specif
ied net worth criterion separately for each such depository. If an NBFC seeks to
act as a DP on behalf of any other person, it needs to have a networth of Rs. 5
0 crore in addition to the networth specified by any other authority. No minimum
net worth criterion has been prescribed for other categories of DPs. However, d
epositories can fix a higher net worth criterion for their DPs. NSDL stipulates
a minimum net worth of Rs. 100 lakh for all categories to be eligible to become
a DP as against Rs. 50 lakh prescribed by SEBI (D&P) Regulations, 1996, except f
or R & T Agents and NBFCs, as mentioned above.
As per NSDL’s Bye-Laws, an applicant has to submit a net worth certificate certi
fied by a chartered accountant, including the computation of networth. The certi
ficate, based on the audited books of account, should be in the format specified
by NSDL in its Bye-Laws/Business Rules. NSDL has, in its Bye-Laws, provided for
a specific method for calculation of net worth. It is possible that a DP may ha
ve different net worth figures for different depositories. The net worth specifi
ed under Bye-Laws of NSDL has to be maintained by DPs at all times without which
NSDL may suspend or terminate their operations. The minimum net worth for a DP
prescribed under the Bye-Laws of NSDL is Rs. 100 lakh.
Business Restrictions – As per SEBI (Depositories & Participants) Regulations, 1
996 the aggregate value of the securities of the beneficial owners, held in dema
terialised form through a stockbroker DP, cannot be more than 100 times the net
worth of the stockbroker. However, where the stock broker has a minimum net wort
h of Rs. 10 crore, the limits on the aggregate value of the portfolio of securit
ies of the beneficial owners held in dematerialised form in a depository through
him, shall not be applicable. NBFCs, having a net worth of less than Rs. 50 cro
re, may act as DPs only on their own behalf. Only NBFCs having a minimum net wor
th of above Rs. 50 crore, in addition to the net worth specified by any other au
thority, may provide depository related services to other persons also. Applicat
ion for becoming a DP – An entity desirous of becoming a DP of NSDL should make
an application to SEBI. The application, complete in all respects should be subm
itted to NSDL for forwarding to SEBI. NSDL evaluates the application and if it f
inds that the applicant may be admitted as a depository participant, forwards it
to SEBI within 30 days of receiving it, along with its recommendations.
2
The applicant is required to pay SEBI application fees at this stage. NSDL may r
eject the application, if it is found to be incomplete or not as per the given i
nstructions. SEBI may require the applicant or NSDL to furnish additional inform
ation or clarification, appropriate for considering the application. If the appl
ication form is found incomplete, SEBI may also reject the application after giv
ing an opportunity to the applicant for removing the objection(s).
Conditions for Grant of Registration – On being satisfied that the applicant is
eligible and has complied with the conditions stipulated in the SEBI (D&P) Regul
ations, SEBI may grant a registration certificate to the applicant. Before grant
ing a certificate of registration to a DP, SEBI considers, inter alia, whether t
he applicant has adequate infrastructure and systems. It also takes into account
whether it has in place the safeguards and trained staff to carry on activity a
s a DP and the applicant is a fit and proper person. Grant of registration is al
so subject to the condition that the Participant shall redress the grievance of
beneficial owners within thirty days of the date of receipt of the complaint and
keep the depository informed about the number and nature of redressals. Finally
, it examines whether the grant of certificate of registration to such a person
is in the interests of investors in the securities market.
NSDL has prescribed the following additional conditions for admission of DPs to
its system. 1. The applicant should furnish information and details of its busin
ess history for a minimum period of three years. 2. The applicant should not hav
e been convicted in any of the five years immediately preceding the filing of th
e application in any matter involving misappropriation of funds and securities,
theft, embezzlement of funds, fraudulent conversion or forgery. 3. The applicant
should not have been expelled, barred or suspended by SEBI, self-regulatory org
anisation or any recognised stock exchange. However, if three years or more have
elapsed since the punishment, NSDL may, at its discretion, consider such an app
lication. 4. The applicant should have a minimum net worth of rupees one crore (
Rs.100 lakhs). The net worth is to be calculated as per the method of computatio
n prescribed by NSDL. 5. The applicant should furnish details of its Board of Di
rectors/ authorised officials, who will be responsible for acting on behalf of t
he DP. 6. NSDL may conduct entrance examinations and/or interviews, to examine t
he knowledge of the DP (and its staff) related to the operational, functional an
d technical aspects of the depository. NSDL may also make it mandatory for the D
P to appoint a Compliance Officer, who interacts with NSDL on the DP s behalf fo
r compliance with the Bye-Laws and Business Rules and resolving investors/client
s grievances. 7. The applicant should have adequate office space exclusively fo
r depository operations. The applicant should also furnish details of his main o
ffice, including address, fax and phone number(s). NSDL has the sole discretion
to decide whether the applicant has adequate infrastructure facilities at the ti
me of granting admission.
Business Partners of NSDL 3
8.
9. 10
The applicant should make adequate arrangements for conducting effective and saf
e depository operations. These should include security measures, risk containmen
t and insurance requirements, as specified by the depository. For the purpose of
satisfying itself regarding the applicants eligibility, NSDL may carry out an
inspection of their office and facilities. In order to ensure availability of qu
alified personnel in DP service centres, NSDL requires that at least one person
in each DP service centres must be qualified in NCFM (NSE s Certification in Fin
ancial Markets) - Depository Operations Module.
Figure 5
Steps for joining as a DP
Entity eligible and desirous of becoming a DP makes an application to NSDL. NSDL
verifies the application for completeness and confirmity to the requirements. N
SDL may reject, ask for further information and / or clarifications, or ask to r
emove the defects in the application.Þ Upon satisfaction of the requirements, NS
DL grants approval to the application for recommendation to SEBI. Applicant is r
equired to furnish details in the prescribed forms and procure necessary hardwar
e as per specifications issued by NSDL. Applicant is required to provide the har
dware set-up information to NSDL in the prescribed forms. Applicant establishes
electronic connectivity with NSDL. NSDL forwards the application to SEBI for reg
istration alongwith its recommendation. SEBI reviews the application and if foun
d 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 depos
its, insurance charges and other collateral to NSDL. SEBI grants Certificate of
Registration to the applicant. The DP and NSDL sign an agreement in the prescrib
ed format. NSDL activates the DP module at the applicant s (now a DP) premises.
DP begins operations.

Validity and Renewal of Registration Certificate – A certificate of registration
is valid for a period of five years from the date of issue. The SEBI Regulation
s require the Participant to make an application for renewal three months before
expiry date of the validity of the certificate of registration. The application
for renewal should be made through the depository. The fees specified for issue
of certificate of registration should accompany the application. It is dealt wi
th in the same manner as if it were a fresh application for grant of certificate
of registration. SEBI
4
may reject the application for renewal of certificate after citing the reasons f
or refusal in writing. Application for renewal may be submitted to SEBI through
NSDL three months before expiry date of the registration certificate. 1. If the
application for renewal is not received at SEBI by the expiry date of the certif
icate of registration, the intermediary shall: a. b. c. cease to be an intermedi
ary on the date of such expiry, stop carrying on the activities of the intermedi
ary from the date of such expiry, and transfer, wherever relevant, the accounts
/ business of existing clients to another registered intermediary before the dat
e of such expiry.
If the intermediary fails to comply with all of the above, it will be considered
as a violation of section 12 and may attract action under the relevant provisio
ns of SEBI Act, 1992, and/ or the Regulations framed there under. No application
for renewal can be made after the date of expiry of registration. After the exp
iry of registration, the erstwhile intermediary can apply for registration, whic
h will be considered as a fresh application for registration made under the rele
vant Regulations. 2. If the application for renewal is received at SEBI less tha
n 3 months before the expiry of registration and SEBI has not advised otherwise
by the date of expiry of registration, the intermediary shall stop undertaking a
ny fresh business / clients from the date of expiry of the registration. SEBI ma
y initiate any action that may be deemed appropriate for late submission of appl
ication under the provisions of the SEBI Act, 1992 and the regulations framed th
ere under. It is clarified that in the above cases, the application for renewal
shall mean the application is complete in all respects. Incomplete application w
ill be treated as no application. 3. If renewal is not granted by SEBI for whate
ver reason, the intermediary shall: 1. 2. 3. cease to be an intermediary on the
date of expiry of registration or the date of receipt of communication of refusa
l to grant renewal, stop carrying on the activities of the intermediary from the
date as at (a) above, and transfer, wherever required, the accounts / business
of existing clients to another registered intermediary within such period as may
be specified.
If the intermediary fails to comply with all of the above, it will be considered
as violation of section 12 and shall be liable for action under the relevant pr
ovisions of SEBI Act, 1992, and/or the provisions of Rules and Regulations frame
d there under.
5
Commencement – A DP can commence its operations after complying with the prescri
bed procedures of the depository for commencing business operations. NSDL has sp
ecified following pre-requisites for DPs for commencing operations: 1. Apply in
the prescribed form. Furnish all clarifications and additional documents as may
be required by NSDL. 2. NSDL communicates whether or not the application of a DP
is accepted. 3. On receiving the approval an application for connectivity with
NSDL should be made. Primary connectivity can be by way of V-sat or leased line.
Full-scale connectivity by way of PSTN line, dial up lines also has to be arran
ged as a fall back if the primary connectivity fails. 4. Procure the prescribed
hardware and communicate to NSDL the details of the hardware installed. 5. NSDL
will conduct a pilot test to train the staff on the functions of the depository
and to check the systems. The DP has to participate in the pilot test. 6. NSDL c
onducts training programmes for the staff of DPs in its premises. DPs have to ge
t sufficient number of its employees trained by NSDL. 7. NSDL encourages all DPs
to employ staff who have qualified in the Depositories Module of NCFM. NSDL has
made it mandatory for all depository participants to appoint atleast one NCFM q
ualified person at all the branches. 8. NSDL depository system application in li
ve environment is activated in the office of the DP. A DP - ID is issued to the
DP. 9. Now DP can start functioning. Rights and Obligations Agreement with Benef
icial Owners – The DP must enter into an agreement with a beneficial owner befor
e acting as a participant on his behalf. A DP, while conducting any business wit
h a client, acts as an agent of NSDL and is liable to the clients for all the ac
ts and deeds performed by it. The agreement has to be made in the form and manne
r specified by NSDL in its Bye-Laws. A copy of the agreement should be given to
the beneficial owner. Schedule of charges is a part of the agreement. However no
agreement is required in where:
1. A Foreign Institutional Investor registered with SEBI enters into an agreemen
t with the DP either directly or through its power of attorney holders in accord
ance with the provisions of sub-regulation (1) of regulation 16 of SEBI (Foreign
Institutional Investors) Regulations, 1995. Such agreement gives the DP an auth
ority to act on behalf of the foreign institutional investors for availing the s
ervices of the depository and such agreement has already been filed with SEBI. I
nternational Multilateral Agency, who has entered into an agreement with the DP
under
6
2.
Regulation 17 of the SEBI (Custodian of Securities) Regulations 1996, and such a
greement states that the Custodian will also act as a DP and all provisions pert
aining to DP shall be applicable.
Separate Accounts – The DP should open a separate account in the name of each be
neficial owner. The securities of each beneficial owner should be segregated fro
m the securities of other beneficial owners or from the DP s own securities. For
DP s own securities, he should open a separate account called House Account in
the depository system. Client Instructions – Securities should be transferred to
or from a beneficial owner s account only on receipt of instructions from the b
eneficial owner. No entry in the beneficial owner s account should be made unles
s it is supported by instructions received from the beneficial owner as per the
agreement made with him. Transaction Statements – The DP should provide transact
ion statement to the beneficial owner as laid down in the agreement with the ben
eficial owner. NSDL Bye-Laws require each DP to provide a transaction statement
at monthly intervals, or at such lesser interval as may be agreed between the DP
and client. If there is no transaction in the account, the statement should be
provided at least once in a quarter. The Transaction Statement should be dispatc
hed directly to the client s address mentioned in the DPM system of the DP and n
ot through any franchisee / collection centre.
The statement could be provided through Internet/ e-mail, provided an agreement
in the prescribed format has been executed with the clients to this effect and a
dequate security measures have been taken. SEBI permits the DP s to provide tran
saction statements and other documents to the Beneficial Owners (BOs) under Digi
tal Signature, as governed under Information Technology Act, 2000, subject to en
tering into legally enforceable arrangement with the BOs for the said purpose. P
roviding of transaction statements and other documents in the aforesaid manner w
ould be deemed to be in compliance of the provisions of Regulation 43 of SEBI (D
epositories & Participants) Regulations, 1996. However if the BOs are still desi
rous of receiving statements in hard copy, the DPs shall be duty bound to provid
e the same.
Connectivity – The DP should maintain continuous electronic means of communicati
on with NSDL. In case of failure of primary connectivity the DP should connect t
o NSDL by using fall back medium of connectivity. The branch offices of DPs hand
ling more than 5,000 accounts should have either direct electronic connectivity
with the depository or with the office of the DP directly connected to the depos
itory. The primary connectivity can either be V-Sat or leased line while seconda
ry connectivity can be through dial-up line.
7
Monitoring, Reviewing and Evaluating Internal Systems and Controls – The DP shou
ld have an adequate mechanism for the purposes of reviewing, monitoring and eval
uating its internal systems and accounting controls. As per NSDL Bye-Laws, a DP
has to get an internal audit done of the depository operations on a quarterly ba
sis by a practising chartered accountant or company secretary. Reconciliation –
The DP should reconcile its records with NSDL on a daily basis. NSDL system is d
esigned to do this reconciliation automatically every day at the end of the day
(EOD). In case the DP is using any back-office software it needs to reconcile th
e same as per the NSDL DPM. Returns – The DP should submit periodic returns to S
EBI and to every depository in which it is a participant in the format specified
by SEBI or the Bye-Laws of the depository. NSDL requires following returns to b
e submitted by its DPs:
1. A copy of audited financial statements. Each participant shall furnish to the
Depository every year, a copy of its audited financial statement within a perio
d of one month after the balance sheet and profit and loss account have been pla
ced before the company at the Annual General Meeting or within 6 months from the
end of Participant s financial year, whichever is earlier. Net worth certificat
e computed in a manner laid down in the Business Rules, issued by a chartered ac
countant on the basis of annual audited accounts of the DP. If the DP is a clear
ing member of the clearing corporation of any exchange, the details regarding an
y suspension/termination or defaults or any disputes in relation to its dealings
with such clearing corporation within two working days of such an event. Number
of complaints received from clients, their nature, status and manner of redress
al, once every month. 5. Internal audit report once every quarter.
2. 3.
4.
DP to Indemnify Depository – A DP has to indemnify the depository, its officers
and employees for all costs, fees, expenses, liabilities, taxes, actual losses a
nd damages of any nature whatsoever suffered or incurred by any of them for:
1. 2. The failure by the DP to comply with the provision of the Bye-Laws or the
DP agreement or to comply with any directions or procedures of the depository. T
he acts by the depository or its officers and employees placing reliance upon in
structions or communications by the DP. These include giving effect to instructi
ons or communications by any of them or the failure of the DP to give instructio
ns to the depository as contemplated in the Bye-Laws.
8
3.
The acceptance by the depository of eligible securities deposited by the DP and
effecting transactions by the depository according to the Bye-Laws and withdrawa
l of eligible securities by the DP. The failure of the DP to deliver eligible se
curities or to perform other duties or obligations set out in the Bye-Laws.
4.
Prohibition of Assignment – No DP can assign or delegate its functions as a depo
sitory participant to any other person without the prior approval of NSDL. Insur
ance – DPs should take appropriate insurance cover to insure against losses aris
ing from any possible business risk and system failure. However, NSDL takes insu
rance for itself and on behalf of all DPs. The insurance covers business risk an
d system failure risk. DPs may additionally take for themselves insurance to cov
er risks like theft, fire, etc. Record of Services – The DP should maintain and
preserve the records and documents for a minimum period of five years. They shou
ld also make them available for inspection by the depository whenever required.
1. Forms for Opening, Closing, Freezing and Defreezing of accounts given by the
clients. 2. Record of all the dematerialisation and rematerialisation requests r
eceived from the clients. 3. Record of all the delivery/ receipt instructions gi
ven by the clients and Clearing Members. 4. Copies of correspondence received fr
om clients for updation of client details in DPM. 5. Records of all the actions
taken on the exception reports generated by the system. 6. Details of grievances
/arbitration proceedings received from the clients, action taken and status of t
he same. 7. Record of all forms received in respect of Pledge, Securities Lendin
g and Transmission of securities.
If a DP has entered into an agreement with more than one depository, the records
specified above should be maintained separately for each such depository.
DP to Ensure Integrity and Back-up of Data – DPs who maintain electronic records
should ensure the integrity of the data processing systems. All necessary preca
utions should be taken to ensure that the records are not lost, destroyed or tam
pered with. In the event of loss or destruction, sufficient back-up of records s
hould be taken and made available at all times at a different place. In order to
ensure this, NSDL has prescribed the following back-up policy for its DPs : 1.
Business partners have to take back ups every day without fail. 2. Two copies of
back-ups have to be taken; one copy has to be preserved at a remote site away f
rom the operations and another on the site itself.
9
3.
4. 5.
Application software generates transaction logs every 15 minutes and writes on t
o a client machine. DPs should keep the client machine where transaction logs ar
e copied, powered on as long as DPM server is kept on to have a transaction log
written. The back-up tapes should be preserved safely, well protected against fi
re, theft and manipulation. If the DPs have large business volumes, they may ins
tall an additional back-up machine which helps them in continuing the business o
peration even if the main machine fails.
Suspension of Certificate – The certificate of registration granted to a DP may
be suspended by SEBI if it is found that the DP has: 1. contravened any of the p
rovisions of the Depositories Act, the Bye-Laws, agreements and SEBI (D&P) Regul
ations, 1996; 2. failed to furnish any information relating to its activity as a
DP required under the regulations; 3. not furnished the information called for
by SEBI under the provisions of the Depositories Act, 1996 or has furnished info
rmation which is false or misleading; 4. not co-operated in any inspection or in
vestigation or enquiry conducted by SEBI; 5. has failed to comply with any direc
tion of SEBI; or 6. has failed to pay the annual fee as specified under the SEBI
(D&P) Regulations, 1996. Cancellation of Certificate – The certificate of regis
tration granted to a DP may be cancelled by SEBI if it is found that: 1. the DP
is guilty of fraud, or has been convicted of an offence involving moral turpitud
e; or 2. the DP has been guilty of repeated defaults specified for suspension of
the registration. Termination by Depository – Besides these regulatory provisio
ns, each depository may have its own Bye-Laws for termination or suspension of i
ts DPs. NSDL s Bye-Laws provide 15 conditions under which it may terminate the o
perations of a DP. Termination by DP – A DP may also choose to terminate its par
ticipation in the depository by giving a notice of not less than 30 days. On rec
eipt of such notice, the depository may cease to provide any service or act for
the DP. The depository should notify the DP, other participants, clients of the
surrendering DP and SEBI within seven days of this action.
Clearing Corporation/Clearing House (CC/CH)
This term applies to an entity responsible for clearing and settlement of trades
done by clearing members on a recognised stock exchange. A Clearing Corporation
/ Clearing House of a stock exchange is admitted to the depository system for c
learing and settlement of securities traded on their respective stock exchanges.
For electronic settlement of securities in demat form, the
10
concerned CC/CH of the stock exchange needs to have electronic connectivity with
the depository. A Clearing Corporation or a Clearing House of a stock exchange
may be admitted as a user on NSDL subject to its entering into an agreement with
NSDL as laid down in the Bye-Laws of NSDL. A different agreement has to be draw
n up if a clearing house of a stock exchange is not a legal counterparty to the
trades on the exchange and the trade/settlement guarantee fund is held and manag
ed by the exchange. A third type of agreement has to be entered into if the memb
ers/dealers of the exchange are not the clearing members of the Clearing House.
A stock exchange may be admitted as a user on the depository, if it conducts the
activity of clearing and settlement of trades and if it is not a legal counterp
arty to the trades thereon and holds and manages the trade/settlement guarantee
fund. An agreement, as laid down in Bye-Laws of NSDL, has to be entered into. Th
e provisions of these agreements govern the rights and obligations of the NSDL,
the clearing corporation or the clearing house of a stock exchange and the excha
nge, in respect of transactions entered into in pursuance of such agreements.
Admission Criteria A clearing corporation or a clearing house of stock exchange
can be admitted as a user on the NSDL only if it fulfills the conditions laid do
wn. These criteria are listed below :
1. 2. The clearing corporation or a clearing house of a stock exchange has adequ
ate hardware and software systems to interact with NSDL as specified in the Busi
ness Rules; NSDL is satisfied that the clearing corporation or a clearing house
of a stock exchange operates in such a manner that it ensures payment against de
livery or guarantees settlement; The clearing corporation or a clearing house of
a stock exchange undertakes to co-operate at all times to redress the grievance
s of clients and DPs in respect of its operation in relation to NSDL; In the opi
nion of NSDL, the clearing corporation or a clearing house of a stock exchange h
as the operational capability to provide the services relating to clearing and s
ettlement of transactions pertaining to the securities admitted to the Depositor
y to be held in dematerialised form.
3.
4.
A Clearing Corporation or a Clearing House of a stock exchange shall not be perm
itted to open beneficiary accounts for clients, except where it has been permitt
ed by RBI to offer Constituent SGL account facility to the investors.
11
A Clearing Corporation (CC) or a Clearing House (CH) of a stock exchange can als
o be admitted as a full fledged Participant including opening beneficiary accoun
ts, provided the following additional conditions are satisfied: a) The CC/CH app
licant has a net worth of Rs. 5 crore. In case it does not have a net worth of R
s. 5 crore , it must undertake to enhance its net worth to Rs. 5 crore within a
period of two years. The aggregate value of Client s assets held by a CC/CH Part
icipant shall not exceed 20 times its net worth.
b)
Issuers and R&T Agents
The Depositories Act, 1996 gives option to investors to hold their securities ei
ther in physical form or in book entry form with a depository. Issuer of the sec
urity i.e. company may offer a facility to hold the securities issued by it in d
emat form by entering into an agreement with NSDL. The issuers who intend to off
er demat facility will have to establish connectivity with NSDL either directly
or through a Registrar & Transfer Agent having connectivity with NSDL.
Eligibility Criteria
Following category of securities are eligible for dematerialisation as per SEBI
(Depositories & Participants) Regulations, 1996: (a) (b) shares, scrips, stocks,
bonds, debentures, debenture stock or other marketable securities of a like nat
ure in or of any incorporated company or other body corporate; units of mutual f
unds, rights under collective investment schemes and venture capital funds, comm
ercial paper, certificates of deposit, securitised debt, money market instrument
s and government securities, unlisted securities shall also be similarly eligibl
e for being held in dematerialised form in a depository.
All Issuers of these securities may make their securities available for demateri
alisation upon fulfilment of certain criteria. The Executive Committee of NSDL d
etermines the securities that are eligible for dematerialisation. Before demater
ialisation commences, the Issuer or its R&T Agent, if any, has to comply with th
e following conditions : (i) (ii) The Issuer and/or its R&T Agent undertakes to
co-operate at all times to redress the grievances of the client and the DP. The
Issuer and/or its R&T Agent shall have adequate hardware and software systems to
interact with Depository as specified from time to time in the Business Rules.
(iii) The Issuer and its R&T Agent if any, have signed the tripartite agreement
as per the ByeLaws of NSDL.
12
The above conditions are not applicable to securities issued by Central or State
Government. NSDL may refuse to accept the admission of securities of an issue a
s an eligible security or may remove the same from the list of eligible securiti
es if — (i) in the opinion of NSDL, the Issuer or its R&T Agent does not have or
has ceased to have the operational capability to provide services in respect of
an issue of securities; (ii) the Issuer or its R&T Agent commits any breach to
any terms and/or conditions of the agreement entered into with NSDL, (iii) The B
oard of Directors of NSDL, in its absolute discretion, is satisfied that circums
tances exist which render it necessary in the interest of the investors to do so
.
Rights and Obligations of Issuers and their R&T Agents
Each Issuer whose securities are admitted to NSDL are required to represent and
warrant in favour of NSDL that such securities exist at the time of transfer of
securities into the Depository and thereafter. The Issuer also has to warrant th
at these securities are validly issued and that it is entitled or has full autho
rity to transfer such securities into the Depository. Every Issuer has to provid
e timely information to NSDL about various corporate actions. These include - bo
ok closure, record dates, dates for payment of interest or dividend, dates for t
he annual general meeting, dates of redemption of securities, dates of conversio
n, dates of exercising warrants and such other information as may be specified b
y the Executive Committee of NSDL from time to time. The Issuer and its R&T Agen
ts have to reconcile with records of NSDL, the records in respect of balances of
eligible securities with clients and confirm to all the Depositories, the total
security balances both in physical as well as in electronic holdings in the boo
ks. Where a State or the Central Government is the Issuer, NSDL reconciles the r
ecords of the dematerialised securities with the statement provided by the RBI o
n a daily basis. Every Issuer or its R&T Agent shall issue the certificate of se
curities against receipt of the Rematerialisation Request Form from the Client t
hrough the DP and on receipt of confirmed instructions from the Depository. The
Issuer or its R&T Agent are required to furnish to NSDL allotment details of all
clients who have opted for securities to be credited to their account in the el
ectronic form. NSDL electronically provides the details of the Clients to the Is
suer/R&T Agent every fortnight. This clause does not apply to Government Securit
ies. The Depository is responsible for the accuracy/correctness of all such info
rmation related to eligible securities intimated by it to the Issuer/R&T Agent.
The Issuer/R&T Agent is responsible for the accuracy and correctness of all info
rmation furnished by it in the prescribed form to NSDL.
13
The Main Features of the Tripartite Agreement
The rights and obligations of NSDL, the Issuer and R&T Agent are embodied in the
Tripartite Agreement between them. This agreement has to be signed before the I
ssuer/R&T Agent can be admitted in the depository system. Some of the main terms
of the Agreement are quoted below : 1. The Issuer/R&T Agent shall furnish a lis
t of authorised officials who shall represent and interact on behalf of the Issu
er and/or R&T Agent with NSDL within 15 days of the execution of this agreement
and any changes including additions/deletions, thereof shall be communicated to
NSDL within 15 days of such change. NSDL shall allocate unique identity codes to
the securities issued by an issuer. Such code is called ISIN (International Sec
urities Identification Number). The Issuer/R&T Agent shall establish continuous
electronic means of communication with NSDL and NSDL shall provide necessary man
uals and procedural guidelines to the Issuer/ R&T Agent as is necessary for effe
ctive and prompt conduct of the business of the Depository. The Issuer/R&T Agent
shall maintain such systems, procedures, means of communication, adequate infra
structure, hardware, software security devices and backup facilities as may be p
rescribed by NSDL. The Issuer/R&T Agent shall strictly follow the back-up proced
ure recommended by NSDL. A copy of the latest back-up of database and subsequent
ly incremental back-up shall be maintained at a designated remote site. The Issu
er/R&T Agent shall comply with all the systems and procedures recommended by NSD
L and shall allow access to their systems to an EDP Audit Team, designated by NS
DL for periodic assessment of compliance with systems and procedures. The Issuer
/R&T Agent agree that NSDL shall not be liable to the Issuer/R&T Agent for any l
oss arising out of any failure of the Issuer/R&T Agent to keep full and up-to-da
te security copies (back-up) of computer programme and data it uses in accordanc
e with the best computing practice. The Issuer shall inform NSDL on the next day
on which the information is being sent to the stock exchanges in which the elig
ible securities are listed, about the dates from which new shares arising out of
conversions, further issues, final call payments, etc. become pari passu with i
ts existing shares. The Issuer shall furnish information to NSDL of any further
issues such as rights, bonus, public offerings with details viz., opening and cl
osing dates, issue size, issue price, record date, book closure, proportion, alo
ng with a copy of the offer document. The Issuer shall give information to NSDL
about book closures, record dates, dates for the payment of interest or dividend
, dates for annual general meetings and other meetings,
2. 3.
4.
5.
6.
7.
8.
9.
14
dates for redemption of debentures, dates for conversion of debentures and warra
nts, call money dates, amalgamation, merger, reduction of capital, reconstructio
n scheme of arrangement, sub-division, consolidation, and conversion of debentur
es/loans and such other information relating to any corporate action, on the nex
t day it is being communicated to the relevant stock exchanges, where the eligib
le security is listed. 10. The Issuer and its R&T Agent undertakes that the dema
terialisation and rematerialisation requests are processed within 15 and 30 days
respectively. However, it is agreed that in case of bulk dematerialisation requ
ests, this period may be extended to 30 days. 11. The Issuer and its R&T Agent u
ndertakes that no dematerialisation requests shall be accepted when there are an
y prohibitory order, stop transfer, attachment order, or disputed title, on the
day of such request. It is agreed that where a court order has been received by
the Issuer and/ or its R&T Agent or where there are court orders against any tra
nsfer request if such a request is entertained, the Issuer/R&T Agent shall be en
tirely responsible. The Issuer/R&T Agent agrees to be fully responsible for dest
ruction, mutilation and cancellation of certificates received and accepted by it
for dematerialisation. 12. It is agreed that the Issuer/R&T Agent will continue
to be responsible for corporate actions. NSDL undertakes to provide the list of
beneficial owners with suitable details to the Issuer/ R&T Agent as of the reco
rd date. This list shall be provided by the NSDL fifteen days after such request
has been received by NSDL. In the event of any loss caused to the Issuer/ R&T A
gent, in respect of any incorrect information relating to the Client, furnished
by NSDL or its Participant, NSDL shall indemnify such losses. 13. The Issuer/R&T
Agent shall indemnify NSDL in respect of any loss or liability incurred, or any
claim arising in respect of any incorrect information furnished by the Issuer/R
&T Agent in respect of the operations of the Depository. 14. Any claims, dispute
s or liabilities arising in respect of any securities which have been rematerial
ised under intimation from the Issuer/R&T Agent to NSDL after the despatch of su
ch securities certificates in the manner laid down under the Bye-Laws shall be
settled between the Issuer/R&T Agent and the owner of such securities. 15. In th
e case of securities that have been dematerialised and electronically credited t
o the accounts of the Clients in NSDL under intimation from the Issuer/R&T Agent
in the manner laid down under the Bye-Laws, any claims, disputes or liabilities
or cause of action from a third party arising in respect of such securities per
taining to any fake or forged securities shall be settled between the Issuer/R&T
Agent and such third party. 16. NSDL may authorise persons who, shall have the
right to enter during the regular business hours, on any working day, the premis
es of such Issuer/R&T Agent where the records
15
relating to the depository operations are being maintained and inspect, and take
copies thereof. 17. NSDL shall provide reports updating details of Beneficial O
wners on a fortnightly basis to the Issuer/R&T Agent. 18. NSDL shall provide the
details of the list of Beneficial Owners as well as the pending requests for De
materialisation and Rematerialisation that may be required by the Issuer/ R&T Ag
ent from time to time on the payment of such charges as may be provided in the B
usiness Rules. Such information shall be provided within 15 days from the date o
f making such request. Where the list of Beneficial Owners is required as on a p
articular date, the same shall be provided within a period of 15 days after such
date or 15 days from the date of receipt of such request by the NSDL whichever
is later. 19. NSDL shall in its discretion provide any other details that may be
required by the Issuer and/or its R & T Agent from time to time on the payment
of such charges as it may deem fit. 20. The Issuer and/or R & T Agent shall info
rm NSDL of any proposed changes in the address of the Registered Offices, Corpor
ate Office or of the location where the equipment for communication with NSDL is
situated not less than thirty days before the date of such change. 21. NSDL sha
ll inform the Issuer and/or its R & T Agent of any proposed changes in the addre
ss of its Registered Office or Corporate Office not less than thirty days before
the date of such change. 22. The Issuer shall not change, discontinue or substi
tute its R & T Agent unless the alternative arrangement has been agreed to by NS
DL. 23. The Issuer and/or its R & T Agent shall not assign to any other person/
entity its functions & obligations, relating to transactions with the Depository
, without the approval of NSDL. 24. All parties to this agreement shall resolve
the grievances of the Beneficial Owners within a period of 21 days, from the dat
e of receipt of the complaint, concerning NSDL, the Issuer and/or its R & T Agen
ts.
Role of Issuer/ R&T Agent in Dematerialisation of Securities
The Depository electronically intimates, on a daily basis, all dematerialisation
requests to the respective Issuer or its R&T Agent. The Issuer or its R&T Agent
have to verify the validity of the security certificates as well as the fact th
at the demat request has been made by the person recorded as a member in its Reg
ister of Members. After such verification, the Issuer or its R&T Agent intimates
NSDL and authorises an electronic credit for that security in favour of the Cli
ent. On receipt of such
16
intimation, NSDL makes the credit entries in the account of the Client concerned
. No credit of any securities to the accounts of any client can be made unless N
SDL has received intimation from the Issuer or its R&T Agent. Where the Issuer o
r its R&T Agent rejects any dematerialisation request, it has to electronically
intimate NSDL regarding such rejection within a period of 15 days. After intimat
ing such rejection to NSDL, the Issuer or its R&T Agent returns the DRF along wi
th the rejection reason and relevant security certificates, unless the reasons f
or rejection are any of the following: 1. 2. 3. 4. the security certificates are
stolen or; the security certificates are fake or; in the event of an order from
a court or a competent statutory authority prohibiting the transfer of such sec
urities or; in case duplicate certificates have been issued in respect of the se
curities with the same distinctive numbers.
In the event of intimation being received by the Depository from Issuer or R&T A
gent to credit the account of the Client with securities which do not match with
the details of the Client or DP, the balance shall be held in suspense account.
In the event of any person making a claim to the securities that are held in th
e name of the Client with NSDL after they are so registered, such claim must be
settled amongst the DPs, Clients and Issuer or its R&T Agent. The Issuer or its
R&T Agent, after giving intimation as set out in NSDL s Bye-Laws, represents and
warrants to NSDL that such securities exist and are validly issued and it is en
titled or has full authority to transfer such securities with the Depository in
the name of the Client.
Role of Issuer/ R&T Agent in Rematerialisation of Securities
A Client may withdraw its security balances with the Depository at any point of
time by making an application for rematerialisation to the Depository through it
s DP. When the investor submits the Remat Request Form (RRF), the Issuer and/or
its R&T Agent and the NSDL have to take the following steps : • NSDL intimates e
lectronically details of all accepted rematerialisation applications to the Issu
er or its R&T Agent on a daily basis. The DP forwards the RRF to the Issuer or i
ts R&T Agent within 7 days of accepting such request from the client. The Issuer
/R&T Agent, after validating the RRF, confirm to NSDL electronically that the RR
F has been accepted. Thereafter, the Issuer/R&T Agent despatches the security ce
rtificates arising out of the rematerialisation request within a period of 30 da
ys from receipt of such RRF directly to the client. On receipt of such
•
17
acceptance from the Issuer/R&T Agent, NSDL debits the balances from the respecti
ve client s account held with the DP s.
Role of Issuer/R&T Agent in Corporate Benefits
It is the function of the Issuer/R&T Agent to inform NSDL about the corporate ac
tions relating to prescribing dates for book closures, record dates, dates for r
edemption or maturity of security, dates of conversion of debentures, warrants,
call money dates and such other action from time to time and submit necessary ap
proval documents for the corporate actions. On receiving such intimation, NSDL p
rovides the details of the holdings of the clients electronically to the Issuer/
R&T Agent (as of relevant cut off date) for the purpose of corporate actions an
d distribution of corporate benefits. The Issuer/R&T Agent distributes dividend,
interest or other monetary benefits directly to the eligible beneficial owners
on the basis of the list provided by the NSDL. The corporate benefits can be dis
tributed through NSDL also with its concurrence. The Issuer/R&T Agent may, if th
e benefits are in the form of securities, distribute such benefits to the client
s through NSDL in the following cases: • • The newly created security is an elig
ible security. The concerned client has consented to receive the benefits throug
h NSDL.
In such a case, the Issuer/R&T Agent provides allotment details of all clients t
o the NSDL. On receipt of these details, NSDL makes the necessary credit entries
in the account of the client concerned. In certain cases such as split of share
s, consolidation of shares, mergers, demergers, bonus shares, etc. corporate act
ion is executed automatically as per the fixed ratio defined by Issuer/R & T Age
nt, through the NSDL system. This feature is called "Automatic Corporate Action"
.
18
CHAPTER 4
NSDL Application Software
NSDL has supplied the application software for depository operations to its busi
ness partners (viz. Depository Participants, Clearing Corporation and Issuers/Re
gistrar & Transfer Agents). The software of Depository Participants is called DP
M (DP), for Clearing Corporation, it is called DPM (CC) and for Issuer/Registrar
& Transfer Agents, it is called DPM (SHR). The complete depository software of
NSDL is called as NEST (National Electronic Settlement & Transfer). The objectiv
e of this chapter is to enhance understanding of the depository software. Althou
gh knowledge of the details of the depository software is not essential for user
s, an understanding of how it works would facilitate better application and util
isation.
DPM (DP) and DPM (CC) Module:
The modules available in NSDL application software for DPM (DP) and DPM (CC) are
described in brief below. If and when the DPM software is opened, screens conta
ining the following functions will appear. Each function is seen as an icon as s
hown in the picture above. However, DPM (CC) is not authorised to create non-hou
se beneficiary accounts.
Client Maintenance: This module is used to create/modify Client Account details
and to check Statement of Holding/Transaction report.
19
Demat/Remat: This module is used to enter Demat/Remat requests into the system a
nd check their status later. Settlement: This module is used to enter Account Tr
ansfer instructions - off market as well as market transactions. Account Transfe
r Instruction: Transfer of securities from beneficiary account to Settlement acc
ount of the broker or any other beneficiary account is known as Account Transfe
r instruction. The "receive" instruction can be entered from this module if sta
nding instruction is not already enabled in the client details. Delivery Out Ins
truction: Delivery of securities from Settlement account of the broker to the cl
earing corporation or clearing house is known as Delivery Out instruction. Int
er-settlement Instruction: Transfer of securities from one market type/settlemen
t number to a future market type/settlement number within a Clearing Member Sett
lement Account is known as Inter-settlement instruction. Pool to Pool Instructio
n: Transfer of securities from one market type/settlement number in a Clearing M
ember Settlement account to a future market type/settlement number of another Cl
earing Member Settlement account is known as Pool to Pool instruction. Receipt-I
n Instruction: The receipt of securities from the stock exchange in the Clearing
Member Settlement account as Pay-out is known as Receipt-In instruction. Irreve
rsible Delivery-Out Instruction: Delivery of securities by a Clearing Member to
the CC/ CH before the pay-in date is known as Irreversible delivery out instruct
ion. This instruction once executed cannot be cancelled by Clearing Member. Auto
Delivery Out Instruction: NSDL system provides a facility for brokers whereby t
heir settlement obligation for securities are directly debited to their clearing
account and are credited to the account of the concerned clearing corporation /
house (CC/CH). This is an optional facility and can be used if the concerned CC
/CH has opted for the facility. This facility eliminates the need for brokers to
give pay-in instructions to their DPs. The instructions are generated by the CC
/CH and clearing members have to handle only exceptional cases. This facility en
sures that if a client has delivered securities with correct settlement details
to his broker s clearing account before the settlement deadline, the securities
would be delivered for pay-in to the clearing corporation/clearing house (CC/CH)
.
20
Additional modules are available in DPM-CC Module for receiving securities from
Clearing Members as Pay-in and to deliver them to Clearing Members as Pay-out.
Pledge/Hypothecation: This module is used to enter pledge or hypothecation relat
ed instructions - creation, confirmation of creation, closure, closure confirmat
ion and invocation. Securities Lending/Borrowing: This module is used to enter s
ecurity lending/borrowing related instructions. Account Freeze Facility: NSDL sy
stem provides the facility to freeze the depository accounts for any debits or f
or both, debits and credits. In an account which is "freezed for debits", no deb
its will be permitted from the account, till the time it is unfreezed. Future Da
ted Instructions: An investor who has sold shares can specify the date on which
the securities must be moved out of its depository account while giving a delive
ry instruction to its DP. This can be a future date and is known as execution da
te. The investor can use this facility by issuing instructions with a future exe
cution date to its DP immediately on confirmation of sale by the broker. This fa
cility is particularly useful for investors having accounts at locations where D
Ps do not have direct connectivity to NSDL s central system. System Security: Th
is module is used for managing security of the software by creating user groups,
user profiles and managing user passwords. This facility is to be used for impl
ementing variable access rights scheme suggested by NSDL. Inquiries: This module
is used to get information regarding database and System Security profile. The
details of information available from here are explained below. Database related
information: Information related to ISIN Master, BP Master, CC Calendar, Client
signature, Audit report, etc., can be obtained from these sub-menus. Master inf
ormation is downloaded by NSDL every day. Therefore, DPs should check the new in
formation every day. MIS: Information related to System Security profile is avai
lable from here. Beginning of Day (BOD): This is the first message for the Day s
ent from NSDL DM to all Business Partners (DPM Set-ups). Only after this message
is received, the System status becomes as Regular Operations. DPs can start rel
easing (communicating) transactions to NSDL only after BOD is received/viewed on
the screen. DPs may expect to receive BOD early in the morning (before 6 a.m.).
DPs who have a large number of transactions to transmit to NSDL may note the re
ceipt of BOD and commence transmission of instructions.
21
End of Day (EOD): This is the last message for the day sent from NSDL DM to all
Business Partners. The system status becomes Regular Operations Ended after this
message is sent. Once EOD is received, communication between NSDL and DP will s
top due to which transactions cannot be transmitted to NSDL. However, DPs may ca
pture, verify and release the transactions on the DPM system. OPERATION CYCLE: T
he Daily Operation cycle at NSDL is as follows:
BOD in process: Regular Operations: This will be the first process for the day.
This indicates the period during which DP can perform operations for the current
business date. After this status, DP cannot verify release any instructions wit
h the current date as the execution date. DP can still verifyrelease future date
d instructions. A pop-up message indicating EOD in Progress is also flashed on
the server. After EOD is completed, the status changes to Business Ended. This
indicates the time after which EOD will start from NSDL.
Regular operations Ended:
EOD in process:
Business ended:
NSDL Business End Time:
Note: The DP can communicate with NSDL system only during the BOD-EOD cycle. How
ever, the DP can operate its DPM system even after the EOD and before the BOD, i
.e., on a 24-hour basis on an off-line basis using this software.
Reports: NSDL Application has been designed to provide the following customised
reports using the Reports module:
• • • • • • • • Master List Reports - BP Master, ISIN Master, Client Master, CC
Calendar. Account Detail - Statement of Holding / Transaction (CM / Non-CM). Dem
at / Remat reports - forms, status. Public offer - Application details, Allotmen
t details. Settlement related-A/C transfer, Intra-Settlement, Inter-Settlement,
Delivery Out, Receipt-In. Corporate Action related. Pledging details. Security L
ending report.
22
SHR Module :
Beneficiary Details: Details regarding various ISINs are available from this mod
ule. Confirmations: SHRs can confirm Demat / Remat requests from this module. Co
rporate Action / Public Offer: Corporate action related information can be obtai
ned from this module. System Security: This module is used to create user groups
, user profiles and managing user passwords. Inquiries: This module is used to g
et information regarding database and System Security profile. The details of in
formation available from here are explained below. Database related information:
Pending Demat/Remat confirmation status Information, Top holder details, Benpos
download history, ISIN and BP master details, Audit report, etc. information ca
n be obtained from these sub-menus. MIS: Information related to system security
profile is also available from here. Reports: NSDL Application has been designed
to provide the following customised reports using the Reports module:
• • ISIN Master Report. BP Master.
23
• • • • • •
Demat Request Number (DRN) confirmation report. Remat Request Number (RRN) confi
rmation report. Inter-Depository Transfer Report. Corporate Action/ Public Offer
report. ISIN Change report. Beneficiary Position report - Top Holder list / Pat
tern of Holding report.
Database Management Activities
Master Download: Whenever a BP becomes functional, initial messages are sent to
the BP as a bulk download known as Master Download. This comprises messages like
CC calendar, ISIN details, Other Business Partner details, etc. Thus, details o
f new securities made available for demat; new DPs/R&T Agents joining NSDL syste
m can be known by observing these downloads on a daily basis. Database Reorganis
ation: Data stored in the form of tables (rows and columns) becomes fragmented a
fter regular updates, insertion of new records and deletion/ modification of old
records, which results in poor performance of the system. Database Reorganisati
on (Re-Indexing, CheckDB, etc) is carried out by the BP in co-ordination with NS
DL helpdesk as a corrective action. Software Releases: NSDL Application software
is upgraded from time to time to include new features. This requires BPs to upg
rade their application according to the instructions (Manuals, DAT, Schedule) re
ceived from NSDL. Data Import/Export: Data can be imported into NSDL Application
from the back-office system or can be exported to the back-office system from N
SDL Application software using standard file formats prescribed by NSDL for impo
rt/export of data. The following import/export facilities are available at prese
nt:
24
IMPORT / EXPORT
DP
CC
SHR
EXPORT :
ISIN Master BP Master Client Master CC Calendar Changed Order for the day Statem
ent of holding Statement of Transaction Security Lending / Borrowing Delivery ou
t Statement Irreversible Delivery Out Export Beneficiary Position (BenPos) Signa
ture Export Demat / Remat Request Public Offer Application Export Public Offer A
llotment Export Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y
IMPORT :
DPM Transaction Client Master Branch Master Receipt In Statement Corporate Actio
n (CA) Import Demat / Remat Confirmation Bulk Verify Release Import Y Y Y Y Y Y
Y Y Y Y
25
Hardware Requirements for Business Partner Set-ups : The specifications of the e
ntry level I.T. setup required by a Business Partner is as follows: Description
Server Hardware Intel PIII / Xeon, with CPU Speed of 800 MHz or higher single OR
700 MHz or higher respectively Minimum 256MB, 60 nano sec ECC RAM or S DRAM on
1 SIMM/DIMM 256/512KB L2 Cache PCI architecture with min.5 I/O slots PCI Based V
GA Controller With Minimum 1 MB VRAM OR AGP Based VGA Controller With Minimum 2
MB VRAM 14" SVGA Colour monitor PCI based Ethernet Card PCI based SCSI RAID Cont
roller to support RAID-1 to RAID-5 implementation of SCSI Hard Disks (RAID Contr
oller) 1 parallel port & 2 fast serial ports. 4mm, 20/40 GB Digital Audio Tape (
DAT) drive (HP/Exabyte/Sony) operating with 90m, 120m & 150m DAT cartridges and
interfacing with SCSI Controller CD ROM drive(min 12x) to interface with SCSI or
IDE Controller 1x18 GB Non Hot Swap/ Hot Swap SCSI HDD for Bootable Partition &
interface to the Standard SCSI Controller Generally, On-board SCSI Controller)
Note: RAID implementation for operating system is optional. 2x18 GB Non Hot Swap
/ Hot Swap SCSI HDDs for RAID-1 or 3x18 GB Non Hot swap SCSI HDDs for RAID-5 imp
lementation & interface to the above RAID controller. 104 Keys Keyboard PS/2 Mou
se Software MS Windows 2000 Server
Anti-Virus Software for MS Windows 2000 Server DPM Application Software (Provide
d by NSDL) SQL Server Ver 7.0 (Provided by NSDL) MS Exchange Client (Provided by
NSDL) Server Management Software*
26
Server Details Intel PIII with 500Mhz or Higher CPU for Low End DP/SR (DesktopCl
ass) Minimum 512 MB System RAM 128 KB Cache (Celeron CPU), 512KB Cache (PIII CPU
) PCI Architecture with min 3 I/O Slots 2*20 GB ( SCSI/IDE ) Hard Disk Drive to
be installed in RAID 1 with Software RAID PCI Based VGA Controller With Minimum
1 MB VRAM OR AGP Based VGA Controller With Minimum 2 MB VRAM 14" SVGA Colour mon
itor PCI Ethernet Card CD ROM drive(min 12x) to interface with SCSI or IDE Contr
oller Internal SCSI card to support DAT drive 12/24 GB Internal / External DAT D
rive (from the existing SERVER) or 750 MB Zip Drive 1 parallel port & 2 fast ser
ial ports Client/Node Pentium / PII / PIII / PIV / Celeron 333Mhz or Higher CPU
Minimum 64 MB, 60 nano sec EDO RAM or S DRAM 128 KB Cache (Celeron CPU), 512KB C
ache (PII CPU) PCI Architecture with min 3 I/O Slots 20 GB ( IDE ) Hard Disk Dri
ve
MS Windows 2000 Server
Anti-Virus Software for MS Windows 2000 Server DPM Application Software (Provide
d by NSDL) SQL Server Ver 7.0 (Provided by NSDL)
MS Exchange Client (Provided by NSDL) Server Management Software*
Windows 98/2000 Professional Anti-Virus Software for Windows 98/2000 Professiona
l MS Exchange Client (Provided by NSDL) * * - To be installed in one Client /
Node only
27
PCI Based VGA Controller With Minimum 1 MB VRAM OR AGP Based VGA Controller With
Minimum 2 MB VRAM 14" SVGA Colour monitor PCI Ethernet Card 1 parallel port & 2
fast serial ports 104 Keys Keyboard PS/2 Mouse Router With 1 Ethernet Port, 2 S
erial Ports with V.24 Interface Cable For VSAT Users or V.35 custom made cable f
or Leased line user. Sync / Async " Dial up modem and" Telephone line with STD f
acility Flatbed Scanner which is compatible with Windows 2000 and TWAIN Standard
s (To be procured by Depository Participants And Clearing Corporations only) App
ropriate Capacity with Maintenance Free Batteries, With Minimum 30 Minutes Backu
p Time For Connecting Above Mentioned Equipments (Considering 1 Server,1Client,
1 Router and 1 UTP Hub Load) A/C to maintain the room temperature at 22° C +/-2°
C Laser Jet Printer Deskjet Printer LAN HUB UTP HUB with required Nos. of UTP ca
bles for connecting Server, Clients & Router (Dedicated for NSDL setup) Server
COM port to Async Modem cable V.24 Interface cable for Router to Sync Modem
(Only in case of Leased Line Users) Respective Printer Drivers Respective Print
er Drivers Nil Nil Router IOS Ver 12.0 or higher (Cisco) Router IOS Ver 5.1_LAN_
V320 or higher (Motorola) Nil
Modem & Telephone Line Scanner
UPS
Environmental Printers
Cables
Nil
28
BP having below mentioned volume can avail of the Low end server : DPM - DP Setu
p (Low end DPM) Max. number of client permitted without CM account Max. Number o
f Transactions per day Database size not exceeding Maximum number of workstation
s permitted DPM - SHR Setup Max. number of ISINs permitted Total number of clien
ts across all ISINs Demat, Remat and Repurchase Requests confirmations per week
CA released per week Records per CA Database size not exceeding Maximum number o
f workstations permitted 40 50000 1000 2 1000 600 MB 3 7500 2000 600 MB 3
* - It is mandatory for all participant to install "Server Management Software"
on the server. This management software is provided along with the server.
29
CHAPTER 5
Service Standards
The Depositories Act, 1996 requires that clients can avail services of a deposit
ory 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 d
ue to which the profit margins are under tremendous pressure. Thin profit margin
s require high volume of clients/transactions for operating the DP services prof
itably. High volume of business is error prone unless supported by appropriate s
ystems and quality of manpower.
The prerequisites for attracting and retaining high volume business are establis
hment of service standards in each area of service and consistently adhering to
those standards. This chapter attempts to set out some pointers to these service
standards, which the DPs may want to establish. The list is indicative and not
exhaustive. The service standards may be changed / upgraded in response to clien
t requirements and competitive market demands.
Office Ambience
The front office ambience should be pleasant and should provide convenience for
the clients to conduct their transactions. The waiting space should be proportio
nate to the number of clients that may visit the office to conduct their busines
s. The type of access to the different areas should match with the specific tran
saction requirements of the client. The following facilities should be available
at every office/branch of DP: • • • • • • • • Provision to write instructions.
Introductory literature/booklets. Display of office timings. Display of a list o
f services offered from the service centre/branch, i.e., whether account opening
/demat/remat/account transfer/pledge services are available at that branch. Late
st list of ISINs available for dematerialisation. Compulsory demat list. Display
of deadline timings for various transactions. Settlement calendar and settlemen
t numbers, if space for display is available.
30
Service Standards
• • • •
DP IDs, if possible. Rubber-stamp for cancellation of certificate. Inquiry count
er for finding out balances in client account. Forms for nomination, account ope
ning and all other forms which are not handed over to the client at the time of
account opening.
Branch Office Empowerment
Modern communications technology and IT have made it possible to effectively dec
entralise operations even while operational reporting and supervision controls a
re maintained. Such decentralisation requires empowerment of branch offices. The
ability of a branch office to give good service to the client is determined by
the co-ordination and communication facility between head office and the branch.
Head office 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
office. Head office should provide the following information on a regular/daily
basis to branch office to help the branch achieve customer satisfaction. • • •
• • ISIN list available for dematerialisation. List of scrips included in the co
mpulsory list. Adequate supply of account opening forms, nomination forms and ot
her forms. Settlement calendar, settlement number and other settlement related i
nformation. Regular feedback on transactions as given below: Status of account o
pening/account numbers. Status on demat requests. Return of rejected demat reque
sts. Status of transactions executed with particular reference to failed transac
tions. Information on balance inquiries. Statement of transactions and holding.
Information on credits arising out of corporate actions Address to which demat d
ocuments have to be sent if branch office is expected to send the documents dire
ctly.
Account opening
As in any service industry, the first point of contact is the most important poi
nt in Customer Relationship Management. For investors the process of account ope
ning is the first interaction with a DP. This is the stage at which the client i
nteracts with the DP and one that will make a permanent impression about the ser
vicing capabilities of the depository participant. Also, this
Service Standards
31
is the stage at which the client may have several questions that need to be answ
ered and proper guidance provided. The client should be given personal attention
and should be helped in completing the account opening formalities without diff
iculty. The client must be made aware of the structure of fees for the services
and other conditions must be explained in detail. Special attention should be gi
ven to the points listed below : • Explain the information to be given in the ap
plication form. Clarification should be given on the items like standing instruc
tions, introduction, nomination, PAN number, importance of correct and complete
bank account and address details and the care to be taken in case of joint accou
nts, HUF accounts, NRI accounts, etc. For ease of operation and elimination of r
edundancies, the facility of standing instruction has been provided in the accou
nt opening form. This facility enables clients to give standing instructions to
DPs, at the time of opening the account itself, for receiving securities to the
credit of their accounts without any further instruction from them. Assure the c
lient about the time by which the account will be opened and the account number
communicated to him. Handing over "Delivery Instructions book" with pre-printed
serial number of the slips stamped with Client-ID on the slips. The client shoul
d be made aware of the need and reasons to take care in preserving and using the
book. Explain various other forms used in the depository system. Ensure that a
copy of the agreement including schedule of charges is given to the client.
•
• •
• •
Demat Process
The demat process requires defacing of securities which will make the security c
ertificate undeliverable unless the demat formalities are completed. Therefore,
the client should be assisted in ascertaining whether the securities in question
are available for dematerialisation. Clients should be helped in filling up the
demat request properly. Demat rejection causes great inconvenience to the clien
t. DP should attend to this area with care and caution by ensuring the despatch
of DRFs and certificates to R&T Agents within seven days. In case of joint holdi
ngs, the Clients should be informed about the availability of Transposition cum
Demat facility. One of the important reasons for demat rejection is signature mi
smatch. Taking the following precaution can reduce this: • If the client is awar
e that the signature with the company and signature of the client at time of ope
ning the account vary significantly, the client should be advised to register th
e new signature with the company before demat is initiated.
Service Standards
32
Trading & Settlement
This is an area where the DP must take immense care while accepting and processi
ng requests for transfer of securities from the account of his client to another
account. The aspects listed below should be kept in mind : • • • • • • • • • •
• Ensure that the delivery instruction book given to each client has pre-printed
serial numbers and Client-ID. Inform clients about the pay-in deadline of the s
tock exchange and the deadline of the DP. Inform clients about the future-dated
instruction facility and encourage them to use this facility. Each DIS received
should be inwarded correctly with the date and time stamp. Late stamp must be af
fixed on the instructions received after the expiry of the deadline set by the D
P. Ensure the correctness of execution date on the DIS. Verify market type and s
ettlement number details for market transfers. Ensure signature on DIS matches w
ith the records of the DP. Ensure that the signatures of all holders are obtaine
d in case of joint accounts. If the client has not issued "standing instructions
", he should be made aware that a receipt in instruction will be required to rec
eive the credits into the account on purchase of shares. Clients should be made
aware of the account freezing facility.
General Services
Since clients are free to choose their DPs depending on criteria like service st
andards, convenience of location, affordability, providing efficient and timely
services is important for all DPs if they have to compete effectively. Factors i
n general services that they should keep in mind include: • • • Timely issue of
transaction statements. 30 days notice to clients regarding changes in the struc
ture of fees. Undertake changes in client master details whenever required and i
ntimate the clients accordingly. This will help the investor in receiving all ca
sh corporate benefits like dividends, interest warrants, redemption payments, et
c. at the new address with immediate effect. Provide the latest list of companie
s available for demat. Provide multiple channels of inquiry to help clients obta
in answers to their questions relating to their account or to give instructions.
For example, enquiries can be handled on telephone; exclusive Inquiry Counters
can be set up; or as a matter of routine, information about the
• •
Service Standards
33
balances in the account after execution of the instructions can be given on the
"Instruction Acknowledgement Slip". • • • • • • Give an acknowledgement for any
document that a client submits. Give the client a feedback on the status of his
instructions, especially failed instructions. Maintain the critical instructions
of clients and give them a feedback on each one of those instructions. Provide
complete and timely information to the client about the new services/facilities
introduced by the depository and/or DP. Give notice to the client about any chan
ge in the charge structure as prescribed in the DPClient Agreement. List of Comp
anies with poor performance in confirming demat request.
All the operations of a DP should be conducted with transparency and consistent
service attitude to foster continuity in the commercial relationship. This is ab
solutely essential in a competitive environment.
Service Standards
34
CHAPTER 6
Benefits & Safety
Until the mid-1990s, the legal and regulatory framework, within which the securi
ties market functioned in India, had weaknesses resulting from fragmentation of
authority and multiplicity of rules and regulations. This created inefficiency i
n the enforcement of the regulations. It also led to low efficiency in the alloc
ation and utilisation of resources between savers/investors and industrial inves
tment. The formalities in the process of issuing securities kept the cost of iss
ue as well as trading quite high. Also, settlement of trades was cumbersome and
marked by delay, as it required physical movement of securities thus reducing li
quidity in the hands of investors. The interests of the investors were subjugate
d to those of the market intermediaries. All these factors hampered the growth a
nd vitality of the capital market as a whole. To improve efficiency of the marke
t, enhance transparency, check unfair trade practices and ensure international s
tandards in market practices necessitated by the entry of foreign financial inst
itutions, several measures to liberalise, regulate and develop the securities ma
rket were introduced during the mid-1990s. These apply to the primary as well as
the secondary markets. Additionally, the application of IT has made the task of
operations and supervision of the new system possible and efficient. Prior to t
he setting up of NSE, trading on stock exchanges in India took place without the
use of information technology for immediate matching or recording of trades. Th
e system was called "out cry" - where bids and offers were matched by voice. The
practice of physical trading imposed limits on trading volumes as well as the s
peed with which the new information was incorporated into prices. The unscrupulo
us operators used this information asymmetry to manipulate the market. An exploi
tative practice called "gala" was rampant. Some unscrupulous brokers made profit
by quoting to their clients higher price than actual price at which the securit
ies were actually bought and paying a lesser price than the price at which the s
ecurities were actually sold. The client had no means to verify the actual price
since there was no access to intra day price changes that were happening at the
trading ring, as only brokers and their authorised assistants could enter the r
ing. The electronic and now fully online trading introduced by the NSE has made
such manipulation difficult. It has also improved liquidity and made the entire
operation more transparent and efficient. The erstwhile settlement system based
on paper form of securities and transfer forms was inefficient. The transfer was
by physical movement of paper. There had to be a physical delivery of securitie
s - a process fraught with delays and resultant risks. It increased the risk to
the buyer, due to the time that elapsed before the trades were settled.
Benefits & Safety 35
The system of transfer of ownership of physical securities was grossly inefficie
nt as every transfer involves physical movement of securities to the issuer for
registration. The change of ownership was evidenced by an endorsement on the sec
urity certificate. In many cases the process of transfer takes much longer than
the two months stipulated in the Companies Act, 1956, and a significant proporti
on of transactions end up as bad delivery due to faulty compliance of paper work
, theft, forgery, mutilation of certificates and other irregularities. All this
added to costs and delays in settlement restricted liquidity and made redressal
of investor grievances time consuming. The introduction of the depository system
was an important step in the reform process. The benefits of the depository sys
tem are thus related to removal of many of the inefficiencies and problems of th
e erstwhile system and also to the various efficiencies created by it. Depositor
y provides instantaneous electronic transfer of securities. This ensures transfe
r of securities with speed, accuracy and safety. Securities in the depository mo
de are dematerialised and ownership records are maintained in a book-entry form.
In order to streamline both the stages of settlement process, the Depositories
Act, 1996 provides for transfer of the ownership of securities by book entry wit
hout their physical movement between seller, buyer and issuer. The depository sy
stem thus removes some of the physical, structural as well as systemic risks tha
t are inherent to the physical securities based markets.
Benefits
The direct and indirect benefits of the depository system are described in detai
l below. In the depository system, the ownership and transfer of securities take
s place by means of electronic book entries. At the outset, this system rids the
capital market of the dangers related to handling of paper. •
Elimination of bad deliveries - In the depository environment, once the holdings
of an investor are dematerialised, the question of bad delivery does not arise,
i.e., their transfer cannot be rejected due to defect in the quality of the sec
urity. All possible reasons for objecting transfer of title due to deficiencies
associated with transfer deed and share certificates are completely eliminated s
ince both transfer deed and share certificates are eliminated in depository syst
em. Elimination of all risks associated with physical certificates - Dealing in
physical securities has associated security risks of theft of stocks, mutilation
or loss of certificates during movements to and from the registrars. These expo
se the investor to the cost of obtaining duplicate certificates, advertisements,
etc. Such problems do not arise in the depository environment.
•
Benefits & Safety
36
•
No stamp duty - There is no stamp duty for transfer of equity instruments and un
its of mutual funds in the depository system. In the case of physical shares, st
amp duty of 0.5% is payable on transfer of shares. Immediate transfer and regist
ration of securities - In the depository environment, once the securities are cr
edited to the investors account on pay out, he becomes the legal owner of the se
curities. There is no further need to send it to the company s registrar for tra
nsfer of ownership or registration which is necessary in the case of physical se
curities. This process normally takes longer than the statutory prescribed perio
d of two months thus exposing the investor to opportunity cost of delay in trans
fer and to risk of loss in transit. To overcome this, the normally accepted prac
tice 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 - With the introduction of electronic form
of settlement, Indian Capital markets have moved from 15 day long settlement cy
cle to T+2 settlement cycle where the settlement takes place on 2nd day from the
day of trading. This enables faster turnover of stock and enhances liquidity wi
th the investor. Buyer is secured - In the physical environment, seller was secu
red since the sale proceeds were always fully realisable but the buyer was not,
since it was not certain whether shares purchased will get transferred or not. T
he market principle that buyer is king did not apply to the capital market. This
situation has now been corrected. Faster disbursement of non-cash corporate ben
efits - NSDL provides for direct credit of non-cash corporate entitlements like
rights, bonus, etc., to an investor s account, thereby ensuring faster disbursem
ent and avoiding the risk of certificates getting lost in transit. Reduction in
rate of interest on loans - Some banks provide this benefit against pledge of de
materialised securities. Dematerialised securities eliminate hassles/risks like
getting securities registered in their name at the time of book closure if the p
ledgee defaults in repayment. Also eliminated is the risk of stocks coming under
objections when they are sent to the company s registrar for registration, if t
he pledge has to be invoked. Increase in maximum limit of advances - This has in
creased from Rs. 10 lakh to Rs. 20 lakh per borrower. There is also a reduction
in minimum margin from 50% to 25% by banks for advances against dematerialised s
ecurities as per the Monetary and Credit Policy of Reserve Bank of India for the
first half of 1998-99. Reduction in brokerage - Since introduction of electroni
c settlement of securities there has been a significant fall in the brokerage ch
arged for brokers for effecting and settling
37
•
•
•
•
•
•
•
Benefits & Safety
trades of investors at the stock exchanges. This benefit is given to investors a
s dealing in dematerialised securities reduces their back office cost of handlin
g paper. It also eliminates the risk of being the introducing broker. •
Reduction in handling of huge volumes of paper - In the physical environment, ev
ery entity involved in purchase or sale of securities was to handle papers and p
ass on papers to the next entity. Number of papers to handle increased with the
volume of transactions. However, in the depository environment, except the deliv
ery instruction to be given by the client/broker, there is no other paper moveme
nt. NSDL has permitted use of floppies to give debit instructions for large volu
mes of transactions.
NSDL has recently introduced a common internet based platform, SPEED-e, for Clie
nts of all DPs so that Clients can issue instructions to their DPs through Inter
net. Using SPEED-e the client need not write delivery instructions or visit its
DP for issuing instructions. Clients can monitor the status of instructions give
n by them on SPEED-e on Internet.
•
•
Periodic status reports - DPs need to provide periodic reports to investors on t
heir holdings and transactions. This leads to better management control on the p
art of the servicing agency and better information for the investors. Dematerial
ised securities can be delivered in the physical segment - Securities forming a
part of the SEBI specified compulsory list (wherein delivery in demat form is ma
ndatory for all categories of investors) can be delivered in physical form in th
e stock exchanges connected to NSDL & CDSL. This requirement is applicable to ph
ysical deliveries wherein the number of securities is less than 500. Elimination
of problems related to change of address of investors, transmission, etc. - In
case of change of address or transmission of demat shares, investors are saved f
rom undergoing the entire change procedure with each company or registrar. Inves
tors have to only inform their DP about the change along with all relevant docum
ents. The required changes are effected in the database of all the companies whe
re the investor is a registered holder of securities. The investor will receive
all cash corporate benefit like dividends, interest warrants, redemption money,
etc. at the new address with immediate effect. Elimination of problems related t
o nomination - An account holder can get securities in all companies transmitted
/transferred to his account by completing formalities with a single entity i.e.
DP. He need not deal with all companies individually. Elimination of problems re
lated to selling securities on behalf of a minor - NSDL system provides facility
for opening demat accounts in the name of minor and holding their securities in
their own name. Since, under the Contract Act, 1872, the minor is not
38
•
•
•
•
Benefits & Safety
eligible to enter into contracts at their own, the account in the name of minor
is required to be operated by their guardian. The guardian may be the natural gu
ardian, guardian appointed by will or the guardian appointed by an order of the
court. The minor s guardian will be eligible to open, operate and close the acco
unt on behalf of the minor. The guardian(s) would be signing the instruction sli
ps to be given to the depository participant, on behalf of the minor. A minor ho
wever cannot be a joint account holder. Non cash corporate benefits arising out
of bonus/rights allotment of shares are credited to the account of the minor. Ca
sh corporate benefits will be issued by the concerned issuer of securities in th
e name of the minor. •
Convenient consolidation of accounts - If multiple accounts were opened by inves
tors, all accounts can be consolidated into one account by giving instructions t
o DP. In case of physical certificates, consolidation of folios required corresp
ondence with all the companies individually. Convenient portfolio monitoring - C
lient can monitor portfolio by checking a single statement of holding/transactio
n. Newer services - Opportunities like pledge/hypothecation and stock lending ar
e given specifically by the depository system. Increased volumes - Due to ease i
n transaction and reduced costs, many players have entered/ increased their tran
sactions. This helps in improving liquidity.
•
•
•
Safety
NSDL has implemented various checks and measures in the depository system to ens
ure safety of the investors holdings. These include: • A DP can begin operation
s only after registration by SEBI. The registration process is based on the reco
mmendation from NSDL after undertaking their own independent assessment and eval
uation. SEBI regulations have prescribed fulfillment of several criteria for bec
oming a DP. Depository Participants are allowed to effect any debit and credit t
o an account only on the basis of valid instructions from the client. There are
periodic inspections into the activities of both DPs and R&T agents by NSDL. Thi
s also includes records based on which the debit/credit are effected. The data i
nterchange between NSDL and its business partners is protected by standard prote
ction measures such as encryption. This is a SEBI requirement. There are no dire
ct communication links between two business partners and all communications betw
een two business partners are routed through NSDL.
• • • •
Benefits & Safety
39
• • •
All investors have a right to receive their transaction statement periodically f
rom 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 inves
tor 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. The
se investors can then either rematerialise their holdings or transfer them to a
different account held with another DP. NSDL has a complete record of the client
s transactions in addition to the records of the DP.
• •
Certification in Depository Operations - NSDL has introduced a Certification Pro
gramme in Depository Operations. This has been made compulsory for all DPs. They
have to appoint at least one person qualified in this certification programme i
n their branches. This way, NSDL ensures that each branch of a DP which services
investors has at least one person who has thorough knowledge about depository s
ystem. Investor grievances - All grievances of the investors are to be resolved
by the concerned business partner within 30 days. If they fail to do so, the inv
estor has the right to approach NSDL at the investor grievance cell of NSDL whic
h would work towards resolution of the grievance. Insurance Cover - NSDL has tak
en a comprehensive insurance policy to protect the interest of the investors in
cases of failure of the DP to resolve a genuine loss. Computer and communication
infrastructure - NSDL and its business partners use hardware, software and comm
unication systems which conform to industry standards. Further, the systems are
accepted by NSDL only after a rigorous testing procedure. NSDL s central system
comprises an IBM mainframe system with a back-up facility and a remote disaster
back-up site. Details with regard to back-up system are as under:
•
•
• •
Machine level back up: The IBM mainframe situated at Trade World (NSDL s offic
e in Mumbai) in which the data is processed has adequate redundancy built into i
ts configuration. There is a standby central processing unit (CPU) to which proc
essing can be switched over if the main system CPU fails. The disk has RAID impl
ementation which ensures that a single point failure will not lead to loss of da
ta. The system has spare disk configuration where data is automatically copied f
rom the main disk when the first failure is encountered (due to RAID implementat
ion - first failure does not result in loss of data). All network components lik
e router, communication controllers, etc., have on-line redundancy and thus a fa
ilure does not result in loss of transaction. Disaster back up site: In addition
, a disaster back up site, equipped with a computer identical to the mainframe c
omputer & computing resources, has been set up at a
40
•
Benefits & Safety
remote location away from Mumbai. NSDL operates generally from its Mumbai office
but often operations are conducted from the disaster back up site to ensure tha
t the disaster site is always in working condition. •
Back-up in case of power failure: Continuity in power supply to the main systems
is assured by providing dual uninterrupted power supply (UPS) for IBM-Mainframe
and related components wherein the two UPSs are connected in tandem. In case of
failure of primary UPS, the secondary UPS takes over instantaneously and thus,
there is no interruption in operation. Periodic Review: The NSDL hardware, softw
are and communication systems are continuously reviewed in order to make them mo
re secure. These reviews are a part of an ongoing exercise wherein security cons
iderations are given as much importance as operational efficiency.
•
These safety measures taken by NSDL have to be complemented by a similar set of
measures at the end of each member of the depository system like the DPs, Issuer
s and R&T Agents.
Benefits & Safety
41
CHAPTER 7
NSDL Charge Structure
NSDL levies charges on DPs and Issuers for different transactions. The pricing s
tructure adopted by NSDL for DPs is two-tiered. NSDL charges the DPs on differen
t types of transactions. DPs may pass on these as costs to the investors through
their own pricing structure. DPs have the discretion to charge any fees to its
Clients and may charge different types of fees to its various Clients. NSDL does
not impose any controls or restrictions on the DPs in this regard. However, som
e of the principles that the DPs are required to follow are enumerated below : 1
. Investors should be made aware of the DP s charges at the time of account open
ing. 2. Any change made by DPs in their pricing structure should be notified to
the beneficial owners (investors/clients) at least 30 days in advance. NSDL give
s adequate notice to the DPs and Issuers about changes in its charge structure.
It has been revising its charge structure in the past to pass on the benefits of
increase in volumes, back to the market. The present structure of fees of NSDL
(as on April 01, 2005) is as follows:
Fee Payable By Issuers
Annual Custody Fees
i. With effect from April 1, 2005, an Issuer of listed securities shall pay an a
nnual custody fee at the rate of Rs. 5 per folio (ISIN position) in NSDL, subjec
t to a minimum amount as mentioned below, plus service tax as applicable : Nomin
al Value of securities admitted (Rs.) Upto 5 crore Above 5 crore and upto 10 cro
re Above 10 crore and upto 20 crore Above 20 crore ii. Amount (Rs.) 4,000 10,000
20,000 30,000
The above fee would be applicable on all securities i.e. equity, debt, units of
mutual funds, pass through certificates, certificates of deposit, commercial pap
ers, preference shares etc., except Government securities. The fee will be based
on the total ISIN positions (folios) as on March 31, of the previous financial
year.
42
iii.
Provided however that, in case the issued capital or ISIN positions increase dur
ing the financial year due to issue of further shares, by way of public offer, t
he annual custody fee would be charged on a pro-rata basis, at the time of such
issue. iv. The fee will be charged every year, on a financial year basis and sha
ll be payable by April 30 of that financial year. If an issuer fails to pay the
fees by the due date, the Depository may charge interest @ 12% p.a. on the amoun
t, from the due date of payment till the payment is received by the Depository.
One-Time Custody Fees
An Issuer may pay a one-time custody fee to NSDL at the rate of 0.05% plus servi
ce tax as applicable, on the market capitalisation of the company. The market ca
pitalisation of a company will be determined on the basis of the average market
price for a period of 26 weeks proceeding the date on which the company agrees t
o make such payment. Consequent upon such payment, NSDL shall not levy any custo
dy fee on the Participants or annual custody fee on the Issuer. If a company opt
s to pay the aforesaid one-time fee, it will also be required to agree to pay on
the newly issued shares, a one-time custody fee at the rate of 0.05% (five basi
s 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
annual custody fee (to the Issuer for listed securities) or custody fee (to the
Participant for unlisted securities) as per provision mentioned under the respec
tive heads, as the case may be. However, the Issuer shall not be required to pay
any one-time custody fee on any subsequent issue of Bonus shares by the company
.
Fee for Distribution of Non-Cash Corporate Benefits (Net of service tax, as appl
icable)
i. In case of offers for sale by an offerer or disinvestment by Government of In
dia or issue of shares arising out of bonus, rights, public issues, shares split
, merger, demerger, etc., a fee at the rate of Rs. 8 per record (Rs. 6 w.e.f. Oc
tober 01, 2005) shall be charged to the Issuer, subject to a minimum fee of Rs.5
00 per corporate action. In case of conversion of shares of non pari-passu to pa
ri-passu, partly-paid to fully-paid etc., no fee shall be charged. With effect f
rom April 1, 2005, in case of issue of Commercial Papers, a flat fee of Rs.10,00
0 shall be levied on the Issuer for all issues of Commercial Papers during the f
inancial year. Earlier the same was levied on a calendar year basis. With effect
from April 1, 2005, in case of issue of short term debt instruments viz., certi
ficate
ii.
iii.
iv.
43
of deposits, MIBOR linked papers etc., a flat fee of Rs.10,000 shall be levied o
n the Issuer for ten such issues made in a financial year and an additional fee
of Rs.1,000 shall be levied on the Issuer for each subsequent issue. Earlier the
same was levied on a calendar year basis.
Fee for details of Beneficiary Owners Position (Benpos) (Net of service tax, as
applicable)
In respect of a request made by the Issuer for Beneficiary Owners Position (Benp
os), other than for statutory purposes, NSDL shall levy a fee of Rs. 5,000/- in
case there are upto 10,000 beneficial owners and Rs. 10,000/- for other cases. H
owever, the weekly downloads and downloads for statutory purposes are provided f
ree of charge.
Fee Payable By Depository Participant
Entry Fees
Each Participant shall pay, to the Depository, a non-refundable Entry Fee of Rs.
25,000.
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 Hous
e of a Stock Exchange will be exempt from payment of security deposit.
Transaction Related Fees
The following transaction related fees shall be payable by the Participants to t
he Depository:
Settlement fee:
i. A settlement fee at the rate of Rs. 8 per debit instruction (Rs. 6 w.e.f. Oct
ober 01, 2005) in a Client s account shall be charged to the Participant of the
Client. A settlement fee at the rate of Re.1.00 per instruction in respect of se
curities received from the Clearing Corporation into the Receipt-in account of e
ach Clearing Member (CM) 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.8 per debit instruction (
Rs. 6 per record w.e.f. October 01, 2005) for transfer of securities by way of i
nter-settlement transfers in the CM Account(s) shall be charged to the Participa
nt. A settlement fee at the rate of Rs.8 per debit instruction (Rs. 6 per record
w.e.f. October 01, 2005) for transfer of securities from the CM account of a Cl
earing Member to the CM account of another Clearing Member shall be charged to t
he Participant of the delivering Clearing Member.
44
ii.
iii.
iv.
Provided however that no settlement fee shall be charged : a. b. in respect of c
ommercial papers and short term debt instruments such as certificate of deposits
, MIBOR linked papers etc., in case of : i. transfers necessitated by transmissi
on; ii. transfer of the accounts of Clients from one Participant to another as a
consequence of expulsion or suspension of such Participant ; and iii. transfers
necessitated as a consequence of a minor demat account holder attaining age of
majority.
The above point (b) is subject to the Participant submitting a claim for waiver
within the stipulated time, alongwith supporting documents.
Pledge Fee
A fee at the rate of Rs.25 per instruction for creation of pledge / hypothecatio
n 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 o
f 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.1 per quarter (Rs.4 per annum) for unlisted secu
rities held under each ISIN in each and every account maintained with the Partic
ipant shall be charged to the Participant, on a quarterly basis. However, in res
pect of the following securities, no custody fee will be levied: • • • • • Gover
nment Securities National Saving Certificate (NSC)/ Kisan Vikas Patra (KVP) Pass
Through Certificates (PTC)/Securitised instruments Liquid benchmark Exchange Tr
aded Scheme Warehouse Receipts (Commodities)
No custody fee will be charged on the securities of companies, which have paid o
ne-time custody fee. No custody fee will be charged to the Participant for Liste
d Securities.
45
Fee For Dematerialisation & Rematerialisation
No fee shall be charged by the Depository on dematerialisation requests. However
, in case of rematerialisation request, a flat fee of Rs.10 per certificate shal
l 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 diffe
rence thereof.
Fees for Speed-e
The fees payable for subscribing to SPEED-e are as under: Admission Fee (non-ref
undable) will be Rs. 6 lakh, payable in three annual installments and Annual Fee
will be Rs. 1 lakh. Details are as under : 1) At the time of joining - Rs.3 lak
h (Rs. 2 lakh Admission Fee and Rs. 1 lakh Annual Fee for the first year) After
one year from the date of joining - Rs.3 lakh (Rs. 2 lakh Admission Fee and Rs 1
lakh Annual Fee for the second year) After two years from the date of joining -
Rs.3 lakh (Rs. 2 lakh Admission Fee and Rs.1 lakh Annual Fee for the third year
)
2)
3)
Annual Fee: Rs. 1 lakh (Rs. 1,00,000 for the first set up and 50,000 for each ad
ditional set up subject to a maximum of Rs 3,00,000) Quarterly Charge : Rs. 125
(For each Client Id-Smart Card User) Rs. 25 (For each Client Id-Password User)
Account Freezing Charge :
The Participant will charge the investors a fee of not more than Rs.125 per free
ze instruction.
Fees for IDeAS
Rs. 35,000 (Rs.25,000 towards Subscription fee and Rs.10,000 towards Annual Fee
for the calendar year). Rs. 10 per quarter per client (beneficiary account)
46
Fees for Warehouse Receipts
1. The following charges will be levied by NSDL on the DPs towards demat service
s for warehouse receipts. Details Transaction Charges Charges Payable Rs. 8 [per
debit] (Rs. 6 w.e.f. October 01, 2005) Rs. 50 [per request]
Remat request [delivery for commodities] Pledge charges - Pledge Creation Pledge
closure & Invocation
Rs. 25 [per request] NIL
Fees Payable By The Investor
MAPIN
Fees of Rs. 300 per application is payable to SEBI for MAPIN Registration.
47
demand)
Tel : 022 - 26598252 022 - 26598100 - 114 Fax : 022 - 26598393
2
Tel : 011-23344313-27 Fax : 011-23366658
3
Tel : (033) 24631802-1805, 24631809-1812 (Board Nos) Fax : (033) 24631791, 24631
806 Tel : 044-28475100 Fax : 044-28473633
4
5
Tel : 040-23227084/5 Fax : 040-23227086
6
Tel : 079-26580212 - 13 Fax : 079-26576123
7
Core Services
CONTENTS Volume 3
Core Services
Chapter 1 - 2 Chapter 3 - 7 Chapter 8 Chapter 9 Chapter 10 Chapter 11 : Volume 1
: Volume 2 : Account Opening ..................................................
............................ 1 : Transmission and Nomination ...................
..................................... 33 : Dematerialisation ...................
.......................................................... 49 : Trading and Sett
lement ................................................................... 70
Chapter 12 - 20 : Volume 4
CHAPTER 8
Account Opening
Any investor who wishes to avail depository services must first open an account
with a depository participant of NSDL. The process of opening a demat account is
very similar to a bank account. The investor can open an account with any depos
itory participant of NSDL. An investor may open an account with several DPs or h
e may open several accounts with a single DP. There are several DPs offering var
ious depository-related services. Each DP is free to fix its own fee structure.
Investors have the freedom to choose a DP based on criteria like convenience, co
mfort, service levels, safety, reputation and charges. After exercising this cho
ice, the investor has to enter into an agreement with the DP. The form and conte
nts of this agreement are specified by the Business Rules of NSDL. In this chapt
er we deal with the procedure for account opening under the NSDL system.
Types of Accounts
Type of depository account depends on the operations to be performed. There are
three types of demat accounts which can be opened with a depository participant
viz. (a) Beneficiary Account (b) Clearing Member Account and (c) Intermediary Ac
count. Figure 6
Types of Accounts
Beneficial Owner Account
Clearing Mem ber Account
Interm ediary Account
House
Non-House

A DP may be required to open three categories of accounts for clients - Benefici
ary Account, Clearing Member Account and Intermediary Account. A Beneficiary Acc
ount is an ownership account. The holder/s of securities in this type of account
own those securities. The Clearing Member Account and Intermediary Account are
transitory accounts. The securities in these accounts are held for a commercial
purpose only. A Clearing Member Account is opened by a broker or a Clearing Memb
er for the purpose of settlement of trades. An Intermediary Account can opened b
y a SEBI registered intermediary for the purpose of stock lending and borrowing.
Account Opening
1
Beneficiary Account
This is an account opened by investors to hold their securities in dematerialise
d form with a depository and to carry out the transactions of sale and purchase
of such securities in bookentry form through the depository system. A beneficiar
y account holder is legally entitled for all rights and liabilities attached to
the securities (i.e. equity shares, debentures, government securities, etc.) hel
d in that account. Therefore, the account is called "beneficial owner account".
A beneficiary account can be in the name of an individual, corporate, Hindu Undi
vided Family (HUF), minor, bank, financial institution, trust, etc. or the broke
r himself for the purpose of his personal investments in demat form. The account
is opened with a DP.
House account vs. non-house account - An account opened by a DP for the custody
of and transactions in its own investments is referred to as a house account, an
d all other beneficiary accounts are referred to as non-house account. DPs are r
equired to open house accounts for their own investments to prevent co-mingling
of their assets with that of their clients.
Neither the Depositories Act nor the regulations made under the Act lay down any
specifications about who can open a beneficiary account. Since all beneficial o
wners are deemed to be members of a company (under section 41(3) of the Companie
s Act), only those who are eligible to become members of a company under the Com
panies Act, can open a beneficiary account with a depository. Thus, all legal en
tities with the exception of partnership firms can open an account in the deposi
tory system.
Documents for Verification
I. Non-body Corporate Investors : For the purpose of verification, all non-body
corporate investors have to submit the following documents, as prescribed by SEB
I, alongwith the stipulated account opening form.
A beneficiary account must be opened only after obtaining a proof of identity an
d address of the applicant. An authorised official of the Participant should ver
ify the photocopies of any of following documents submitted with their correspon
ding originals and put his/her signature on them with remarks "verified with ori
ginal" before proceeding to open the account.
(a)
Proof of Identity (POI)I. II. III. IV. V. Passport Voter ID Card Driving license
PAN card with photograph MAPIN card
Account Opening
2
VI.
Identity card/document with applicant s Photo, issued by a) b) c) d) e) f) g) h)
Central/State Government and its Departments, Statutory/Regulatory Authorities,
Public Sector Undertakings, Scheduled Commercial Banks, Public Financial Instit
utions, Colleges affiliated to Universities (this can be treated as valid only t
ill the time the applicant is a student), Professional Bodies such as ICAI, ICWA
I, ICSI, Bar Council etc., to their Members; and Credit cards/Debit cards issued
by Banks.
(b)
Proof of address (POA) I. II. III. IV. V. VI. Ration card Passport Voter ID Card
Driving license Bank passbook Verified copies of a) b) c) Electricity bills (no
t more than two months old), Residence Telephone bills (not more than two months
old) and Leave and License Agreement / Agreement for sale.
VII. Self-declaration by High Court & Supreme Court judges, giving the new addre
ss in respect of their own accounts. VIII. Identity card/document with address,
issued by a) b) c) d) e) f) g) Central/State Government and its Departments, Sta
tutory/Regulatory Authorities, Public Sector Undertakings, Scheduled Commercial
Banks, Public Financial Institutions, Colleges affiliated to Universities (this
can be treated as valid only till the time the applicant is a student) and Profe
ssional Bodies such as ICAI, ICWAI, Bar Council etc., to their Members.
Account Opening
3
In case of joint holdings, POI and POA documents must be collected in respect of
all account holders. The aforesaid documents are the minimum requirement for op
ening a BO Account. Participants are advised to exercise due diligence while est
ablishing the identity of the person to ensure the safety and integrity of the d
epository system. Participants can apply stricter criteria and accordingly, deci
de to accept, select documents out of the list of documents prescribed by SEBI,
as proof of identity/address. II. For Corporate Investors : For the purpose of v
erification, all corporate investors have to submit the following documents as p
rescribed by SEBI alongwith the stipulated account opening form. Memorandum & Ar
ticles of Association (MOA & AOA), Board resolution for opening demat account an
d the list of authorised signatories alongwith their specimen signatures and pho
tographs, etc. Introduction by an existing account holder or by the applicant s
bank. Proof of address of the corporate, evidenced by the document registered wi
th Registrar of Companies or acknowledged copy of Income Tax Return or Bank Stat
ement or Leave and License Agreement/Agreement for sale.
(1)
(2) (3)
An authorised official of the Participant shall verify the proof of address with
the original documents and affix his/her signature on the documents submitted b
y the Client, while exercising such due diligence.
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 explai
ned below. Some details are common to all types of accounts. These are: 1. 2. 3.
4. 5. 6. 7. 8. Name of the holder Date of birth (for individual accounts) Occup
ation Address & phone/fax number Bank details like name of bank, type of account
(current/savings), account number, branch address, MICR, etc. PAN number, if ap
plicable Details of nomination (for individual accounts only) Specimen signature
s
Account Opening
4
9.
MAPIN UIN (s)
10. E-mail address 11. Mobile number 12. Address for communication
Beneficiary Account - Procedure for Opening an Account
Investors have the choice of selecting a DP based on their convenience, comfort,
service levels, safety, reputation, charges, etc. They have the flexibility to
have more than one account with the same DP or any other DPs. No minimum balance
is required for opening a depository account. Investors also have the freedom t
o close an account with one DP and open another one with any other DP. The type
of the account opening form to be filled by an investor and the list of document
s required depend on the type of beneficiary account to be opened - whether it i
s for NRIs or corporates or individual. Further, the individual account can be i
n a single name or joint names. Clearing Members and brokers have to open a bene
ficiary account if they have to deal with their own holdings. There are several
client types in the depository system and different codes are allotted to them.
These are listed below : 1. Resident Ordinary Hindu Undivided Family (HUF) 2. Fi
nancial Institutions (FI) Government-sponsored FI State Financial Corporation Ot
hers 3. Foreign Institutional Investors (FIIs) Mauritius-based Others 4. Non-res
ident Indian (NRI) Repatriable Non-Repatriable Depository Receipt
Account Opening
5
5.
Body Corporate Domestic Company Overseas Corporate Body (OCB) Government Company
Central Government State Government Co-operative Body Non-Banking Finance Compa
nies (NBFC) Non-NBFC Broker Foreign Bodies Group Companies Others Depository Rec
eipt
6. 7. 8. 9.
Clearing Member (CM) Foreign National - Foreign National / Depository Receipt Mu
tual Fund - Depository Receipt Trust
10. Bank Foreign Bank Co-operative bank Nationalised Bank Others 11. Intermediar
y
Client-Participant Agreement – Anyone intending to avail depository services sho
uld
enter into an agreement with a DP. The standard agreement is approved by SEBI an
d forms a part of NSDL Bye-Laws. This agreement sets out in contractual form the
nature of services to be provided, rights and obligations of both the DP as wel
l as the client, and the fees/charges payable for the services.
Account Opening
6
Figure 8 DP- Client Agreement
•
DP - Client agreement provides for – DP Charges • • – – – – to be specified in S
chedule A of agreement DP may revise with minimum 30 days notice
Movement of securities from the account only on the basis of proper authorisatio
n from client Transaction statement Both parties have the right to terminate agr
eement DP to resolve grievance within 30 days
•
In case the client defaults in payment of charges, DP may charge a maximum inter
est of 24% p.a.
This agreement has to be made on non-judicial stamp paper of appropriate denomin
ation and should be signed by: (a) (b) (c) (d) the depository participant, itsel
f or through an authorised signatory; and the sole holder in case of single hold
ing; or all the joint holders in case of joint holding, or the constituted attor
ney in the case of NRI/corporate/trust accounts.
A copy of the duly executed agreement has to be given to the client. FII clients
, registered with SEBI and who have entered into an agreement with the DP direct
ly or through their constituted attorney under regulation 16(1) of SEBI (Foreign
Institutional Investors) Regulations 1995, need not execute this standard agree
ment. The FII-DP agreement authorises the DP to act on behalf of the FII for ava
iling depository services and it should have been filed with SEBI.
Types of Application Forms
For each kind of account, there is a different application form. A DP must under
stand clearly the differences in the application forms, to facilitate efficient
and error-free service to investors. Separate forms are prescribed for individua
ls (including HUF) and corporate clients/clearing member accounts.
Account Opening 7
1.
Forms for Individual Accounts:
Figure 7 - Annexure J of NSDL Business Rules Participant Name, Address & DP Id (
Pre-printed) APPLICATION FOR OPENING AN ACCOUNT (For Individuals Only) Date : Cl
ient -Id (To be filled by Participant)
I/We request you to open a depository account in my/our name as per the followin
g details: (Please fill all the details in CAPITAL LETTERS only) Type of Account
Ordinary Resident HUF Others (please specify) Sole/First Holder’s Details Name
(Mr./Ms.) Name of Father/Husband Local / Permanent Address Correspondence Addres
s Telephone No. Fax Number Occupation Other Holder Details Second Holder Name (M
r./Ms.) Name of Father/Husband Address Pin Code Telephone No. Fax Number Occupat
ion Third Holder Name (Mr./Ms.) Name of Father/Husband Address Pin Code Telephon
e No. Fax Number Occupation Mobile No. E-mail ID: MAPIN ID: SMS facility Yes No.
Mobile No. E-mail ID: MAPIN ID: SMS facility Yes No. Mobile No. E-mail ID: MAPI
N ID: Pin Code Pin Code SMS facility Yes No. NRI-Repatriable NRI-Non-Repatriable
Account Opening
8
Address for communication / Corporate Benefits (Default option is Local Address)
Local / Permanant Address Correspondence Address / Foreign Address
Guardian Details (In case the Sole Holder is a minor) Name (Mr./Ms.) Relationshi
p (if any) Address
Pin Code Date of Birth (of minor) D In Case of NRIs Foreign Address D M M Y Y Y
Y
RBI Reference No.
RBI Approval Date D D M M Y Y Y Y
Bank Details Bank Sub-type Bank Account No. Bank Name Branch Address Pin Code 9-
Digit Code Number of the Bank and branch appearing on the MICR cheque issued by
the Bank Financial Details Savings Account Current Account
P.A.N.
Sole/First Holder Second Holder Third Holder Guardian (In case of minor) Standin
g Instructions I/We authorise you to receive credits automatically into my/our a
ccount. Account to be operated through Power of Attorney (PoA)
IT Circle / Ward / District No.
Yes Yes
No No
Account Opening
9
Please attach recent passport size photographs in the space provided below: Sole
/First Holder Signature across Photograph Second Holder Signature across Photogr
aph Third Holder Signature across Photograph
Declaration
The rules and regulations of the Depository and Depository Participants pertaini
ng to an account which are in force now have been read by me/us and I/we have un
derstood the same and I/we agree to abide by and to be bound by the rules as are
in force from time to time for such accounts. I/We also declare that the partic
ulars given by me/us are true to the best of my/our knowledge as on the date of
making such application. I/We further agree that any false / misleading informat
ion given by me or suppression of any material fact will render my account liabl
e for termination and further action. Name(s) of holder(s) Sole/First Holder (Mr
./Ms.) Second Holder (Mr./Ms.) Third Holder (Mr./Ms.) Guardian (in case of minor
)(Mr./Ms.) NOMINATION I/We wish to make a nomination and do hereby nominate the
following person in whom all rights and / or amount payable in respect of securi
ties held in the Depository by me / us in the said beneficiary owner account sha
ll vest in the event of my / our death. Name of the Nominee (Mr./Ms.) Relationsh
ip with the Applicant (if any) Address of Nominee Pin Code Date of Birth (in cas
e of minor) Name of Guardian (Mr./Ms.) (in case Nominee is a minor) Address of G
uardian Pin Code Signature of Guardian Signature of Nominee DDMMYYYY Signature(s
)
Account Opening
10
Photographof Nominee Signature of Nominee across Photograph Signature of two Wit
nesses Name 1. Address
Photographof Guardian
(in case of minor)
Signature of Guardian across Photograph
Signature with date
2.
(To be signed by the applicant only in case of nomination)
(Sole/First Holder) Notes :
(Second Holder)
(Third Holder)
1. All communication shall be sent at the adress of the Sole/First holder only.
2. Thumb impressions and signatures other than English or Hindi or any of the ot
her language not contained in the 8th Schedule of the Constitution of India must
be attested by a Magistrate or a Notary Public or a Special Executive Magistrat
e. 3. As per NSDL Circular No. NSDL/PI/2004/1622 dated dated September 7, 2004 p
ursuant to SEBI Circular No. MRD/DoP/Dep/Cir-29/2004 dated August 24, 2004 a cop
y of any one of the following documents may be accepted as proof of identity / p
roof of address (local/correspondence/foreign address as the case may be): Proof
of Identity: Passport, Voter ID Card, Driving license, PAN card with photograph
, MAPIN card, Identity card/document with applicant s Photo, issued by a) Centra
l/State Government and its Departments, b) Statutory/Regulatory Authorities, c)
Public Sector Undertakings, d) Scheduled Commercial Banks, e) Public Financial I
nstitutions, f) Colleges affiliated to Universities, g) Professional Bodies such
as ICAI, ICWAI, ICSI, Bar Council etc., to their Members; and h) Credit cards/D
ebit cards issued by Banks. Proof of Address: Ration card, Passport, Voter ID Ca
rd, Driving license, Bank passbook, verified copies of Electricity bills (not mo
re than two months old)/ Residence Telephone bills (not more than
Account Opening
11
two months old)/ Leave and License agreement / Agreement for sale, Self-declarat
ion by High Court & Supreme Court judges, giving the new address in respect of t
heir own accounts, Identity card/ document with address, issued by a) Central/St
ate Government and its Departments, b) Statutory/ Regulatory Authorities, c) Pub
lic Sector Undertakings, d) Scheduled Commercial Banks, e) Public Financial Inst
itutions, f) Colleges affiliated to universities; and g) Professional Bodies suc
h as ICAI, ICWAI, Bar Council etc., to their Members. Participants must verify t
he copy of the document with the original. 4. Instructions related to nomination
, are as below: I. The nomination can be made only by individuals holding benefi
ciary owner accounts on their own behalf singly or jointly. Non- individuals inc
luding society, trust, body corporate, partnership firm, karta of Hindu Undivide
d Family, holder of power of attorney cannot nominate. If the account is held jo
intly all joint holders will sign the nomination form. A minor can be nominated.
In that event, the name and address of the Guardian of the minor nominee shall
be provided by the beneficial owner.
II.
III. The Nominee shall not be a trust, society, body corporate, partnership firm
, karta of Hindu Undivided Family or a power of Attorney holder. A non-resident
Indian can be a Nominee, subject to the exchange controls in force, from time to
time. IV. Nomination in respect of the beneficiary owner account stands rescind
ed upon closure of the beneficiary owner account. Similarly, the nomination in r
espect of the securities shall stand terminated upon transfer of the securities.
V. Transfer of securities in favour of a Nominee shall be valid discharge by th
e depository against the legal heir.
VI. The cancellation of nomination can be made by individuals only holding benef
iciary owner accounts on their own behalf singly or jointly by the same persons
who made the original nomination. Non- individuals including society, trust, bod
y corporate, partnership firm, karta of Hindu Undivided Family, holder of power
of attorney cannot cancel the nomination. If the beneficiary owner account is he
ld jointly, all joint holders will sign the cancellation form. VII. On cancellat
ion of the nomination, the nomination shall stand rescinded and the depository s
hall not be under any obligation to transfer the securities in favour of the Nom
inee. 5. Strike off whichever is not applicable. ===============================
===============================================
Acknowledgement
Participant Name, Address & DP Id Accepted/Rejected the application from Mr/Ms a
s the sole/first holder alongwith and as the second and third holders respective
ly for opening of a depository account. Your Client Id will be intimated to you
shortly. Please quote the DP Id & Client Id allotted to you in all your future c
orrespondence.
Date : Participant Stamp & Signature
Account Opening
12
The forms prescribed by NSDL require the applicants to give the following detail
s: (a)
Name(s) of account holder(s) - The participant should ensure that the name is id
entical to that which appears on the certificate(s) to be dematerialised. In the
case of a joint account, the names of the holders should be in the same order a
s appearing in the share certificate to be dematerialised. Investors are advised
to open their account in 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 veraci
ty of the information. Investors can dematerialise 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/debits and rejection of demat requests are minimised. For example, there
may be two investors with the same initials and same last name - A K Khanna may
be either Arun Kumar Khanna or Ashok Kishore Khanna. If the name is fully spelt
out there is no ambiguity and there is no need then for the DP to take steps to
verify the identity. Similarly, investor can dematerialise shares held in any f
orm of name like A.K. Khanna, Arun K. Khanna, A. Kumar Khanna, Arun Kumar K., et
c., into one account.
(b) Mailing and communication address(es) - The veracity of the applicant’s addr
ess is determined through the documents submitted for verification like verified
copies of Ration card, Passport, Voter ID card, Driving license, Bank passbook,
Electricity bills (not more than two months old), Residence Telephone bills (no
t more than two months old), Leave and License Agreement / Agreement for sale, S
elf-declaration by High Court & Supreme Court judges, giving the new address in
respect of their own accounts. Identity card/document with address, issued by Ce
ntral/State Government and its Departments, Statutory/Regulatory Authorities, Pu
blic Sector Undertakings, Scheduled Commercial Banks, Public Financial Instituti
ons, Colleges affiliated to Universities (this can be treated as valid only till
the time the applicant is a student) and Professional Bodies such as ICAI, ICWA
I, Bar Council etc., to their Members. For NRI accounts, proof is required for b
oth addresses - that of the account holder as well as the constituted attorney.
For corporate accounts, a copy of Memorandum of Association, Articles of Associa
tion, Board resolution permitting opening of account, the registered address of
the Company as well as addresses of the person(s) authorised to operate the acco
unt on behalf of the Company have to be furnished. (c)
Details of guardian in case account holder is a minor - Only a guardian can open
a depository account for a minor. The guardian remains the beneficial owner in
the records of the depository for the securities held on behalf of the minor til
l he becomes a major. The guardian is required to sign the application form and
details of his name and address need to be given in addition to the details of t
he minor.
Account Opening
13
(d)
Foreign address and RBI approval details for NRI, FII or OCB accounts - For fore
ignbased clients like NRIs, Flls, OCBs, etc., the DP must obtain original or att
ested copies of the power of attorney and the approval letter from RBI permittin
g them to invest. If the account holder is an FII or an OCB, SEBI registration d
etails along with attested copy of registration certificate issued by SEBI and a
uthorisation letter is required. Clearing member details for a clearing account
- A broker account as a clearing account can be opened only after the depository
approves it and allots a clearing-member businesspartner identification number
(CM-BP-ID). A broker member can have only one clearing account per stock exchang
e 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 Clea
ring Corporation allotting a CC-CM-ID. In case the clearing member account is be
ing transferred from any other DP, a no-objection certificate from the earlier D
P is also required. Details of bank account - Details of bank account of the acc
ount holder, including the 9-digit code number of the bank and branch appearing
on the MICR cheques issued by the bank have to be filled in the application form
. Companies use this information for printing them on dividend/interest warrants
, etc. Details of Income-tax Permanent Account Number (PAN) or GIR No. - In case
the account holder is not an income-tax assessee, or he has not yet been allott
ed a PAN or GIR No., the DP must obtain a declaration to this effect from the ac
count holder. In other cases, a photocopy of PAN card or the acknowledgement of
latest income-tax returns is required. Nomination declaration - A beneficial own
er can make a nomination of his account in favour of any person by filing the no
mination form with his DP. Such nomination is considered to be conclusive eviden
ce of the account holder(s) disposition in respect of all the securities in the
account for which the nomination is made. The nomination form submitted should b
e in the format prescribed by NSDL in its Bye-Laws and Business Rules. Details o
f introducer - If an existing client has introduced a new client to the DP his s
ignature is required on the form. In other cases, the DP may ask for details tha
t he considers appropriate. For example, the DP may require the application form
to be attested by the bankers, or employer of the client.
(e)
(f)
(g)
(h)
(i)
Supporting Documents – As mentioned earlier, supporting documents, required to b
e submitted with the account opening form, include
1. 2. photograph of account holder(s)/authorised-holders/constituent attorney, e
tc, proof of incorporation for companies, e.g., certified copies of the memorand
um of association, trust deed, etc.,
Account Opening
14
3. 4.
certified copy of the document authorising the specified person(s) to operate th
e account, e.g., a copy of the board resolution etc., any other document the DP
may consider necessary to establish the genuineness of the account holder(s).
2. Forms for Joint Accounts - A depository account may be opened and maintained
in the names of more than one person. All the joint-holders have to sign the app
lication form and the agreement. The supporting documents and photograph should
also be provided for all joint holders. The account opening module of NSDL syste
m provides only for (up to) three joint names as at present.2 Though the benefic
ial ownership of jointly held securities vests in all joint holders, communicati
ons about the joint depository account are provided only to the first holder. Th
e dividend and interest warrants, annual reports and notices for meetings are al
so issued to the first-named joint holder only. In the event of the death of a j
oint 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. T
he earlier account having the deceased holder s name is closed after such transm
ission. The chapter 9 on Transmission gives the detailed procedure to give effec
t to this type of request.
Transposition - The process of effecting changes in the order of joint names app
earing on a security certificate is called Transposition. Joint holders can requ
est a company to transpose names by way of letter and it does not require affixi
ng stamp duty. If the joint holders do not want to open separate accounts, they
can have the sequence of names on the certificates to tally with the sequence of
names in which depository account is opened.
2
NSDL has prescribed the following special procedure for handling of cases of fou
r or more joint holders: (a) A separate account could be opened in the name of t
he joint holders with four or more names. (b) No standing instructions to receiv
e credits, receipt instructions, new issue applications and any other instructio
n which has the effect of crediting this account should be accepted in respect o
f such account. (c) Appropriate annexure should be attached to the account openi
ng form to include various details, viz., name, address, signatures, etc. of mor
e than three holders. (d) An undertaking should be obtained from the client that
he will not use this account for the purpose of allotments in the primary marke
t or for purchases from the secondary market. Hence the client will give no inst
ructions (other than for dematerialisation, bonus, rights and preferential offer
) to any person which has the effect of crediting this account. (e) While openin
g the account, the DP should capture the names of the four or more joint holders
by numbering them in DPM and entering the first holder s name in the first hold
er s field. The rest of the names have to be accommodated in the fields for the
third holder. (f) The DP should process the dematerialisation request as per the
usual procedure while ensuring that the pattern of holding for each certificate
tallies with the pattern of holding of the account. (g) After the balances in s
uch a joint account become nil, the account should be closed. (h) For holdings o
f a Trust in the joint names of four or more trustees, this procedure for openin
g the account can be adopted without any restrictions on receiving credits into
that account.
Account Opening
15
3. Form for HUF – The depository account of an HUF can be opened only in the nam
e of its Karta. DPs should clearly designate the account in the name of the Kart
a as such. The form for opening HUF accounts is the same as the individual accou
nt. While opening such accounts the DP should select the HUF sub-type in the
Individual category of account opening. 4. Form for Companies – A Company, bein
g an artificial person, can open a demat account, provided its memorandum author
ises it to make investment in the securities of other companies. A demat account
in the name of a company should be operated by the person(s) authorised by a re
solution passed by its board of directors. The DP should obtain an attested copy
of the memorandum and board resolution, authorising the opening and mode of ope
ration of the demat account.
Details of Introducer - If an existing client has introduced a new client to the
DP his signature is required on the form. In other cases, the DP may ask for de
tails that it considers appropriate.
Figure 7- Annexure K of NSDL Business Rules Participant Name, Address & DP Id (P
re-printed) APPLICATION FOR OPENING AN ACCOUNT (For Corporates/Clearing Members
only) Date : Client -Id (To be filled by Participant)
We request you to open a depository account in our name as per the following det
ails: (Please fill all the details in CAPITAL LETTERS only) Type of Account Body
Corporate FI Others (please specify) Client Details Name of Corporate (Sole/Fir
st Holder) Registered Office Address Pin Code Correspondence Address (if differe
nt) Pin Code Telephone No. Fax Number Occupation Mobile No. MAPIN ID: SMS facili
ty Yes No. Bank FII Trust OCB
Account Opening
16
Other Holder Details Second Holder Name Name of Father/Husband Address Pin Code
SMS facility Yes MAPIN ID:
Telephone No. Fax Number Occupation Third Holder Name Name of Father/Husband Add
ress
Mobile No. E-mail ID:
No.
Telephone No. Fax Number Occupation
Mobile No. E-mail ID: MAPIN ID:
Pin Code SMS facility Yes
No.
In Case of FIIs/OCBs/Others (as may be applicable) Foreign Address
RBI Reference No. RBI Approval Date SEBI Registration No. (for FIIs) Address for
communication / Registered / Permanant Address Corporate Benefits (Default opti
on is Registered office Correspondence Address / Foreign Address Address) Bank D
etails Bank Sub-type Bank Account No. Bank Name Branch Address Pin Code 9-Digit
Code Number of the Bank and branch appearing on the MICR cheque issued by the Ba
nk Savings Account Current Account
Account Opening
17
Financial Details
P.A.N.
Sole/First Holder Second Holder Third Holder Standing Instructions I/We authoris
e you to receive credits automatically into my/our account. Account to be operat
ed through Power of Attorney (PoA)
IT Circle / Ward / District No.
Yes Yes
No No
Introduction
(by an existing account holder / applicant’s bank)
DP ID:
Client ID:
(Incase of existing account holder)
I confirm the identity and address of the applicant(s) Name: Signature of Introd
ucer / Signature and Seal incase of Bank (To be verified by DP official) Clearin
g Member Details (to be filled up by Clearing Members only) Name of Stock Exchan
ge Name of Clearing Corporation Clearing Member Id SEBI Registration No. Trade N
ame CM-BP-Id
(to be filled up by Participant)
Please attach recent passport size photographs in the space provided below: Sole
/First Holder Second Holder Third Holder
Signature Across Photograph
Account Opening
18
Declaration
The rules and regulations of the Depository and Depository Participants pertaini
ng to an account which are in force now have been read by us and we have underst
ood the same and we agree to abide by and to be bound by the rules as are in for
ce from time to time for such accounts. We also declare that the particulars giv
en by us are true to the best of our knowledge as on the date of making such app
lication. We further agree that any false / misleading information given by us o
r suppression of any material fact will render our account liable for terminatio
n and further action. Authorised Signatories (Enclose a Board Resolution for Aut
horised Signatories) Sole/First Holder First Signatory Second Signatory Third Si
gnatory Other Holders Second Holder Third Holder Mode of Operation for Sole/Firs
t Holder (In case of joint holdings, all the holders must sign) Any one singly A
s per resolution Others (please specify) Jointly by
Name
Signature(s)
Notes: 1. In case of additional signatures, separate annexures should be attache
d to the application form. 2. As per NSDL Circular No. NSDL/PI/2002/1319 dated A
ugust 8, 2002, following documents may be accepted as proof of identity / proof
of address: (i) Memorandum & Articles of Association (MOA & AOA), board resoluti
on for opening demat account and the list of authorised signatories alongwith th
eir specimen signatures and photographs, etc. (ii) Introduction by an existing a
ccount holder or by the applicant s bank. (iii) Proof of address of the corporat
e evidenced by the document registered with Registrar of Companies or acknowledg
ed copy of Income Tax Return or Bank Statement or Leave and License agreement/Ag
reement for sale. 3. Thumb impressions and signatures other than English or Hind
i or any of the other language not contained in the 8th Schedule of the Constitu
tion of India must be attested by a Magistrate or a Notary Public or a Special E
xecutive Magistrate. 4. Strike off whichever is not applicable.
Account Opening
19
Acknowledgement Participant Name, Address & DP Id Accepted/Rejected the applicat
ion from M/s as the sole/first holder alongwith and as the second and third hold
ers respectively for opening of a depository account. Your Client Id/CM-BP-Id (i
n case of Clearing Members) will be intimated to you shortly on acceptance. Plea
se quote the DP Id & Client Id allotted to you (CM-BP-Id in case of Clearing Mem
bers) in all your future correspondence. Date : Participant Stamp & Signature
5. Form for Minors – A minor may hold shares through his guardian. Accordingly,
a minor may open a depository account only through his guardian. The DP should o
btain documents evidencing the age of minor, e.g., birth certificate, along with
the account opening form.
Procedure to be followed in the event of a minor demat account holder attaining
the age of majority : In this regard, it is hereby clarified that, on attaining
majority (i.e. 21 years in case of minor, whose guardian is court-appointed or 1
8 years, where minor s account is represented by a natural guardian), the accoun
t holder should open a new account as per the guidelines prescribed in Circular
Nos. NSDL/PI/2004/1622 and NSDL/PI/2004/2117 dated September 7, 2004 and Novembe
r 25, 2004 respectively and execute an agreement as prescribed under Annexure B
of the Bye-Laws of NSDL. The account holder should also submit the following to
the Participant at the time of opening new account:
(1) (2) an application for transferring securities from the old account to the n
ew account and to hold and operate the said new account; and a duly attested cop
y of birth certificate.
Participants are advised to ensure that the new account opened does not have joi
nt holder(s). Further, Participant should transfer the securities from the old a
ccount to the new account and close the old account only after satisfying itself
about the identity of the accountholder. Participants may submit the claim for
waiver of transaction fee charged on account of minor attaining majority, once a
month, (not later than 2 months after opening the new account) to NSDL as per t
he prescribed format.
Partnership Firm - Partnership firm cannot be a member of a company under the pr
ovisions of
Companies Act, 1956 due to which a depository account cannot be opened in the na
me of a partnership firm. However, all the partners of the firm can sign as join
t holders, and a joint account
Account Opening
20
may be opened in the name of the partners. NSDL Business Rules make it clear tha
t opening a depository account in the name of a partnership firm will be treated
as non-compliance with the Business Rules, and will be punishable with penalty
points. However a CM Account can be opened for broker firms since partnership fi
rms are allowed to become members of a stock exchange.
Signatures/Thumb Impression – The account opening form should be signed by the s
ole holder, in case of single holding; all joint holders, in case of joint holdi
ng; authorised signatories, in the case of corporate accounts; by guardian, in c
ase of a minor; or the constituted attorney, in the case of NRI accounts. If the
signature is in any language other than those specified in the Schedule VIII to
the Constitution of India or English, it should be attested by a Magistrate or
a Notary Public or a Special Executive Magistrate.
In case of illiterate person(s), at the time of opening an account with a Partic
ipant, the person must affix the thumb impression (left hand thumb in case of a
male and right hand thumb in case of a female) on the agreement as well as on th
e account opening form. All accounts opened by illiterate person(s) must be eith
er introduced by an existing account holder or must be attested by applicant s b
ank. The Client(s) must come in person to open the account and submit instructio
n forms and affix his/her thumb impression in the presence of the official of th
e DP. The DP should identify the Client(s) by verifying the photograph submitted
by the Client(s) and read out/explain the contents of the account opening form,
DP-Client agreement and delivery instruction form to the Client(s). The officia
l of the DP should then put his signature and remarks "Details explained to the
Client(s)", on the account opening form, copy of the agreement and delivery inst
ruction form. In case such Client(s) is/are temporarily or permanently disabled
due to which he/she cannot come in person to submit the instruction form as ment
ioned above, the thumb impression of the Client(s) on the instruction forms must
be attested by a Magistrate or a Notary Public or a Special Executive Magistrat
e or a similar authority holding a Public Office and authorised to use the Seal
of his office or a manager of the account holder s bank. The Client should also
produce a medical certificate about his/her disability. A remark should be put i
n the DPM System (under the authorised signatory details under "Signatories" scr
een) at the time of opening the account that the account holder is illiterate or
disabled. Further, the instruction forms issued to such Client(s) should be pre
-stamped as "Thumb Impression". At the time of opening of account, the aforesaid
rules should be explained to the Client(s) in the presence of a witness, who wi
ll have to sign the agreement and the account opening form, as a witness.
Client Account Number - On receipt of a valid application form (complete in all
respects
and duly signed) the DP should verify its contents to his satisfaction. If, afte
r verification, the DP accepts the application and the client-participant agreem
ent is signed, the DP has to enter the information on the application form into
the Depository Participant Module (DPM). The system then generates a client acco
unt number which should be referenced by the client for all its
Account Opening 21
transactions in the depository system. The system also generates a report contai
ning the details of client captured from the account opening form. The DP should
provide a copy of account opening confirmation report to the client for his ref
erence and verification about the correctness of details. The account number has
two parts, i.e., 8-digit DP-ID (identification number of Depository Participant
) and 8-digit client account number. Together this number is unique across depos
itories. After opening the demat account, the client master list should be sent
to the client at the address given in the account opening form.
Standing Instructions – A DP may register the transfer of securities to or from
a beneficial
owner s account only on receipt of instructions from the beneficial owner. No de
bit or credit can be given to the account of a beneficial owner without a due au
thorisation from such beneficial owner. However, for ease of operation and elimi
nation of redundancies, a clause has been included in the standard format of cli
ent participant agreement. This clause enables clients to give standing instruct
ions to DPs, at the time of opening the account itself, for receiving securities
to the credit of their accounts without any further instruction from them. Thes
e instructions are given as a part of the account opening form itself. Though no
t mandatory, it would be better to ask clients to specifically sign in the stand
ing instruction column, to avoid any confusion at a later stage. Figure 10 Check
List for Account Opening Proof of Identity: An authorised official of the Parti
cipant should verify the photocopies of the any of the prescribed documents subm
itted with their corresponding originals. [Reference to prescribed documents by
SEBI, to be made as on Page 2, under head Documents for Verification - (a) Proof
of Identity.] Proof of address (POA): An authorised official of the Participant
should verify the photocopies of the any of the prescribed documents submitted
with their corresponding originals. [Reference to prescribed documents by SEBI,
to be made as on Page 3, under head - Documents for Verification - (b) Proof of
Address.] Ensure that all compulsory fields in the account opening form are fill
ed (except PAN/ GIR & nomination which are optional). In case of corporate, ensu
re a copy of Board resolution of authorised signatories. Ensure proper authoriza
tion in case of power of attorney holder. DP should give a copy of agreement to
the client, including the charges. Inform clients regarding standing instruction
facility. Branches of DP to co-ordinate & follow up with Head Office for accoun
t opening. Ensure account is activated before forwarding Client ID to client. In
form settlement deadlines to clients.

Account Opening
22
Clearing Member Account
The entities that are authorised to pay in and receive the pay out from a Cleari
ng Corporation (CC)/ Clearing House against trades done by them or their clients
are known as clearing members (CM). CMs are identified in the system through th
eir CM-BP-ID. All pay-in and payout transactions are carried out through their a
ccounts. There are two types of clearing members: 1. all members of a stock exch
ange popularly known as brokers, are clearing members; 2. custodians who are per
mitted by the stock exchange to act as a clearing member.
Procedure to Open a Clearing Member Account
The steps undertaken to open the account are same as those of individuals, diffe
rence lies in the type of form and details to be filled in and documents to be s
ubmitted. The only major difference is that the clearing member has to first reg
ister itself with the clearing corporation and obtain a CCCM-ID.The clearing acc
ount is identified by the combination of CC-CM-ID given by the clearing corporat
ion, CM-BP-ID given by the depository and the Client-ID given by the DP. Before
opening a clearing account, the DP should send to the depository the clearing me
mber s account opening form. The Depository then allots the CM-BP-ID. Based on t
he CM-BP-ID so allotted, the account gets activated. The DP then generates Clien
t-ID and communicates the date of opening the account in DPM system to the depos
itory. Details to be filled in the form are: 1. Name of the Clearing Member 2. C
ompany s short name, if any 3. Address of the registered office, telephone numbe
r, fax number, e-mail, if any 4. Name and address of the authorised signatories,
their designations and telephone numbers, status code, sub-status code 5. Bank
account particulars, bank name and its branch, current account number, RBI refer
ence number, RBI approval date, PAN/ GIR number 6. Signatures of Authorised sign
atory(ies)
Details of Introducer - If an existing client has introduced a new client to the
DP his signature is required on the form. In other cases, the DP may ask for de
tails that it considers appropriate.
A separate enclosure has to be attached to the account opening form specifying t
he following details: 1. 2. 3. Name and address of the clearing member Name and
address of the clearing corporation Clearing Corporation Id (CC-ID)
Account Opening
23
4. 5. 6. 7. 8.
Clearing Member Id (CM-ID) Stock Exchange clearing code SEBI Registration number
Trade name Copy of Board Resolution for authorised signatories should also be s
ubmitted.
Generally, there will be only one CM account per broker for a stock exchange.
Checklist for a Clearing Member Account
• • • • • • Ensure that all compulsory fields in the account opening form have b
een entered. Ensure that a copy of the board resolution for authorised signatori
es has been enclosed in case of corporates. Ensure that required letter from Sto
ck Exchange giving CC-ID is enclosed. Ensure CM is informed of standing instruct
ion facility for receipt. Ensure CM is informed that in case of delivery to CC i
nstruction, either of the joint-holders can sign the instruction. If the forms a
re received at the branch of a DP, ensure that the account opening form along wi
th required references is dispatched to head office in a proper and timely manne
r. If required, retain a copy. Ensure follow up with head office in case defined
deadline in respect of account opening is not met.
•
The clearing account should only be used for clearing and settlement purposes an
d not for any other purpose, e.g., holding of securities. All the securities rec
eived in a settlement account should be transferred to respective beneficial acc
ounts as soon as possible, but in no case later than the time prescribed by the
depository/ stock exchange/SEBI in this regard. The opening of clearing member a
ccount constitutes a "standing instruction" to receive credits from the clearing
corporation when there is a pay-out.
Intermediary Account – As per SEBI Regulations on Stock Lending and Borrowing, o
nly
an approved intermediary can lend and borrow stocks from clients. This intermedi
ary borrows from lenders and lends to borrowers. Intermediaries registered with
SEBI as approved intermediary may open an intermediary account with a DP of its
choice, for executing stock lending and borrowing transactions made through them
. An intermediary account may be opened only after obtaining registration from S
EBI under an approved Stock Lending Scheme, and getting the approval of the depo
sitory for opening the account. The process of opening an intermediary account i
s same as for opening a corporate beneficiary account. Securities may
Account Opening
24
be transferred to or from an intermediary account only as per the procedure pres
cribed for this by the depository.
Closure of Account
Closure on Client’s Request – DP can close a depository account on receipt of an
application in the prescribed format. The application should be made by the acc
ount holder or by all the joint holders. An account can be closed only when ther
e is no balance in the account. In case there is any balance in the account soug
ht to be closed, the following steps are necessary.
(a) (b) Rematerialisation of all securities standing to the credit of the accoun
t at the time of making the application for closure; or Transferring the balance
to the credit of another account opened by the same account holder(s) either wi
th the same participant or with a different participant.
However, where demat request(s) are pending for disposal for a long time in a de
mat account and the client desires to close such an account, the following proce
dure maybe adopted by the client : Write a letter in the prescribed format to th
e Issuer (with a copy marked to its Participant and respective RTA), requesting
for rejection of the pending dematerialisation request(s) and send fresh physica
l security certificate(s) to the Client directly. Enclose a copy of the demateri
alisation request generated from DPM system, duly signed & stamped by the Partic
ipant, alongwith the aforesaid letter to the Issuer. On receipt of copy of the l
etter from the Client, the Participant may also take up the matter with the conc
erned Issuer and/or its RTA for rejecting the instruction expeditiously. After t
he pending dematerialisation request(s) is/are rejected by the Issuer and/or its
RTA, the Participant can close the account of such Client. Before closing the a
ccount 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 ba
lance lying in the account.
Consolidation of Accounts – Some clients could have opened multiple accounts to
dematerialise their shares held in multiple combination and sequence of names. H
owever, they may not need so many accounts after they have dematerialised their
shares and may want to bring all their share holdings into one or fewer accounts
. This can be achieved by using normal off market transfer instruction. Closure
by DP – The DP may also initiate closure of a client s account if the client has
defaulted in performing its obligations laid out in the client-participant agre
ement. The participant should give sufficient notice to the client before initia
ting closure of his account. The notice should clearly state the reasons for clo
sure of account. The process of closing account in such a case is the same as th
at of client-initiated closure.
Account Opening 25
Closure/Shifting of Clearing Account – A clearing member may transfer its cleari
ng account from one DP to another DP. For this, simultaneously applications have
to be made for closure of account to the earlier DP and for opening of new clea
ring member account to the new DP. On receipt of the application, the new DP for
wards the application to the depository for approval and allotment of a new CM-B
P-ID. Once the new CM-BP-ID is allotted, the new DP opens a new clearing account
and intimates the depository about the new Client-ID. On receipt of intimation
from the new participant, the depository advises the old DP to close the account
. The old DP then closes the account and intimates the clearing member. All pay-
out of securities, subsequent to closure of old clearing account takes place in
the new account. Mass Shifting of Accounts – DPs may set up new DPM centres as t
heir business expands or to provide direct connectivity from different geographi
cal locations. However, there may be several accounts from that location but the
account may already have been opened in another DPM machine. For example, a DP
may start operation from Delhi and may be servicing clients of Faridabad, Agra,
Mathura, etc from this DPM. When the DP finds enough business at Mathura, he may
set up a direct connectivity machine at Mathura also. NSDL has given a facility
to shift in mass, all the Mathura accounts from Delhi in the above example to t
he machine at Mathura. This facility is called mass shifting facility.
Figure 11 - Annexure Q of NSDL Business Rules
APPLICATION FOR CLOSING AN ACCOUNT Date (dd-mm-yy) To DP Name (Pre printed) DP A
ddress (Pre printed) DP Id (Pre printed) (For Beneficiary Account only) I / We h
ereby request you to close my/our account with you . I / We request you to trans
fer the balances of securities to my/our account with DP Name bearing my client-
id . Client-Id. Name(s) of the holders First/Sole Holder Second Holder Third Hol
der Signature(s) First / Sole Holder Second Holder Third Holder
Account Opening
26
(For Clearing Member Account only ) I / We hereby request you to close my/our ac
count with you . Client Name Client Id CM-BP-Id CC-CM-Id Authorised Signatories
Names Signatures
Instructions: 1. 2. Relevant portions to be filled in Please strike off as N.A.
whatever is not applicable
To be submitted in duplicate.
Freezing of Accounts Account freezing means suspending any further transaction f
rom a depository account till the account is unfrozen. ISIN/specific number of s
ecurities in a demat account may be frozen in certain cases. 1. 2. 3. 4. 5. If a
written instruction is received from the client by the DP, requesting freezing
of account; or If an electronic request is made by a client to his DP or to the
Depository, in the form and manner as may be prescribed by the Depository. If or
ders are received by the DP or the depository from the Central or State Governme
nt, SEBI, or any order by the court, tribunal, or any statutory authority. If a
request is received by the Depository from a DP or client. If orders are passed
by Disciplinary Action Committee (DAC) or if DP becomes insolvent, bankrupt or i
f a corporate DP is being wound up, Depository can freeze accounts and /or ISIN
and/or specific number of securities held in DP s name.
By freezing an account for debits only (preventing transfer of securities out of
the account), the client can receive securities in his account. An account can
also be frozen for debits as well as credits (preventing any movement of balance
s out of the account). No transaction can take place in such an account until it
is reactivated. A frozen account may be unfrozen or reactivated, by taking the
reverse steps. 1. 2. On the valid written request of the account holder where he
had requested freezing, On directions of depository made in pursuance of the or
der of the appropriate authority.
The DP should immediately inform the client about change in status of the accoun
t from active to suspended and vice versa.
Account Opening 27
Figure 12 - Annexure P of NSDL Business Rules
APPLICATION FOR FREEZING / UNFREEZING OF AN ACCOUNT AND / OR ISIN AND / OR SPECI
FIC NUMBER OF SECURITIES Date (dd-mm-yyyy) To DP Name (Pre printed) DP Id (Pre p
rinted) DP Address (Pre printed) I/We request you for the following (please tick
whichever is applicable): Type Freeze Unfreeze Account Level Type Suspended for
debit only Suspended for debit & credit ISIN Level ISIN Account No. Execution D
ate (dd-mm-yyyy) Please Tick Account No. Execution Date (dd-mm-yyyy) Account Sus
pended for debit only Account Suspended for debit & credit ISIN Quantity
Quantity Level ISIN Account No. Execution Date (dd-mm-yyyy) Quantity *
1
2
3
Participant Stamp, Date & Time Authorised Signatory(ies) Instructions: 1) * Plea
se write the quantity of shares starting with first left box (say, for 200 share
s, please fill-in only first three boxes, whereas for 2000 shares, please fill-i
n first four boxes; the remaining boxes should be struck-off). 2) Separate forms
should be filled-in for freeze and unfreeze.
Account Opening
28
Changes in Client Details
A client may change any of the following particulars in the depository system. A
ll he has to do is to submit the changes in writing to the DP. Father s/Husband
s Name (change from father s name to husband s name may be necessary on account
of marriage). Standing instruction facility (an investor can activate/deactivate
it) Address (both local as well as correspondence), telephone number, mobile nu
mber (clients may make this change at any time depending on their need). Clients
have to provide proof of new address while submitting application for change of
address. Occupation details Nominee details (the DP has to obtain the required
form from the client duly filled and effect the changes) Bank details (clients m
ay revise the bank details given by him before record date to ensure that the di
vidend/interest warrants bear the correct bank details) PAN Number details In ca
se of NRIs, the Reserve Bank of India reference number and approval date. MAPIN
UIN E-mail addresses However, the names of the account holders cannot be changed
after opening of demat account.
Change of Address for Individual Clients
1) While processing requests for change of address received from Clients, DP sho
uld obtain the following documents: a) b) c) d) A written application for change
of address from the Client. (In case of joint holdings, all holders must sign t
he application); Proof of identity [Reference to prescribed documents by SEBI, t
o be made as on Page 2, under head - Documents for Verification - (a) Proof of I
dentity.] Latest transaction statement of the account received from the Particip
ant; Proof of new address alongwith the original documents of the new address. [
Reference to prescribed documents by SEBI, to be made as on Page 3, under head -
Documents for Verification - (b) Proof of Address.]
2)
The Client should personally visit the office of the DP where the Client maintai
ns and operates his/her account and submit the application for change of address
. However, in case the Client expresses inability to personally visit the office
of the Participant, the application for change of address alongwith other docum
ents can be submitted through an authorised representative, whose identity the D
P must verify.
Account Opening
29
3) 4)
The Client or its authorised representative should sign the application once aga
in in the presence of the officials of the DP. The DP should verify the signatur
e of the Client on the application and the identity documents with the documents
maintained with the DP. Further, the document pertaining to new address should
be verified with the original. After due verification, an authorised official of
the DP should put his/her signature on the application with remarks "verified w
ith original" and thereafter record the change of address in the DPM system. How
ever, in case DP could not verify the documents because the records of the docum
ents submitted by the Client are kept at a different place, then the Participant
must verify the same within a period of seven working days and only then effect
the change. After effecting the change of address in the DPM system, the Partic
ipant should send a communication to the Client, confirming the change of addres
s, to the old and the new addresses.
5)
6)
Change of Address for Corporate Clients
The following procedure is to be followed for change of address for Corporate cl
ients: 1) 2) A written application for change of address of the corporate entity
, signed by all the authorised signatories should be submitted to the DP. Follow
ing documents should be submitted alongwith the application: (a) (b) 3) Latest t
ransaction statement of the corporate s account received from the DP. Proof of n
ew address (copies of the aforementioned documents) alongwith the original docum
ent of new address, for verification by the DP.
At least one of the authorised signatories should visit the office of the DP in
person to submit its application for change of address alongwith necessary docum
ents and sign the application once again in the presence of the officials of the
DP. An authorised official of the DP to verify the application and the abovemen
tioned documents with the original and put his/her signature on the application
with remarks "verified" and thereafter record the change of address in the DPM s
ystem. The DP should write a letter to the Client at the old address as well as
the new address to confirm the change of address.
4)
5)
Change of Signature
1. 2. 3. 4. The Client should make a request in writing specifying reasons for c
hange in signature. New signature should be duly attested by Client s banker. Cl
ient should visit DP s office personally and produce valid proof of identity as
well as the latest transaction statement of its account. In the presence of offi
cials of DP, Client should affix his/her new signature.
Account Opening
30
An authorised official of the DP shall, under his signature, verify the identity
proof with the proof and photograph that were furnished at the time of opening
of account and thereafter, if found satisfactory, make necessary changes in its
records. Figure 13 TAX IMPLICATION FOR DEMATERIALISED SHARES The significant fea
ture of the dematerialised securities is that they are fungible, i.e., all the h
oldings of a particular security are identical and inter-changeable and they hav
e no unique characteristic such as distinctive number, certificate number, folio
number, etc. As the holdings of any securities in dematerialised form is repres
ented only by the account with the depository, under this system, it is not poss
ible to link the purchase of a security with its sale by means of distinctive nu
mber, etc. For this reason, necessary amendments have been carried out in the In
come-tax Act to provide for the computation of capital gains in respect of secur
ities held in dematerialised form. The primary issue under the Income-tax Act, i
n the case of securities whether held in physical form or in the dematerialised
form, remains the determination of cost of acquisition and the period of holding
. To determine cost of acquisition and date of purchase of securities, the contr
act note issued by the broker can be referred to. The only problem with securiti
es held in dematerialised form is that, being fungible, the distinct trail linki
ng every share to a certificate and its unique distinctive number and linking it
with its subsequent sale is not available, thus making determination of period
of holding difficult. Hence CBDT has clarified that in the case of securities
held in dematerialised form, for determining date of transfer and period of h
olding , the FIFO (first in first out) method would be applicable. When applied
to an account holding dematerialised securities, it implies that, out of the exi
sting holdings, the item that first entered into the account is deemed to be the
first to be sold out. However, when actually operating an account of dematerial
ised stock by applying FIFO system, certain other issues can arise. For instance
, an investor can hold part of his holdings of a security in physical form and r
emaining in dematerialised form. Further, he may hold his dematerialised holding
s in more than one account with one or more DPs. In such a situation there can b
e doubts whether the FIFO system is to be applied globally on the entire holding
s of physical and dematerialised holdings or not. In this connection CBDT has cl
arified that: FIFO method will be applied only in respect of the dematerialised
holdings because in case of sale of dematerialised securities, the securities he
ld in physical form cannot be construed to have been sold as they continue to re
main in possession of the investor and are identified separately.
Account Opening
31
In the depository system, the investor can open and hold multiple accounts. In s
uch a case, where an investor has more than one-security account, FIFO method wi
ll be applied account wise. This is because in case where a particular account o
f an investor is debited for sale of securities, the securities lying in his oth
er account cannot be construed to have been sold as they continue to remain in t
hat account. If in an existing account of dematerialised stock, old physical sto
ck is dematerialised and entered at a later date, under the FIFO method, the bas
is for determining the movement out of the account is the date of entry into the
account. This is illustrated by the following example: Date of Credit 01/01/200
0 05/01/2000 10/01/2000 15/01/2000 Particulars Purchased directly in demateriali
sed form on 24/12/1999 Dematerialised shares originally purchased in March 1985
Purchased directly in dematerialised form on 06/01/2000 Dematerialised shares or
iginally purchased in May 1974 Quantity 2000 5000 4000 3000
If say, 2500 shares were sold from out of this account, then the period of holdi
ng and the cost of acquisition of the first 2000 shares should be as from 24/12/
1999 and the cost thereof, whereas the balance will be treated as having been ac
quired in March 1985, at the relevant cost. This is the effect of FIFO method.
Account Opening
32
CHAPTER 9
Transmission & Nomination
One of the lesser-known but widely experienced problems of dealing in securities
is with regard to their transmission. The Companies Act, 1956, distinguishes tr
ansmission of shares from transfer of shares. While transfer of shares relates t
o a voluntary act of the shareholder, transmission is brought about by operation
of law. The word "transmission" means devolution of title to shares, for exampl
e, devolution by death, succession, inheritance, bankruptcy, marriage, etc. The
person on whom the shares devolve has to prove his entitlement by submitting app
ropriate documents and seek transmission. If the securities are held in the depo
sitory system, documents have to be submitted to the DP. If the securities are h
eld in physical form, the documents have to be sent to the company for effecting
transmission. If the deceased shareholder had holdings in several companies, to
effect transmission of securities, the relevant documents must be sent to each
of the companies, alongwith the securities. Survivors have to follow-up with eac
h of the companies in order to get the transmission effected before the book clo
sure, if they wish to avail of the benefits accruing through such shares. In the
depository system, such problems are mitigated as the securities are held as ac
count balances in the electronic form. The process of transmission through NSDL
is simple as well as quicker because the successor to the title interacts only w
ith one entity i.e., his DP. Transactions can be for sole holding cases as well
as for joint holdings.
Single Holder
In the event of death of the sole holder, if valid nomination has not been made,
the claimants/ successors/legal heirs of the deceased can get the securities tr
ansmitted in their favour by submitting their claim duly supported by the releva
nt legal documents to the DP. If the claimants/ legal heirs/successors have an e
xisting beneficiary account in their name, the securities to be transmitted woul
d be credited to their existing account. In other cases, claimants/legal heirs/
successors will have to open an account with a DP to get the securities transmit
ted.
Joint Accounts
If any 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 certif
icate of the deceased joint holder. The surviving joint holder(s) will have to o
pen a new account with the DP in their name(s). In case of securities held joint
ly The surviving holder(s) to have a separate account with any DP.
33
Ensure all surviving holder(s) sign the instruction form. Ensure that instructio
n form is accompanied with a copy of notarised death certificate. Verify signatu
re.
Procedure for Transmission of securities held singly :
The legal heir(s) or legal representative(s) of the deceased have to make a requ
est, in the prescribed form to the DP for transmitting the balances lying in the
account of the deceased to their account. A single request is sufficient for al
l securities held in the account of the deceased. The following documents have t
o be submitted with the request for transmission: 1. A copy of the death certifi
cate, duly notarised; 2. A copy of the succession certificate, duly notarised, o
r an order of a competent court, if the deceased has not left a Will; or 3. A co
py of the Probate or Letter of Administration duly notarised. Where the market v
alue of the securities held in each of the accounts of the deceased on the date
of application-for transmission does not exceed Rs. One lakh, DP may admit the r
equest for transmission. The following documents are sufficient: 1. Copy of deat
h certificate duly notarised; 2. Letter of Indemnity duly supported by a guarant
ee of an independent surety acceptable to the DP, made on appropriate non-judici
al stamp paper; 3. An affidavit made on appropriate non-judicial stamp paper; an
d 4. No objection certificate(s) from all the legal heir(s). Before effecting th
e transmission of securities, the DP ensures the validity of the documents submi
tted by the legal heir(s) or the legal representatives of the deceased. After ef
fecting the transmission, the DP closes the account of the deceased. Procedure f
or Transmission of Securities held by Karta of Hindu Undivided Family (HUF) in t
he Depository: Upon death of the Karta of a Hindu Undivided Family (HUF), the su
rviving member(s) of the HUF may appoint the eldest surviving male member of the
HUF surviving members, as the new Karta of the HUF. For transmission of securit
ies to the account of the new Karta from the account of the deceased Karta, the
surviving members through the new Karta shall make a joint application to the Pa
rticipant in the Form specified in Annexure “O” (Figure 14) along with the follo
wing documents: i. True Copy of the death certificate of the Karta, duly certifi
ed by a notary public; ii. An appropriate order by a competent court, If the sur
viving members or the New Karta express their inability to produce the order of
a competent Court, and that the market value of securities lying to the credit o
f such account as on the date of
Transmission & Nomination 34
application for transmission of securities does not exceed Rupees Ten Lakh then
the Participant shall process the transmission request on the basis of the follo
wing documents: a) b) c) d) Request for transmission in Annexure “O”, duly signe
d by the New Karta; A declaration of the list of surviving members of HUF in an
affidavit in the prescribed form (Annexure “O”), duly notarised; Letter of Indem
nity in the prescribed form (Annexure “O”) from the surviving members. Where the
re is an objection from any member of the HUF, transmission of securities held i
n the beneficial owner account should be effected only on the basis of a Decree
by a competent Court or the Deed of Partition.
The surviving members shall furnish to the Participant the certified copy of the
Settlement Deed / Deed of Partition / Decree of the relevant Court duly stamped
, in case the HUF goes into separation / partition for dealing with the securiti
es lying in the beneficial owner account held by the deceased Karta, and furnish
to the Participant the details of the beneficial owner accounts of the individu
al members in order to have the securities distributed to their respective accou
nts. The Participant shall ensure that the documents submitted by the surviving
members or the new Karta are in order and shall then effect a transfer of the ba
lances to the client account of the new Karta. After effecting the transmission,
the Participant shall close the account held in the name of the deceased Karta.
Figure 14
Check List for Transmission
The surviving holder(s)/ legal heir(s)/ representative(s) to have account with D
P. All surviving holder(s) / legal heir(s)/ representative(s) to sign transmissi
on instruction. In case of joint holdings, transmission instruction to be accomp
anied with notarised death certificate. In case of single holdings, additional d
ocuments are required (list provided in check list). In case of singly held secu
rities (market value of which is < 1 lac per account), if relevant documents men
tioned above are not available, request can be executed provided certain conditi
ons are met – copy of notarised death certificate – letter of indemnity supporte
d by guarantee of independent – surety made on non-judicial stamp paper – an aff
idavit made on non- judicial paper – no objection certificate from all legal hei
r(s) Verify signature.
Transmission & Nomination 35
Figure 15 - Annexure O of NSDL Business Rules TRANSMISSION FORM
Date To, Name of Participant Address of Participant I/We, the undersigned, being
the Executor(s) of the Will Administrator(s) of the Estate Successor(s) to the
Estate Survivors of HUF Legal heir(s) Joint holder(s) Nominee
of Mr./Mrs./Ms. ,the deceased, of which *nomination / probate/ letter of adminis
tration / succession certificate was duly granted to me / us on the day of of he
reby request you to register me/us as the beneficial owner(s) in respect of the
securities standing in the name of the said deceased under Client Id DP Id , the
details of which are as follows: ISIN Name of Company No. of securities
I/We give hereunder the details of my/our account with a Participant to which th
e security balances are requested to be transmitted: Name Client Id DP Id
I/We hereby submit the following documents to support my claim for the said secu
rities. Death certificate Succession certificate Probate of the Will Letter of A
dministration Court Decree Sr. No. Name Indemnity Affidavit Letter of surety No
objection certificate(s) Deed of Partition Signature
Note: 1. This request form should be signed by the surviving joint holder(s)/ le
gal heir(s)/ legal representative(s)/nominee / all surviving members of the HUF,
as the case may be. 2. *Strike off whichever is not applicable. Transmission &
Nomination 36
Indemnity to be executed on Non-judicial Stamp paper of appropriate value LETTER
OF INDEMNITY (to be given by claimant(s) where no nomination has been made) To,
DP and NSDL Address Dear Sirs, Sub : Transmission of securities standing in the
name of Late Mr./Mrs. ________________. I/We hereby inform you that Mr./Mrs.___
______________ the deceased, was holding a Client account no._________ with ____
___________ a Depository Participant having DP id ______________________. The sa
id deceased was holding the following securities : ISIN Name of Company No. of s
ecurities
The said deceased died intestate without leaving a Will on the __________ day of
______
_____.
We further inform you that he/she left behind him/her as his/her only surviving
heirs and next of kin, the following persons according to the Law of Intestate S
uccession applicable to him/her by which he/she was governed at the time of his/
her death. (a) (b) (c) We have, therefore, approached you with a request to tran
sfer the aforesaid securities in the name of the undersigned Mr./Mrs./Ms._______
_______ on my/our behalf without insisting of production of a succession certifi
cate or an order of the court of competent jurisdiction and you have kindly agre
ed to do so on my/our executing an indemnity as is herein contained and on relyi
ng on the information herein given by us believing the same to be true. In consi
deration therefore of your having at our request agreed to transfer securities t
o the name of the I/we hereby jointly and severely agree and undertake to unders
igned indemnify and keep indemnified, saved, defended, harmless you and your suc
cessors and assigns for all time hereafter against all losses, costs, claims, ac
tions, demands, risks, charges, expenses, damages etc., whatsoever which you may
suffer and/or incur by reason of your, at my/our request, transferring without
insisting on the said securities as herein above mentioned, to the undersigned p
roduction of a succession certificate or an order of the court of competent juri
sdiction. IN WITNESS WHEREOF THE said have here unto set their respective hands
and seals this [name(s) of applicant(s)] day of of .
Signed, sealed and delivered by the said applicant(s) Signature(s) of applicant(
s)
37
Deed of Indemnity provided by each of the surviving members of the HUF indemnify
ing NSDL from and against all losses, liability, costs and expenses, including l
egal fees (Rs. 200 stamp paper)
DEED OF INDEMNITY
(In case of transmission of securities held by Karta of HUF) THIS DEED OF INDEMN
ITY is made at By: Sr. No. Name of Applicant Age Gender Address this day of 200
:
(Collectively, "Surviving Members") IN FAVOUR OF: (Name of Participant), and hav
ing its registered address at and acting as a duly registered Participant under
the provisions of The Depositories Act, 1996, Regulations and Bye-Laws made ther
eunder (hereinafter referred to as "Participant", which expression shall, unless
it be repugnant or contrary to the context thereof, mean and include its succes
sors and permitted assigns) AND National Securities Depository Limited (NSDL), a
nd having its registered address at 4th Floor, Trade World, "A" Wing, Kamala Mil
ls Compound, Senapati Bapat Marg, Lower Parel, Mumbai 400 013 and acting as a du
ly registered Depository under the provisions of The Depositories Act, 1996, Reg
ulations and Bye-Laws made thereunder (hereinafter referred to as "NSDL", which
expression shall, unless it be repugnant or contrary to the context thereof, mea
n and include its successors and permitted assigns) WHEREAS: A. The Surviving Me
mbers are members of Hindu Undivided Family ("HUF"), which holds a beneficial ,
the Deceased Karta, with the Participant bearing owner account in the name of Cl
ient Id ("the said beneficial owner account"), with Participant having DP Id ; (
"the Deceased Karta") was named as the account holder in the said beneficial own
er account. C. The Deceased Karta passed away on D. E. . is the new Karta of our
HUF and shall hold the securities lying to the credit of the said Demat Account
. The surviving members have requested the Participant to transmit the securitie
s held in the said beneficial owner account held in the name of the Deceased Kar
ta to the beneficial owner account opened in the name of the new Karta and beari
ng Client Id held with (Name of Participant) DP Id and to effect the change in b
eneficial ownership. The surviving members have requested the Participant to eff
ect the foregoing change by transmitting the securities held in the said benefic
ial owner account held by the Deceased Karta to the beneficial owner account hel
d in the name of the new Karta, who has been solemnly affirmed on oath to be the
newly elected Karta, without insisting on production of a succession certificat
e or an order of
B.
F.
38
the court of competent jurisdiction, which we undertake to file with the Partici
pant no sooner than the same is available to us, and which we shall pursue in ri
ght earnest. THIS DEED WITNESSTH that in consideration of the Participant agreei
ng to process the aforesaid request for change of account holder by transmitting
the securities held in the said beneficial owner account held in the name of th
e Deceased Karta to the beneficial owner account held in the name of the new Kar
ta (Client Id ; DP Id ), that we hereby jointly and severally indemnify the Part
icipant and NSDL and agree to keep indemnified and hold the Participant and NSDL
saved, harmless and defended for all time hereafter from and against all losses
, claims, legal proceedings, actions, demands, risks, charges, taxes, duties, da
mages, costs, expenses, including attorney and legal fees and penalties whatsoev
er which may be initiated against the Participant or NSDL by reason of the Parti
cipant having agreed at our request to change the name of the account holder of
the said beneficial owner account from the Deceased Karta to the new Karta as af
oresaid without insisting on production of a succession certificate or an order
of the court of competent jurisdiction. If called upon by the Participant or NSD
L to do so, we shall join any proceedings that may be initiated against the Part
icipant and or NSDL and we shall defend at our cost any such proceedings. Furthe
r, we shall initiate such proceedings as may be considered necessary by the Part
icipant and or NSDL, if called upon by the Participant and or NSDL to do so, in
order to protect the Participant s and or NSDL’s interests and to further and pe
rfect the indemnity granted hereby in favour of NSDL. IN WITNESS WHEREOF: Dated
this day of 200
Signed and delivered by the Surviving Members: Name of Surviving Member(s) Signa
ture(s)
Before me Notary Public SURETY (to be given by claimant(s) where no nomination h
as been made) I the undersigned certify that the above facts are true to the bes
t of my knowledge and bind myself as surety to make good all claims, charges, co
sts, damages, demands, expenses and losses which the Participant/NSDL, its succe
ssors and assigns may sustain, incur or be liable for in consequence of complyin
g with the request contained above of the applicant(s) herein and the Participan
t/ NSDL and its successors, assigns will be entitled to claim and realise all cl
aims, charges, costs, damages, demands, expenses and losses from me or from my p
roperties, as the case may be.
Signature of Surety Name : Address
39
Date : Place : (Signature of Magistrate/Notary) Full Name and : Address of Magis
trate/ Notary PIN Regd. No. Use space below to affix: Notarial/Court Fee Stamp O
fficial Seal of Magistrate/Notary
Note: This indemnity is to be executed in the presence of a first class or stipe
ndiary
Magistrate/Public notary /Judicial.
This affidavit is to be executed on Non-judicial Stamp paper of appropriate valu
e. AFFIDAVIT (to be given by legal heir(s) when nomination has not been made) I
of residing at do hereby solemnly affirm on oath and state as under :1. son/daug
hter/spouse
That Mr./Mrs. the deceased, was holding a Client account no. with a Depository P
articipant having DP Id . The said deceased was holding the following securities
: ISIN Name of Company No. of securities
2. 3.
That the deceased had died intestate on at That the following are the only legal
heir(s) of late Mr./Mrs. Name Address Age
. . Relationship with the deceased
1 2 3 4
40
4.
That out of aforesaid legal heirs Master/Kum. aged _____ years is a minor and he
/she is being represented by his/her father/mother and natural guardian Mr./Mrs.
. That all the legal heirs of my deceased have applied to (DP name) to register
the aforesaid securities in my/our individual/joint beneficial owner account an
d have executed a Letter of Indemnity in favour of the Participant/NSDL holding
the Participant/ NSDL indemnified against any loss, cost, expenses or damages wh
ich may be caused to them in consequence of any claim which may be made by or on
behalf of any person claiming any interest in the said shares.
5.
DEPONENT
VERIFICATION (to be given by legal heir(s) when nomination has not been made) I
hereby solemnly affirm and say that what is stated herein above are true to my k
nowledge and nothing has been concealed therein and that I am competent to contr
act and entitled to rights and benefits of the above securities. Solemnly affirm
ed at on the day of of .
Signed in the presence of Full Name and : Address of Magistrate/ Notary Pin : Re
gd. No (Signature of Magistrate/Notary)
Use space below to affix: Notorial/Court Fee Stamps Official Seal of Magistrate/
Notary
Notes: 1. 2.
This affidavit is to be executed in the presence of a first class or stipendiary
Magistrate/ Public notary /Judicial. This affidavit should be signed by each de
ponent separately.
41
This affidavit is to be executed on Non-judicial Stamp paper of appropriate valu
e. AFFIDAVIT (to be given by Nominee. In case of Minor Nominee the Guardian shal
l execute the same) I of residing at hereby solemnly affirm on oath and state as
under :1. son/daughter/spouse do
That Mr./Mrs. the deceased, was holding a Client account no. with a Depository P
articipant having DP Id . The said deceased was holding the following securities
: ISIN Name of Company No. of securities
2. 3.
That the deceased made a valid Nomination in favour of :That the aforesaid nomin
ee Master/Kum. aged _____years is a minor and he/she is being represented by his
/her father/mother and natural guardian Mr./Mrs. That the nominee / has applied
to (DP name) to register the aforesaid securities in my individual beneficial ow
ner account having Client Id. and DP Id. .
4.
DEPONENT VERIFICATION (to be given by Nominee. In case of Minor Nominee the Guar
dian shall execute the same) I hereby solemnly affirm and say that what is state
d herein above are true to my knowledge and nothing has been concealed therein a
nd that I am competent to contract and entitled to rights and benefits of the ab
ove securities. Solemnly affirmed at on the day of of .
Signed in the presence of Full Name and : Address of Magistrate/ Notary Pin : Re
gd. No
(Signature of Magistrate/Notary)
42
Use space below to affix: Notorial/Court Fee Stamps Official Seal of Magistrate/
Notary
Notes: 1. 2.
This affidavit is to be executed in the presence of a first class or stipendiary
Magistrate/Public notary /Judicial. This affidavit should be signed by each dep
onent separately. LETTER OF NO OBJECTION (not required in case of Nomination) Da
te
To, Name of Participant Address of Participant Dear Sirs,
Re : Transmission of security balances standing in the name of late ____________
_ under Client Id ____________ DP Id ___________.
1. In connection with the above, I wish inform you that Mr./Mrs. _____________ e
xpired on _________________ and was holding the following securities under the C
lient Id _________ and DP Id _________. ISIN Name of Company No. of securities
2. 3.
I the undersigned, residing at _______________, am a legal heir of the said dece
ased. I do not desire to make any claim of title of the said securities and have
no objection whatsoever in transmitting the said securities in the name(s) of M
r./Mrs. _____________ who has/have opened a beneficial owner account(s) under Cl
ient Id _______ and DP Id _______. In consideration of registration of the afore
said securities in the client account of Mr./Mrs._______ under DP Id________ Cli
ent Id ________at my request, I hereby agree to renounce all my rights existing
as well as they may accrue to me in future in respect of the aforesaid securitie
s.
4.
Signed in the presence of
Bank Manager
Signature of the legal heir
43
Full Name and Address of Bank Manager
Note: This letter of No Objection should be signed by each legal heir separately
. LETTER OF SURETY (not required in case of Nomination) Name of Surety * Permane
nt Residential Address Pin Age years Permanent Account No. **
*
A person cannot stand as surety for spouse/ family member
** Furnish proof of PAN
(Fill in any one or more of the following boxes, whichever is applicable) A. Det
ails of Employment 1. Name of Employer 2. Place of Employment : :
3. 4.
Annual salary Other emoluments
: :
B. Details of immovable property owned : (Absolutely in own name and not as memb
er of a joint & undivided Hindu family. Specify whether the immovable property c
onsists of houses or mere land) 1. 2. 3. 4. Within the municipal limits Situatio
n Value Annual rent realised : : : :
C. Details of business owned (absolutely in own name and not as a partner) 1. 2.
3. 4. Name of organisation : Nature of business and location : Annual turnover
: Annual profits :
Date : (Signature of Surety) Full Name and Address of Bank Manager Signed in the
presence of
Pin
(Bank Manager)
44
Affidavit from the surviving members of the HUF declaring that the person design
ated by them is indeed the new Karta of the HUF and as to completeness and accur
acy of the information provided. AFFIDAVIT (In case of transmission of securitie
s held by Karta of HUF) We, the applicants listed below, residing at the respect
ive addresses set out below, Sr. No. Name of Applicant Age Gender Address
do hereby solemnly affirm on oath and state that as under: 1. __________________
_ ("the Deceased Karta") was holding a beneficial owner account bearing Client I
d ___________; DP Id _____________ ("the said beneficial owner account") with __
__________________ , (Name of the Participant), as the Karta for and on behalf o
f our HUF. 2. The Deceased Karta passed away on ______________. 3. We are all th
e surviving members of a Hindu Undivided Family ("HUF"). 4. We state and declare
that the aforesaid list of surviving members is complete and exhaustive, and do
es not leave out any member of the HUF. We affirm that this list is accurate in
all respects whatsoever. 5. The said Deceased Karta was holding the following se
curities in the said Demat Account: (Applicants to reproduce from the latest Tra
nsaction Statement or Statement of Holdings) 6. ___________________ is the new K
arta for our HUF and shall hold the securities lying to the credit of the said b
eneficial owner account. We confirm to _________________________ (Name of the Pa
rticipant) that the new Karta is indeed the new Karta of our HUF. 7. We have req
uested that the securities be transmitted from the said beneficial owner account
held by the Deceased Karta to the beneficial owner account opened in the name o
f the Designated Karta (Client Id _________; DP Id ______________) and have file
d a Transmission Form on ____________ (date). We state that all the information
provided therein and in this Affidavit is complete and accurate in all respects
and that all the members of the HUF are fully aware of the above request made to
the Participant and there is no pending dispute, difference, objection or claim
to the same among any of the members of the HUF in this regard. VERIFICATION We
hereby solemnly affirm and say that what is stated herein above are true to my
knowledge and nothing has been concealed therein. Solemnly affirmed at _________
_____, this ______ day of ________ 200__: Sr. No. Name of Applicant (s) Signatur
e
Before me Notary Public
45
Nomination Facility
The Companies (Amendment) Act, 1999 has introduced provisions for nomination in
respect of shares, debentures, fixed deposits, etc. The nomination facility fulf
ils one of the long-felt needs of the investors. This facility was already in pl
ace for deposits in banking industry. Under the provisions, a shareholder, a deb
enture-holder, a bondholder or a deposit-holder can nominate a person, in whom t
he shares or debentures or bond or deposits would vest, in the event of original
investor s death. The facility can be availed of by any person whether resident
Indian or a non-resident Indian investor.
Nomination in Depository Mode
Figure 16 - Annexure JA of NSDL Business Rules FORM FOR NOMINATION / CANCELLATIO
N OF NOMINATION (To be filled in by individual applying singly or jointly) I/We
_________________ and _______________ the holders of beneficiary owner account b
earing Client Id No. ___________ held with M/s ___________________ a NSDL Deposi
tory Participant bearing DP Id No; _________________ wish to *make a nomination
/ cancel the nomination dated ________ and do hereby *nominate / cancel the nomi
nation made by me/ us on the ______ day of _______ the following person in whom
all rights of transfer and / or amount payable in respect of securities held in
the Depository by me/ us in the said beneficiary owner account shall vest in the
event of my/our death /* and consequently all rights and liabilities in respect
of beneficiary ownership in the securities held by me/ us in the said account s
hall vest in me/us. (* strike out whichever is not applicable)
Photograph of the Nominee
Name and Address of Nominee Name : Address : Date of Birth* : (to be furnished i
n case the Nominee is a minor) Signature of the Nominee : **The Nominee is a min
or whose guardian is : Address of the Guardian Signature of the guardian : (in c
ase of guardian his photograph should be affixed) (to be deleted if not applicab
le)
46
Beneficial Owner
1)
Signature: Name: Address: Date:
2)
Signature: Name: Address: Date:
Signature of two Witnesses Name and Address 1. Signature with date
2.
Instructions: 1. The nomination can be made only by individuals holding benefici
ary owner accounts on their own behalf singly or jointly. Non- individuals inclu
ding society, trust, body corporate, partnership firm, karta of Hindu Undivided
Family, holder of power of attorney cannot nominate. If the account is held join
tly all joint holders will sign the nomination form. A minor can be nominated. I
n that event, the name and address of the Guardian of the minor nominee shall be
provided by the beneficial owner. The Nominee shall not be a trust, society, bo
dy corporate, partnership firm, karta of Hindu Undivided Family or a power of At
torney holder. A non-resident Indian can be a Nominee, subject to the exchange c
ontrols in force, from time to time. Nomination in respect of the beneficiary ow
ner account stands rescinded upon closure of the beneficiary owner account. Simi
larly, the nomination in respect of the securities shall stand terminated upon t
ransfer of the securities. Transfer of securities in favour of a Nominee shall b
e valid discharge by the depository against the legal heir. The cancellation of
nomination can be made by individuals only holding beneficiary owner accounts on
their own behalf singly or jointly by the same persons who made the original no
mination. Non- individuals including society, trust, body corporate, partnership
firm, karta of Hindu Undivided Family, holder of power of attorney cannot cance
l the nomination. If the beneficiary owner account is held jointly, all joint ho
lders will sign the cancellation form. On cancellation of the nomination, the no
mination shall stand rescinded and the depository shall not be under any obligat
ion to transfer the securities in favour of the Nominee.
2. 3.
4.
5. 6.
7.
47
Investors holding securities in dematerialised form have the option of nominatin
g persons who would be entitled to receive securities outstanding in their names
in the event of their death. Shareholders 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. There is a s
eparate prescribed form for nomination under depository segment. Investors can a
ppoint a nominee at the time of opening a depository account itself. Nominees ca
n be changed at will by resubmitting the nomination details in the prescribed fo
rm. The DP has to enter and update the nominee details submitted by the account
holder. If the account holder is dead, the securities lying to the credit of the
account holder may be transmitted to the nominee s account after the DP verifie
s the identity of the nominee. Nomination can be made only by individuals holdin
g beneficiary owner accounts on their own behalf singly or jointly. Non-individu
als including society, trust, body corporate, karta of Hindu Undivided Family (H
UF), holder of power of attorney cannot nominate. If the account is held jointly
all joint holders will be required to sign the nomination form.
48
CHAPTER 10
Dematerialisation
One of the methods for preventing all the problems that occur with physical secu
rities is through dematerialisation (demat). India has adopted the demat route i
n which the book entry is made electronically against securities that are cancel
led. The share certificates are shredded (i.e., its paper form is destroyed) and
a corresponding credit entry of the number of securities (written on the certif
icates) is made in the account opened with the Depository Participant (DP). The
securities held in dematerialised form are fungible.3 They do not bear any disti
nguishable features like distinctive number, folio number or certificate number.
Once the shares are dematerialised, they lose their identification features in
terms of share certificate distinctive numbers and folio numbers. Title to the s
ecurities owned is in terms of number of securities and not in terms of distinct
ive numbers, certificate numbers etc. Each security is identified in the deposit
ory system by an International Securities Indentification Number (ISIN) and a sh
ort name. For example, a person owning 100 shares in ABC Ltd. in physical form w
ill record his ownership as below: Company Name: ABC Ltd. No. of Shares: 100 Dis
tinctive Nos.: 932654701 to 932654800 Certificate No.: ABC001263 Folio No.: A658
542 In NSDL depository system, the record of ownership will be shown as: INE001A
01013 ABC by demat 100
International Securities Identification Number (ISIN)
Each of the securities dematerialised in the depository bears a distinctive ISIN
- an identification number. International Securities Identification Number (ISI
N) is a unique identification number for each security issued in any of the Inte
rnational Standards Organisation (ISO) member countries in accordance with the I
SIN Standard (ISO 6166). ISO 6166 was developed for use in an international (cro
ss-border) as well as domestic trades. ISIN is a 12-character long identificatio
n mark. It has three components - a pre-fix, a basic number and a check digit. T
he pre-fix is a two-letter country code as stated under ISO 3166 (IN for India).
3
The dictionary meaning of the word is "movable things that are standardised so t
hat one unit is essentially the same as another which may be estimated and repla
ced by weight, number and measure".
Dematerialisation
49
The basic number comprises of nine alphanumeric characters (letter and/or digits
). The check digit at the end of the ISIN is computed according to the modulus 1
0 "Double-Add-Double". It establishes that the ISIN is valid. Securities issued
by the same company, issued at different times or carrying different rights, ter
ms and conditions are considered different securities for the purpose of allocat
ing ISIN and are allotted distinct ISINs. In India, SEBI has delegated the assig
ning of ISIN of various securities to NSDL. Allotment of ISIN for G-sec is done
by Reserve Bank of India. Different ISINs are allocated to the physical and dema
terialised securities of the same issue. To illustrate, ISIN INE 475C 01 012 has
the following break up: IN - India E - Company Last digit - check digit First f
our digits 475C - Company serial number; 01 - equity (it can be mutual fund unit
s, debt or Government securities); 01 - issue number; 2 - check digit. The third
digit (E in the above example) may be E, F, A, B or 9. Each one carries the fol
lowing meaning: E - Company F - Mutual fund unit A - Central Government Security
B - State Government Security 9 - equity shares with rights which are different
from equity shares bearing INE number. Whenever dealing with ISIN number, it is
important to pay special attention to the third digit.
Securities that can be dematerialised
The entire depository system in India is governed by the rules made by the marke
t regulator - SEBI. According to the SEBI (Depositories and Participants) Regula
tions, 1996, the following securities are eligible for holding in dematerialised
form. 1. Shares, scrips, stocks, bonds, debentures, debenture stock or other ma
rketable securities of similar nature of any incorporated company or other body
corporate, including underlying shares of ADRs and GDRs. Units of mutual funds,
rights under collective investment schemes and venture capital funds, commercial
paper, certificate of deposit, securitised debt, money market instruments, gove
rnment securities, national saving certificates, kisan vikas patra and unlisted
securities.
2.
Dematerialisation
50
A list of securities available for demat in NSDL depository is made known to all
DPs by way of circulars sent through e-mail. The information is also put up on
NSDL s Website - www.nsdl.co.in and in the monthly information bulletin, NEST Up
date. Physical form of securities can be converted into book entry form in NSDL
depository system only if the company which has issued the securities, has enter
ed into an agreement with NSDL to offer demat facility.
The Demat Process
A holder of eligible securities in the depository system may get his physical ho
ldings converted into electronic form by making a request through the DP with wh
om he has his beneficiary account. Figure 17 - Annexure D of NSDL Business Rules
Participant’s Name, Address & DP Id (pre-printed) DEMATERIALISATION REQUEST FORM
DRN (to be filled-in by the DP) Serial No. (Pre Printed) Date :
I/We request you to dematerialise the enclosed certificates into my/our account
as per the details given below: Client Id Sole/First Holder Name Second Holder N
ame Third Holder Name Company Name Type of Security Quantity to be Dematerialise
d (in figures) (in words) Face Value ISIN (To be filled in by the DP) Details of
Securities : Folio No. Free Securities Certificate Nos. From To Locked-in Secur
ities Distinctive Nos. From To Quantity I N
Equity/Others (please specify)
Dematerialisation
51
Total No. of Certificates : Details of Locked-in Securities: Lock-in reason Lock
-in release date (In case the space is found to be insufficient, an annexure con
taining the certificate details in the same format may be attached. Please use s
eparate form for free securities and locked-in securities) Declaration I/We here
by declare that the above mentioned securities are registered in my/our name. Th
e original certificates are hereby surrendered by me/us for dematerialisation. I
/We also hereby declare that the securities surrendered by me/us for demateriali
sation are free from any lien or charge or encumbrance and represents the bonafi
de securities of the company to the best of my/our knowledge and belief.
Holder(s)
Sole/First Holder Second Holder Third Holder
Signature(s)
Participant Authorisation We have received the above-mentioned securities for de
materialisation. The application form is verified with the certificates surrende
red for dematerialisation and we certify that the application form is in accorda
nce with the details mentioned in the enclosed certificates. It is also certifie
d that the holders of the securities have beneficiary account with us in the sam
e name(s).
Name of the Executive : Signature :
Participant’s Stamp & Date
============================================================================== A
cknowledgement Serial No. (pre-printed) We hereby acknowledge the receipt of of
Mr/Ms/M/s shares/units/bonds/debentures surrendered for dematerialisation by hav
ing Client Id .
Date :
Participant’s Stamp & Signature
Prerequisites for Dematerialisation Request 1. The registered holder of the secu
rities should make the request. 2. Securities to be dematerialised must be recog
nised by NSDL as eligible. In other words, only those securities whose ISIN has
been activated by NSDL, can be dematerialised in the NSDL system.
Dematerialisation 52
3.
4. 5.
The company/Issuer should have established connectivity with NSDL. Only after su
ch connectivity is established, the securities of that company/Issuer are recogn
ised to be "available for dematerialisation" in the NSDL system. The holder of s
ecurities should have a beneficiary account in the same name as it appears on th
e security certificates to be dematerialised. The request should be made in the
prescribed dematerialisation request form.
Procedure for Dematerialisation
Figure 18
Dematerialisation Process
1
Investor
2A
DP
5
2 3
R & T Agent
4
Steps: 1.
NSDL
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 Dematerialisation . DP punches two
holes on the name of the company and draws two parallel lines across the face o
f the certificate. DP enters the demat request in his system to be sent to NSDL.
2.
2A. DP despatches the physical certificates along with the DRF to the R&T Agent.
3. 4. NSDL records the details of the electronic request in the system and forw
ards the request to the R&T Agent. R&T Agent, on receiving the physical document
s and the electronic request, verifies and checks them. Once the R&T Agent is sa
tisfied, dematerialisation of the concerned securities is electronically confirm
ed to NSDL. NSDL credits the dematerialised securities to the beneficiary accoun
t of the investor and intimates the DP electronically. The DP issues a statement
of transaction to the client.
5.
Dematerialisation
53
3.
1. 2.
Figure 19
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00
Authorised signatory Folio No. : A658542 AMOUNT PAID UP PER SHARE FACE VALUE PER
EQUITY SHARE Regd. Address: 2nd Floor ,Victoria Bldg., Fort, Mumbai Name JT1 **
* 200*** Distinctive No. : 932654701- 932654900
Dematerialisation
ABC COMPANY LTD.
: AJAY SHAH : MEHUL SHAH Certificate No.:0123456 Company Seal Rs.5/Rs.10/-
DP provides dematerialisation request forms (DRF) to their clients. The client c
ompletes the DRF in all respects and submits to the DP along with the security c
ertificates to be dematerialised. The DP checks the DRF for validity, completene
ss and correctness. The following points shoud be checked particularly : The sec
urity certificates sought to be dematerialised are attached to DRF. The attached
security certificates are marked (defaced) with the words Surrendered for Dema
terialisation . The size of the stamp should be atleast four inches in length an
d one inch in width (except GOI securities). DP must ensure that the security ce
rtificates submitted for dematerialisation to the Issuer or its Registrar and Tr
ansfer Agent, bear the DP name, DP Id and Client Id. This is a precautionary mea
sure to prevent misuse of share certificates by anyone.
Details like security type, face value, paid-up value, pari-passu status, certif
icate numbers, The name of client on DRF and the certificates is exactly the sam
e as in the client s account in DPM. However, minor variations in the name (like
abbreviated name, initials in place of first name, middle name, minor spelling
mistake in the name) may be permitted if it can be reasonably established that b
oth names are of the same person. The permitted variations refer to initials not
being spelt out fully or put prior to after the surname. In such cases, if the
signature on the DRF matches the specimen signature available with the DP, the s
ecurities can be considered for demat. The certificates are not mutilated or def
aced in a manner affecting any material information.
54
distinctive numbers, number of certificates, total quantity of securities and lo
ck-in status are filled-in correctly. Separate DRFs have to be submitted for: fr
ee and locked-in securities; securities locked-in for different reasons; each IS
IN; securities of different paid-up value; and for each client account. DRF is s
igned by: the sole holder in case of single holding; all joint holders in case o
f joint holding; authorised signatories in the case of corporate accounts; const
ituted attorney in the case of NRI accounts. The signatures of the client as app
earing on DRF should 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 necessary, the DP may insist on attestation of DRF from bankers of th
e client. DRF should be signed by all the holders and match with specimen signat
ures. If the client has a signature registered with the company which is differe
nt from the specimen signature given to the DP, the client may be advised/allowe
d to affix both signatures on the DRF. If the DRF and the accompanying security
certificates are not found in order, the DP should return the DRF and certificat
es. If DRF and accompanying certificates are found in order, the DP should accep
t the DRF and issue an acknowledgement to the client. The DP should enter the de
materialisation request in DPM. DPM generates a request number (DRN), which shou
ld be mentioned on DRF. An authorised person, other than one who entered the DRF
details in the DPM, should verify the details of DRN and release a request to N
SDL. Once the DP has received the certificates defaced by the investor, the DP p
unches 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 its R&T Agent for dematerialisation. DRF and encl
osures 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 a
nd should be sent within seven days of accepting it from the client. The Issuer
or its R&T Agent verifies 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.
55
4. 5. 6. 7. 8.
9.
Dematerialisation
10. In case DRF is not found to be in order, the Issuer or its R&T Agent sends a
n objection memo to the DP, with or without DRF and security certificates depend
ing upon the reason for rejection as given below : Rej. Code Rejection Code Desc
ription 1) Share quantity not received as mentioned in DRF 2) Received quantity
is more than the DRF quantity 3) Certificates sent are fake 4) Certificates sent
are reported stolen 5) Duplicate certificates already issued 6) Forged endorsem
ent 7) Incorrect holder(s) name / pattern 8) Certificate details mismatch 9) DRF
sent to incorrect registrar 10) Certificate(s) not received within 30 days 11)
Signature mismatch 12) Court injunction pending 13) Miscellaneous 14) Demat requ
est initiated under wrong ISIN 15) Allotment/call money payment not attached 16)
Security certificates not available for demat 17) Rejected under ACA 18) Reject
ed on account of transfer cum demat. 11. The DP informs the client accordingly a
nd requests removal of reasons for objection. The DP removes these or provides a
dditional information to the Issuer or its R&T Agent within 15 days of receiving
the objection memo. 12. If the DP fails to remove the objections within 15 days
, the Issuer or its R&T Agent may reject the request and return DRF and accompan
ying certificates to the DP. The DP informs the client accordingly. The DP also
returns the security certificates to the client and obtains an acknowledgement.
13. The DP, if the client so requires, may generate a new dematerialisation requ
est and send the securities again to the Issuer or its R&T Agent. 14. If the Iss
uer or its R&T Agent finds the DRF to be in order, it informs NSDL and authorise
s it to create the appropriate credit balance in the client s account. DPM autom
atically credits the client s accounts when DM is updated. For the purpose of in
come tax calculations, the date of credit of securities by dematerialisation is
taken as the date of acquisition of shares. 15. The DP, on receiving confirmatio
n of credit entry in DPM, informs the client. 16. An R&T Agent is required to co
nfirm/ reject a demat request within 15 days from the date of receipt of physica
l shares.
Dematerialisation
56
Checklist for Investors
While filling up the dematerialisation request form, investors need to check: 1.
The DRF has to be obtained only from the DP with whom they have opened an accou
nt. 2. The DRF has to be filled in duplicate/triplicate as required by the DP. 3
. All the information asked in the form is mandatory and has to be filled. 4. Se
parate forms should be filled for separate ISIN numbers of the company. 5. Separ
ate forms should be filled for lock-in and free securities. 6. All the holders s
hould sign the DRF form. Signatures should match with those of the specimens on
the account opening form. However, if the signature with the company/R&T Agent i
s different from the signature with the DP, the client may affix both signatures
. 7. The order of the holders should be same as that in the account opening form
. 8. While submitting the shares they should be defaced by mentioning on it "sur
rendered for dematerialisation". 9. After submitting the certificates, an acknow
ledgement slip duly signed by the DP should be collected. 10. Demat request form
for dematerialising government securities is different and is called " DRF - GS
".
Checklist for DP
Before accepting the form and share certificates for dematerialisation the DP sh
ould check: 1. Client has submitted the securities for dematerialisation along w
ith the Dematerialisation Request Form (DRF). 2. No dematerialisation request, o
ther than one from a registered holder of securities, has been entertained. 3. T
he certificates submitted by the client for dematerialisation belong to the elig
ible list of securities admitted by the Depository. 4. Verify that the DRF submi
tted by the client has been filled completely and duly signed. The DP has to iss
ue to the client an acknowledgement slip duly signed and stamped. 5. Verify the
signature of the client on the form and compare it with the specimen available i
n its records. If the signatures are different, the DP has to ensure proper iden
tification of the client. 6. NSDL issues circulars on caution to be exercised in
respect of shares belonging to some companies. Such circulars should be referre
d to before accepting a demat request. 7. If the form is in order, the request d
etails are entered in its DPM and the DPM generates a Dematerialisation Request
Number (DRN). 8. The DRN so generated is entered in the space provided for the p
urpose in the DRF. The details given in the DRF should match with the details of
reports generated by DPM and verified by a person other than the person who had
entered the data. 9. The DRF is forwarded to the Issuer or its R&T Agent only a
fter ascertaining that the number of certificates annexed with the DRF tallies w
ith the number of certificates mentioned on the DRF, within 7 days of its receip
t.
Dematerialisation
57
10. The details of the certificates submitted for dematerialisation with the det
ails filled up are in consonance with the DRF. 11. The client has marked the cer
tificates submitted for dematerialisation with the words "Surrendered for Demate
rialisation". 12. DP must ensure that the security certificates submitted for de
materialisation to the Issuer or its Registrar and Transfer Agent bear the DP na
me, DP Id and Client Id. The safety and security of the certificates submitted f
or dematerialisation till the certificates were forwarded to the Issuer or its R
& T has to be ensured. 13. Punch two holes on the company name on the security
certificates before forwarding them to the Issuer or its R&T Agent. 14. Ensure t
hat the client has filled in a separate DRF for securities having distinct ISINs
. 15. Ensure that the client has filled in a separate DRF for locked in and free
securities having the same ISIN. 16. Ensure that the client has submitted a sep
arate DRF for each of his/their accounts maintained with the DP. 17. DRF and cer
tificates have to be sent to the correct address of the company where they are a
ccepted. NSDL issues circulars giving information about the addresses where phys
ical documents will be accepted. Figure 20
Precautions to be taken while processing DRF
Ensure account to have the same sequence of names of holders and name structure
as printed on the physical certificate. Ensure ISIN is activated Separate DRF fo
r : partly & fully paid-up shares locked and free holdings holdings locked in fo
r different reasons locked in holdings having different release date different I
SINs of the company ISIN to be entered by DP. All joint holders to sign DRF. Che
ck DRF form with details on certificate.
Rejection of DRF A demat request can be rejected in the case of the following ob
jections. The table below gives the reasons for rejection and the action that DP
s need to take in case of each objection.
Dematerialisation
58
Description of Objection 01 Physical quantity of shares/certificates received by
R&T Agent from DP is less than what is mentioned in Demat Request Form OR
Action to be taken by DP/Client
DRN confirmed for partial/physical quantity received from DP or treated under ob
jection for total/partial quantity by R&T Agent. R&T Agent may retain documents
received from 02 Physical quantity of shares/certificates DP. DP/ Client may con
tact R&T Agent for received by R&T Agent from DP is more than any further clarif
ication and may submit fresh Demat Request Form to R&T Agent for excess mentione
d in Demat Request Form. quantity, if any, quoting reference of Objection letter
and previous DRN to enable R&T Agent to link related entries/documents. 03 All/
some certificates received by R&T Agent DRN confirmed for genuine/valid quantity
from DP is/are found to be fake. received from DP or treated under objection 04
All/some certificates received by R&T Agent for total/partial quantity by R&T A
gent. R&T from DP is/are reported lost or stolen and a Agent may retain document
s received from stop is recorded in computer master file(s) of DP. DP/client may
contact R&T Agent for any further clarification, quoting reference of R&T Agent
. Objection letter to enable R&T Agent to link 05 Duplicate certificates earlier
issued by R&T related entries/documents. Agent in lieu of all/some certificates
received for demat by R&T Agent from DP. 06 All/some certificates received by R
&T Agent are found to bear forged or fake endorsements of Name(s) of Holders. DR
N confirmed for valid quantity received from DP or treated under objection for t
otal/ partial quantity by R&T Agent. R&T Agent may retain documents received fro
m DP. 08 Details of all/some certificate(s) differ in Demat DP/Client may contac
t R&T Agent for any Request Form received by R&T Agent from further clarificatio
n, quoting reference of Objection letter to enable R&T Agent to link DP related
entries. DP/Client to submit fresh Demat Request Form to R&T Agent with correct
particulars, quoting reference of Objection letter and previous DRN to enable R&
T Agent to link related entries/ documents. 07 Name(s) of Holder(s) on all/ some
certificates received by R&T Agent differs in Demat Request Form received by R&
T Agent from DP. OR
Dematerialisation
59
Description of Objection
09 All/some certificate(s) sent to incorrect R&T R&T Agent may retain some docum
ents and Agent by DP others returned to DP by R&T Agent. DP/ Client may contact
R&T Agent for any further clarification, quoting reference of Objection letter t
o enable R&T Agent to link related entries. DP/Client may forward documents to p
ertinent R&T Agent with fresh Demat Request Form. 10 Certificate(s) not received
by R&T Agent in DRN treated under objection and closed by time from DP R&T Agen
t. DP/Client may forward certificate(s) for dematerialisation with Demat Request
Form to R&T Agent under a new/ fresh DRN. 11 Signature(s) of Client on Demat Re
quest Form R&T Agent may retain DRN and documents do not tally with specimen sig
natures of received from DP for DRN treated under Holder(s) recorded with R&T Ag
ent. objection. DP/Client may submit to R&T Agent a fresh Demat Request Form dul
y signed by holder(s) in exact manner as recorded earlier with R&T Agent. In cas
e holder(s) is/are unable to reproduce the signatures as required, specimen of s
ignature(s) of signature(s) on Demat Request Form may he verified by a Bank Mana
ger, under his official stamp/seal, giving full particulars/details of holder(s)
bank account number, etc. 12 Stop recorded as per Bank Lien/Statutory Authority
/Court Order/etc. in computer master file(s) of R&T Agent against all/some certi
ficates) received for dematerialisation from DP DRN confirmed for valid quantity
received from DP or treated under objection for total/ partial quantity by R&T
Agent. R&T Agent may retain documents received from DP. DP/Client may contact R&
T Agent for any further clarification, quoting reference of Objection letter to
enable R&T Agent to link related entries/documents.
13 DRFs can also be rejected on miscellaneous grounds. These could be any of the
reasons given in I to V given below:
Dematerialisation
60
Description of Objection I
Recovery pending from Client for double or R&T Agent may retain DRN and document
s excess payment of Dividend/Interest made by received from DP for DRN treated u
nder R&T Agent. objection. DP/Client may contact R&T Agent for any further clari
fication, quoting reference of Objection letter to enable R&T Agent to link rela
ted entries. Client to refund of amount to R&T Agent, quoting reference of Objec
tion letter and DRN to enable R&T Agent to link related entries/documents. Dupli
cate Interest warrants issued by R&T Agent as per request of Client and bank rec
onciliation incomplete to determine status of payment. R&T Agent may retain DRN
and documents received from DP for DRN treated under objection. DP/Client may co
ntact R&T Agent for any further clarification, quoting reference of Objection le
tter to enable R&T Agent to link related entries. DP/Client to await some time f
or bank reconciliation completion by R&T Agent, before DRN is confirmed or treat
ed under objection as in 13 (i).
II
III
All/some certificates held under different Refer objection codes 7 and 8 above f
or Holding basis(i.e. Single or Joint) is/are action taken by R&T Agent and to b
e taken received by R&T Agent under same DRN. by DP/Client. All/some certificate
s sent by DP to incorrect address or office(s) of R&T Agent.[For e.g.: All opera
tions of Master Growth and Grand Master schemes of Unit Trust of India are handl
ed on completely decentralised basis and computer masterfile(s) are separately m
aintained at specific locations. DPs have to therefore, forward documents for de
mat to R&T Agent s address at Mumbai, Calcutta, Delhi and Chennai mentioned on r
everse of every certificate]. DRN confirmed for valid quantity received from DP
or treated under objection for total/ partial quantity by R&T Agent. R&T Agent m
ay retain some documents and others returned to DP by R&T Agent. DP/Client may c
ontact R&T Agent for any further clarification, quoting reference of Objection l
etter to enable R&T Agent to link related entries. DP/Client may forward documen
ts to pertinent address or office(s) of R&T Agent with fresh Demat Request Form.
IV
V
All/some certificates received by R&T Agent Refer objection codes 7 and 8 above
for from DP do not relate to ISIN (Scheme/ action taken by R&T Agent and to he t
aken Security code) mentioned in Demat Request by DP/Client. Number or Form.
Dematerialisation
61
Description of Objection 14 Demat request initiated under wrong ISIN.
Action to be taken by DP/Client R&T Agent may reject the demat request and forwa
rd the documents to the DP. A fresh Demat Request to be generated under the corr
ect ISIN by the DP. The documents to be sent to the concerned R&T Agent.
15 Allotment/call money payment not attached. R&T Agent may reject the demat req
uest and forward the documents to the DP. Client to attach the Allotment/call mo
ney payment advice and submit the same to the DP for generating a new DRN.In cas
e of any clarification, DP/Client may contact R&T Agent quoting the reference nu
mber of the Objection letter. 16 Security certificates not available for demat.
R&T Agent may reject the demat request and forward the rejected documents to the
DP. DP to contact the client and inform the client accordingly. 17 Rejected und
er Automatic Corporate Action. R&T Agent may process the demat request of the in
vestor. If the documents are found in order the R&T Agent may credit the account
of the client with proportionate number of shares through Credit Corporate Acti
on.Client to check the Transaction Statement and if the shares have not been cre
dited in the demat account, client to contact the Company/R&T Agent. 18 Rejected
on account of transfer cum demat. As the scheme of Transfer cum demat has been
discontinued from February 2004, R&T Agent may use this code to reject any reque
sts generated by DPs for Transfer cum demat. The DP has to inform his client abo
ut the rejection if and when the R&T Agent has rejected the DRF. In such cases t
he R&T Agent sends the certificates directly to the client.
Subsequent Disputes
Any dispute regarding the title of securities (in physical form) after they have
been dematerialised and credited to a client s account, has to be settled among
st the DPs, clients and Issuer or its R&T
Agent. The procedure for dispute settlement is laid down in SEBI Guidelines for
Good and Bad Delivery of documents, as is done in the case of physical securitie
s.
Transposition cum Demat
NSDL has amended its Bye-Laws and Business Rules to enable investors to transpos
e names of the joint holders alongwith the process of dematerialisation through
their DPs. Prior to this amendment, investors having shares in joint names (Mr.
A & Mr. B), but in different sequence (Mr. B & Mr. A) were either required to op
en multiple accounts for each sequence (Mr. A & Mr. B and Mr. B & Mr. A) or to e
ffect the transposition directly with the Issuer/R&T Agent and then dematerialis
e their securities through their DPs. In case of transposition-cum-dematerialisa
tion, the Client can get securities dematerialised in the same account if the na
mes appearing on the certificates match with the names in which the account has
been opened but are in a different order. The same may be done by submitting the
security certificates along with the Transposition Form and Dematerialisation R
equest Form (DRF) Figure 21 – Annexure OA of NSDL Business Rules
TRANSPOSITION FORM (for transposition and demat cases) Date To, Name of Particip
ant Address of Participant We, the undersigned, being the joint holder(s) of sec
urities of (Name of the Company) wish to have our holdings transposed in the fol
lowing order in which we have an account with you. We are also submitting the ce
rtificate(s) alongwith DRF for dematerialisation. Names on the certificate of se
curity: Name Signature(s)
Details of our client account: DP Id Client Id Names of the account holders
Note: Separate Transposition form should be filled by the joint holders for secu
rities having distinct ISINs
Dematerialisation
63
Transmission and Dematerialisation of Securities :
In case of death of one or more of the joint holders, the surviving joint holder
(s) can get the name(s) of the deceased removed from the security certificate(s)
and get them dematerialised by submitting the security certificates alongwith t
he Transmission Form as per Annexure OB (Figure 22) and the Dematerialisation Re
quest Form (DRF) to the Participant. Figure 22 - Annexure OB of NSDL Business Ru
les
FORM FOR TRANSMISSION ALONGWITH DEMATERIALISATION To, Participant s Name, Addres
s & DP id (pre-printed) Date : __________________ I/We, the undersigned, being t
he joint holders of the following securities along with Mr./Mrs./ Ms.___________
_________________________ (name of the deceased) wish to have the name of the de
ceased deleted from the security certificates. A copy of the death certificate,
duly notarised and the dematerialisation request form alongwith the physical cer
tificates are enclosed. I/We request you to process the same and advise the Issu
er/R & T Agent accordingly. The details are given below: Client Id Company Name
Type of Security Equity/Others (please specify) Quantity (in figures) (in words)
Sr. No. 1. 2. 3. (to be filled -in by the Participant) ISIN Dematerialisation R
equest No. (DRN) of the dematerialisation request Instructions : 1. Separate for
ms should be filled up for each ISIN by the survivor(s). 2. Each form should be
accompanied by a copy of the death certificate, duly notorised. I N Name of the
survivor(s) Signature(s)
Dematerialisation
64
Rematerialisation
Rematerialisation is the exact reverse of dematerialisation. It refers to the pr
ocess of issuing physical securities in place of the securities held electronica
lly in book-entry form with a depository. Under this process, the depository acc
ount of a beneficial owner is debited for the securities sought to be rematerial
ised and physical certificates for the equivalent number of securities is/are is
sued. A beneficial owner holding securities with a depository has a right to get
his electronic holding converted into physical holding at any time. The benefic
ial owner desiring to receive physical security certificates in place of the ele
ctronic holding should make a request to the Issuer or its R&T Agent through his
DP in the prescribed Rematerialisation Request Form (RRF). Figure 23 - Annexure
H of NSDL Business Rules
REMATERIALISATION REQUEST FORM (pre-printed serial nos.) PARTICIPANT NAME DEPOSI
TORY PARTICIPANT - ID RRN
DATE
I/We hereby declare that the below mentioned account may be debited to the exten
t of my/our rematerialisation request and equivalent certificates be issued for
the same. I/We hereby declare that the below mentioned person(s) are the benefic
ial owners of the securities mentioned. Account No. Account Holder Name
No. of Securities to be Rematerialised : (nos.) (in words) Lot Type Requested Ma
rket lot / Jumbo Name of the Security Name of Issuing Company Face Value ISIN Th
e rematerialisation request is for locked shares Quantity : Lock in Reason : Loc
k in Release Date (dd-mm-yyyy) Yes/ No
Dematerialisation
65
Address : (to be filled in only if change in address is to be recorded)
Pin Authorised Signature(s) Name First/Sole Holder Second Holder Third Holder Pa
rticipant Authorisation Received the above mentioned securities for rematerialis
ation from : Account No. ISIN Date Account No. Name of the first holder Signatur
e
The application form is verified with the details of the beneficial owner s acco
unt and certify that the application form is in order. The account has sufficien
t balances to accept the rematerialisation as requested. It is also certified th
at the beneficial owners signatures are verified and found in order. The other d
etails of the beneficial owners as extracted from the records are enclosed. Forw
arded by : Signature : (Name of the Executive) (Seal)
(to be printed from the system) Remat Request No. Status : Sub - Status : (Occup
ation) :
In Case of Individuals Name(s) in full First/Sold holder Second holder Third hol
der
Dematerialisation
66
In case of Corporates Name
Full Address
Tax Information PAN/GIR No. Sole/First Applicant Second Applicant Third Applican
t Residential status : In Case of NRI Holding Indian Address Foreign Address Nat
ionality RBI Approval No. Bank Account No. Lock in Reason Lock in Release Date (
dd-mm-yyyy) Resident / NRI Circle/ward/district
Date
Acknowledgment Participant’s Name Address and ID (pre-printed serial no.)
We hereby acknowledge the receipt of a rematerialisation request for no. of shar
es of (security details) from (Name) surrendered on (date) to be delivered in ma
rket lots / holding a/c no. jumbo lots of certificates . Participant’s Signature
(Seal)
On receipt of RRF, the DP checks whether sufficient free balance of the securiti
es sought to be rematerialised is available in the account of the client. If suf
ficient balance is available, the DP accepts the RRF and communicates the reques
t to NSDL through the DPM system.
Dematerialisation
67
When NSDL receives the rematerialisation request, it intimates the Issuer or its
R&T agent about such requests. NSDL sends this intimation to R&T agents on a da
ily basis on the DPMSHR system. DP should forward the RRF to the Issuer or its R
&T Agent within seven days of accepting the RRF from the client. The Issuer or i
ts R&T Agent, after validating the RRF, should confirm to NSDL that the RRF has
been accepted. On receipt of such acceptance from the Issuer or its R&T Agent, N
SDL removes the balances from the respective client s account. On rematerialisat
ion, R&T Agent issues security certificates as per the specifications given by t
he client in the RRF. Thereafter, the Issuer or its R&T Agent despatches the sec
urity certificates for the re-materialised securities to the client and his name
is entered in the Register of Members of the company. The certificate of securi
ties should be sent to the clients within a period of 30 days from receipt of su
ch RRF by the Issuer or its R&T Agent. The new certificates may not necessarily
bear the same folio or distinctive numbers as those that investor had previously
, i.e., prior to his getting them in demat form. When a rematerialisation reques
t is sent, the securities in the client account will not be available for delive
ry/transfer immediately. The client will have to wait for physical certificates
to reach him before they can be sold. Thus the client would encounter temporary
illiquidity on the securities requested for in rematerialised form.
Prerequisite to a Rematerialisation Request 1. The beneficial owners of the secu
rities should make the request. 2. There should be sufficient free balance of se
curities available in the beneficiary account to honour the rematerialisation re
quest. Rematerialisation Process 1. The DP should provide rematerialisation requ
est forms (RRF) to clients. 2. The client should complete RRF in all respects an
d submit it to the DP. 3. The DP should check RRF for validity, completeness and
correctness. In particular, the following points should be checked. • There is
sufficient free balance available in the client s account to honour the remateri
alisation request. • The name of client on RRF is exactly the same as that in th
e client account. • In case of joint holding, the order of names appearing on RR
F is the same as in the client s account. • Details like security type, face val
ue, Issuer s name and lock-in status are filled-in correctly.
The client has indicated his option to receive physical certificates either in j
umbo lot for the entire quantity requested or in market lot. • Separate RRF are
submitted for free and locked-in securities; securities locked-in for different
reasons; each ISIN securities of different paid-up value; and each client accoun
t. • RRF is signed by the sole holder in case of single holding; all joint holde
rs in case of joint holding, authorised signatories in the case of corporate acc
ounts, constituted attorney in the 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 RR
F is found in order the DP should accept RRF and issue an acknowledgement to the
client. 6. DP should enter the rematerialisation request in DPM. DPM will gener
ate a remat request number (RRN) which should be mentioned on RRF. 7. An authori
sed person, other than one who entered the RRF details in DPM, should verify the
details of RRN and release the request to the depository. 8. The DP should comp
lete the authorisation of RRF and forward it to the Issuer or its R&T Agent for
rematerialisation. The DP should forward RRF to the Issuer or its R&T Agent with
in seven days of accepting it from the client. 9. The Issuer or its R&T Agent sh
ould verify the RRF for validity, completeness and correctness. It should also m
atch the details with the intimation received from the depository against the sa
me RRN. 10. In case the Issuer or its R&T Agent finds RRF in order, it should co
nfirm the remat request The Issuer or its R&T Agent should then proceed to issue
the physical security certificates and despatch them to the beneficial owner. 1
1. In case RRF is not found to be in order, the Issuer or its R&T Agent sends an
objection memo to the DP, with or without RRF, depending upon the reason for re
jection. RRFs are sent back on the following grounds: Incomplete or incorrect RR
F RRF details mismatch RRF not received by registrar Rejected due to ACA 12. The
DP, on receiving confirmation of debit entry in DPM, should inform the client a
ccordingly.
•
The entire process takes a maximum of 30 days. No trading is possible on the sec
urities sent for rematerialisation.
Dematerialisation
69
CHAPTER 11
Trading and Settlement
One of the basic services provided by NSDL is to facilitate transfer of securiti
es from one account to another at the instruction of the account holder. In NSDL
depository system both transferor and transferee have to give instructions to i
ts depository participants [DPs] for delivering [transferring out] and receiving
of securities. However, transferee can give Standing Instructions [SI] to its
DP for receiving in securities. If SI is not given, transferee has to give sepa
rate instructions each time securities have to be received. Transfer of securiti
es from one account to another may be done for any of the following purposes: a.
Transfer due to a transaction done on a person to person basis is called off-m
arket transaction. b. Transfer arising out of a transaction done on a stock exc
hange. c. Transfer arising out of transmission and account closure. A beneficiar
y account can be debited only if the beneficial owner has given Delivery Instru
ction [DI] in the prescribed form. [Figure 24 / 25] Participants may use the ol
d format as well as the new format for Delivery Instructions by Clients. Separat
e forms have to be used for transferring securities within NSDL and between depo
sitories.
Figure 24 - Annexure L of NSDL Business Rules New Format
70
Figure 25 - Annexure L of NSDL Business Rules Old Format Participant Name, Addre
ss & DP Id
(Pre-printed) Serial No. (Pre-printed) Client Id ( Pre-stamped) I/We hereby requ
est you to debit my /our account as per the following details : (Fill up the rel
evant box and strike off whichever is not applicable) For Market Trades (Receive
r Details) CM-BP-Id IN CM Name Market Type Settlement No. ISIN Security Name For
Off-Market Trades (Receiver Details) DP-Id IN DP Name Client Id Quantity (In Fi
gures) Quantity (In Words) Instruction No. (to be filled by DP) DELIVERY INSTRUC
TIONS BY CLIENTS Date :
Execution Date : Participant Stamp, Date & Time Authorised Signatory(ies)
Instructions:
1. To be submitted in duplicate for acknowledgement. 2. In case of joint holding
s, all joint holders must sign.
Figure 26 - Annexure M of NSDL Business Rules
Participant Name, Address & DP Id (Pre-printed) Serial No. (Pre-printed) Client
Id (Pre-stamped) I/We hereby request you to credit my/our account as per the fol
lowing details: (To be filled in if Deliverer is a Clearing Member) CM-BP-Id CM
Name IN (To be filled in for Market Trades) Market Type Settlement No. I N ISIN
Security Name (To be filled in if Deliverer is a Client) DP-Id DP Name Client Id
Quantity (In Figures) IN RECEIPT INSTRUCTIONS Date :
Instruction No. (to be filled by DP)
Execution Date : Participant Stamp, Date & Time Authorised Signatory(ies)
Instructions:
1. To be submitted in duplicate for acknowledgement. 2. In case of joint holding
s, all holders must sign.
71
The DI for an off-market trade or for a market trade has to be clearly indicated
in the form by marking appropriately. The form should be complete in all respec
ts. All the holder(s) of the account have to sign the form. If the debit has to
be effected on a particular date in future, account holder may mention such date
in the space provided for execution date in the form. This chapter deals with
settlement of off-market trade and market transfer for instructions received in
the prescribed form as given above. Transfers arising out of transmission and a
ccount closure are discussed under the chapter on transmission and account openi
ng respectively.
Settlement of Off-Market Transactions :
Figure 27
Off - Market Trade
1 3
DP1
NSDL
2
3
DP2
1
Seller
3
2
Buyer
3
1. Seller gives delivery instructions to his DP to move securities from his acco
unt to the buyer s account. 2. Buyer automatically receives the credit of the se
curities into his account on the basis of standing instruction for credits. 3. B
uyer receives credit of securities into his account only if he gives receipt ins
tructions, if standing instructions have not been given. 4. DP needs to be extra
careful in verifying the signature of the client if large quantities of securit
ies are being debited to the account. 5. Funds move from buyer to seller outside
the NSDL system. Any trade that is cleared and settled without the participatio
n of a clearing corporation is called offmarket trade, i.e., transfer from one b
eneficiary account to another due to a trade between them. Large deals between i
nstitution, trades among private parties, transfer of securities between a clien
t and a sub-broker, large trades in debt instruments are normally settled throug
h off-market route. The transferor will submit a DI with off-market trade tick
ed off to initiate an off-market debit. The account holder is required to specif
y the date on which instruction should be executed by mentioning the execution d
ate on the instruction. The debit will be effected on the execution date. DP wil
l enter the instruction in the DPM if the instruction form is complete in all re
spects and is found to be in order. DPM will generate an instruction number fo
r each instruction entered. DP will write the instruction number on the instruct
ion slip for future reference.
72
The instruction will be triggered on the execution date. If there is adequate ba
lance in the account, such quantity will be debited on the execution date. If ad
equate balances do not exist in the account, then instruction will wait for adeq
uate balances till the end of the execution day. The account will be debited imm
ediately on receipt of adequate balances in the account. If adequate balances ar
e not received till the end of the day of the execution date, the instruction wi
ll fail. Transferee will receive securities into the account automatically if SI
were given to the DP at the time of account opening. If SI is not given, transf
eree has to submit duly filled in Receipt-Instruction [RI] form for every expe
cted receipt. Exchange of money for the off-market transactions are handled outs
ide the depository system
Settlement of Market-Transaction :
Figure 28
Market Settlement-Demat Shares NSDL
DP
2 2 1 1 SELLER SELLER Broker 3 Broker 4 BUYER 4 CC
DP
BUYER
A market trade is one that is settled through participation of a Clearing Corpor
ation. In the depository environment, the securities move through account transf
er. Once the trade is executed by the broker on the stock exchange, the seller g
ives a delivery instruction to his DP to transfer securities to his broker s acc
ount. The broker has to then complete the pay-in before the deadline prescribed
by the stock exchange. The broker removes securities from his account to CC/CH o
f the stock exchange concerned, before the deadline given by the stock exchange.
The CC/CH gives pay-out and securities are transferred to the buying broker s a
ccount. The broker then gives delivery instructions to his DP to transfer securi
ties to the buyer s account. The movement of funds takes place outside the NSDL
system. 1. Seller gives delivery instructions to his DP to move securities from
his account to his broker s account. 2. Securities are transferred from broker s
account to CC on the basis of a delivery out instruction. 3. On pay-out, securi
ties are moved from CC to buying broker s account. 4. Buying broker gives instru
ctions and securities move to the buyer s account.
73
Transfer of securities towards settlement of transactions done on a stock exchan
ge is called settlement of market transaction. This type of settlement is done b
y transferring securities from a beneficiary account to a clearing member accoun
t. Brokers of stock exchanges that offer settlement through depository are requi
red to open a clearing member account . In addition to the brokers, custodians
registered with SEBI and approved by stock exchanges can open a clearing member
account. These accounts are popularly known as Broker settlement account . A cl
ient who has sold shares will deliver securities into the settlement account of
the broker through whom securities were sold.
The following are important descriptions of a transaction done on a stock exchan
ge. All these descriptions have to be written in the DI slip.
Market Type
Stock exchanges offer different market segments in which trades can be done. The
segmentation is done by the type of settlement or type of trade. Each of the se
gments is denoted as market type in NSDL depository system. The stock exchange
which offers these market types, generally, recognize these settlements with a
two character code. The DI slip should contain the market type for which securit
ies are being transferred to the clearing member. The contract note/trade confir
mation slip given by the broker/ sub-broker will indicate the market type.
Settlement Number
Trading periods of each of the market segments is identified by a settlement num
ber. Every settlement number has a trade beginning day, trade-ending day, settle
ment pay-in day and settlement pay-out day. Stock exchanges divide a period of o
ne year [generally calendar year] into several settlement periods and allocate s
ettlement number for each settlement-period. All these days collectively are cal
led settlement calendar . DPM system will give complete details of settlement c
alendar for each stock exchange. The DI slip should contain the settlement numbe
r for which the securities are being transferred to the clearing member.
Clearing Member
Every broker in a stock exchange offering settlement in dematerialised securitie
s will have to open a distinct account called clearing member account . It is i
dentified with a number called CM-BP-ID . If a broker deals in more than one st
ock exchange, he will be allotted one CM-BPID per stock exchange. The DI slip sh
ould contain the CM-BP-ID relevant to the stock exchange in which the trade was
done.
74
Delivery Deadline
Stock exchanges set a deadline time by which clearing member are expected to del
iver securities. Clearing member can deliver securities within the deadline time
only if they have received securities from their clients. In order to ensure th
at clients give securities in time to the clearing member, SEBI has prescribed d
eadline time by which clients have to give securities to clearing members. SEBI
has advised DPs to instruct their clients to submit the settlement instructions
on T+1 (in physical form upto 4 p.m. and 6 p.m. in case of electronic instructio
ns) for pay-in of securities, viz.; instructions to transfer securities from Cli
ent account to CM Pool account, Inter-Settlement Instructions, CM Pool to CM Poo
l account transfers and Delivery-Out Instructions, etc. For example, pay-in for
trades executed on Monday will be on Wednesday. Hence, Clients will have to su
bmit instructions to their Participants (upto 4 p.m. in case of physical and upt
o 6 p.m. in case of electronic instructions) on Tuesday. The client must submit
the delivery instruction slip to its Depository Participant before the DPs accep
tance deadline.
Steps in Pay-in and Pay-out :
Figure 29 - Annexure S of NSDL Business Rules
Participant Name, Address & DP Id (Pre-printed) DELIVERY-OUT INSTRUCTIONS BY CLE
ARING MEMBERS FOR PAY-IN Serial No. (Pre-printed) Client Id (Pre-stamped) I/We r
equest you to debit my/our CM account as per the following details: Name of Clea
ring Corporation Instruction Type ISIN Reversible Irreversible (Please tick in o
nly one of the boxes as may be applicable) Quantity (In Figures) Quantity (In Wo
rds) Instruction No. (to be filled by DP) Date :
Security Name
Market Type :
Settlement No. :
Execution Date :
Participant Stamp, Date & Time
Authorised Signatory(ies)
Instructions: 1. To be submitted in duplicate for acknowledgement 2. Irreversibl
e delivery-out instructions are instructions which cannot be cancelled once effe
cted. 3. Use separate forms for reversible delivery-out instructions and irrever
sible delivery-out instructions. 4. In case it is not explicitly mentioned that
it is an irreversible delivery-out instruction, it will be assumed to be a rever
sible delivery-out instruction
75
Figure 30 - Annexure T of NSDL Business Rules
Participant Name, Address & DP Id (Pre-printed) DELIVERY INSTRUCTIONS BY CLEARIN
G MEMBERS ON PAY-OUT Serial No. (Pre-printed) Client Id (Pre-stamped) Date : I/W
e hereby request you to debit my/our CM account as per the following details of
the receiving clients: Client Id Client Name DP Id DP Name ISIN Security Name Qu
antity Quantity Instruction (In Figures) (In Words) No. (To be filled by DP)
Market Type :
Settlement No. :
Execution Date :
Instructions: To be submitted in duplicate for acknowledgement
The process of a broker [CM] submitting securities being towards the securities
sold by him on behalf of his client, to CC/CH of a stock exchange is called pay
-in . All CM s are expected to complete the pay-in before the deadline time pres
cribed by the stock exchange. In a depository environment, the following steps h
ave to be completed to execute the pay-in successfully :– The clients of the b
rokers who have sold securities will move the securities to the brokersettlement
account before the deadline time. – CM will move securities from his account to
CC/CH of the stock exchange concerned, before the deadline time given by the st
ock exchange. If the CM is unable to give delivery within the time, the shortage
is purchased by the CC/CH in an open auction and the difference in price will b
e collected from the CM. The process of a CC/CH transferring the securities to t
he broker s settlement-account for the quantity of securities purchased by them
on behalf of their clients is known as pay-out . Payout time is also pre-determ
ined by the settlement calendar. The following steps are taken to distribute sec
urities received in pay-out to buying clients:– The CC/CH credits the buying CM
account immediately on pay-out. – The CM/broker will transfer securities from hi
s CM Settlement account to the accounts of the buyer. – If the buying client is
a sub-broker, such sub-broker will transfer securities to the final client using
the off-market route.
Trading and Settlement 76
Direct Delivery by Clearing Corporation to Client Account
Direct delivery of securities to the clients can also be effected by the Clearin
g Corporation, subject to completion of necessary procedures.
Inter-Settlement Transfers
Figure 31 - Annexure SS of NSDL Business Rules
Participant Name, Address & DP Id INTER-SETTLEMENT INSTRUCTIONS (Pre-printed) Se
rial No. (Pre-printed) Client Id ( Pre-stamped) Date :
I/We hereby request you to move securities in my/our account as per the followin
g details: From Market Type Settlement No. ISIN Security Name Market Type Settle
ment No. Quantity (In Figures) Quantity (In Words) Instruction No. (to be filled
by DP) To
Name of Clearing Corporation : Participant Stamp, Date & Time
Execution Date : Authorised Signatory(ies)
Instructions:
To be submitted in duplicate for acknowledgement.
In a clearing member account, the securities are always kept in a bucket of spec
ific market type and settlement number. The clearing member may have to move sec
urities from one bucket with a different market type-settlement number combinati
on to another bucket from where pay-in is to be effected. To effect this movemen
t a clearing member can give an instruction to move securities from one settleme
nt to another settlement which is called inter-settlement .
Tracking of securities received for pay-in A CM is required to track the securit
ies, which it has received for pay-in. A CM can obtain such information from the
following sources:
1. 2. 3. Its clients : CM may contact selling clients to inquire whether they ha
ve delivered securities. Its DP: CM may contact its DP to find out the deliverie
s received into its CM settlement account. Internet - using SPEED-e website of N
SDL.
NSDL offers a secured Internet based service for clearing members [such as broke
rs] of stock
Trading and Settlement 77
exchanges linked to NSDL. This service named Internet-based Demat Account Statem
ent [IDeAS] enables the clearing members to view details of their clearing membe
r settlement accounts directly on the Internet. Data available include: Balance
lying in CM settlement account Transactions for securities delivered by the clie
nt [for pay-in] Transactions for securities delivered by the CM to CC [pay-in] T
ransactions for securities delivered by CC to CM [pay-out] Transactions for secu
rities delivered by CM to clients [after pay-out] Details of all settlements for
which pay-in had taken place in last 4 days and for which pay-in is scheduled i
n next 4 days and current day is available. Data is updated online with a maximu
m delay of half an hour. All the above data can be downloaded and input in CM s
back office for further use. This facility is of immense help to the CM as the d
ownloaded data can be applied in their back office system to automatically flag
the clients who are yet to deliver the securities for pay-in. This will enable t
hem to follow-up with such clients for pending deliveries.
Automatic Delivery-out (1) Delivery-out instructions for moving securities from
CM Settlement Account to CM Delivery Account can be generated automatically by t
he respective Clearing Corporations based on the net delivery obligations of its
Clearing Members. The Clearing Corporation can generate Auto DOs on behalf of t
hose Clearing Members who have authorized it in this regard. The Auto DOs will b
e generated around the time of download of the delivery obligations to the Clear
ing Members. Such Clearing Members will not be required to give delivery-out ins
truction forms to the Participants for Pay-in to the Clearing Corporation in res
pect of the automatically generated DOs. The Clearing Members can know the Auto
DOs either by way of downloads from the Clearing Corporation or through the Auto
DO Report from the Participants or from IDeAS facility on Internet.
(2) Auto DOs will not be generated in the following cases and the Clearing Membe
rs will have to give Delivery-out Instruction forms to their Participants as usu
al : (a)
Non Pari-Passu shares or multiple ISINs - The Auto DOs will be generated only fo
r the main ISIN. Example: A Clearing Member has to deliver 1000 shares of L & T
for Pay-in. If he has 600 shares under ISIN INE018A01014 and 400 shares under IS
IN INE018A01022 i.e. L & T (LE), the Auto DO will be generated for the entire 10
00 shares under ISIN INE018A01014. In respect of the 400 shares lying under ISIN
INE018A01022, the Clearing Member will have to give Delivery-out Instruction fo
rm to the Participant. If the Clearing Member wants to deliver shares under an I
SIN
78
different from the one for which Auto DO is generated, then he has to cancel the
Auto DO and give Delivery-out Instruction form to the Participant for the ISIN
he wants to deliver. (b)
Irreversible Delivery-out (IDO) - Auto DOs will not be generated for IDOs requir
ed to be given for the purpose of margin payment / exemption, etc.
(i) In case IDO is given before generation of Auto DO, Clearing Members will hav
e to ensure that an instruction is given to the Participant subsequently for can
cellation of the corresponding Auto DO alongwith Delivery-out Instruction form f
or the balance quantity. In case IDO is given after generation of Auto DO, Clear
ing Members will have to ensure that the Auto DO is first cancelled before execu
tion of the IDO. Further, a Delivery-out Instruction form for the balance quanti
ty should also be given to the Participant.
(ii)
(c)
Shifting of CM Settlement Account from one Participant to another Participant -
Auto DOs will be generated only in respect of one CM Settlement Account i.e., th
e CM Settlement Account which is designated for receiving pay-out as of the date
of generation of Auto DOs. The Clearing Member must carefully monitor the deliv
ery instructions for Pay-in as the securities might be lying during the shifting
process in both the CM Settlement Accounts.
(3) (4) (5)
Clearing Members will be required to give Inter-settlement Instructions to the P
articipants for securities lying in another settlement as usual. Participants ca
n generate separate reports from the DPM both for Auto DOs and manual DOs. All t
he existing features of DOs viz.; remaining valid till the NSDL Deadline time an
d partial delivery for insufficient balance will be applicable for Auto DOs also
.
CM Settlement to CM Settlement instructions :The CM may give instructions to its
participant to debit its settlement account and credit the settlement account o
f another CM in a prescribed format. The CM may give receipt instructions to its
participants for crediting its settlement account from settlement account of an
other CM in the format laid down. Alternatively, a CM may give standing instruct
ion to its participant to credit its settlement account. The participant shall e
nsure that the instruction form is complete and the signature of the CM is valid
. The participant shall execute the instructions of the CM to debit/credit the s
ettlement account of the CM.
79
Figure 32 - Annexure ST of NSDL Business Rules
Participant Name, Address & DP Id (Pre-printed) CM POOL TO CM POOL DELIVERY INST
RUCTIONS BY CLEARING MEMBERS Serial No. (Pre-printed) Client Id (Pre-stamped) I/
We hereby request you to debit my/our account as per the following details: Date
:
From Market Type Settlement No. Market Type Settlement No. CM-BP-Id
To
ISIN
Security Name
Quantity (In Figures)
Quantity (In Words)
Execution Date :
Instructions:
80
Figure 33 - Annexure SU of NSDL Business Rules
Participant Name, Address & DP Id (Pre-printed) CM POOL TO CM POOL RECEIPT INSTR
UCTIONS BY CLEARING MEMBERS Serial No. (Pre-printed) Client Id (Pre-stamped) I/W
e hereby request you to credit my/our account as per the following details: From
Market Type Settlement No. Market Type Settlement No. CM-BP-Id To Date :
ISIN
Security Name
Quantity (In Words)
Execution Date :
Instructions:
81
Inter-depository transfer :Transfer of securities from an account in one deposit
ory to an account in another depository is termed as an inter-depository transfe
r. This facility is quite similar to account transfers within NSDL. • As per SEB
I (Depositories and Participants) Regulations, 1996, both the depositories must
be inter-connected to enable inter-depository transfers. It can be done only for
securities that are available for dematerialisation on both the depositories. T
he account in NSDL can be either a clearing account or a beneficiary account. Fo
r debiting the clearing account or the beneficiary account with NSDL, the form f
or "Interdepository delivery instruction" is required to be submitted by the cle
aring member/ beneficial owner to its DP. For crediting the clearing account or
the beneficiary account, the standing instruction given for automatically credit
ing the account is applicable. In case the standing instructions are not given,
then the form for "Inter-Depository Receipt Instruction" is required to be submi
tted by the clearing member/beneficial owner to its DP. Inter Depository Transfe
r instructions for the day are exchanged online between the two depositories. Th
e deadline time for DPs to verify & release Inter Depository Transfer delivery/
receipt instructions is 6 p.m. on weekdays and 2.30 p.m. on Saturdays.
•
• •
•
•
•
82
Figure 34 - Annexure N of NSDL Business Rules
Participant Name, Address & DP Id (Pre-printed) INTER-DEPOSITORY DELIVERY INSTRU
CTIONS Serial No. (Pre-printed) Client Id (Pre-stamped) I/We hereby request you
to debit my/our account as per the following details: Market Type: (To be filled
if the deliverer is a Clearing Member) Target Depository-Id : Target Client-Id
Target Settlement Details ISIN Security Name Settlement No. Quantity (In Words)
Instruction No. (To be filled by DP)
Date :
Execution Date :
Instructions:
83
Figure 35 - Annexure NA of NSDL Business Rules
Participant Name, Address & DP Id (Pre-printed) INTER-DEPOSITORY RECEIPT INSTRUC
TIONS Serial No. (Pre-printed) Client Id (Pre-stamped) I/We hereby request you t
o Credit my/our account as per the following details: Market Type: (To be filled
if the deliverer is a Clearing Member) Target Depository-Id : Target Client-Id
Target Settlement Details ISIN Security Name Settlement No. Quantity (In Words)
Instruction No. (To be filled by DP) Date :
Execution Date :
Instructions:
84
Figure 36
Check List for Settlement
Verify signature. Ensure strict adherence to submission of instructions within p
re-defined settlement deadlines. Advise and ensure that all clients (if joint ho
lders) sign instruction. Only in case of CM a/c the facility of either one or al
l joint holders is permitted. Verify all fields in instruction form. Accept deli
very instructions on T+1 (in physical form upto 4 p.m. and 6 p.m. in case of ele
ctronic instructions) for pay-in of securities. Check RBI approval in case of NR
I transactions. In case of natural guardian, no court approval is needed for mov
ement of securities from the account held in name of the minor.
SPEED-e
Depository transactions are time-critical. Any lapse or failure to deliver secur
ities before the stipulated time may result in financial losses. With the shorte
ning of settlement cycle, time available with the investors to submit instructio
ns to their DPs has reduced considerably. This problem is even more severe if in
vestors staying at far-off locations are required to submit these instructions a
t the offices of DPs. To help investors submit their instructions conveniently,
NSDL has set up an Internet based service called SPEED-e, thus eliminating the g
eographical barrier. Demat account holders (including brokers) can submit delive
ry instructions to their Depository Participants (DPs) electronically, thus elim
inating the need to submit instructions in paper form. The facility features hig
h level of security (128 bit SSL) for server authentication and data encryption.
The instructions submitted by the account holders are digitally signed. SPEED-e
allows both interactive and batch file based operation with digital signature.
Thus data entered by the account holder is received into the depository particip
ants system and executed. As the instruction is reconfirmed by the client under
client s verifiable authority, depository participant acts on it directly withou
t any modifications in the instructions.
Features of SPEED-e
Submission of delivery instructions View status of execution of instructions
85
Submission of instructions to freeze / unfreeze account(s) / ISIN(s) and / or sp
ecific quantity of securities under an ISIN (for Smart Card Clients only) Operat
ion of a Joint account by any / all account holders jointly using multiple autho
risation facility (for Smart Card Users only)
Types of Users
Services under SPEED-e are available to Clients as well as CMs whose DPs have su
bscribed to SPEED-e. Clients/CMs who are desirous of using these services will b
e required to register as a User . There are two types of Users viz., Password
Users and Smart Card Users.
Password Users: Password Users are Clients who are allowed to submit delivery in
structions only in favour of a maximum of three pre-notified CM accounts. Smart
Card Users: SPEED-e offers a number of additional features and higher level of s
ecurity to Smart Card Users. Smart Card Users (Clients and CMs) can submit both
market and offmarket instructions. Clients who are Smart Card Users can freeze /
unfreeze their account(s) / ISIN(s) and / or specific quantity of securities un
der an ISIN. Freeze request executed by Clients through SPEED-e cannot be unfroz
en by the DP. Further, in case of joint accounts, any / all joint holders can op
erate the account using multiple authorisation facility.
IDeAS (Internet-based Demat Account Statement)
NSDL launched its first Internet-based initiative, SPEED (Securities Position Ea
sy Electronic Dissemination), in February 2000 now called IDeAS (Internet-based
Demat Account Statement). This facility is available on SPEED-e website for view
ing balances and transactions in demat accounts. It is available to the Users of
SPEED-e, Clearing Members who have subscribed to IDeAS and to those clients who
se Participants are registered for IDeAS. The information (balances and transact
ions) are updated on an online basis with a delay of maximum 30 minutes. Feature
s of IDeAS
Clients (Beneficial Owners):
Clients can view the latest balances and transactions that have taken place in t
he last five days in their depository accounts. Print-out of the screen can also
be taken. Clients can also download the transaction statement on a monthly basi
s. The transaction statements of a particular month are available latest by 7th
of the following month and can be downloaded till the details of the following m
onth are uploaded to IDeAS.
86
Clearing Members (CMs)
CMs can view and download the latest balances and transactions in their pool acc
ounts in respect of settlements for the current pay-in date, previous four and n
ext four pay-in dates.
Other features:
a) b) c) d) View ISIN-wise positions / transactions for a given market type and
settlement number. View Delivery-out instructions, which are in overdue status
, for a given market type and settlement number. Download transactions in the Po
ol Account and import into back-office system to determine shortages for follow-
up with Clients. Download ISIN master to keep the back-office system up-to-date.
Securities Trading Information Easy Access and Delivery (STEADY)
Using the infrastructure of SPEED-e, NSDL has developed its third Internet-based
application, STEADY (Securities Trading Information Easy Access and Delivery),
which is a means of transmission of trade information electronically across mark
et participants.
STEADY will enable electronic communication between brokers, custodians and fund
managers in respect of Custodian trades. In order to use the STEADY facility, b
rokers, custodians and fund managers will have to access STEADY website on Inter
net with smart card, bearing digital signature certificate issued by licensed Ce
rtifying Authority (CA), approved by NSDL. Further all batches and uploads from
brokers / custodians / fund managers will be digitally signed by the respective
users and will be accepted by STEADY only after successful verification of digit
al signature. Also all downloads obtained by brokers / custodians / fund manager
s will bear the digital signature of STEADY site. For Custodian Trades: STEADY w
ill enable brokers to submit batch of contract notes alongwith trade details in
a pre-defined fixed file / ISO formats. Once the batches are uploaded, custodian
s will be able to download the contract note alongwith trade details in ISO 1502
2 message format MT 515 for processing in their back office (These messages will
bear NSDL s digital signature).
At their back office, custodians will carry out the matching process and periodi
cally upload the Contract note Status Changes (CSC) (MT-548) to the system throu
gh STEADY. Brokers will be able to view the CSC and download the Contract Note S
tatus (CNS) to their back office. CSC will be in a pre-defined fixed file or ISO
format as the case may be. The custodians will upload the CSC file only when th
ere is change in status of the contract note or in the event of contract note re
maining in pending status.
87
For Domestic Trades: STEADY will enable brokers to submit batch of contract note
s alongwith
trade details in a pre-defined fixed file / ISO format. Once the batches are upl
oaded, fund managers will be able to download the contract notes in fixed file o
r ISO format as the case may be, for processing in their back office At their ba
ck office, fund managers will carry out the matching process and periodically up
load the Contract note Status Changes (CSC) (MT-598) to be used by brokers throu
gh STEADY. Custodian will be able to download contract note MT-515 which are mat
ched by fund manager. The contract notes can also be viewed online. Fund Manager
s will be able to upload instructions to custodians as a settlement advice. Cust
odians will be able to download these instructions in ISO 15022 message format M
T 54X for processing in their back office.
88
demand)
Tel : 022 - 26598252 022 - 26598100 - 114 Fax : 022 - 26598393
2
Tel : 011-23344313-27 Fax : 011-23366658
3
Tel : (033) 24631802-1805, 24631809-1812 (Board Nos) Fax : (033) 24631791, 24631
806 Tel : 044-28475100 Fax : 044-28473633
4
5
Tel : 040-23227084/5 Fax : 040-23227086
6
Tel : 079-26580212 - 13 Fax : 079-26576123
7
Special Services
CONTENTS Volume 4
Special Services
Chapter 1 - 2 Chapter 3 - 7 : Volume 1 : Volume 2
Chapter 8 - 11 : Volume 3 Chapter 12 Chapter 13 Chapter 14 Chapter 15 Chapter 16
Chapter 17 Chapter 18 Chapter 19 Chapter 20 Sample Test Feedback and Comments :
Pledge and Hypothecation.......................................................
...... 1 : Stock Lending and Borrowing .........................................
............. 9 : Corporate Actions ............................................
............................. 19 : Public Issues ...............................
................................................... 23 : Debt Instruments and Go
vernment Securities ........................ 29 : NSC/KVP in demat Form ........
...................................................... 49 : Warehouse Receipts .
.................................................................... 51 : Market
Participants and Investors Database (MAPIN) ........... 54 : Tax Information Ne
twork (TIN) .................................................... 55
CHAPTER 12
Pledge and Hypothecation
The Depositories Act, 1996 permits the creation of pledge and hypothecation agai
nst securities. Securities held in a depository account can be pledged or hypoth
ecated 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 the pledgee must have a beneficiary account with NSDL. Howe
ver, both parties need not have their depository account with the same DP. The n
ature of control on the securities offered as collateral determines whether the
transaction is a pledge or hypothecation. If the lender (pledgee) has unilateral
right (without reference to borrower) to appropriate the securities to his acco
unt if the borrower (pledgor) defaults or otherwise, the transaction is called a
pledge. If the lender needs concurrence of the borrower (pledgor) for appropria
ting 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 th
e pledgee instructs its DP to confirm the creation of the pledge. The pledge/hyp
othecation so created can either be closed on repayment of loan or invoked if th
ere is a default. After the pledgor has repaid the loan to the pledgee, the pled
gor initiates the closure of pledge/hypothecation through its DP and the pledgee
instructs its DP to confirm the closure of the pledge/hypothecation. If the ple
dgor defaults in discharging his obligation under the agreement, the pledgee may
invoke the pledge/ hypothecation. This has to be done after taking the necessar
y steps under the terms of the agreement with the pledgor and the Bye-Laws of NS
DL and rules and regulations framed by SEBI.
1
Figure 37 - Annexure W of NSDL Business Rules
The following steps are involved in the creation of pledge/hypothecation:
1.
Creation of Pledge/Hypothecation by Pledgor
A beneficial owner may contract a loan against the securities owned by him. He m
ay borrow from a bank or any other person. A pledge transaction needs an identif
ication which may be an agreement number. The borrower is called a pledgor and t
he lender is called a pledgee. There can be any number of pledge/hypothecation t
ransactions between the same set of pledgees and pledgors. Each of these transac
tions have to be identified separately by an agreement number in the depository
participant module (DPM) and a separate set of instructions have to be given aga
inst each of these transactions (agreement numbers). Multiple pledge instruction
s can be executed on the basis of a single agreement. In such cases, the same ag
reement number should be quoted for all the pledge instructions. The DP of the p
ledgor initiates a pledge/hypothecation on request received from the pledgor in
the prescribed form. The pledgor submits the request form containing all details
like the details of securities to be pledged, the agreement number, closure dat
e of the pledge/hypothecation (this date is indicative of the duration of pledge
/hypothecation), pledgee s details, etc. The DP verifies the form for completene
ss and validity and ensures that the securities to be pledged exist in the pledg
or s account. If it is not found in order, it is returned to the pledgor for cor
rection. If the form is complete in all respects, the DP accepts it for processi
ng and issues an acknowledgement to the pledgor.
Pledge and Hypothecation 2
The DP then enters the details of the request in DPM as a pledge/hypothecation.
On entering the details, an instruction number for the request is generated. The
DP then verifies it and releases the order to NSDL. Securities are then debited
from the free or locked-in balances and credited as pledged balances of the ple
dgor. The DP intimates to the pledgor, the pledge initiation instruction number.
2.
Procedure for Confirmation of 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 pledgee s DP through DM
for confirmation. The pledge/ hypothecation request is displayed at DPM of pledg
ee s DP. On getting the details, the pledgee s DP furnishes the details to the p
ledgee for his confirmation. On receipt of such intimation from his DP, the pled
gee submits his acceptance or rejection of the request in the prescribed form. T
he DP verifies the form of acceptance received from the pledgee for its complete
ness and validity. The DP also compares the details on the form with the details
shown by DPM against the pledge/ hypothecation instruction number. On being sat
isfied, the DP executes the order for accepting/ rejecting the pledge/ hypotheca
tion request in DPM. In the case of rejection by the pledgee, the DP enters reas
on for the rejection in DPM as specified in the form. Confirmation of the accept
ance/ rejection of pledge/hypothecation is electronically communicated to DPM of
the pledgor s DP. Acceptance of the creation of pledge/ hypothecation appears i
n DPM of the pledgor s DP and pledgee s DP as a status change. Status of the ple
dge/hypothecation instruction will change to "Pledged". DP of the pledgee must c
onfirm the creation of pledge/hypothecation before the date of closure of pledge
/ hypothecation mentioned in the request form for creation of pledge submitted b
y the pledgor. In case of rejection by the pledgee, the bookings made at the tim
e of initiation of creation of the pledge/hypothecation instruction are reversed
and the securities are debited from the pledged balances of the pledgor and cre
dited to its free/locked-in balances. The reason for rejection is displayed in D
PM of the pledgor s DP. The pledgor s DP cannot cancel the pledge/hypothecation
order after confirmation of creation of the pledge/hypothecation by the pledgee.
Once the pledge is confirmed, statement of holding will show the quantity of pl
edged securities separately as "pledged balance". A pledgor (borrower) and pledg
ee (lender) may have their accounts with the same DP or different DPs. The proce
dure described does not change. It remains the same irrespective of whether or n
ot they have accounts with different DPs. Even if both have their accounts with
the same DP, the procedure of receiving the pledge confirmation from the lender
has to be followed. The pledge will get credited only after the confirmation adv
ice is entered in the DPM system.
3
Figure 38
Steps: 1. Agreement is signed between the pledgor and pledgee outside the NSDL s
ystem. 2. Pledgor gives a pledge creation request to his DP who enters it in the
system. Securities are transferred from free balances head to pledged balanc
es head in the pledgors acount. 3. The request reaches the pledgee s DP through
the NSDL system. Pledgee is intimated by his DP. 4. Pledgee gives a pledge conf
irmation to his DP who enters it in the system. Status of pledge instruction is
changed to pledged . 5. Loan is given by pledgee to pledgor outside the NSDL sy
stem.
Closure of a Pledge/Hypothecation by Pledgor
The Pledgor can request for closure of pledge/hypothecation after the performanc
e of the underlying agreement. The pledgor submits an instruction in the prescri
bed form to its DP to initiate the closure of pledge/hypothecation. The DP, upon
receiving such request, verifies the form for its completeness and validity and
, if not found in order, returns it to the pledgor for rectification. If it is f
ound to be in order, the DP accepts it for processing and issues an acknowledgem
ent to the pledgor. The DP also compares the details given in the form with thos
e displayed at DPM against the pledge/hypothecation instruction number. The DP e
nters the closure request details in DPM against the pledge/hypothecation instru
ction number as per the instructions given in the form and releases the instruct
ion to NSDL. The details of the pledge/hypothecation closure request are communi
cated electronically through DM to the DPM of pledgee s DP for confirmation. On
receiving such intimation, the pledgee s DP is required to furnish the details o
f the pledge/hypothecation closure requests received for confirmation to the ple
dgee. The pledgee then submits his acceptance/rejection of the closure request i
n the prescribed form. The DP verifies the form for its completeness and validit
y and, if not found to be in order, returns it to the pledgee for rectification.
If it is in order, the DP accepts it for processing and issues an acknowledgeme
nt to the pledgee. The DP also compares the details on the form with those displ
ayed at DPM against the pledge/hypothecation instruction number.
The DP executes the order accepting/rejecting the pledge/hypothecation closure r
equest in DPM as per the instructions given in the form. In case of rejection by
the pledgee, the DP enters the reason for rejection in DPM as specified in the
form. The acceptance/rejection of pledge/hypothecation closure confirmation is e
lectronically communicated to DPM of the pledgor s DP. Acceptance of the closure
of pledge/ hypothecation appears in DPM of the pledgor s DP and the pledgee s D
P as a status change. Status of the pledge/hypothecation instruction will change
to "Partially Closed" (in case only a part of the pledged quantity is accepted
for closure) or "Closed Settled" (as the case may be) and the securities accepte
d for closure get debited from the pledged balances of the pledgor and credited
to its free/locked-in balances. In case of rejection by the pledgee, the securit
ies continue to remain as pledged balances in the pledgor s account. The reasons
for rejection are displayed in DPM of the pledgor s DP. Some of the reasons for
rejection are as follows : • • • • • • • • • • Closure date not accepted Pledge
d quantity not accepted ISIN not accepted Security details not accepted Market v
alue of pledged ISINs insufficient ISIN delisted from trading POA not received f
rom all holders Holders not acceptable to the pledgee Agreement number differs f
rom that on the agreement Others Steps: 1. Pledgor repays the loan to pledgee. F
igure 39 2. Pledgor gives a pledge closure request to his DP. 3. Pledgor s DP fo
rwards the request to NSDL. 4. NSDL forwards the pledge closure request to Pledg
ee s DP. 5. Pledgee s DP intimates the Pledgee. 6. Pledgee gives pledge closure
confirmation form to his DP. 7. Pledgee s DP closes the pledge and pledge closur
e is forwarded to NSDL. Securities are moved from pledged balances to free bal
ances in the pledgor s account. 8. NSDL forwards the confirmation for pledge clo
sure to Pledgor s DP. 9. Pledgor s DP intimates the Pledgor
5
Figure 39 A Steps: 1. Pledgor repays the loan to pledgee. 2. Pledgee gives a uni
lateral pledge closure request to his DP. 3. Pledgee s DP forwards the request t
o NSDL. Pledge is closed. 4. NSDL informs the Pledgor s DP. Securities are moved
from pledged balances to free balances in the pledgor s account. 5. Pledgor s
DP intimates the Pledgor
Figure 39 B Steps: 1. On repayment default, pledgee sends an invocation notice t
o pledgor. 2. Pledgee submits a pledge invocation request to DP. DP forwards the
request to the pledgor s DP through the NSDL system. 3. Securities move automat
ically from pledgor s account to pledgee s account through the NSDL system. 4. P
ledgor is informed of the movement of securities by his DP.
Unilateral Closure of Pledge (refer figure 39A)
The Facility for unilateral closure of Pledge by the Pledgee has been provided.
The pledgee submits an instruction in the prescribed form to its DP to initiate
unilateral closure of pledge / hypothecation. The process remains the same as me
ntioned under head, Closure of a Pledge/Hypothecation by Pledgor. However, no ac
tion (confirmation / rejection) is required to be taken by the pledgor and / or
pledgor s DP.
Invocation of Pledge by Pledgee (refer figure 39B)
If the pledgor fails to discharge his obligations under the agreement of pledge
or for any other reason, the pledgee may invoke the pledge. He can then claim th
e beneficial ownership of the concerned securities after taking the necessary st
eps in terms of the pledge agreement, Bye-Laws of NSDL and SEBI regulations. In
such a case, the pledgee submits a request in the prescribed form to his DP for
invoking the pledge. The DP verifies the form for its completeness and validity
and if not found in order return the same to the pledgee for rectification. If i
t is in order, the DP accepts it for processing and issues an acknowledgement to
the pledgee. The DP also compares the details on the form with those on the DPM
displayed against the pledge instruction number. The DP enters the invocation r
equest details in DPM against the pledge instruction number as per the instructi
ons given in the form and releases it to NSDL. On receipt of invocation request
by NSDL, the securities are transferred from the pledged balance of the pledgo
r s beneficial owner account to the free balance of pledgee s beneficial owner
account. The intimation is given to the pledgor s DP through DM and the status
of the pledge changes to "Closed Invoked". It may be noted that in case of pledg
e, no confirmation is required in DPM of the pledgor s DP for transferring secur
ities from pledgor s (borrower s) account to pledgee s (lender s) account.
Invocation of Hypothecation
If the borrower fails to discharge his obligations under the agreement of hypoth
ecation or for any other reason, the lender may invoke the hypothecation. He can
then claim the beneficial ownership of the concerned securities after taking th
e necessary steps in terms of the hypothecation agreement, Bye-Laws of NSDL and
SEBI regulations. In such a case, the lender submits a request in the prescribed
form to his DP for invoking the hypothecation. The DP verifies the form for its
completeness and validity and, if not found in order, returns it for rectificat
ion. If it is in order, the DP accepts it for processing and issues an acknowled
gement to the lender. The DP also compares the details on the form with those on
the DPM displayed against the hypothecation instruction number. On receiving th
e instructions from the borrower, the DP executes the order for accepting/reject
ing the invocation request in DPM as per the instructions given in the form. In
case of rejection by the borrower, the DP enters the reason for rejection in DPM
as specified in the form. The acceptance/rejection of invocation confirmation i
s communicated to DPM of the lender s DP through DM. In case of rejection by the
borrower, the securities will continue to remain as pledged balances in the bor
rower s account and the reasons for rejection are displayed in DPM of the lender
s DP.
7
It is important to note that locked-in securities cannot be invoked before the l
ock-in release date. In case of hypothecation, the pledgor instructs its DP to c
onfirm the invocation of the hypothecation in DPM.
Substitution of Securities Offered in Pledge
A pledgor (borrower) can substitute the securities offered in a pledge transacti
on, if the pledgee (lender) agrees to it. For example, if originally the securit
ies of company AB Ltd. were offered as collateral and the pledgor were to offer
securities of company CD Ltd. or PQ Ltd. or both of them, he may do so if the pl
edgee agrees to it. The procedure for effecting this change involves the procedu
re of closure of earlier pledge and creation of a new pledge. A similar facility
is available for securities hypothecated.
Corporate Benefits for Pledged/Hypothecated Securities
Ownership of the pledged/hypothecated securities remains with the pledgor (borro
wer) until the pledge is invoked. Hence, all corporate benefits - cash and non-c
ash - like dividends, bonus, rights etc., will accrue to the borrower. Dividends
will be given to the borrower in the usual manner and bonus shares will be cred
ited to his account as pledged balances. The securities arising out of corporate
actions like share splits or consolidation or exchange under a merger/acquisiti
on scheme are credited to the account of the pledgor with pledge marked in favou
r of the pledgee.
Checklist for pledge/hypothecation
While processing a pledge/hypothecation request, the DP should take care with re
gard to the following steps/points: 1. 2. Ensure that the instruction form is su
bmitted in duplicate. On receipt of instruction for creation of pledge, check wh
ether there is enough balance in pledgor s account to effect the creation of ple
dge/hypothecation. If not, advise the client suitably. Ensure that all compulsor
y fields in the instruction form are entered. Ensure that request for confirmati
on of pledge is given before the closure date mentioned in the instruction form.
3. 4.
8
CHAPTER 13
Stock Lending and Borrowing
The transactions involving lending and borrowing of securities are executed thro
ugh approved intermediaries duly registered with SEBI under the Securities Lendi
ng Scheme, 1997. Such an intermediary may deal in the depository system only thr
ough a special account (known as Intermediary Account) opened with a DP. An inte
rmediary account may be opened with the DP only after the intermediary has obtai
ned SEBI approval and registered itself with SEBI under the Securities Lending S
cheme. The intermediary also needs to obtain an approval of NSDL.
Intermediary
All entities who can provide the services of stock lending have to be approved b
y SEBI. The Certificate of Registration is issued by SEBI if an intermediary ful
fills the following criteria. • The applicant has to have a net worth of Rs. 50
crore; • If the applicant is a clearing house or a clearing corporation and has
the specified net worth and has obtained the concurrent approval of the stock ex
change; and • The applicant has adequate infrastructure like office space, equip
ment and experienced personnel for dealing in securities. If the applicant fulfi
lls these conditions, SEBI may issue a Certificate of Registration valid for thr
ee years initially on payment of the required fees.
Obligations and Responsibilities of the Intermediary
The Intermediary has to abide by the guidelines of the Scheme as issued by SEBI
from time to time. While dealing with clients, the Intermediary has to specify t
he amount and type of collateral required as well as the method of valuation for
the securities. Complete records have to be maintained of the securities deposi
ted by the lender, those lent to the borrower and those returned. These records
have to be kept available for inspection by SEBI and NSDL. The receipts issued b
y the intermediary also have to be complete in all respects regarding the inform
ation about the securities transacted under this scheme. The information include
s the name and number of the securities, the certificate and folio number (in ca
se of physical securities) and the date of lending/borrowing. The Intermediary h
as to issue a receipt for the transactions that serves as a proof of ownership i
n case of a dispute. Under the scheme, a borrower is a person who borrows the se
curities through an approved Intermediary. The lender is one who deposits with a
n Intermediary the securities registered in his name or in the name of any other
person on whose behalf he is authorised to act, for the purpose of lending unde
r the Scheme.
9
Procedure for Lending and Borrowing Securities
A beneficial owner of securities intending to participate in a securities lendin
g programme submits a securities lending request form, in the prescribed manner
(shown in figure 40 below) through his DP. The DP verifies the lending request f
orm for its validity and completeness and executes the instructions as per the s
pecifications on the form. On execution of these instructions, NSDL blocks the s
ecurities to be lent in the lender s account in favour of the intermediary and i
ntimation is sent to the DP of the intermediary. On receiving this intimation fr
om NSDL, the DP informs the intermediary accordingly.
Figure 40 - Annexure X of NSDL Business Rules
Pre-printed Serial No. SECURITIES LENDING FORM FOR LENDER/BORROWER Participant N
ame Participant Id Participant Address Please tick in any one of the boxes as ma
y be applicable
Date :
(for lender) Deposit with Intermediary Initiate Recall from Intermediary Confirm
Repay initiated by Intermediary
Client Id Client Name Closure Date Agreement No. Sr. No. ISIN Security Name Quan
tity Pre Stamped
(for borrower) Borrow from Intermediary Initiate Repay to Intermediary Confirm R
ecall initiated by Intermediary
Intermediary Client Id Intermediary Client Name Intermediary DP Id Intermediary
DP Name Order No. Reason for recall/repay for (Refer to securities returned outs
ide the DPM Instruction No. 2) system/Rejection reason (if any) (Refer to Instru
ction no. 3)
Execution Date :
Instructions: 1. To be submitted in duplicate for acknowledgement 2. Lend/Borrow
Order No. to be filled in by the client at the time of Confirmation & Recall/Re
pay 3. Reasons must be mentioned for rejections and for recall/repay where retur
n of securities is outside the Securities Lending module of the DPM system
10
The intermediary, on receipt of such intimation, submits in the prescribed form
his acceptance or rejection of the deposit made by the lender. The DP of the int
ermediary accordingly intimates the acceptance or rejection of deposit by the in
termediary to NSDL. In case the intermediary accepts the deposit, NSDL will move
the securities from the lender s account to the intermediary s account and info
rm the DP of the lender. In case the intermediary rejects the deposit, NSDL remo
ves the blocking in the lender s account and informs the DP of the lender. The D
P of the lender accordingly intimates the lender about the acceptance or rejecti
on of his lending request.
Figure 41
Deposit of securities from lender to intermediary
NSDL
4 6 7 7 2
INTERMEDIARY’S DP
5 7 ACCEPTANCE
LENDER’S DP
1 REQUEST
7
INTERMEDIARY
AGREEMENT
LENDER Lent Free
3
1. 2. 3. 4. 5. 6. 7.
Lender forwards request to his DP. Lender s DP electronically communicates reque
st to NSDL. The securities are blocked in lender s account in favour of the inte
rmediary. NSDL electronically informs intermediary s DP. Intermediary forwards a
cceptance request to his DP. Intermediary s DP electronically communicates accep
tance to NSDL. Securities are moved from lender s account to intermediary s acco
unt.
11
Lending of Securities by Intermediary to Borrower
The procedure for lending against securities is also similar. A person wanting t
o borrow securities makes a request in the prescribed form through his DP (Figur
e 42). The DP verifies the request form for its validity and completeness and ex
ecutes the instructions as per the specifications on the form. On execution of s
uch instructions by the DP of the borrower, NSDL will electronically inform the
DP of the intermediary accordingly. The intermediary s DP will inform him about
the request for borrowing which it may accept or reject. The acceptance or rejec
tion should be communicated to the DP in the prescribed form.
Figure 42 - Annexure XX of NSDL Business Rules
Pre-printed Serial No. SECURITIES LENDING FORM FOR INTERMEDIARY Participant Name
Participant Id Participant Address Please tick in any one of the boxes as may b
e applicable Confirm Deposit initiated by Lender Confirm Recall initiated by Len
der Initiate Repay to Lender Intermediary Client Id Intermediary Client Name Clo
sure Date Agreement No. Sr. No. ISIN Security Name Quantity Pre Stamped Confirm
Borrow initiated by Borrower Confirm Repay initiated by Borrower Initiate Recall
from Borrower Lender/Borrower Client Id Lender/Borrower Client Name Lender/Borr
ower DP Id Lender/Borrower DP Name Order No. Reason for recall/repay for (Refer
to securities returned outside the DPM Instruction No. 2) system/Rejection reaso
n (if any) (Refer to Instruction no. 3)
Date :
Execution Date :
Instructions: 1. To be submitted in duplicate for acknowledgement 2. Lend/Borrow
Order No. to be filled in by the client at the time of Confirmation & Recall/Re
pay 3. Reasons must be mentioned for rejections and for recall/repay where retur
n of securities is outside the Securities Lending module of the DPM system 4. St
rike out which is not applicable
12
In case the intermediary accepts the request, the DP electronically accepts the
request in the system. NSDL then moves the securities from the intermediary s ac
count to the borrower s account and electronically informs the DP of the borrowe
r. In case the request is rejected, NSDL informs the DP of the borrower accordin
gly. The DP of the borrower, in turn, informs the borrower about the acceptance
or rejection of his request.
Figure 43
1. 2. 3. 4. 5. 6.
Borrower forwards request to his DP. Borrower s DP electronically communicates r
equest to NSDL. NSDL electronically informs intermediary s DP. Intermediary forw
ards acceptance request to his DP. Intermediary s DP electronically communicates
acceptance to NSDL. Securities are moved from intermediary s account to borrowe
r s account.
13
Repayment of securities By Borrower to Intermediary
A person desiring to repay the securities borrowed has to make the request in th
e prescribed form through his DP who verifies the request form for its validity
and completeness and executes the instructions given on the form. If the borrowe
r s account has sufficient balance, the Depository may automatically create an i
nstruction for acceptance of repayment of securities and move the securities fro
m the borrower s account to the intermediary s account and inform the Participan
t of the intermediary. After receiving intimation for repayment of securities fr
om NSDL, the DP of the intermediary will inform the intermediary accordingly. In
case the borrower repays the securities to the intermediary outside the securit
ies lending module of DPM system, the DP of the borrower as well as the intermed
iary have to inform NSDL accordingly. On receipt of such information, NSDL amend
s its records and informs the respective DPs accordingly. Figure 44
Repayment of Securities by borrower to intermediary (with securities)
1. Borrower forwards repayment request to his DP. 2. Borrower’s DP electronicall
y communicates request to NSDL. 3. If the Borrower’s account has sufficient bala
nce, NSDL may automatically create an instruction for acceptance of repayment of
securities. The securities are debited from borrower’s account and credited to
the intermediary. 4. Intermediary’s DP is informed accordingly by NSDL. 5. On re
ceipt of intimation for repayment of securities from NSDL, Intermediary’s DP inf
orms the intermediary accordingly.
Figure 44 A
Repayment of Securities by borrower to intermediary (without securities)
1. Borrower forwards repayment request to his DP. 2. Borrower’s DP electronicall
y communicates request to NSDL. 3. NSDL intimates the repaymetn of securities to
the Intermediary’s DP, who in turn informs the Intermediary. 4. Intermediary fo
rwards request for acceptance / rejection (Fig. 42) to its DP. 5. Intermediary’s
DP electronically communicates acceptance / rejection to NSDL. Status of the or
der will get updated. 6. NSDL informs Borrower’s DP, who in turn informs the bor
rower.
14
By Intermediary to Lender
If an intermediary wants to return the borrowed securities received from a lende
r, it has to make a request through its DP in the prescribed form. The DP verifi
es the request form for its validity and completeness and executes the instructi
ons as per the specifications on the form. If the intermediary s account has suf
ficient balance, the Depository may automatically create an instruction for acce
ptance of repayment of securities and move the securities from the Intermediary
s account to the lender s account and inform the Participant of the lender. Afte
r receiving the intimation for repayment of securities from NSDL, the DP of the
lender will inform the lender accordingly. In case the intermediary repays the s
ecurities to the lender outside the securities lending module of DPM system, the
DPs of the lender as well as the intermediary should inform NSDL accordingly. O
n receipt of such information, NSDL amends its records and informs the respectiv
e DPs. Figure 44 B
Repayment of securities by intermediary to lender (with securities)
1. Intermediary forwards repayment request to his DP. 2. Intermediary’s DP elect
ronically communicates request to NSDL. 3. If the Intermediary’s account has suf
ficient balance, NSDL may automatically create an instruction for acceptance of
repayment of securities. Securities from Intermediary’s account are moved to the
lender’s account and Lender’s DP is informed accordingly by NSDL. 4. On receipt
of intimation for repayment of securities from NSDL, lender’s DP informs the le
nder accordingly.
Figure 44 C
Repayment of securities by intermediary to lender (without securities)
1. Intermediary forwards repayment request to his DP. 2. DP electronically commu
nicates request to NSDL. 3. NSDL intimates the repayment of securities to the le
nder’s DP, who in turn informs the lender. 4. Lender forwards request for accept
ance / rejection (Fig. 40) to his DP. 5. Lender’s DP electronically communicates
acceptance / rejection to NSDL. Status of the order will get updated. 6. NSDL i
nforms Intermediary’s DP, who in turn informs the Intermediary.
15
Recall of Securities By Intermediary from Borrower
An intermediary who has lent securities to a borrower is entitled to recall such
securities. The request for recall should be made in the prescribed form throug
h the DP who verifies the request form for its validity and completeness and exe
cutes the instructions as per the specifications on the form. On execution of su
ch instructions by the intermediary s DP, NSDL informs the borrower s DP accordi
ngly. After receiving intimation from NSDL about the recall of securities, the b
orrower s DP informs the borrower accordingly. On receipt of such intimation, th
e borrower conveys to his DP his acceptance or rejection of the request for reca
ll in the prescribed form. The borrower s DP informs NSDL about the acceptance o
r rejection of the request. In case the request is accepted, NSDL moves the secu
rities from the borrower s account to the intermediary s account and informs the
intermediary s DP. After receiving the intimation for acceptance/rejection of r
ecall of securities from NSDL, the intermediary s DP informs the intermediary ac
cordingly. In case the intermediary recalls the securities outside the securitie
s lending module of DPM system, the DPs of the borrower as well as the intermedi
ary should inform NSDL accordingly. On receipt of such information, NSDL amends
its records and informs the respective DPs accordingly. Figure 45
Recall of securities by intermediary from borrower (with securities)
1. Intermediary forwards recall request to its DP. 2. Intermediary’s DP electron
ically communicates request to NSDL. 3. NSDL electronically informs borrower’s D
P. 4. Borrower forwards request for acceptance / rejection (Fig. 40) to his DP.
5. Borrower’s DP electronically communicates acceptance / rejection to NSDL. 6.
On receipt of intimation for acceptance / rejection, NSDL may move securities fr
om borrower’s account to intermediary’s account.
16
Figure 45A
Recall of securities by intermediary from borrower (without securities)
1. Intermediary forwards recall request to his DP. 2. Intermediary’s DP electron
ically communicates request to NSDL. 3. NSDL electronically informs borrower’s D
P. 4. Borrower forwards request for acceptance / rejection (Fig. 40) to his DP.
5. Borrower’s DP electronically communicates acceptance / rejection to NSDL. Sta
tus of the order will get updated 6. NSDL informs Intermediary’s DP regarding th
e acceptance / rejection by the Borrower. Intermediary’s DP informs the Intermed
iary accordingly.
By Lender from Intermediary
A person who has lent securities through an approved intermediary may recall the
m from the intermediary according to the terms and conditions prescribed under B
ye-Laws of NSDL. The lender has to make the request for recalling the securities
in the prescribed form through his DP who verifies the request form for its val
idity and completeness and executes the instructions as specified on the form. A
fter this, NSDL intimates the intermediary s DP who, in turn, informs the interm
ediary accordingly. On receipt of such intimation, the intermediary submits, in
the prescribed form, his acceptance or rejection of the recall request made by t
he lender. The DP, on receiving intimation of acceptance/rejection, intimates NS
DL accordingly. In case the request is accepted by the intermediary, NSDL will m
ove the securities from the intermediary s account to the lender s account and i
nforms the lender s DP. After receiving the intimation for acceptance/rejection
of recall of securities from NSDL, the lender s DP informs the lender accordingl
y. In case the lender recalls the securities from the intermediary outside the s
ecurities lending module of DPM system, the DP of the lender as well as the inte
rmediary should inform NSDL accordingly. On receipt of such information, NSDL am
ends its records and informs the respective DPs accordingly.
17
Figure 45B
Recall of securities by lender from intermediary (with securities)
1. Lender forwards recall request to his DP. 2. Lender’s DP electronically commu
nicates request to NSDL. 3. NSDL electronically informs intermediary’s DP. 4. In
termediary forwards request for acceptance/ rejection to its DP. 5. Intermediary
’s DP electronically communicates its acceptance / rejection to NSDL. 6. On rece
ipt of intimation of acceptance, NSDL may move securities from intermediary’s ac
count to lender’s account. Figure 45C
Recall of securities by lender from intermediary (without securities)
1. Lender forwards recall request to his DP. 2. Lender’s DP electronically commu
nicates request to NSDL. 3. NSDL electronically informs intermediary’s DP. 4. In
termediary forwards request for acceptance / rejection to his DP. 5. Intermediar
y’s DP electronically communicates acceptance / rejection to NSDL. Status of the
order will get updated. 6. NSDL informs lender’s DP regarding the acceptance /
rejection by the Intermediary. Lender’s DP informs the lender accordingly.
Where the Intermediary is a DP
In case the intermediary is itself a DP, it is not necessary to submit the form.
However, the DP should carefully keep appropriate records relating to securitie
s lending for its own benefit.
18
CHAPTER 14
Corporate Actions
Corporate actions are events, which affect the rights, obligations and/or intere
sts of the beneficial owners of the securities held in a depository. The most co
mmon examples are payment of interest, dividend, bonus shares, rights, splits, m
erger, redemption, payment of call money, liquidation etc. For securities held i
n a depository, NSDL facilitates the execution of corporate actions. NSDL s Bye-
Laws define corporate benefits to mean and include any action taken by the Issue
r relating to prescribing dates for book closures, record dates, dates for redem
ption or maturity of security, dates of conversion of debentures, warrants, call
-money dates and such other action from time to time. From distribution point of
view, corporate action can be classified as cash corporate actions and non-cash
corporate actions. Cash Corporate actions involve distribution of monetary bene
fits, e.g., dividend and interest etc. and non-cash corporate actions involve di
stribution of benefits other than cash such as bonus issues, offer of shares on
right basis, conversion of securities, etc. In case of cash corporate actions, d
epository merely provides information to the Issuer about the persons entitled t
o receive corporate benefits. In case of non-cash corporate actions, depository
may facilitate the distribution of corporate benefits. NSDL at present, facilita
tes the distribution of non-cash corporate benefits. The beneficial owners are e
ntitled to all the rights and benefits and are subject to all the liabilities in
respect of their securities held by a depository. Since corporate actions affec
t the beneficial owners of the securities, it is important to determine the actu
al beneficial owner of the securities on the cut-off date announced by the Issue
r for a specific corporate action. Such cut off date is called record date/ book
closure. NSDL provides details of the beneficial owners on the record date/ boo
k closure to the Issuer company or its R&T Agent to enable the company to calcul
ate the benefits accruing to such holdings.
Procedure for Corporate Actions
Whenever a corporate action is announced, the Issuer / its R&T Agent, informs NS
DL about the proposed corporate action. On receiving such information, NSDL info
rms all its DPs by e-mail, about the corporate action, the cut-off date and the
procedure to be followed by the DPs and clients.
Corporate Actions
19
On receiving such information, DPs take the following steps to ensure that: the
changes in tax status, bank details, change of address etc. in the beneficial ow
ners accounts are updated well in advance of the book closure/record date; all
positions in the transit accounts, e.g., settlement accounts and intermediary ac
counts, are cleared and the balances lying therein are transferred to the releva
nt beneficiary accounts well in advance of the book closure/record date as per t
he instructions received from account holders. On the relevant cut-off date anno
unced for the corporate action, NSDL provides the details of the holdings of the
beneficial owners to the Issuer / its R&T Agent. The details provided by NSDL i
nclude the particulars of tax-status, if any of the beneficial owner and his ban
k account details. Securities balances lying in the accounts of the Clearing Mem
bers / Clearing Corporations / Intermediaries will be eligible to receive corpor
ate benefits, except in the case of rights offers. In such cases, the Issuer or
its Registrar & Transfer Agent will distribute the corporate benefits to the Cle
aring Members / Clearing Corporations / Intermediaries for onward distribution t
o the beneficial owners. The corporate benefits availed by Clearing Members / Cl
earing Corporations and Intermediaries shall be held in trust on behalf of the b
eneficial owners.
Monetary Benefits
On the basis of the particulars of the holdings of beneficial owners received fr
om NSDL on the cut-off date, the Issuer / its R&T Agent distribute dividend, int
erest and other monetary benefits directly to the beneficial owners. SEBI vide i
ts Circular No. DCC/FITTCIR-3/2001 dated October 15, 2001 has advised that compa
nies should mandatorily use ECS facility for distribution of dividends and other
cash benefits to the investors. However, where ECS facility is not available, c
ompanies may use warrants for distribution of dividends. Further, SEBI has advis
ed that companies should mandatorily print the bank account details furnished by
the Depositories on the payment instruments.
Non-monetary Benefits
On the basis of the particulars of the holdings of beneficial owners received fr
om the depository as of the cut-off date, the Issuer / its R&T Agent informs the
eligible beneficial owners about the corporate action / benefit. In case the be
nefits are in form of securities, the Issuer / its R&T Agent gives an option to
all shareholders (including shareholders holding shares in physical form), to ge
t securities allotted in electronic form or physical form. A person holding secu
rities in physical form may opt for receiving securities in dematerialised form
and vice-versa. If holders
Corporate Actions
20
do not indicate any choice, the Issuer / its R&T Agent issues the securities in
the same form in which the shareholder held the securities as on the record date
. Thus, if a shareholder is holding shares in electronic form, the newly allotte
d shares will be credited to his account electronically. If shareholders holding
shares in physical form, opt for credit of newly allotted shares in electronic
form, the Issuer / its RTA executes a corporate action to credit the newly allot
ted shares to the demat accounts of such shareholders on a particular date (i.e.
the execution date). The Issuer / its R&T Agent allots the securities and infor
ms NSDL about allotment details of all beneficial owners. On receipt of these de
tails, NSDL makes the credit entries in the accounts of the beneficial owners on
a date requested by the Issuer / its R&T Agent (the execution date). In cases w
here the details of accounts to which the Issuer / its R&T Agent has made allotm
ent, do not match with those maintained with NSDL, such records will be rejected
. NSDL then requires the Issuer / its R&T Agent to rectify the records within th
irty days from the execution date. In case the Issuer / its R&T Agent fails to r
ectify the records within the stipulated period, the allotment of the rejected r
ecords will have to be made in physical form outside the depository system. The
statement of transactions sent by the DP to the beneficial owners, will indicate
the updated holdings after execution of the corporate action.
Rights Issue
The Issuer / its R&T Agent, on the basis of details of holding received from the
NSDL, despatch the application form for rights issue to the beneficial owners.
The form requires the applicant to state his option about whether he would like
to receive the new securities in physical form or dematerialised from. In case t
he applicant does not exercise his option, new securities are allotted in the fo
rm in which the shareholder held the security as on the record date. The allotme
nt procedure for rights securities is the same as in case of initial public offe
r.
Merger / Amalgamation / Capital Reduction / Sub division etc.
In case of events such as merger, amalgamation, capital reduction, sub-division
etc., shares held in demat accounts under old ISIN will be automatically debited
and proportionate number of new shares will be credited in the new ISIN.
Rights of Lender (under stock lending scheme)
A lender of securities through depository system is entitled to all corporate be
nefits in respect of the securities lent by him. The procedure for distribution
of benefits would, however, depend on the status of securities lent as of the cu
t-off date, i.e., whether the securities are still lying in the intermediary acc
ount, or they have been transferred to borrower s account.
Corporate Actions 21
1.
For securities are lying in the intermediary account, the intermediary may eithe
r: Return the securities to the lender before the cut-off date, so that the lend
er will automatically get the benefit; or Transfer the securities to its Benefic
iary Account and receive the benefit from the Issuer / its R&T Agent. In this ca
se, the intermediary reimburses the lender for the benefits received by it on be
half of the lender. The intermediary also executes a proxy form in favour of the
lender to enable him to exercise his voting rights. In case the securities have
been lent and transferred to the borrower s beneficiary account, the benefits i
n respect of such securities would be paid by the Issuer / its R&T Agent to the
borrower or to the person who has bought securities from the borrower. In this c
ase, it is duty of the intermediary to collect the value of lender s entitlement
to the corporate benefits from the borrower and pay the same to the lender. In
the second case, the lender is not entitled to the voting rights in respect of t
he securities lent by him.
2.
Rights of Pledgor/hypothecator
Ownership of the pledged/hypothecated securities remains with the pledgor (borro
wer) until the pledge is invoked. Hence, all corporate benefits - cash and non-c
ash - like dividends, bonus,rights etc., will accrue to the borrower. Dividends
will be given to the borrower in the usual manner. The securities arising out of
corporate actions like bonus, share splits or consolidation or exchange under a
merger/acquisition scheme are credited to the account of the pledgor, with pled
ge marked in favour of the pledgee, provided that on the execution date of the c
orporate action, pledge exists for atleast one share.
Payment of Interest on Debt Securities
Eligible investors in debt securities will receive interest from the Issuers / i
ts R&T Agents. However, in respect of Government Securities, NSDL distributes th
e interest to eligible clients, after RBI has credited interest amount to NSDL.
Corporate Actions
22
CHAPTER 15
Public Issues
Primary market is a market for raising funds from the primary source of savings
i.e. investors. The issue of securities in the primary market can be made by a n
ew company, a new company promoted by an existing company, an existing public li
sted company, or an existing public unlisted company. According to the Companies
Act, 1956 (section 68B) every listed public company, making an initial offer of
any security of Rs. 10 crore and above has to issue it only in dematerialised f
orm in accordance with Depositories Act, 1996. The process of issuing securities
in physical form is expensive, cumbersome and is fraught with risks like printi
ng mistakes, loss in transit, time/effort/cost involved in despatch of securitie
s etc. With the establishment of depositories in the country, the risks stated a
bove are well mitigated. To encourage issue of securities in demat form, SEBI ha
s issued the following guidelines for public issues in electronic mode: Issuer s
hall be required to enter into agreement with all the depositories. Issuer shall
give an option to subscriber/investor to receive the physical certificates or h
old the securities in electronic mode with the depository. In order to eliminate
the risks to investors on account of fake/forged certificates, bad deliveries,
delays in transfer, etc., trading in securities of company making an IPO shall b
e in demat form only.
Present procedure to public issue:
The procedure followed at present for getting demat allotment in public issue is
by giving option in application form. Investors can apply in public offerings t
o get allotments directly in dematerialised form. For this purpose, the applicat
ion form should have provision for investors to furnish the following informatio
n: Depository Name DP s Name DP-lD Beneficiary Account Number The disclosure and
instructions for exercising such an option is generally given in the applicatio
n form as well as in the offer document. Allotment in electronic form is given o
nly when the client name and the beneficiary account are matched with details fi
lled in application form. In case
Public Issues
23
the applicant does not exercise the option of holding securities in demat form,
the Issuer will allot securities in physical form. There are no charges in the a
llotment process. All the applications, whether with demat option or not, are tr
eated alike for allotment purposes.
Figure 46 - Annexure G of NSDL Business Rules
SHARE APPLICATION FORM Application form for equity shares for the Indian Public
(Please read instructions carefully before filling up this form) THE ABC COMPANY
LIMITED Reg. office : First Floor, Victoria Bldg., S. A. Brelvi Road, Fort, Mum
bai – The ABC Company limited (hereinafter referred to as “The Company”) was inc
orporated on, etc., etc. Equity issue open on Earliest closing Issue closing not
later than Broker’s stamp & code : : : Monday, 13th May 1996 Friday, 17th May 1
996 Thursday, 23rd May 1996 Bank’s stamp
Serial no. : 0252185
Sub-broker’s stamp & code
Bank’s serial no.
Registrar’s serial no.
Public issue of 18,00,000 equity shares of Rs. 10 each for cash at par aggregati
ng to Rs.180 Lakhs. Cheques/DD/Stockinvest must be drawn in favour of company fr
om the account of the first/sole applicant. Please write the application no. on
the reverse of the Cheque/DD/Stockinvest.
Application must be for a minimum of 500 equity shares & in multiples of 100 the
reafter. Amount payable per equity share on application @ Rs.5/- per share. No.
of equity Shares applied for 500 600 800 1000 Amount payable on application 2500
3000 4000 5000
To The Board of Directors, ABC COMPANY LIMITED First Floor, Victoria Bldg., S. A
. Brelvi Road, Fort, Mumbai Dear Sirs,
On the basis of the company s prospectus I/we hereby apply to you for allotment
to me/us of the equity shares stated below, out of the above issue. The amount p
ayable on application as shown below is remitted herewith. I/we hereby agree to
accept the equity shares applied for or for lesser number as may be allotted to
me etc.
Public Issues
24
No. of shares applied In figures In words
Amount paid (Rs.) In figures In words
Cash Cheque Demand Draft Stockinvest
Instrument No. Date of issue Drawn on (Bank) Branch Occupation of first applican
t Service Business Student Housewife Professional Farmer Others
Sole/first applicant Name in full (Mr./Mrs./Miss/Ms) Address
Name
Surname
Date 1. 2. Status (Please tick) 3. 4. Individual 5. Ltd. co. 6. Others 7. Age
Father’s/Husband’s Name Second Applicant Third Applicant Option for receipt of a
llotted securitieis (Please Tick) Physical In case of Electronic (Depository) :
Name of Depository : Name of Depository Participant : Account Number – Investor’
s bank particulars for refund SB a/c no. Bank Branch Sole/First Applicant Second
Applicant Third Applicant Serial No. : 0252185 Date : Bank stamp & signature Da
ted Specimen Signature PAN / GIR No. Circle/ward/ district. Electronic (Deposito
ry) Age Age
THE ABC COMPANY LIMITED Reg. office : First Floor, Victoria Bldg., S. A. Brelvi
Road, Fort, Mumbai – Acknowledgment slip (To be filled in by the first applicant
) Received from Address Equity shares applied for Amount Paid Cash (___/)
in figures in words in figures in words
Cheque/DD/ Stockinvest No.
Pin code
Drawn on
Public Issues
25
For electronic holdings Account No. Name of the Depository Name of the DP
All future communication in connection with the application should be addressed
to the registrars to the issue quoting the full name of the First/sole applicant
, application sr. no., of equity shares applied for, Date & name of the bank bra
nch where the application was submitted, at the following address : In House Sha
re Registry, First Floor, Victoria Bldg, S. A. Brelvi Road, Fort, Mumbai.
(Cheques/DD /Stockinvest are subject to realization)
Notes :1. For subscription in electronic form, names in the share application fo
rm should be identical to those appearing in the account details in the deposito
ry. In case of joint holders, the names should necessarily be in the same sequen
ce as they appear in the account details in the depository. Share application fo
rms for part subscription in electronic form and part in physical form will be t
reated as invalid and rejected. This IPO form may not be complete in all respect
s.
2. 3.
Additions made to the existing share application form are shown in shaded area.
On allotment, the Issuer / its R&T agent provides the details of successful allo
ttees who have opted for receiving securities in demat form, to the depository a
nd the execution date when the securities should be credited to the beneficial o
wners accounts. NSDL depository will credit the securities to the allottee accou
nts on the execution date. The statement of accounts provided by the Depository
Participant (DP) will indicate balances created in the respective beneficiary ow
ner s account.
Public Issue Facility through NSDL
NSDL has developed the Public Offer Module to facilitate application, processing
and allotment of securities in primary market through NSDL system. The procedur
e for public issue facility through Public Offer module is as follows: 1. For th
e purpose of Public Offer (PO), NSDL communicates the Public Offer Control Instr
uction to all the DPs. This instruction gives the key features of the public off
er like Issuer name, open date, closure date, etc. NSDL allots a unique identifi
cation number to the PO. After the PO is received, DPs capture the details of th
e application forms in DPM provided the application date entered in DPM falls be
tween the date of opening and closure date. The system will allow the DP to veri
fy and release the instructions only after the beginning of day process (BOD) of
the offer open date. The investor shall fill up the application form (including
the DP-ID and Client-ID) and submit the same along with the payment instrument
to the DP.
2.
Public Issues
26
3.
The DPs shall capture the following details of the application in the PO module
of DPM and release the same to NSDL: Client-ID Issue Number Application Form Num
ber Application Date Payment Payment Mode Instrument Number Requested Quantity f
or the ISIN Application Amount Internal Reference Number. Bank Details (By defau
lt, bank details provided by the client at the time of account opening are autom
atically copied here.) The DPs shall verify the application form and deposit the
same along with the payment instrument with any of the collecting banks. The DP
s shall ensure that all the applications alongwith the payment instruments are d
eposited with the bank before the end of banking hours of the offer closure date
. The DPs are advised to take due care and ensure that the applications are depo
sited in time with the collecting banks as the DPs will be responsible if the ap
plications are not deposited in time. DPs can capture, verify and release the da
ta into DPM system till the end of day process (EOD) of the third day after the
offer closure date. However, the DPs must ensure that the applications are depos
ited with the collecting banks before the end of banking hours of offer closure
date. DPs will also print the Public Offer Banker s Report from DPM system and g
ive it to the collecting bank along with the applications. The DP, after deposit
ing the application form with the collecting bank, has to obtain the acknowledge
ment of the collecting bank and provide it to the client. After the allotment is
completed, DPs receive the allotment/refund information through NSDL DPM system
. The accounts of all the successful allottees will be credited on the BOD of th
e allotment date. The allotment advice/refund warrants are sent to the applicant
s directly by Issuers/ Registrars.
4.
5.
6. 7.
8.
DPs with Branches
9. The branches of the DPs shall accept the application forms along with the pay
ment instruments from their clients.
10. The branches shall ensure that the details are transmitted to its main offic
e either by way of a photocopy of the application form or through its back-offic
e software.
Public Issues 27
11. The branches of the DPs have to deposit the application forms along with the
payment instruments with the local collecting banks and the acknowledgement rec
eipt obtained from the bank has to be forwarded to their clients. Investors who
have not opened a depository account with a DP at the time of applying for the p
ublic offer have to follow a slightly different procedure. 1. 2. 3. The investor
is required to fill up the application form (except the Client-ID) and approach
the DP along with the payment instrument. The DP will open an account of the in
vestor after obtaining a duly filled-up account opening form and duly executed D
P-Client agreement as approved by SEBI. The DP ensures that the client-ID is men
tioned on the application form before depositing it with the collecting bank. Fi
gure 47 Allotment of Shares in Demat Form with NSDL An applicant has the option
to seek allotment of equity shares in electronic or physical mode. An applicant
wishing to apply for shares in electronic form must have at least one beneficiar
y account with any of the DP of NSDL prior to making the application. An applica
nt seeking allotment of shares in the electronic form must necessarily fill in t
he details (including the beneficiary account number and DP s ID number) appeari
ng in the application form under the heading Request for shares in electronic f
orm . Shares allotted to an applicant in the electronic form are credited direct
ly to the respective beneficiary account (with the DP). For subscription in elec
tronic form, names on the application form should be identical to those appearin
g in the account with the DP. In case of joint holders, the names should be in t
he same sequence as they appear in the account with the DP. If incomplete/incorr
ect details are given under the heading Request for shares in electronic form
in the application form, the application will be deemed to be for shares in phys
ical form. The applicant is responsible for the correctness of his/her demograph
ic details given in the application form vis-à-vis those with his/her DP. Shares
in electronic form can be traded only on stock exchanges which have electronic
connectivity with NSDL.
Public Issues
28
CHAPTER 16
Debt Instruments & Government Securities
Debt Instruments
Interest-bearing securities are called debt instruments. Depending on features l
ike Issuer, tenure, interest rate, etc., debt instruments can be classified into
different categories like bonds, debentures, commercial paper, government secur
ities, treasury bills, etc. These are further classified broadly into subordinat
e bonds, floating rate bond/debenture, deep discount bond, secured/unsecured deb
entures, zero coupon bonds, variable coupon rate bond, etc. While financial inst
itutions or corporate bodies issue bonds, debentures and commercial paper, gover
nment securities and treasury bills are issued by governments - State or Central
. The features associated with a debt instrument differentiate it from other ins
truments. These include coupon/interest rate, redemption/maturity date secured o
r unsecured put/call option (if any). An Issuer may issue multiple debt instrume
nts by varying the features of the instruments. Any type of debt instrument can
be admitted in the NSDL depository system. Instruments like bonds, debentures, c
ommercial paper, certificates of deposit, etc., irrespective whether they are li
sted/unlisted/privately placed or even issued to a single holder, can be demater
ialised.
Identification
Each debt security is given a unique identification in NSDL system, linked to th
e special features of the security, through an ISIN and a descriptor.
ISIN and Description
Each instrument is identified separately in NSDL system through a unique code ca
lled ISIN. The description of each instrument is communicated to all the DPs and
Issuers through circulars.
Instrument Descriptor
The • • • • • instrument descriptor in the NSDL indicates: Name of the Issuer Co
upon/Interest Rate Security name Redemption date Face Value
29
For example, the descriptor ICICI BANK LIMITED SR-B98 14.25 UMD 14FB05 FVRS1LAC
indicates: Issuer Name : ICICI Bank Limited Coupon Rate: 14.25% Instrument Name
: Series B98 UMD Redemption date :- 14/02/2005 Face Value :- Rs. 1,00,000 In add
ition, NSDL forwards the complete details of the instrument to all Depository Pa
rticipants through circulars.
Admission of Debt Instrument to the NSDL System
An Issuer may offer demat facility for its debt instruments by sending a request
to NSDL detailing the type of instrument, along with a Letter of Intent. On rec
eipt of the request, a tripartite agreement is signed between NSDL, the Issuer a
nd Registrar & Transfer Agent. Once admitted, these securities are made availabl
e for dematerialisation by NSDL.
Mode of Operation
The manner of operation of debt instrument in the depository is identical to tha
t which is followed for the equity segment. The only difference is that a debt i
nstrument has a limited life.
Key features
•
Identification of right ISIN while processing demat/remat requests: Several debt
instruments can have exactly the same features. But they are differentiated eit
her by a different coupon rate or redemption date or put/call exercise date or i
nterest payment schedule or by being secured/unsecured. Differentiating between
the Letter of Allotment (LOA) and Debenture Certificates: On issue of secured de
bentures, the Issuer initially allots LOA till the charges are created. On creat
ion of the charge, debenture certificates are issued in lieu of the LOA. In NSDL
, ISIN is allotted to a LOA. On creation of charge, the nomenclature of ISIN of
LOA is changed to that of a debenture.
For e.g. Descriptor for LOA ISIN - KMPL 9.5 LOA 29DC05 FVRS1LAC is changed to KM
PL 9.5 NCD 29DC05 FVRS1LAC LOA UPTO 23MR05.
•
•
Time value of money: Debt instruments bear interest. Receiving the credit of a d
ebt instrument into demat account a day earlier, will result in earning one day
interest. Therefore, the execution date is crucial while executing any transfer
instruction for debt instrument.
30
•
Redemption date: On redemption, the ISIN associated with the instrument is de-ac
tivated in the NSDL system.
Allotment in Demat Form
Any new instrument can be issued directly in dematerialised form. Securities wil
l be directly credited into the accounts of the investor by NSDL on receipt of a
llotment details from Issuer/ Registrar & Transfer Agent.
Corporate Action
Interest payment for debt instruments is handled in the same way as corporate be
nefits are handled for equity. Issuer will send interest warrant directly to the
investor.
Instruments with Call/Put Option in Demat Form
Call option, in simple terms, means the Issuer has an option of repaying the deb
t raised through the instrument at a time earlier than the final redemption date
. Put option, in simple terms, means investor has an option of demanding repayme
nt on the debt instrument at a time earlier than the final redemption date. Exer
cising of call/put option only pre-pones the redemption date of an instrument. I
f a company exercises a call option, the procedure followed is the same as one f
ollowed in normal redemption. On fulfilling the procedure prescribed, Issuer wil
l send the redemption proceeds to the investor directly.
Investors in Demat Debt Instruments
NSDL has no restriction if existing accounts or seperate accounts are used for d
ematerialisation of debt instruments. It depends upon the convenience of investo
rs whether they want to open a separate account for debt instruments. The proced
ure for dematerialisation of debt instrument is same as that for equity shares.
In order to dematerialise the certificates; an investor has to open an account w
ith a DP. He then requests for the dematerialisation of certificates by filling
up a dematerialisation request form (DRF), which is available with DP and submit
s it along with the physical certificates. The investor has to ensure that befor
e the certificates are handed over to the DP for demat, they are marked as "subm
itted for dematerialisation". A DP does not provide a separate Transaction State
ment for debt instruments. A single transaction statement reflects all the holdi
ngs and transactions in a particular account, irrespective of the type of instru
ment.
31
Certificate of Deposit (CD)
The investor has the choice of holding Certificate of Deposit in a separate acco
unt or all its holdings in one account. NSDL has no restriction if existing acco
unt/different accounts are used for dematerialisation of Certificate of Deposit.
The minimum size to be subscribed/ transacted by investor in the NSDL system is
Rs. 1 lakh.
Dematerialisation
The procedure for dematerialisation of Certificate of Deposit is same as that ca
rried out for equity shares. The client will submit a request to the DP, in the
dematerialisation Request Form (DRF), along with the original CD certificate/s t
o be dematerialised. Before submission, the client/holder has to write on the re
verse of the CD (certificate/s) in the space provided for endorsement followed
by signature of authorized official of holder; "SURRENDERED FOR DEMATERIALISATI
ON and credit to my/our demat ACCOUNT. (Account number) with (DP) name /--------
number. The DP would give an acknowledgement (DRF acknowledgement portion) to i
ts client confirming the acceptance of the CD for dematerialisation. Only those
Certificates of Deposit, which have been made available for dematerialisation by
its Issuer, can be dematerialised. Direct allotment of Certificates of Deposit
can be made in dematerialised form. The procedure followed is identical to that
followed for direct credit of equity shares during IPO/ Bonus/ Rights. Investors
will have to provide demat account number alongwith DP ID to the Issuer.
Settlement
The seller authorises its DP through Delivery Instructions to debit his account
and transfer the security into the account of Buyer who may have opened account
with the same or any other DP. Buyer receives said securities in its account imm
ediately if the buyer has given one-time standing instruction to its DP. Settlem
ent of funds between the parties will be settled outside the ambit of NSDL.
Redemption
The Issuer has to open a redemption account with Depository Participant. The Inv
estors holding CDs in demat form will give the Delivery Instruction Slip (DIS) t
o their respective Depository Participants to transfer the CDs to the Issuers Re
demption Account so that the transfer takes place by 3.00 p.m. atleast two worki
ng days prior to the maturity date. On sighting the securities in the Redemption
account, the Issuer will initiate the steps to pay the investors the redemption
proceeds. The redemption account opened by the Issuer will be the same for all
the CDs Issued by the Issuer. As per the FIMMDA guidelines, the Issuer will prov
ide the details of the redemption
32
account in the form of a certificate to the first investor of the CD. The detail
s of the Issuers redemption account will also be communicated to all its Deposit
ory participants by NSDL. As per the RBI Monetary and Credit Policy 2002-03, wit
h effect from June 30, 2002, banks and FIs should issue CDs only in the demateri
alised form.
Commercial Paper (CP)
An investor can subscribe to minimum of Rs. 5,00,000/- or multiples thereof, as
the face value of a Commercial Paper in the NSDL system is taken as Rs. 5,00,000
/-. The securities (CP) will be credited in the investor s account in terms of u
nits. For eg. If the investor invests 5 crore issue in a CP issue, then 100 unit
s will be credited his account. The investor has the choice of holding Commercia
l Paper in a separate account or all its holdings in one account. NSDL has no re
striction if existing account/different accounts are used for dematerialisation
of commercial paper.
Dematerialisation
For dematerialisation of commercial paper, the client shall submit the commercia
l paper alongwith demat request form (which is available with DP) to the DP. Onl
y those commercial papers, which have been made available for dematerialisation
by its Issuer, can be dematerialised. After dematerialisation, the transaction s
tatement, received periodically by the client, will reflect all credits in a par
ticular account irrespective of type of instrument. Allotment of Commercial Pape
r can be made directly in dematerialised form. Investors will have to provide de
mat account number alongwith DP ID to the Issuer. Issuer will provide these deta
ils to the Issuing & Paying Agent (IPA). The Issuer will provide NSDL the IPA ce
rtificate and other documents required by NSDL to credit the IPAs CP allotment a
ccount one day prior to the value day. On the allotment date, the IPA can transf
er the securities from its allotment account to the subscribers account.
Settlement
Buyer and Seller decide upon price and quantity of securities to be transacted.
The seller authorises its DP through Delivery Instructions to debit his account
and transfer the securities into the account of Buyer who may have opened accoun
t with the same or any other DP. Buyer receives the securities in its account im
mediately if the buyer has provided standing instruction to its DP. Settlement o
f funds is between the parties and is as per their mutual convenience.
Redemption
IPA will open Redemption account with the DP at the time of issue of Commercial
paper in demat mode. A copy of the IPAs certificate, which will be provided to t
he beneficial owner by
33
the IPA, will contain details of the redemption account. The beneficiary holder
should transfer the securities before 3.00 p.m on one working day before the mat
urity date so as to give sufficient time for the IPA to process the papers and a
rrange to effect the payment on the due date of the CP. On receipt of confirmati
on from IPAs to NSDL after payment to beneficiary holders, the balance in the re
demption account is extinguished by carrying out debit-type corporate action. On
receiving the confirmation from the IPA, the process will be initiated by Share
Registrar in co-ordination with NSDL. For all secondary market transaction the
seller will forward the copy of IPA certificate to the buyer. As per the RBI Mon
etary and Credit Policy 2001-02, with effect from June 30, 2001, banks, financia
l institutions (FIs), primary dealers (PDs) and satellite dealers (SDs) will be
permitted to make fresh investments and hold CP only in dematerialised form and
outstanding investments in scrip form should also be converted into demat by Oct
ober, 2001. For any buying or selling of demat debt instruments, the procedures
involved for delivery or receipt of debt instrument is the same as that involved
for equity shares.
Government Securities
Government security means a security created and issued by the Central Governmen
t or a State Government for the purpose of raising a public loan. There are two
types of Government Securities - Dated Securities and Treasury Bills. Dated Secu
rities have a maturity period of more than one year. Treasury Bills have a matur
ity period of up to one year. All the activities relating to issue of government
securities (G-Secs) - issue management, settlement of trade, distribution of in
terest and redemption - are handled by the Reserve Bank of India through its Pub
lic Debt Office (PDO). Although only corporate and institutional investors subsc
ribe to government securities, individual investors are also permitted to subscr
ibe to these securities. An investor in government securities has the option to
have securities issued either in physical form or in book-entry form (commonly k
nown as SGL form). There are two types of SGL facilities, viz., SGL-1 and SGL-2.
In the SGL-1 facility, the account is opened with the RBI directly. Only entiti
es, which fulfill all the eligibility criteria prescribed by RBI, are permitted
to open SGL-1 account. SGL-1 facility can be used only for own investments of th
e account holder. Any entity, which is permitted to open SGL-1 account, may avai
l of SGL-2 facility as well. However, SGL-2 facility is to be used to keep accou
nts of the constituent investors. In other words, SGL-2 is used to route investm
ents of clients who are not eligible to directly open SGL1 accounts. The entity
which offers SGL-2 facility, has to keep sub-accounts for each investor separate
ly in its books; SGL-2 account with RBI will show the consolidated balances of a
ll account holders.
34
Specific Features of Dealings in Government Securities Account Opening
NSDL, being an approved entity for maintaining SGL accounts, offers this facilit
y to investors through its DPs. There is no difference in the procedure for open
ing an account for G-Secs; nor is it necessary to open a separate account for G-
Secs. Any client account opened with a DP may be used for dealing in government
securities. Thus, equity shares, mutual fund units and G-Secs can be dealt with
through a single account.
Dematerialisation of Government Securities Government securities, like other sec
urities, may be held either in physical form or as electronic entries in an SGL
account. They are held in the depository system
1. 2. 3. on account of dematerialisation of physical securities; or on account o
f transfer from Subsidiary General Ledger (SGL) accounts maintained by other eli
gible entities; or on fresh issue of securities in dematerialised form.
Dematerialisation of Physical Certificates
The physical certificates are registered in the name of the holder with any one
of the PDOs of RBI. The DP will accept request for dematerialisation from regist
ered holders only. The client has to submit a request to the DP in the DRF for G
-Secs (DRF-GS) along with following documents: 1. 2. Physical certificates of se
curities to be dematerialised. Form of Transfer, which is a RBI prescribed form
to effect transfer of securities held in physical form. The DP ensures that the
Form of Transfer is printed on a single sheet of semi security paper. The form c
an be obtained from NSDL through email.
Requests for partial dematerialisation of a certificate are not entertained. The
DP will ensure that the client has filled the following on the DRF-GS: a) b) c)
d) e) f) Enter the option exercised as Submitting Physical G-Sec to NSDL Acco
unt No. Account Holder Name Name of the Security Face Value of Securities to be
Dematerialised (in words and Figures) Certificate Number
35
ISIN number for a G-sec can be determined by relating the security description a
vailable on the physical certificate with ISIN description given by NSDL. The fo
llowing information is available on physical certificates: • Nomenclature (Descr
iption) of the stock, e.g., 13.85% Government Stock 2001 • Book Debt Certificate
No., e.g., BY34 (BY stands for issuing office Bombay) • Face Value • Date of re
demption • Date of Issue • Name of Holder The DP scrutinises the Form of Transfe
r, the DRF-GS and the certificates which involves the following: • Verification
of Client s signature on the dematerialisation request form with the specimen si
gnature (the signature on the account opening form). • In case of Trusts and Cor
porate Bodies, DP may satisfy himself that the signatories to Form of Transfer a
re the signatories registered with RBI PDO which has issued the certificates. An
y signature difference may result in rejection of the transfer by RBI. The DP wi
ll ensure that client has mentioned the date of registration of authorised signa
tures at RBI in the DRF-GS. • Compare the order of holders names on DRF-GS and
certificates with the Client account. • ISIN • Security descriptor • Whether Fac
e value as mentioned in DRF-GS tallies with what is mentioned on the Certificate
s
ISIN:
The DP captures the demat request for the G-sec if the ISIN already exists in th
e DPM system. If the ISIN for that specific G-Sec has not been activated, the DP
informs the G-Sec cell of NSDL by faxing a standard letter along with a photoco
py of the certificate or the SGL credit advice. Based on this communication, ISI
N will be generated and activated in the DM. The DP ensures that in case of diff
erent Loan Codes the Clients submit separate DRF-GS and Form of Transfer. If the
certificate numbers of the stock are in consecutive order for a single Loan Cod
e, a single Form of Transfer may be used. On receipt of the certificates, the DP
ascertains whether PDO Mumbai or any other PDO has issued the certificates subm
itted for dematerialisation. This can be ascertained by examining the Certificat
e number on the face of the certificate. Certificates issued to beneficial owner
s
36
registered with PDO, Mumbai will bear the certificate number prefixed by BY an
d those issued to BOs registered with other PDOs will not bear this prefix. In c
ase of certificates issued by a PDO outside Mumbai, the DP will accept them prov
ided the Form of Transfer has been attested by the respective PDOs. If the forms
and security count is in order, the DP issues an acknowledgement slip duly sign
ed and stamped to the client. In case the certificates are mutilated, or they ar
e defaced in such a way that the material information is not readable, the DP do
es not accept the certificates for dematerialisation. The DP fills details on th
e DRF-GS pertaining to ISIN and Loan Code (The Loan Code is mentioned on the For
m of Transfer and also forms part of the ISIN descriptor in the DPM). The DP has
to ensure that the ISIN and Loan code are verified at two levels. After verific
ation, the dematerialisation request is entered in the DPM. The DP must ensure t
hat Face Value of the security is entered in the Quantity field in the DPM. A De
materialisation Request Number (DRN) will be generated by the system which has t
o be entered in the space provided for the purpose in the DRF-GS. A person other
than the person who entered the data should verify details entered in the syste
m for the DRN. The DP then releases the request to DM. The DP has to endorse on
the reverse of the certificate by writing Tendered for Cancellation and credit
to SGL A/c No. BYSL0838 of NSDL, Mumbai . Endorsements on the face are not allow
ed. The DP is instructed not to punch holes on the face of G-Secs. This is unlik
e the procedure for forwarding other securities to the respective R&T. The DP ha
s to despatch the certificates along with the request form after duly authentica
ting the DRF-GS to the NSDL, within seven working days of accepting them from th
e client. NSDL will fill and duly sign the relevant portion of the Form of Trans
fer and submit the documents to RBI for credit in the SGL-2 account of NSDL. On
receiving the necessary confirmation from RBI, the NSDL-SHR will confirm accepta
nce of the request for dematerialisation. The DP informs the client of the chang
es in the client s account following the confirmation of the request. NSDL will
intimate to all DPs in advance, a Shut Period applicable to Government securit
ies. RBI will not register transfer of securities during this period. Therefore,
dematerialisation requests entertained during shut period may take long time to
get confirmed.
Check list for DPs
(a) (b) The registered holder of the securities makes the dematerialisation requ
est. The request pertains to the entire quantity comprised in a certificate. No
request for partial dematerialisation of a certificate should be entertained.
37
(c) (d) (e) (f) (g) (h) (i)
All relevant documents and security certificates, wherever applicable, are enclo
sed with the DRF-GS. DRF-GS is properly signed. In case of transfer from SGL acc
ount of other eligible entities, the transfer form as prescribed under Rule 7 of
PD Rules of RBI duly executed by the other entity is enclosed. In the case of s
ecurity certificates issued by PDO outside Mumbai, the form of transfer is attes
ted by the respective PDOs. The details of certificates, e.g., face value, tally
with the details mentioned in the DRF-GS. The certificates are not mutilated or
defaced in a way so as to affect any material information. The certificates sub
mitted for dematerialisation are endorsed on the reverse, in the space provided,
with the words "Tendered for Cancellation and Credit to SGL A/C. No. BYSL 838 o
f NSDL". The certificates are stored in a safe and secure place till they are se
nt to the NSDL. Separate DRF-GS are submitted for • securities having distinct I
SINs; • securities having distinct loan codes; and • each client account. The or
der of names of the account holders matches with the order of names in the secur
ity certificates. However, in case of transfer from other entities, securities m
ay have been held in the name of such other entity.
(j) (k)
(l)
(m) The DP should forward the DRF-GS and the documents so received, along with t
he security certificates, wherever applicable, to NSDL after registering the req
uest in DPM. The DP should forward such DRF-GS to NSDL within seven days after a
ccepting it from its client. NSDL gets the necessary credit entries made in the
account of the client concerned, after obtaining prior approval from RBI for con
version of physical securities into SGL balances or for transfer of balances fro
m SGL account maintained by other eligible entities. Where RBI rejects any demat
erialisation request, NSDL intimates the DP regarding such rejection within seve
n days. NSDL, in this case, returns the DRF along with the relevant security cer
tificates and documents submitted by the client. In the following cases, the sec
urity certificates should be retained/destroyed by it. (a) (b) (c) If the securi
ty certificates lodged by the client have been reported stolen. If the security
certificates have been reported to be forged or fake. If a court or a competent
statutory authority has restrained the depository from returning the certificate
s.
38
(d)
If for other reason, in the opinion of RBI, it would not be proper to return the
security certificates.
The DP should facilitate the correction of such objections on a timely basis for
securities in respect of which an objection memo has been received from the NSD
L. Otherwise the request may be rejected. The DP should accordingly inform the c
lient about dematerialisation, transfer or rejection of request to the client.
Objections by NSDL SHR for Government Securities
NSDL acts as a depository R&T Agent and discharges depository functions of an R&
T Agent for G-Secs. On receipt of physical certificates with the DRF-GS and the
Form of Transfer, the G-Sec cell of NSDL matches the details provided in the DRF
-GS with the electronic message received by NSDL SHR from DM. In case of a misma
tch, the NSDL G-Sec cell sends a letter/fax to the DP intimating them of the mis
match and seeks necessary clarification/documentation from the DP. The DRN will
be kept pending till such rectification is obtained. The DP does not generate a
fresh request in the system until it receives electronic intimation of rejection
. NSDL G-Sec cell will also reject the dematerialisation requests in case RBI re
jects the transfer on account of signature mismatch or in case the signatories a
re not registered with RBI. In such cases, the DP intimates the client of reject
ion by letter/fax along with the rejection memo sent by the NSDL s G-Sec cell.
Procedure for Transferring Government Securities in SGL Form to Depository accou
nt
An investor may be holding balances with any other entity in a book entry form (
SGL I or II) which the investor may like to transfer into NSDL depository accoun
t. Even this process is handled through dematerialisation module of NSDL. The cl
ient has to submit a request (DRF-GS) along with a Form iii (Annexure UA) /lette
r of authority. No other forms need to accompany this DRF-GS.
39
Figure 48 - Annexure UA of NSDL Business Rules FORM OF TRANSFER Transfer Index R
egn. No.
I / We $ do hereby assign and transfer my/our $ interest or share in the Inscrib
ed Stock No. BDC No. By of the Loan (Loan Code No..............................)
amounting to Rs. being the amount / a portion $ of the
Stock of Rs. as specified on the face of this instrument together with the accru
ed interest thereon unto his/her/their $ executors, Administrators or assigns, a
nd I/We $ do freely accept the above Stock to the extent it has been transferred
$ to me/us. $ I / We $ [Transferee (s)]
transferred $
hereby request that on my / our $ being registered as the holder/s $ of the stoc
k hereby transferred to me / us $ the aforesaid Stock Certificate to the extent
it has been transferred to me / us $ may be renewed in my / our $ name(s) / cove
rted in my/our $ name(s). * I / We $
hereby request that on the above transferee (s) $ being registered as the holder
/s $ of the Stock hereby transferred to him/them $ the aforesaid Stock Certifica
te to the extent it has not been transferred to him / them $ may be renewed in m
y/our $ name(s). Interest is Payable at As Witness our hand the day of Two Thous
and
Signed by the above named transfer in the presence of # (Signature) Name & Occup
ation Address
(Transferor)
}
Address
P.D.O. Regdn. No.
40
Signed by the above-named transferee in the presence of # (Signature) Name & Occ
upation Address
(Transferee)
}
Address
P.D.O. Regdn. No.
$ * #
Omit the alternative which does not apply. This paragraph is to be used only whe
n a portion of the Certificate is transferred. Signature, occupation and address
of witness.
Transferred S/c. Issued No/s. dated C.G.M., Reserve Bank of India, P.D.O.
The DP must ensure that the client has filled the following details in the DRF-G
S: • • • • • Entered the option exercised as "Transfer of SGL securities to NSDL
" Account No. Account Holder Name Name of the Security Face Value of Securities
to be Transferred (in words and Figures)
The DP will ensure that the SGL account from where the BO wishes to transfer sec
urities to NSDL SGL, is registered with PDO at RBI, Mumbai. This can be ascertai
ned by examining the prefix to the SGL account number that shall begin with the
prefix "BY". The DP will write the DRN on the Letter of Authority. The DP will e
nsure that the details of the SGL account No., the name of the security and face
value of the securities mentioned in the DRF-GS and Letter of Authority are the
same. The DP has to fill in details of ISIN and Loan Code on the DRF-GS. If the
documents are in order, the DP issues an acknowledgement slip duly signed and s
tamped to the client. The DP will scrutinise the Form iii/Letter of Authority an
d the DRF-GS which involves the following: • Verification of Clients signature o
n the DRF-GS with the specimen signature (the signature on the account opening f
orm). If the signature differs, the DP should satisfy himself of the identity of
the client.
41
• •
Compare the order of holders names on DRF-GS with the Client account. Loan code
and Face Value mentioned in the DRF-GS and Form iii / Letter of Authority for c
ollection of Form iii. The DP will scrutinise that in case of different Loan Cod
es separate DRF-GS is submitted by the Clients. The DP will ensure that the ISIN
and Loan code are verified at two levels. After verification, the DRF-GS is ent
ered in the DPM. DP must ensure that Face Value of the security is entered in th
e Quantity field in the DPM. A Dematerialisation Request Number (DRN) will be ge
nerated by the system. The DRN so generated is entered in the space provided for
the purpose in the DRF-GS. A person other than the person who entered the data
should verify details entered in the system for the DRN. The request is then rel
eased to DM (DM - Depository Module, NSDL s software system) by the DP. The DM r
eleases the request to NSDL SHR system electronically. The DP will fill the rele
vant portion viz., the authorisation portion of the request form. The DP will de
spatch the DRF-GS along with the Letter of Authority within seven working days o
f accepting the same from client to the NSDL G- Sec Cell. NSDL G-Sec cell shall
collect the Form iii from the other SGL entity based on the Letter of Authority
for collection of Form iii. NSDL will fill the relevant portion of the Form iii
containing the Joint declaration of Value Free Transfer and get the seller s por
tion filled by the Transferor SGL service provider and submit the same to RBI. O
n receiving the credit confirmation from RBI, the NSDL SHR will confirm the requ
est for dematerialisation. The DPM will credit the client s account automaticall
y. The DP may inform the client of the changes in the client s account following
the confirmation of the request. NSDL will intimate to all DPs in advance, a S
hut Period applicable to Government securities. RBI will not register transfer
of securities during this period. Therefore, dematerialisation requests entertai
ned during shut period may take long time to get confirmed.
•
•
• •
•
• • •
•
•
• •
•
42
Transactions (Buy or Sell) in Government Securities
From depository viewpoint, trades in government securities may be of two types:
(a) (b) Depository Trades, i.e., trades where both the parties have their benefi
cial accounts with the same depository; or RBI Trades, i.e., trades where only o
ne party to the trade has account with a depository, and the counterpart has an
SGL account with another approved entity or RBI itself.
Figure 49 - Annexure U of NSDL Business Rules Participant’s Name, Address & DP I
d (pre-printed) DEMATERIALISATION REQUEST FORM FOR GOVERNMENT SECURITIES Serial
No. (Pre Printed) Date : DRN : I/We request you to dematerialise Government Secu
rities into my/our account as per the details given below: Tick () whichever is a
pplicable A B Submit Physical Government Securities to NSDL Value Free Transfer
of Government Securities to NSDL SGL II
Client Id Sole/First Holder Second Holder Name Third Holder Name Face Value of S
ecurities to be Dematerialised /Transferred (In words) (In Figures) Nomenclature
of the Security Loan Code * ISIN * Issued by PDO Date of Registration and regis
tration number of authorised signatories * To be filled by the DP / in consultat
ion with the DP Details of Securities : Sr. No. Certificate No. Face Value I N
43
(In case the space is found to be insufficient, an annexure containing the certi
ficate details in the same format may be attached.)
Declaration
Part A: Applicable when Physical Securities are submitted I/We hereby declare th
at the above mentioned person(s) are the bonafide beneficial owners of the above
mentioned securities. I/We also hereby declare that the securities submitted by
me/us for dematerialisation are free from any lien or charge or encumbrance and
represent bona fide Government Securities to the best of my/our knowledge and b
elief. I/We am/are also submitting an attested Form of Transfer favouring “Natio
nal Securities Depository Limited”. This is being done to facilitate a credit in
the SGL Constituent Account of NSDL and should not in anyway be construed as an
intention of the person(s) mentioned below to sell the securities to NSDL. Part
B: Applicable for Value Free Transfer of Government Securities to NSDL SGL II I
/We hereby declare that the above mentioned person(s) are the bonafide beneficia
l owners of the above mentioned securities. I/We am/are submitting Form iii / Le
tter Of Authority for collection of Form iii. This is being done to facilitate a
credit in the SGL Constituent Account of NSDL and does not in anyway constitute
a sale of the securities to NSDL. Authorised Signature(s) Holder(s) Sole/First
Holder Second Holder Third Holder Signature(s)
Participant Authorisation The application form is verified with the certificates
surrendered for dematerialisation / Form iii / Letter of Authority for collecti
on of Form iii and we certify that the application form is in accordance with th
e details mentioned in the enclosed certificates / Form iii / Letter of Authorit
y for collection of Form iii. It is also certified that the holders of the secur
ities have beneficiary account with us in the same name(s).
Name of the Executive : Signature : Participant’s Stamp & Date =================
================================================================= Acknowledgment
Participant’s Name, Address & DP Id (pre-printed) Serial No. (pre-printed) We h
ereby acknowledge the receipt of certificate(s)/Form iii/Letter of Authority for
collection of Form iii of Face Value of (description of securities) surrendered
for dematerialisation by Mr/Ms/M/s having Client Id . Date : Participant’s Stam
p & Signature
44
Settlement of Depository Trades
Procedure for transfer of government securities within NSDL is exactly similar t
o that of transfer of equity shares.
Settlement of RBI Trades
Procedure for purchase or sale of government securities when the counter party h
as government security balances in book entry form with any other SGL entity, th
e following steps have to be followed.
Purchase by Depository Client
In case of purchase of government securities by a depository client from a selle
r holding securities in an SGL account with other eligible entity, the buying cl
ient should submit Inter-SGL Trade Purchase Instructions in the prescribed forma
t to the DP. The client should also make necessary funds available to the NSDL f
or the purchase of these securities. The DP, on the basis of the purchase instru
ction form, should execute a dematerialisation instruction for the quantity of s
ecurity purchased, at least one day prior to the day of trade settlement at RBI.
The DP should also forward the purchase instruction form to NSDL. On the basis
of the documents received from the DP, NSDL will execute Form (iii) and submit i
t to RBI for settlement. On settlement day, the RBI will credit the SGL-2 accoun
t of NSDL and debit its current account for funds. On receiving information abou
t crediting of securities from RBI, NSDL confirms the receipt of securities to t
he client.
Sale by Depository Client
In case of sale of government securities by a depository client to a buyer who m
aintains an SGL account with other eligible entity, the selling client should su
bmit Inter-SGL Trade Sale Instruction in the prescribed format to the DP. The DP
, on the basis of the sale instruction form, executes a rematerialisation instru
ction for the quantity of security sold, at least one day prior to the day of tr
ade settlement at RBI. The DP also forwards the sale instruction form to the NSD
L. On the basis of the documents received from the DP, the NSDL executes Form (i
ii) and submits it to RBI for settlement. On settlement day, the RBI debits the
SGL-2 account of the NSDL and credits its current account for purchase considera
tion. NSDL credits the current account of the DP with the sale consideration and
intimates the DP accordingly. The DP, on receiving the intimation, credits the
amount to the account of the client.
Corporate Benefits with respect to Government Securities
The NSDL informs all the DPs about the shut-period (book closure) for government
securities as and when announced by RBI. On receiving such information from the
NSDL, DP must ensure
45
that changes in the beneficial owner s accounts, such as change in bank details,
change of address, etc., are updated well in advance of the due date of interes
t payment and/or redemption payment due date. NSDL should distribute the interes
t to clients who have balances in government securities, on which interest payme
nt is due, at the EOD of the interest payment due date, after RBI has been made
it available to the NSDL. NSDL pays the redemption amount to clients who have ba
lances in government securities, due for redemption, at the EOD of the redemptio
n due date, after the redemption amount has been made available to NSDL by RBI.
NSDL makes the payment directly to the clients or to the bank account of the cli
ents as per the details given in the account opening form.
Rematerialisation of Government Securities Conversion of securities in NSDL SGL
II to Physical Securities:
An investor in Government Securities holding electronic balances in the NSDL SGL
-2 account can convert them into physical certificates by the process of remater
ialisation. For this, an application has to be made to NSDL, through the DP, in
the Rematerialisation Request Form (RRF-GS). On receipt of the RRF-GS, the DP ch
ecks the form for completeness, correctness and validity. The DP should also ens
ure that sufficient free security balance is available in the account of the cli
ent. If the form is found to be in order and there is sufficient balance, the DP
accepts the RRF-GS and blocks the balance of the client to the extent of the re
quested quantity and intimates the request to NSDL. On receipt of such request,
NSDL blocks the balance of the client in depository system to the extent of quan
tity sought to be rematerialised. The DP should forward the RRF-GS to the NSDL w
ithin seven days of accepting such request from the client. NSDL should forward
the rematerialisation request to RBI in the prescribed form. In case the request
is for obtaining physical certificates, NSDL should receive from RBI the physic
al certificates in its name and execute a form of transfer as prescribed by RBI
in favour of the client. NSDL confirms the acceptance of RRF-GS and forwards the
physical certificates along with the form of transfer to the client directly. I
n case the request was for transfer to an SGL account with other eligible entity
, NSDL should confirm the acceptance of RRF to the DP, after obtaining approval
from RBI. On receipt of such confirmation from RBI, NSDL removes the balance fro
m the client s account. The DP then informs the client accordingly.
46
Figure 50 - Annexure UC of NSDL Business Rules Participant’s Name, Address & DP
Id (pre-printed) REMATERIALISATION REQUEST FORM FOR GOVERNMENT SECURITIES Serial
No. (Pre Printed) Date : RRN : I/We request you to rematerialise Government Sec
urities from my/our account as per the details given below: Tick () whichever is
applicable A B Convert to Physical Government Securities Transfer of Government
Securities from NSDL SGL II
Part A : I/We hereby declare that the below mentioned account may be debited to
the extent of my/our rematerialisation request and equivalent certificates be is
sued for the same. I/We hereby declare that the below mentioned person(s) are th
e beneficial owners of the securities mentioned. Part B: I/We hereby declare tha
t the below mentioned account may be debited to the extent of my/our remateriali
sation request and equivalent securities be credited to my SGL account maintaine
d with another eligible entity. I/We hereby declare that the below mentioned per
son(s) are the beneficial owners of the securities mentioned . I/We am/are submi
tting Form iii with Transferee details duly filled in. This is being done to fac
ilitate a debit in my SGL Constituent Account of NSDL. Client Id Sole/First Hold
er Second Holder Name Third Holder Name Face Value of Securities to be Demateria
lised /Transferred (In words) (In Figures) Nomenclature of the Security Loan Cod
e * ISIN * Date of Registration and registration number of authorised signatorie
s * To be filled by the DP / in consultation with the DP (For Part A only) Total
No. of certificates No. of Certificates Denomination Amount (Rs.) I N
GRAND TOTAL
47
Authorised Signature(s)
Holder(s)
Sole/First Holder Second Holder Third Holder
Signature(s)
Participant Authorisation The application form is verified with the details of t
he beneficial owner’s account and certify that the application form is in order.
The account has sufficient balances to accept the rematerialisation as requeste
d. It is also certified that the beneficial owners signatures are verified and f
ound in order. The other details of the beneficial owners as extracted from the
records are enclosed. Name of the Executive : Signature : Participant’s Stamp &
Date ===========================================================================
=================== Acknowledgment Participant’s Name, Address & DP Id (pre-prin
ted) Serial No. (pre-printed) We hereby acknowledge the receipt of a remateriali
sation request (Part A/ Part B) for _________________ Face Value of ____________
_____________________________ (description of securities) from Mr/Ms/M/s _______
_____________________________ ________________________________________ having Cl
ient Id ________________. Date : Participant’s Stamp & Signature
Objections By NSDL SHR For G-SECs
The NSDL s G-Sec Cell, on receipt of the RRF-GS, will match the Rematerialisatio
n Request Number given on the RRF-GS with the electronic message received by NSD
L SHR from DM. In case of a mismatch, the NSDL G-Secs cell will send a letter/fa
x to the DP intimating them of the mismatch. The DP has to resolve the mismatch.
48
CHAPTER 17
NSC/KVP in demat form
The Indian Capital market has witnessed the benefits of dematerialisation in the
last few years. Considering various benefits of dematerialisation to investors,
Department of Posts (DoP) in association with National Securities Depository Li
mited (NSDL), has introduced the facility of holding National Savings Certificat
es VIII issue (NSC) & Kisan Vikas Patra (KVP) in dematerialised form.
The salient features of this facility are given below.
1. 2. 3. 4. 35 select post offices are identified in Mumbai to provide this faci
lity, for only fresh issues of NSC & KVP. The list of the post offices is availa
ble on our website (www.nsdl.co.in). The procedure for making an application has
not changed. Investors will be able to submit the forms either directly to post
offices or through agents, as at present. NSC and KVP can be held by individual
s. Further, Joint holders only upto two are allowed. Those investors who wish to
have NSC/KVP in demat form have two options. They can either get the units cred
ited in their existing demat accounts in NSDL or NSDL will, through its Service
Provider (SP) arrange to open a limited purpose demat account and credit the bal
ances in that account. However, this limited purpose demat account can have bala
nces of only NSC/KVP. These credits will be effected with lock-in status as NSC/
KVP have limited transferability. In case, the DP ID and Client ID given in the
application form is incorrect, a limited purpose demat account will be opened an
d credit will be given in that account. SP will send Transaction Statements to t
he investors/clients directly at the address mentioned in the application form.
For those clients, who have opted for credit in their existing demat account, th
eir DPs will provide transaction statements. NSDL as well as DPs will not charge
any custody fee for holding NSC/KVP. Investors can pledge NSC/KVP, as per the r
ules of the DoP. On redemption, the investor may not be required to go to the is
suing post office as the redemption amount may directly be credited into the inv
estor s bank account or a warrant can be directly sent to the investor. For this
purpose, it is necessary for the investor to mention his bank account details i
n the application form.
5. 6.
7. 8. 9.
49
Advantages of holding NSC/KVP in demat form.
• Investors can hold NSC/KVP in their existing demat account. This would enable
the investors to consolidate different types of investments in a single demat ac
count. Multiple investments in these securities will also get reflected in a sin
gle account statement. Risk associated with holding physical certificate is elim
inated. Investors can deal with any post office for effecting change in address,
change in bank account number, change in nominee, etc. On redemption, the inves
tor need not go to the post office. The investor s bank account will be credited
directly or he will receive a warrant at his residence. No account opening char
ges for limited purpose demat account opened through NSDL nor any custody charge
s will be levied on NSC/KVP held in demat form.
• • • •
Any queries can be sent by email on email address : nsckvp@nsdl.co.in.
50
CHAPTER 18
Warehouse Receipts
NSDL has been approached by multi-commodity exchanges to provide depository faci
lity for warehouse receipts. As legal status of warehouse receipts is different
from that of securities, it is necessary for DPs to enter into a separate agreem
ent with persons seeking to open a demat account for the purpose of holding and
dealing in electronic warehouse receipts. A model agreement format has been prov
ided to DPs. DPs are free to add any more terms and conditions to the agreement
to the extent they are not contradictory to the terms and conditions of the mode
l agreement. Important points pertaining to warehouse receipts in this regard ar
e provided below: 1. Account opening procedure remains the same as provided in V
olume 3. All precautions and procedures for account opening, change in address,
etc. as applicable to securities account shall have to be followed. Accounts ope
ned under this agreement shall hold only electronic warehouse receipts and canno
t be mixed up with other securities. DPs have to ensure this and if securities g
et credited into this account, they shall take necessary action to return the se
curities to the originating account. DPs may make their own business/contractual
agreement with the commodity exchanges/ warehouse owners, as they deem fit, inc
luding terms and conditions related to collection of rent, etc. If DPs are requi
red to collect any charges/tax/rent on behalf of commodity exchange / warehouse,
DPs may have to ensure that such function has adequate legal basis. NSDL issues
circular relating to activation of Commodities Identifier [CID] (equivalent to
ISIN) as and when such CIDs are activated in the system. The statement of transa
ction will contain CID-wise balances. Commodity descriptor will contain unit of
measurement, for e.g.:- "(CID No.) Castor Seed Grade A , Ahmedabad ( in MTs)." M
T = Metric Tonnes. Initial credit of electronic warehouse receipts into demat ac
count will be effected by way of corporate action. Procedure for transfer, pledg
e and freeze will be the same as is applicable to securities. At the time of del
ivery, client initiates a remat request through the DP using the Physical Delive
ry Request Form (PDRF). DP shall issue acknowledgment for receipt of the remat r
equest by entering remat request (transaction) number on the acknowledgment port
ion and attest the signature of the client on the copy of PDRF. Client will subm
it this acknowledgment and attested copy of PDRF to the warehouse at the time of
taking delivery.
2.
3.
4.
5. 6. 7.
Warehouse Receipts
51
Figure 51
Depository Participant’s Name, Address & DP Id
(Pre-printed)
PHYSICAL DELIVERY REQUEST FORM (For commodities/metals)
Request No. __________________ (to be filled by DP) Serial No. ___________ (pre-
printed) Date : _________________ I/We intend to receive physical delivery of th
e below mentioned commodities/metals and authorise that my/our account be debite
d by the quantity of commodities/metals mentioned below for this purpose. I/We d
eclare that the below mentioned person (s) are the beneficial owners of the comm
odities/metals mentioned. Account No. Account Holder Name
Name of commodity/metal C-Id Unit of Measurement Quantity to be delivered (in fi
gures) (in words) (Integer) (And decimal) Signature(s) Name Signature First/Sole
Holder Second Holder Third Holder Participant Authorisation Received the above
mentioned request for physical delivery of the commodities/metals from the accou
nt holder mentioned above. The application form is verified with the details of
the beneficial owner’s account and certified that the application form is in ord
er. The account has sufficient balances to accept the request for physical deliv
ery. It is also certified that the beneficial owner(s) signature(s) is/are verif
ied and found in order. The other details of the beneficial owners (Client Maste
r Report), as extracted from the records, are enclosed. Forwarded by : Name of t
he executive Signature (Seal)
Warehouse Receipts
52
================================================================================
==============
Acknowledgment
Depository Participant’s Name, Address & DP Id (Pre-printed) Serial No. ________
_ (pre-printed) We hereby acknowledge the receipt of request for physical delive
ry for _______________ (quantity) ____________ (unit of measurement) of ________
________________ (commodity/metal) from __________________________________ (Name
) having Account No. _____________ .
Participant’s Signature Date:
(Seal)
Warehouse Receipts
53
CHAPTER 19
Market Participants and Investors Database (MAPIN)
Securities and Exchange Board of India has notified the SEBI [Central Database o
f Market Participants] Regulations 2003 for creation of a central database of ma
rket participants and investors, with Unique Identification Numbers to the marke
t participants and investors. [MAPIN DATABASE]. In case of natural persons this
database will also contain their biometric identification details like their fin
gerprints. The Database was launched on November 25, 2003 by Shri G. N. Bajpai,
Chairman, SEBI. Shri C. B. Bhave, Chairman & Managing Director, NSDL gave the fi
rst unique identification number and identity card to Shri Bajpai on this occasi
on. SEBI intends to achieve the following through these Regulations: • • Develop
an inventory of Market Participants and Investors; and Set up a standard for cl
ient code (Unique identification number).
These Regulations place a mandatory obligation on intermediaries, their employee
s and other entities under the jurisdiction of SEBI, listed companies and specif
ied investors to obtain unique identification number under MAPIN database. If th
ese entities do not obtain the unique identification numbers by the specified da
te as notified by SEBI, they will not be permitted to continue their business. E
very entity obtaining the unique identification number under the MAPIN database
will have one identification number (unique) in the system. The unique number is
permanent and does not change even if some attributes of the entity change (suc
h as its SEBI registration number, address, etc). In case of individuals, as wel
l, the number remains the same even if the individual changes the organization h
e is associated with or the nature of his association. SEBI has appointed Nation
al Securities Depository Limited (NSDL) for creating and maintaining MAPIN datab
ase. As on May 01, 2005, NSDL has appointed 8 Points of Service (POS) viz., CMC
Limited, Geojit Financial Services Limited, Karvy Consultants Limited, Alankit A
ssigments Limited, Integrated Enterprises (India) Limited, Kotak Securities Limi
ted, ICICI Bank Limited and UTI Securities Limited to provide application forms
for registration, accept application forms and collect bio-metric details like f
ingerprints of the applicants. POS may set up camp offices at various locations
in each state to provide the required service. Camping details will be published
through different channels like website, brokers offices, etc. from time to ti
me. Application forms, along with a demand draft of Rs.300/- as registration fee
s, may be submitted to these POSs to obtain unique identification number.
Market Participants and Investors Database (MAPIN)
54
CHAPTER 20
Tax Information Network (TIN)
Introduction
The most critical requirement for improving the tax-compliance is to have a tax
regime where the compliance is easy, transparent, painless and non-compliance is
risky and costly. The Tax Department is inundated with truckloads of documents
that the taxpayers file and the inefficiencies associated with handling this pap
er mountain can become a breeding ground for tax evasion. In the year 2003, Inco
me Tax Department (ITD) embarked on an initiative for modernization of the curre
nt system for collection, processing, monitoring and accounting of direct taxes
using modern technology. Such modernization is expected to enhance convenience i
n record-keeping and return-preparation by the deductors, reduce cost of complia
nce thus improving overall taxcompliance. This will also reduce leakage, increas
e tax-base, improve process efficiency & transparency, enable speedy reconciliat
ion, enable faster transfer of tax collected to government coffers and facilitat
e data mining to identify trends and making projections.
The Concept
Tax Information Network (TIN) is a part of this modernization initiative by ITD.
TIN has three key sub-systems:
Electronic Return Acceptance and Consolidation System (ERACS) which consists of
an infrastructure for interface with the taxpayers (a nation-wide network of TIN
-Facilitation Centres and a web-based utility) for receipt and upload of TDS (Ta
x Deducted at Source), TCS (TAX Collected at Source) and AIR (Annual Information
Return) to the central system of TIN; Online Tax Administration System (OLTAS)
for daily upload to the central system, the details of tax deposited in various
tax-collecting bank branches across the country; Central PAN Ledger Generation S
ystem (CPLGS) which is the central system that generates a ledger for each PAN (
Permanent Account Number) and consist of:
• Details of tax deducted (TDS/TCS) which is generated by matching the TDS/TCS r
eturns submitted by the deductors/ collectors with the tax deposit (challan) inf
ormation from the banks;
55
• •
Details of the tax deposited (advance tax/ self-assessment tax) directly by the
taxpayer with the bank; Details of major expenditure by the PAN holder from the
AIR filed by specified entities.
Implementation
ITD engaged NSDL (who had proven experience in handling a nationwide electronic
transaction processing system) for establishing TIN. TIN is being established in
phases. In Phase I of TIN (three-year period culminating in FY 04-05) the two i
nfrastructural sub-systems of TIN (OLTAS and ERACS) mentioned above have been su
ccessfully established. During this period more than five lakh returns have been
accepted through the TIN-FC network (currently more than 786 centres in 272 loc
ations) All the collecting branches upload, on a T + 3 basis, the details of cha
llans credited. In Phase II (commencing in FY 05-06) all the three systems are i
ntegrated to facilitate quarterly update of PAN ledger on the basis of the quart
erly TDS/TCS statement and half-yearly update of PAN ledger on the basis of the
AIR.
Benefits
To the deductors:
• • • • • Elimination of manual preparation, signing and issue of TDS certificat
es. No need to file & store multiple copies. Instead of filing large number of p
hysical papers (truckloads for large companies), the eTDS return is now one flop
py or a CD. Cost saving in preparation of documents. Filing through service netw
ork of TIN-FC instead of at the ITD office. This helps them to demand better ser
vice quality.
To the deductees:
• • • • • Availability of a single tax statement showing deductions by various d
eductees and the taxes paid by the taxpayer. Elimination of risk of non-receipt/
loss of tax deducted certificates in physical form. Facilitates faster processi
ng of tax returns. Deductees can verify whether tax deducted on their behalf has
been accounted in their name in the IT books. Less difficulties for genuine tax
payers.
56
To ITD
• • • • • • • • Back-office operations like collection and compilation of return
s now removed from ITD offices, helping them to concentrate on core functions. S
aving in large amount of storage space. Returns are consolidated to a computeriz
ed database, which can be straight away taken for processing. Can undertake data
-mining and statistical studies on the database for better non-intrusive enforce
ment. Ease in verifying whether the deduction as per the TDS return filed has in
deed been deposited to the account of the government. Ease in verifying whether
the credits claimed by the deductee is based on real deduction and deposit to th
e account of the government. Preventing unscrupulous deductees from claiming cre
dits against fake certificates. In case of taxes other than TDS (advance tax, se
lf-assessment tax etc.), the assessing officer has a database to verify whether
the tax has actually been deposited.
57
Sample Test
1. Tick the true statement: (a) As per the Securities Lending and Borrowing Sche
me, NSDL is responsible to pay interest to the lender for securities lent. (b) A
s per the Securities Lending and Borrowing Scheme, the DP is responsible to pay
interest to the lender for securities lent. (c) As per the Securities Lending an
d Borrowing Scheme, the borrower is responsible to pay interest to the lender fo
r securities lent. (d) As per the Securities Lending and Borrowing Scheme, the i
ntermediary is responsible to pay interest to the lender for securities lent. To
initiate securities lending process, which of the following options should the
lender tick in the Securities Lending Form For Lender/ Borrower? (a) Initiate Re
pay to Intermediary. (b) Confirm Repay initiated by Intermediary. (c) Deposit wi
th Intermediary. (d) Initiate Recall from Intermediary. Problem: Details as refl
ected in the statement of account are as under: Date of credit*** 5.3.97 16.6.97
24.7.97 7.9.97 12.11.97 Particulars Purchased in the demat form on 27.2.1997 De
materialised shares that were originally purchased in Feb. 1990 Purchased shares
from the market on 15.7.1997 Credit of bonus shares (2:5) Received a gift Quant
ity 1500 6500 2000 4000 2000
2.
3.
*** The above credits of securities are in the same account. If 2500 shares were
sold from this account on 1st Dec. 1997, then for calculating capital gains, wh
ich of the following shares will be taken into account by income tax authorities
? (a) (b) (c) (d) 4. 2000 which were credited on 12.11.1997 and 500 from the 400
0 credited on 7.9.97. 1500 which were credited on 5.3.1997 and 1000 from the 650
0 credited on 16.6.97. all 2500 from 4000 bonus shares received on 7.9.1997. all
2500 from the 6500 credited on 16.6.1997.
The DP must ensure that clearing members have given the necessary pay-in instruc
tion (i.e. instruction for transfer from the CM pool to the CM delivery) to effe
ct settlement,: (a) Not applicable. No instruction is required for this process.
(b) after the NSDL deadline time for pay-in for the concerned exchange. (c) no
deadline. Can be given at any time. (d) at least before NSDL deadline time for p
ay-in for the concerned exchange.
Sample Test
58
5. a. b. c.
Which of the following options are available in case of freezing of a demat acco
unt? Freeze for debits only Freeze for credits only Freeze for debits as well as
credits. (a) b only (b) a and c (c) b and c (d) a only Which of the following p
rovides for inter-connectivity amongst various depositories in the scenario of m
ultiple depositories? (a) Operational manual for depositories. (b) NSDL Business
Rules. (c) NSDL Bye-Laws. (d) SEBI (Depositories and Participants) Regulations,
1996. Dematerialisation is the: (a) process of converting physical shares into
electronic shares (b) process of selling electronic shares (c) process of conver
ting electronic shares into physical shares (d) process of transferring electron
ic shares from one account to another account Which of the following can appoint
a nominee? (a) Body Corporate. (b) Individual. (c) Trust. (d) FI. According to
SEBI requirements, securities, forming a part of the SEBI specified compulsory l
ist wherein delivery in demat form is mandatory for all categories of investors,
can be delivered in physical form in the stock exchanges connected to NSDL. Thi
s requirement is applicable to: (a) there is no such SEBI requirement. (b) physi
cal deliveries wherein the number of shares are less than 500. (c) physical deli
veries valued at less than Rs. 25,000/- or 500 shares whichever is less. (d) all
physical deliveries. Mr. Buyer has sold 100 shares on the NSE. Both, Mr. Buyer
and Mr. Seller have opened depository accounts with NSDL. Assuming, Mr. Seller i
s the buyer of the same shares, the shares will be credited to: (a) Mr. Buyer s
account directly by the stock exchange. (b) Mr. Seller s account directly by Mr
. Buyer. (c) Mr. Seller s account by the DP of his stock broker on the basis of
an instruction given by that stock broker. (d) Mr. Buyer s account by the DP of
his stock broker on the basis of an instruction given by that stock broker.
6.
7.
8.
9.
10.
Sample Test
59
11.
In an application for opening an account (for corporates/ clearing members only)
, which one of the following form part of types of accounts? (a) NRI- Repatriabl
e. (b) OCB. (c) NRI- Non-Repatriable. (d) HUF. Bank particulars captured in the
depository account opening form, are of relevance for which of the following rel
ated activities? (a) Transferring shares to the CM pool account. (b) Stock lendi
ng and borrowing (c) Cash corporate actions (d) Off-market transfers. Eligible s
ecurities for inter-depository transfers are: (a) Securities which are available
for trading at NSE and BSE. (b) securities which are admitted for dematerialisa
tion on both the depositories. (c) securities which are announced by SEBI for co
mpulsory settlement in demat form on stock exchanges connected to the depository
for all institutional investors. (d) securities which are announced by SEBI for
compulsory settlement in demat form on stock exchanges connected to the deposit
ory for all categories of investors. The custody fees payable by a DP to NSDL is
paid: (a) on a quarterly basis. (b) on an annual basis. (c) on a semi-annual ba
sis. (d) on a monthly basis. Resolution by arbitration for disputes between NSDL
and its business partners: (a) is applicable for disputes between NSDL and bank
DPs only. (b) is not applicable in the NSDL environment. (c) is applicable for
disputes between NSDL and broker DPs only. (d) has been prescribed in the NSDL B
ye-Laws. Can a delivery instruction for transferring shares from a beneficiary a
ccount to a CM pool account be canceled? (a) Yes, but only prior to the executio
n date indicated in the delivery instruction (b) Yes always (c) Never (d) Yes, b
ut only after the execution date indicated in the delivery instruction DVP, in t
he capital market context, stands for: (a) default versus payment. (b) delivery
versus payment. (c) default versus penalty. (d) delivery versus penalty.
12.
13.
14.
15.
16.
17.
Sample Test
60
18.
Which of the following doesn t form part of Pledge/ Hypothecation form? (a) Clos
ure date (b) Details of securities. (c) Bank account details (d) Agreement No. N
ovation means: (a) creation of new and complex derivative instruments. (b) guara
ntee of each outstanding position by the stock exchange. (c) clearing corporatio
n is the legal counter party to each trade for settlement purposes and hence, le
ading to elimination of counter party risk from the system. (d) guarantee of set
tlements by the clearing corporation/ house given to a stock exchange. The route
to the depository, as per the Depositories Act, 1996, is: (a) dematerialisation
or immobilisation, at the option of the Issuer. (b) dematerialisation or immobi
lisation, at the option of the depository. (c) dematerialisation. (d) immobilisa
tion. Can shares that are not registered in the name of the account holder be de
materialised? (a) Yes, at the discretion of the Issuer/ its R and T Agent. (b) N
o, shares have to be registered in the name of the concerned investor. (c) Yes,
at the discretion of the DP. (d) Yes, provided a duly filled transfer deed is at
tached. "Fungible" means, as shares would not have distinguishing features such
as distinctive nos., certificate nos. etc.: (a) same securities of a company are
interchangeable. (b) they are freely transferable. (c) similar securities of di
fferent companies are interchangeable. (d) different securities of same company
are interchangeable. NSDL: (a) has no role to play in settlement of dematerialis
ed securities that are to be delivered in the unified (erstwhile physical) segme
nts of connected stock exchanges. (b) replaces the clearing corporation/ house o
f the exchange that has established electronic connectivity with it. (c) facilit
ates settlement of both funds and dematerialised securities. (d) only plays the
role of a facilitator in settlement of dematerialised securities in those exchan
ges which have established electronic connectivity with it. The account that an
approved intermediary needs to open to dematerialise its own securities, is call
ed _ account in NSDL system: (a) Beneficial owner. (b) Clearing member. (c) Inte
rmediary. (d) Investor.
61
19.
20.
21.
22.
23.
24.
Sample Test
25.
The depository account that an investor opens is called as: (a) broker account.
(b) intermediary account. (c) beneficiary account. (d) clearing member account.
Shyam has 500 shares of ABC Ltd in his beneficial owner account on 12/10/98. He
gives a "Delivery instruction" on the same day to debit his account with 600 sha
res of ABC Ltd with the execution day as 14/10/98. At the end the of the day on
14/10/98 his account shows a credit of 550 shares. What will happen? (a) The ent
ire instruction will be cancelled in the system at the end of the day on 14/10/9
8, as the account is short by 50 shares. (b) 500 shares will be debited from his
account on 12/10/98, 50 shares on 14/10/98 and the balance instruction will be
cancelled. (c) The entire instruction will be cancelled in the system on 12/10/9
8, as the account is short by 100 shares. (d) On 14/10/98, 550 shares will get d
ebited and the balance instruction cancelled. In case an investor opts for allot
ment in demat form in case of bonus/rights issue without opening a depository a/
c,: (a) the issuing co. will maintain holdings in their suspense account till in
vestor opens account. (b) his entitlements will be issued in physical form. (c)
his entitlements will be issued in demat form and credited to suspense a/c maint
ained by the DP. (d) his entitlements will be issued in demat form and NSDL will
open an a/c for the investor. What is the main purpose of bank account details
in account opening form? (a) For DP to debit the savings bank account for charge
s on the services enjoyed. (b) For the purpose of income tax authorities. (c) Fo
r safe distribution of cash corporate actions. (d) For NSDL to debit the savings
bank account for charges on the services enjoyed. Mr. Gupta having beneficiary
account with DP1 sells 100 shares of ABC company through broker XYZ who has his
clearing member account with DP2. Broker XYZ delivers the same in demat form to
the clearing corporation/ house in settlement no. 1999052. Mr. Sharma having ben
eficiary account with DP3 buys the same through broker PQR who has his clearing
member account with DP4. Broker PQR gets credit of the same in his account with
DP4 in settlement no. 1999052. The market value of ABC company is Rs. 500/-. Wha
t are the transaction charges levied by NSDL to DP4 as applicable from May 1, 20
02? (a) Re. 1/- subject to minimum Rs. 1000/- and maximum Rs. 20,000/- per quart
er. (b) Rs. 25/- (100*500*0.05/100) i. e. 5 basis points of market value of secu
rities credited to broker PQR clearing member account from clearing corporation/
house. (c) Rs. 0.50 (100*50*0.01/100) i. e. 1 basis point of market value of se
curities credited to broker PQR clearing member account from clearing corporatio
n/ house, subject to minimum Rs. 2000/- and maximum Rs. 20,000/- per quarter. (d
) No charges.
26.
27.
28.
29.
Sample Test
62
30.
If the unitholder opts for either or survivor basis in case of his US64 units, t
he demat request pertaining to them can be: (a) processed through the same a/c t
hat he has for his other holdings in demat form with a undertaking that this fac
ility is available only for US64 units. (b) processed through a separate a/c tha
t he opens for US64 units on either or survivor basis. (c) Any one of the above,
at his option. (d) Not applicable. US64 units do not have the facility of eithe
r or survivor basis. In case of a partnership firm, the beneficial owner account
will be opened in the name of: (a) the partnership firm. (b) any partner(s). (c
) all the partners. (d) any of the above. Mr. Sharechandani, an NRI based in Sin
gapore has purchased 1000 shares of XYZ in March 1995 on a repatriable basis. If
he wishes to transfer the shares to his broker on sale: (a) he will have to pro
duce the copy of the necessary RBI permission to his DP. (b) he will need to tak
e special permission from SEBI to do so and then produce the same to DP. (c) The
treaty between India and Singapore exempts Mr. Sharechandani from producing any
permission. (d) No permission is required for NRIs. He can transfer the same fr
eely. An investor holding shares in demat form will get his bonus entitlement in
: (a) demat form. (b) physical form. (c) any of the above at the choice of the I
ssuing Co. (d) demat/ physical form at his option. DP forwards certificates rece
ived for dematerialisation along with DRF to: (a) NSDL. (b) Issuer/its R and T A
gent. (c) both of the above. (d) none of the above as the DP directly gives an e
lectronic credit to the investor. Settlement in the NSE is based on: (a) multila
teral netting on both funds and securities side. (b) multilateral netting with r
espect to funds and bilateral gross positions with respect to funds. (c) bilater
al netting on both funds and securities side. (d) real time gross settlement. On
death of any of the joint holder(s), securities lying to the credit of the join
t account can be transmitted in the name of surviving holder(s). What is the pro
cedure for the same? (a) The surviving joint holder(s) to have an account in the
ir name(s). They should submit a notarised death certificate to the Issuer/ its
R and T Agent along with transmission form.
63
31.
32.
33.
34.
35.
36.
Sample Test
(b) (c) (d)
On submission of notarised death certificate along with transmission form to the
Issuer/ its R and T Agent, the deceased holders name will be deleted from the e
xisting account. On submission of notarised death certificate along with transmi
ssion form to the DP, the deceased holders name will be deleted from the existin
g account. The surviving joint holder(s) to have an account in their name(s). Th
ey should submit a notarised death certificate to DP along with transmission for
m. locked -in securities be dematerialised? Yes, provided lock-in reason is prom
oters quota in public issues. Yes, provided lock-in reason is employees quota
under stock-option scheme. Yes, always irrespective of lock-in reason. No.
37.
Can (a) (b) (c) (d)
38.
Name the odd one out: (a) ICRA (b) BOISL (c) CARE (d) CRISIL Which of the follow
ing statements regarding dematerialisation is false? (a) Investor has to pay sta
mp duty for dematerialisation of shares. (b) NSDL doesn t charge its DPs for dem
aterialisation. (c) Odd lot shares can be dematerialised. (d) Shares not registe
red in the name of the concerned account holder (street name shares) can t be de
materialised. Which of the following places does not have a stock exchange? (a)
Delhi. (b) Calcutta. (c) Guwahati. (d) Cuttack. In stock lending/ borrowing proc
ess, what is the transaction fees charged by NSDL to lender s DP for moving secu
rities from lender s account to intermediary s account? (a) No charges. (b) 0.1%
of the value of securities lent by lender to the intermediary. (c) 0.05% of the
value of securities lent by lender to intermediary. (d) 0.01% of the value of s
ecurities lent by lender to the intermediary. If beneficial owner opts for demat
securities in the public issue application form then, the probability of allotm
ent of the shares: (a) remains same. (b) decreases. (c) depends on the no. of ap
plications he has submitted asking for demat shares. (d) increases.
39.
40.
41.
42.
Sample Test
64
43.
In a share application form, if an applicant applies for part subscription in de
mat form and part in physical form, then (a) the form will be treated as valid b
ut all shares will be issued in demat form (b) the form will be treated as valid
and the shares will be issued as per the request in the form. (c) the form will
be treated as invalid and rejected. (d) the form will be treated as valid but a
ll shares will be issued in physical form On rematerialisation the share certifi
cates are: (a) issued by Issuer/ its R and T Agent and forwarded to investor thr
ough DP. (b) issued by Issuer/ its R and T Agent and forwarded to investor throu
gh NSDL. (c) issued by Issuer/ its R and T Agent and forwarded to investor direc
tly by Issuer/ its R and T Agent. (d) issued by NSDL and forwarded to investor d
irectly by NSDL. Every Issuer must enter into an agreement with NSDL for offerin
g its securities for demat. The following is true with respect to the statement
made. (a) No. Securities which are listed on the NSE are exempt. However, those
which are in the Permitted-to-trade segment are not exempt. (b) Yes. All Issuer
s must sign an agreement with NSDL. (c) No. Securities issued by the Central and
State Governments are exempt from signing an agreement. (d) No. Issuers which h
ave a market capitalisation of more than Rs. 125 Cr. are exempt from signing an
agreement. To dematerialise government securities, NSDL has to take prior approv
al of: (a) SEBI and RBI both. (b) RBI. (c) SEBI. (d) Issuing government authorit
y. Mr. M is holding securities with DP D. Since he is scheduled to relocate to D
ubai on a special assignment and expects to be away for quite a while, he wishes
to lock (freeze) his account. He can do so by: (a) Account freezing is not poss
ible in the NSDL system. (b) filling up an account freezing form available with
the DP D. (c) transferring his holdings to a special account called e-locker w
here all such securities are held in fiduciary capacity by DP D. (d) writing to
NSDL to freeze his account. As a part of the capital adequacy requirement, the b
ase minimum capital prescribed by SEBI: (a) varies from exchange to exchange. (b
) is based on the recommendations of the Kaul committee. (c) is based on the rec
ommendations of the Justice Bhagwati Committee. (d) is the same across members o
f all exchanges.
44.
45.
46.
47.
48.
Sample Test
65
49.
Tick the true statement: (a) A stock broker having a minimum networth of Rs. 50
lakh is eligible to join NSDL as a DP irrespective of whether registered with SE
BI. (b) A SEBI registered stock broker having a minimum networth of Rs. 50 lakh
is eligible to join NSDL as a DP. (c) A SEBI registered stock broker is eligible
to join NSDL as a DP. There is no minimum networth requirement. (d) A SEBI regi
stered stock broker having a minimum networth of Rs. One crore is eligible to jo
in NSDL as a DP. Mr. P has 500 shares of a company in his account with DP D. He
pledges these shares with bank B. He now gives a transfer (debit) instruction to
his DP D to transfer 200 of these shares to his broker R. Assuming no additiona
l credits are expected into P s account with DP D: (a) The instruction will fail
as there is no sufficient quantity of free shares. (b) DP D will release the pl
edge to the extent of 200 shares and transfer to broker R as free balance. (c) N
ot applicable. Demat shares cannot be pledged. (d) The shares will be transferre
d to broker R on the given execution date as pledged balance. Book building: (a)
is used by stock exchanges for trading as it is more efficient than the traditi
onal open outcry system. (b) is used by speculators to artificially increase sha
re prices. (c) is used in the public issue process for efficient price and deman
d estimation for the Issuer. (d) is used by bookies in horse racing. If a DP goe
s bankrupt, what happens to the dematerialised holdings of investors with the DP
? (a) The assets of the investor may be used for paying off the creditors of the
DP. (b) The appointed "court receiver" has the discretion to dispose off the as
sets of the investor in the manner he deems fit. (c) NSDL has the discretion to
dispose off the assets of the investor in the manner it deems fit. (d) The inves
tor can opt for rematerialisation or open his account with another DP and transf
er his holdings. A broker (clearing member) gives delivery to clearing corporati
on/ house instruction to its DP. What will be the movement of the shares? (a) Br
oker s (clearing members) pool account will be debited and buying client s accou
nt will be credited. (b) Broker s (clearing members) pool account will be debite
d and his delivery account will be credited. (c) Broker s (clearing members) ben
eficial owner account will be debited and his pool account will be credited. (d)
Broker s (clearing members) pool account will be debited and DP s house account
will be credited.
50.
51.
52.
53.
Sample Test
66
54.
An investor submits 10 share certificates of RPL, all in market lot of 50 shares
for dematerialisation to his DP. The face value of the share is Rs. 10/-. Assum
ing that DP charges 0.2 % of the face value of securities for dematerialisation,
calculate dematerialisation charges by NSDL to the DP.: (a) Rs. 1. (b) No charg
es. (c) Rs. 10. (d) Rs. 100. If an investor requests for demat securities in cas
e of public issue without having a depository account, then (a) Issuer/ R and T
Agent will open the account on behalf of the investor and credit it with allotte
d shares. (b) NSDL will open the account on behalf of the investor and credit it
with allotted shares. (c) Allotted shares will be issued in physical form. (d)
DP will open the account on behalf of the investor and credit it with allotted s
hares. Physical securities registered in the name of more than three joint holde
rs, can be dematerialised by: (a) sending the same for registration in the name
of three or less jointholders and then dematerislising them. They cannot be dire
ctly dematerialised in the name of more than three jointholders. (b) writing to
NSDL and NSDL will decide on a case to case basis. (c) opening an account in the
name of first three joint holders for the purpose of dematerialising these secu
rities. (d) opening an account in the name of all the jointholders which account
can be used only for the purpose of dematerialising these securities and delive
ring the same on sale. For a stock exchange/clearing house to settle demat secur
ities, the stock exchange/ house must have a mechanism to ensure payment against
delivery or guarantee settlement. This requirement is drawn from: (a) The Byela
ws of the respective stock exchanges. (b) The NSDL Byelaws. (c) The SEBI (Deposi
tory and Participants) Regulations, 1996. (d) The Depositories Act, 1996. Is it
true that according to SEBI s April 6, 1998 directive demat shares will be treat
ed as good delivery in the physical segments of stock exchanges connected to NSD
L? (a) Yes, for all category of investors. (b) No. (c) Yes, for all category of
investors but only at NSE and BSE. (d) Yes, but only for institutional investors
. UTI: (a) is the largest mutual fund in the world. (b) was set by an act of Par
liament in India.
55.
56.
57.
58.
59.
Sample Test
67
(c) (d) 60.
has floated only one mutual fund scheme till date viz., UNIT-64, but the same ha
ppens to be the most popular. is the self-regulatory body for mutual funds.
All dematerialised securities are: (a) mandatorily registered in the name of the
individual investor. (b) registered both in the name of the individual investor
and the depository. (c) mandatorily registered in the name of the depository. (
d) registered in the name of either the depository or the individual investor.
Answers:
1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. d c b d b
d a b b c b c b a d a b c c c 21. 22. 23. 24. 25. 26. 27. 28. 29. 30. 31. 32. 3
3. 34. 35. 36. 37. 38. 39. 40. b a d a c a b c a c b a d b a d c b a d 41. 42. 4
3. 44. 45. 46. 47. 48. 49. 50. 51. 52. 53. 54. 55. 56. 57. 58. 59. 60. a a c c c
b b a d a c d b b c d c a b c
Sample Test
68
Feedback and Comments
You may offer your feedback / suggestions / observations covering the following
:1. 2. 3. 4. 5. Content Language Clarity of the procedures Adequacy of illustrat
ions, forms, etc Usefulness of splitting the Handbook into 4 volumes.
Please send your feedback at the following address in the format given in the ne
xt page :-
Investor Relations Cell National Securities Depository Ltd. 4th Floor, A Wing, T
rade World, Kamala Mills Compound, Senapati Bapat Marg, Lower Parel, Mumbai - 40
0 013. Tel. : 022 - 2499 4200 Fax : 022 - 2497 6355 / 2497 6351 / 2497 2993 Emai
l : ncfm@nsdl.co.in
Feedback and Comments
To, Investor Relations Cell, National Securities Depository Ltd. 4th Floor, A Wi
ng, Trade World, Kamala Mills Compound, Senapati Bapat Marg, Lower Parel, Mumbai
- 400 013. The following feedback / suggestions / observations are offered for
the enhancement of "Handbook":
You may send this form at Fax : 022 - 2497 6355 or email : ncfm@nsdl.co.in
demand)
Tel : 022 - 26598252 022 - 26598100 - 114 Fax : 022 - 26598393
2
Tel : 011-23344313-27 Fax : 011-23366658
3
Tel : (033) 24631802-1805, 24631809-1812 (Board Nos) Fax : (033) 24631791, 24631
806 Tel : 044-28475100 Fax : 044-28473633
4
5
Tel : 040-23227084/5 Fax : 040-23227086
6
Tel : 079-26580212 - 13 Fax : 079-26576123
7

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