Dematerialisation and Clearing and Settlement Mechanism, Depositories and Depository Participants

8/6/2019 Dematerialisation and Clearing and Settlement Mechanism, Depositories and Depository Participants

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Dematerialisation is the process of converting

the physical form of shares into electronic form. According to the Depositories Act, 1996, an

investor has the option to hold shares either in

physical or electronic form .The process of

converting the physical form of shares into

electronic form is called dematerialisation or in

short demats. The converted electronic data is

stored with the depository from where they can

be traded.


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Procedure for converting the

physical shares into electronic form. Open an Account with any of the Depository

participant

Allotment of client id to the Investor

The client ID along with the DP ID gives aunique identification in the depository system

Surrendering of the physical certificates to the

DP

The Certificate is sent to the respectivecompany

The Investors DP Account is credited in 15 days


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Trade Clearing and Settlement in Stock Markets


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Clearing and settlement is a post trade activity.The transactions in secondary market passthrough three distinct phases,

Trading,

Clearing and

Settlement.


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Entities involved in the process of Clearing

The clearing corporation Clearing members

Custodians

Clearing Banks Depositories

The Professional clearing member


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Clearing Corporation

The first clearing corporation to be established

in the country and also the first clearing

corporation in the country to introducesettlement guarantee is the National Securities

Clearing Corporation Ltd. (NSCCL), a wholly

owned subsidiary of NSE. NSCCL wasincorporated in August 1995.


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Clearing Members

Clearing Members are responsible for settling

their obligations as determined by the clearing

corporation. They do so by making availablefunds and/or securities in the designated

accounts with clearing bank/ depositories on

the date of settlement.


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Custodians

Custodians are clearing members but not

trading members. They settle trades on behalf

of trading members, when a particular trade isassigned to them for settlement.

As on date, there are 13 custodians empanelledwith NSCCL.


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Clearing Banks

Clearing banks are a key link between the

clearing members and Clearing Corporation to

effect settlement of funds.E

very clearingmember is required to open a dedicated

clearing account with one of the designated

clearing banks.


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Depositories

Depository holds securities in dematerialized

form for the investors in their beneficiary

accounts.E

ach clearing member is required tomaintain a clearing pool account with the

depositories. He is required to make available

the required securities in the designatedaccount on settlement day.


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Professional Clearing Member

NSCCL admits special category of members

known as professional clearing members

(P

CMs).P

CMs may clear and settle tradesexecuted for their clients (individuals,

institutions etc.). In such cases, the functions

and responsibilities of the PCM are similar tothat of the custodians


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Clearing and settlement process at NSE


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1. Trade details from Exchange to NSCCL

2. NSCCL notifies the trade details to clearing % who affirm back.

Based on the affirmation, NSCCL applies multilateral nettingand determines obligations.

3. Download of obligation and pay-in advice of funds/securities.

4. Instructions to clearing banks to make funds available by pay-in

time.5. Instructions to depositories to make securities available by pay-

in-time.

6. Pay-in of securities (NSCCL advises depository to debit poolaccount of custodians/CMs and credit its account anddepository does it)


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7. Pay-in of funds(NSCCL advises Clearing

Banks to debit account of custodians/CMs andcredit its account and clearing bank does it)

8. Pay-out of securities (NSCCL advisesdepository to credit pool account of

custodians/CMs and debit its account anddepository does it)

9. Pay-out of funds (NSCCL advises Clearing

Banks to credit account of custodians/CMs anddebit its account and clearing bank does it)

10. Depository informs custodians/CMs throughDPs.

11. Clearing Banks inform custodians/CMs


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Depository and Depositoryparticipants


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A bank or company which holds funds or

securities deposited by others, and where

exchanges of these securities take place.

The two depositories in India are the National

Securities Depository Ltd (NSDL) and Central

Depository Services (India) Ltd (CDSL).

In the depository system, securities are held in

depository accounts, which is more or less similarto

holding funds in bank accounts. Transfer of

ownership


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NSDL

Incorporated in December 1995

Now more than One crore Demat Accounts

Largest Depository in India Promoters of NSDL

- IDBI

- UTI- NSE


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CDSL

CDSL received the certificate of

commencement of business from SEBI in

February, 1999. All leading stock exchanges like the National

Stock Exchange, Calcutta Stock Exchange,

Delhi Stock Exchange, The Stock Exchange,Ahmedabad, etc have established connectivity

with CDSL.


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CDSL was promoted by Bombay Stock

Exchange Limited (BSE) in association withBank of India, Bank of Baroda, State Bank of

India and HDFC Bank.


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Why Depository Elimination of bad deliveries

Elimination of all risks associated with physicalcertificates

No stamp duty

Faster disbursement of non cash corporatebenefits like rights, bonus, etc.

Reduction in brokerage by many brokers fortrading in dematerialised securities

Reduction in handling of huge volumes of paper

Elimination of problems related to change ofaddress of investor

Ease in portfolio monitoring

Dematerialisation and Clearing and Settlement Mechanism, Depositories and Depository Participants

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