Depository New

8/3/2019 Depository New

1/26

Depository Services.


2/26

Depositories : An Introduction

The erstwhile settlement system in the capital markets ,

was inefficient and increased risk , due to great timeelapsing, by the time the trade was settled.

The transfer was through the physical movement ofcertificates, a process fraught with delays and resultant

risks. Transfer of ownership also inefficient, as it involved the

movement of papers to the issuing co. for registration.

This process could take more than 2 months, at the end

of which most of the transfers would be bad deliverycases, because of faulty paper work.

Plus theft, forgery and mutilation of certificates was alsocommon.


3/26

Depositories : An Introduction

To obviate these problems, the Depositories Act, 1996

was passed, It provides for the setting up of Depositories with the

objective of free transferability of securities, with speedaccuracy and security.

It does so by : making securities of public ltd companiesfreely transferable, dematerializing the securities in thedepository mode, and providing for maintenance ofownership records in the book entry form.

Thus companies right to use discretion in transferringsecurities , executing the transfer deed etc dispensedwith, making securities freely transferable.

Two depositories NSDL AND CDSL have come up , toprovide instantaneous electronic transfer of securities


4/26

Scrip Based System.

Scrip based system of securities transactions involves

enormous paper work involving certificates and transfer

deeds.

Simply, securities are held in physical form.

There is physical movement of securities certificates

along with transfer deeds.


5/26

Scrip Based System - Problems

Time consuming (processing time by co.)

Bad deliveries due to signature difference

Mistakes in completion of transfer deeds

Tearing and mutilation of certificates

Fake certificates

Postal delays and charges etc.


6/26

Depository System.

A system in which securities of an investor are held by

depository on behalf, and at the request, of an investor inan Electronic Form.

This system is also known as Scrip Less Trading system.

In the depository system, securities are held in

depository accounts, which is more or less similar toholding funds in bank accounts.

Transfer of ownership of securities is done throughsimple account transfers.

This method does away with all the risks and hasslesnormally associated with paperwork.

Consequently, the cost of transacting in a depositoryenvironment is considerably lower as compared totransacting in certificates.


7/26

Depository System.

The Depositories Act 1996, defines depositories as :

Any company registered under Companys Act1956,& which has been granted registration under

Sub Section12(1A) of SEBI Act,1992

Their principal function is to dematerialize securities and

enable transfer through the book entry form.

There are basically four participants:

1. The Depository,2. The Depository Participant,

3. The Issuing Company and

4. The Investor.


8/26

Depository System.

The depository model adopted in India provides for a

competitive multi-depository system. There can be various entities providing depository

services. Such system is known as Multi-Depository

System.

At present two Depositories are registered with SEBI.

NSDL CDSL


9/26

NSDL.

NSDL promoted by IDBI, UTI, National Stock Exchange of

India Limited.,SBI, in 1996. It is a public limited company, which performs a wide

range of functions through DPs, viz,

1. Maintenance of individuals holdings in electronic form

2. Dematerialization and Rematerialization

3. Transfers relating to settlement of trades.

4. Distribution of non cash corporate actions

5. Facility of freezing/locking investor accounts

6. Facility of pledging/hypothecation of securities.


10/26

Business Partners of NSDL

The DPs are the important link between the investors

and NSDL.

Other business partners include the issuing companies,

their share transfer agents , clearing houses, and clearingmembers.

NSDL facilitates the settlement of trades carried out in

the book entry segment of the stock exchanges.

The actual settlement is performed by the clearingcorporation/houses.


11/26

CDSL

CDSL is the second depository set up by the Bombay

Stock Exchange and co sponsored by SBI, BOI, BOB andHDFC Bank, in the year 1999.

BSE has 45% stake in it , while the banks have 55% stake.

CDSL has more than 163 DPs in 91 cities across 168

locations covering 320 cities.

CDSL has been the preferred platform for the Govt. of

India for PSU disinvestments .

Has also attained the membership of the Asia PacificCentral Depository Group(ACG). ACG has 22 member

organizations including the depositories of Japan,

Hongkong, Singapore etc.


12/26

A Bank-Depository Analogy

Bank Depository1.Holds funds in an account

on behalf of a customer

1.Holds securities in an

account on behalf of an

investor.

2.Transfer funds between

accounts on the instructionof the account holder.

2.Transfer securities between

accounts on the instructionof the account holder.

3.Physical handling of funds

is avoided.

3.Physical handling of

securities is avoided.

4.Provides safe custody of

fund

4.Provides safe custody of

securities.


13/26

Who Is Depository Participant?

A Depository Participant (DP) is an agent of the

depository through which it interfaces with an investor.

A DP can offer depository services only after it getsproper registration from SEBI.

A DP is just like a Branch of a Bank.


14/26

Who Can become a Depository Participant?

In terms of the Depositories Act, 1996, SEBI(Depositories & Participants) Regulations,1996, only

the following entities are eligible to become a

Depository Participant:

Financial Institutions, Banks, including approved foreign bank

Stockbrokers,

A clearing corporation or a clearing house of a stock

exchange

A non-banking finance company,

A registrar to an issue or share transfer agent


15/26

Types of Ownership.

The registered owner is that person whose name isregistered in the register of members of the company

(issuer)

For the securities dematerialized, NSDL/CDSL is the

Registered Owner in the books of the issuer. But Registered Owner does not enjoy any right and

liability attached with the security.

Beneficial owner is that person who enjoys all rights,

duties, and liabilities attached with the security.

It means voting right, dividend right, bonus share right ,

etc are all exercised by the Beneficial owner.


16/26

Benefits of depository system

Depository system provides benefits to:

The investors, and

The issuers.


17/26

Benefits to Investors

The transactions in electronic mode eliminated the risk

and problems of delays.

The risk of bad deliveries is totally eliminated

There is no requisite of filling up the transfer deeds,

payment of transfer stamp duty and a lot of other paperwork at the end of the investor.

It totally eliminates the risk associated with fraudulent

interception of certificates in postages or transits..

Transfer of ownership of securities is immediate in caseof depository mode.

The investment, automatically, becomes more liquid.


18/26

Benefits to Investors

The problem of odd lot is also eliminated, as the

depository mode does not have any concept of market

lot.

Holding investments in equity and debt in a single

account. Change in address recorded with DP gets registered

with all companies in which investor holds securities

electronically eliminating the need to correspond with

each of them separately. Transmission of securities is done by DP eliminating

correspondence with companies.

Nomination facility.


19/26

Benefits to Issuers

The company saves a lot of paper work whichotherwise is required in the physical mode.

The company saves a postal cost for the dispatch of

right shares, bonus shares or share certificates after

affecting the transfer.

By offering depository services to its shareholders, a

company may send a positive sign to its shareholders

about its concern for their welfare.

Depository services adds liquidity to the security thus

fund raising capacity of the company.


20/26

ACCOUNT OPENING

In order to avail of depository facilities, an investor has

to open a beneficiary account with a depositoryparticipant of his choice. This is similar to opening a

bank account to use the banking services.

Just as one can hold funds in a bank account and

transfer funds across accounts without actually

handling cash; one can hold securities in a depository

account and transfer securities across depository

accounts without actually handling share certificates

The account holder is called 'beneficial owner' in a

depository system and the account is known as

'beneficiary account'.


21/26

Features of Beneficiary Account

No minimum balance is required to be retained in a

beneficiary account.

An investor can close a beneficiary account with one DP

and open an account with another DP.

To dematerialize existing physical holdings, the

beneficiary account must be opened in the same

ownership pattern in which the securities are held inthe physical form e.g: If one certificate is in individual

name and another certificate is jointly held by X & Y,

two different accounts should be opened


22/26

What is dematerialization?

Dematerialization is the process by which physicalcertificates of securities of an investor are converted to

an equivalent number of securities in electronic form

and credited into the investors account with his/her

DP.

It is to be noted that an investor can hold shares in

physical form but for the purpose of trading in stock

exchanges shares should be in electronic form.


23/26

Process of dematerialization

An investor intending to dematerialize its securities

needs to have an account with a DP. The client (registered owner) will submit a request to

the DP in the Dematerialization Request Form for

dematerialization, along with the certificates of

securities to be dematerialized. Before submission, theclient has to deface the certificates by writing

"SURRENDERED FOR DEMATERIALISATION".

The DP will verify that the form is duly filled in and the

number of certificates, number of securities and thesecurity type (equity, debenture etc.) are as given in the

DRF. If the form and security count is in order, the DP

will issue an acknowledgement slip duly signed and

stamped, to the client. .


24/26

Process of dematerialization

After intimating NSDL electronically, the DP sends the

securities to the concerned Issuer/ R&T agent. NSDL inturn informs the Issuer/ R&T agent electronically, using

NSDL Depository system, about the request for

dematerialization. If the Issuer/ R&T agent finds the

certificates in order, it registers NSDL as the holder ofthe securities (the investor will be the beneficial

owner) and communicates to NSDL the confirmation of

request electronically. On receiving such confirmation,

NSDL credits the securities in the depository account ofthe investor with the DP.

This procedure takes 15to 30 days.


25/26

Rematerialisation

Rematerialisation is the process by which a client canget his electronic holdings converted into physical

certificates.

A client can rematerialise his dematerialized holdings

at any point of time.

The rematerialisation process is completed within 30

days.

The securities sent for rematerialisation cannot betraded.


26/26

Procedure of Rematerialisation

The client has to submit the rematerialisation requestto the DP with whom he has an account.

The DP enters the request in its system which blocks

the client's holdings to that extent automatically.

The DP releases the request to NSDL and sends therequest form to the Issuer/ R&T agent.

The Issuer/ R&T agent then prints the certificates,

dispatches the same to the client and simultaneously

electronically confirms the acceptance of the request toNSDL.

Thereafter, the clients blocked balance are debited.

Depository New

Documents

Transcript of Depository New