nancy report

8/7/2019 nancy report

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A PROJECT REPORT

On Working of

Depository systemA project Report submitted in partial fulfillment of the

requirements

For the award of the degree of

MASTER OF BUSINESS ADMINISTRATION

AT

RELIGARE SECURITIES LTD.

UBMITTED TO: SUBMITTED BY:

r. Ashish Mehrotra Nency

ranch Manager) M.B.A. 3rd Semester

Doon Valley Institute ofEngineering & Technology

(Affiliated to Kurukshetra University)

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KURUKSHETRA

TO WHOMSOEVER IT MAY CONCERN

This is to certify that the project report titled Working of depository

system carried out by Ms.Nency, has been accomplished under my

guidance & supervision as a duly registered MBA student of the Doon

Valley College of engineering and technology, Karnal. This project is being

submitted by her in the partial fulfillment of the requirements for the award

of the Master of Business Administration from Doon Valley College of

engineering and technology.

His project work represents his original work and is worthy of consideration

for the award of the degree of Master of Business Administration.

___________________________________

(Name & Signature of the Faculty Advisor)

Title: Working of depository system

Date: ______________________________

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ACKNOWLEDGEMENT

It is my pleasure to thank to various respected persons who directly or

indirectly guide, help, motivate and provide knowledge to me time to time

for the development of this project.

I would like to express my sincere gratitude to Mr. Ashish Mehrotra

(Branch Manager) & Mr. Naveen Kumar ( Relationship Manager) who

directly guide to me time to time about how to make this project more

effective.

I am also very thankful to respected Ms. Monika Sharma (H.O.D. MBA)

for giving me this to topic to do deep study and guidance regarding trainingand project report.

Lastly, I also want to thank to all the employees of Religare (Karnal

Branch), friends and almighty god for their direct and indirect support to me

for the accomplishment of this project.

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INDEX

S.NO. PARTICULARS PAGE NO.

1. CERTIFICATE 05

2. DECLARATION 06

3. PREFACE 07

4. INTRODUCTION 08

Depository 09

Deposiory system 13

Leagal framework of DS 14

Functions of DS 19

Benefits of DS 21

Safety feature in the DS 22

Difference b/wBank and Depository 35

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Some important process in DS 36

5. NATIONAL SECURITIRS DEPOSITORY SYSTEM 42-50

About NSDL 43

Management of NSDL 45

Fee structure of NSDL 47

Technology and connectivity in NSDL48

Common software use in NSDL

50

6. CENTRAL SECURITIRS DEPOSITORY SYSTEM 51-55

About CDSL 52

Shareholders of CDSL 53

Board of directors and management 54

7 RESEARCH METHODOLOGY 56-58

Objectives of the study

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Types of research 57

Methods of data collection 58

Tools of analysis 58

Research design 58

8. DATA ANALYSIS AND INTERPRETATION 59-65

9. OBSERVATIONS 66

10. SUGGESTIONS 68

11. LIMITATIONS 69

12. CONCLUSION 70

13. BIBLIOGRAPHY 71

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INTRODUCTION TO COMPANY

RELIGARE SECURITIES Ltd. (RSL) is a wholly owned subsidiary of

RELIGARE Financial Services Ltd. (RFSL), a Company promoted by the

late Dr. Parvinder Singh, Ex-CMD of Ranbaxy Laboratories Ltd.

The primary focus of Religare Securities Ltd. is to cater to services in

Capital Market Operations to Institutional Investors. The Company is a

member of the National Stock Exchange (NSE) and OTCEI. The growing

list of financial institutions with whom RSL is empanelled as approved

Broker is a reflection of the high levels of services maintained by the

Company.

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As on date the Company is empanelled with UTI, IDBI, IFCI, SBI,

BOI-MF, Punjab National Bank, PNB-MF, Oriental Insurance, GIC, UTI

Offshore, ICICI Can bank MF, Punjab & Sind Bank, Pioneer ITI, SUN

F&C, IDBI Principal, Prudential ICICI, ING Baring and J M Mutual Fund.

RELIGARE was founded with the vision of providing integrated financial

care driven by the relationship of trust. The bouquet of services offered by

RELIGARE includes Broking (Stocks and Commodities), Depository

Participant Service, and Advisory on Mutual Fund Investments and

Portfolio Management Services. RELIGARE is a pioneer in the

concept of partnership to reach multiple locations in order to

effectively service its large base of individual clients. Besides the

reach of RELIGARE, the clients of the company greatly benefit by

its strong research capability, which encompasses fundamentals as

well as technical knowledge.

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RELIGARE SECURITIES LIMITED

1. Member of National Stock Exchange of India and Bombay Stock

Exchange of India.

2. Depository Participant with National Securities Depository Limited

(NSDL) and Central Depository Services Limited (CDSL).

3. A SEBI approved Portfolio Manager. RSL provides platform to all

segments of the investor to leverage the immense opportunity offered by

equity investing in India either on their own or through managed funds in

Portfolio Management.

4. The ARN No. of the Religare Securities Ltd. is 33764. The ARN No. is

required by to be available with the broker who deals on behalf of investors

or sell the mutual funds of the different companies present in the market.

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RELIGARE financial services group comprises of Religare Securities

Limited, RELIGARE Comdex Limited and RELIGARE Fin vest Limited

which provide services in Equity, Commodity and Financial Services

business & Religare Insurance Advisory Ltd.

SERVICES

RELIGARE SECURITIES LIMITED

Equity Broking

Online Investment Portal

Portfolio Management Services

Depository Services

RELIGARE COMMODITIES LIMITED

Commodity Broking

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RELIGARE CAPITAL MARKETS LIMITED

Investment Banking

Proposed Institutional Broking

RELIGARE INSURANCE BROKING LIMITED

Life Insurance

General Insurance

Reinsurance

RELIGARE ARTS INITIATIVE LIMITED

Business of Art

Gallery launched - arts-i

RELIGARE REALTY LIMITED

In house Real Estate Management Company

RELIGARE HICHENS HARRISON

Corporate Broking Institutional Broking

RELIGARE VENTURE CAPITAL LIMITED

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Private Equity and Investment Manager

RELIGARE ASSET MANAGEMENT

Derivatives Sales

Corporate finance

DIRECTORS OF RELIGARE SECURITIES

LIMITED

Chairman: Mr. Harpal Singh

Managing Director: Mr. Sunil Godhwani

Director: Mr. Vinay Kumar Kaul

Director: Mr. Malvinder Mohan Singh

Director: Mr. Shivinder Mohan Singh

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MISSION

To be India's first Multinational providing complete financial services

solution across the globe.

VISION

Providing integrated financial care driven by the relationship of

trust and confidence.

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BROKERAGE

INTERADAY: 3 paisa (.30%) (NEGOTIABLE)

COMPETITITORS OF RELIGARE

There are several financial security companies playing their roles in Indian

equity market. But faces competitions from these few companies.

ICICI Direct.com

Share Khan (SSKI)

Kotak Securities.com

India Bulls

HDFC Securities

5paisa.com Motilal Oswal

Karvy

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CERTIFICATE

This to certify that NENCY ,M.B.A 3rd Semester ,DOON VALLEY

INSTITUTE OF ENGINEERING & TECHNOLOGY KARNAL under

K.U.K. Kurukshetra has done project on Working of depositary system and

has successfully completed his project on my guideline.

It is only for academic purpose and is a bonfires work done by researcher.

NENCY

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DECLARATION

I Nency do here by declare that the project work entitle

on the Working of depositary system is the original work

done by me.

This project report presented as a partial fulfillment

requirement for the degree of Master of Business

administration.

NENCY

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PREFACE

Dissertion is a very important and significant part of the M.B.A.

programme as it tries to bridge the gap between theory and practice.it

skiilfully blends the theortical aspect with practical business situation, thus,

preparing as M.B.A. in a better manner for the future responsibilities and

challenges that she is likely to face when she enters the business world to

start her carrier or growth.

The successful completion of this project was a unique experience for

me because by visiting many place and interacting various person, I

achieved a better knowledge about this system. The experience which I

gained by doing this project was essential at this turning point of my carrier

this project is being submitted which content detailed analysis of the

research under taken by me.

The research provides an opportunity to the student to

devote his/her skills knowledge and competencies requiredduring the technical session.

The research is on the topic Working of Depositary system

This study is divided into different chapters:

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The first chapter contains the introduction about

Depository and Depopository system.

The second chapter contains two types of

Depositories and their working.

The third chapter contains Research Methodology.

The fourth chapter contains the analysis and

interpretation.

The last chapter contains conclusions,

recommendations and limitations of the study.

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INTRODUCT

ION

INTODUCTION

One of the biggest problem faced by the indian capital market

has been the manual and paper based settlement system. Under this system,

the clearing and settlement of transaction take place only with the use of

paper work. The system of physical delivery of scrips poses many problemsfor the purchaser as well as the seller in the form of delayed settlements,

long settlement periods, high level of failed trade, high cost of transaction,

bad deliveries etc. In many cases transfer process takes much longer time

then two month as stipulated in section 113 of companies Act, 1956 or

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section 22 A of the securities Contracts (Regulations) Act, 1956. Moreover,

a large number of transactions end up as bad deliveries due to faulty

compliance of paper work, mismatch of signatures on transfer deeds with

specimen record of the issuer or other procedural reasons. Besides, theft,

forgery, multination of certificates and other irregularities have also become

rampant.

However, as a consequence of implementation of reforms

measures, the Indian capital market has shown rapid growth in the recent

past with foreign investors, more stock exchanges and increased market

intermediaries. The old manual system of settlement and transfer has almost

failed to handle the growing volume of paper that has loaded the market.

Thus, to eliminate paperwork, facilitate scrip less trading and electronic

book entry of the transfer of securities, shorten settlement periods, and to

improve liquidity in the stock market, it was found necessary to replace the

old system of transfer and settlement with the new and modern system of

depositories. Accordingly the government of India enacted the depositories

Act in 1996 for the orderly growth and development of the Indian capital

market. It is a system whereby the transfer and settlement of scrips take

place not through the traditional method of transfer deeds and physical

delivery of scrips but through the modern system of effecting transfer of

ownership of securities by means of book entry on the ledgers or the

depositary without the physical movement of scrips. The new system, thus ,

eliminates paper work, facilities automatic and transparent trading in scrips,

shortens the settlement period and ultimately contributes to the liquidity ofinvestment in securities. The system is also known as scrip less trading

system.

There are essentially four players in the depository system:

The Depositary participant

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The Beneficial owner/investor

The issuer

The depository

A depositary is a firm wherein the securities of an investor are

held in electonic form in the same way a bank holds money. It carries out the

transactions of securities by means of book entry, without any physical

movement of securities. The depositary based settelment system is also

called book entry transfer settelment. The depositary acts as a defecto owner

of the securities lodged with it forn the limited purpose of transfer of

ownership. It functions as a custodian of securities of its clients. The name

of the depositary appears in the records. With increase in the number of

transactions in the stock market, it had become difficult for the investors to

hold share certificates and debt instruments in bulk. But now, depositary

institutions handle this job. At present there are two depositories in india.

Number of Depositories in India

National securities depositary Ltd. (NSDL)

Central depositary services (india) Ltd. (CDSL)

NSDL was formed and registered under the companies act 1956 during

December 1995 and commenced operations during november1996. NSDL

was promoted by Industrial Development Bank of India (IDBI)-the largest

development bank in India, Unit trust of India (UTI)-the largest mutual fund

in India and National stock exchange (NSE)-the largest stock exchange in

India. Some of the prominent banks in the country also have a stake in

NSDL.Central Depository services (India) limited which commenced operations

during February 1999.CSDL was promoted by stock exchange, Mumbai In

association with Bank of Baroda, Bank of India, State Bank of India and

HDFC Bank.

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DEPOSITORY

SYSTEM

WHAT IS DEPOSITORY

Electronic revolution has brought about a number of changes in the

functioning of Indian capital market. The most revolutionary change that

was brought in the entire history of the Indian market is the introduction of

depository.

The century old Indian market has been vibrant all along but itspaper- based settlement of trades caused problems like bad delivery, delayed

transfers etc., until the enhancement of depository act in 1996. The

depository model in India is a competitive multi depository system in India

the system of dematerialization is followed, wherein the securities will be

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cancelled as against the system of immobilization in which the securities are

kept in custody.A depository is an organization where the securities of an

investor are held in electronic form and carries out the securities transaction

by book entry.

A depository is a file or set of files in which data is stored for the

purpose of safekeeping or identity authentication. In a biometric security

system, a depository contains data about people's physical characteristics

such as iris prints and finger images.

In general information storage applications, a depository are a

physical site where data is kept in the form of hard copies, magnetic disks,

magnetic tapes, compact disks (CDs), and similar media. A good example is

the safe deposit vault in a financial institution. An ideal

Depository is secure, in the sense that only authorized persons or

institutions can gain access to the data it contains. However, experience has

shown that many depositories, no matter how secure they claim to be, can be

compromised by a determined hacker or thief.

WHAT IS DEPOSTORY SYSTEM

The erstwhile settlement system on Indian stock exchanges was also

inefficient and 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 aspect of the settlement relates to transfer of shares infavour of the purchaser by the company. The system of transfer of

ownership was grossly 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.

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In many cases the process of transfer would 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 faulty compliance of paper

work. Theft, forgery, mutilation of certificates and other irregularities were

rampant. In addition, the issuer has the right to refuse the transfer of a

security. All this added to costs and delays in settlement, restricted liquidity

and made investor grievance redressal time consuming and, at times,

intractable.

To obviate these problems, the Depositories Act, 1996 was passed. It

provides for the establishment of depositories in securities with the objective

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 process, the Act envisages transfer ownership of

securities electronically by book entry without making the securities

move from person to person. The Act has made the securities of all public

limited companies freely transferable, restricting the company's right to use

discretion in effecting the transfer of securities, and the transfer deed and

other procedural requirements under the Companies Act have been

dispensed with. Two depositories, viz., NSDL and CDSL, have come up to

provide instantaneous electronic transfer of securities.

In any stock exchange, trades or transactions have to be settled by

either squaring up the carrying forward positions or settling by payment of

net cash or net delivery of securities. This account settlement period, if it is

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long leads to several price distortions and allows for market manipulation. It

increases the chances of speculation resulting in volatility, which hurts the

small investors. With the application of IT in the securities market - screen-

based trading and trading through the Internet - it has been possible to

reduce this settlement period.

LegalFramework of depositary system

The operations of the depositories are primarily governed by the

Depositories Act, 1996, Securities and Exchange Board of India

(Depositories & Participants) Regulations, 1996, Bye- Laws approved by

SEBI, and Business Rules framed in accordance 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 depositories in the

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country. This was to see that there is competition in the service and there is

more than one depository in operation. At present, two depositories are

registered with SEBI - The National Securities Depository Limited (NSDL)

and Central Depository Services (India) Limited (CDSL).

Only a company registered under the Companies Act, 1956 and

sponsored by the specified category of institutions can set up a depository in

India. Before commencing operations, depositories should obtain a

certificate of registration and a certificate of commencement of business

from SEBI.

The rights and obligations of depositories, depository participants, issuers

and beneficial owners are spelt out clearly in the Depositories Act 1996.

As per the Act :

Section 4 : DP is an agent of the Depository: A DP is an agent of the

depository, 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 agreement with any DP of his choice. The DP will then make the

depository services available 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 depository

system, every investor subscribing to securities offered by an issuer has anoption to receive the same in physical form or dematerialised form. If an

investor opts for receiving the securities in dematerialised form, the issuer

intimates the depository the details of allotment of security. On receipt of

this information,

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The depository enters the name of the allottee as the beneficial owner of that

security in its record. Section 9: Securities held in a depository are fungible :

All securities held by the depository are in dematerialised and fungible form.

Section 10: Registered Owner and Beneficial Owner : The depository is

deemed to be the registered owner for the purpose of effecting transfer of

ownership of security on behalf of a beneficial owner. But as a registered

owner, it does 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 depository in respect of any security by requisite intimation to the

depository.

Section 16: Depository to indemnify losses : A depository shall indemnify a

beneficial 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 depository:

1. A public financial Institution as defined in section 4A of the

Companies Act, 1956;

2. A bank included in the Second Schedule to the Reserve Bank of

India Act, 1934;

3. A foreign bank operating in India with the approval of the Reserve

Bank of India;

4. A recognised stock exchange;5. An institution engaged in providing financial services where not

less than 75% of the equity is

held jointly or severally by these institutions;

6. A custodian of securities approved by Government of India, and

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7. A foreign financial services institution approved by Government of

India.

The promoters of a depository are also known as its sponsors. A

depository company must have a minimum net worth of Rs. 100 crore. The

sponsor(s) of the depository have to hold at least 51% of the equity capital of

the depository company. Participants of that depository, if

any, can hold the balance of the equity capital. 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% of the equity

capital of the depository.

Registration - As per the provisions of the SEBI Act, a depository can deal

in securities only after obtaining a certificate of registration from SEBI. The

sponsors of the proposed depository should apply to SEBI for a certificate of

registration in the prescribed form. On being satisfied with the eligibility

parameters of a company to act as a depository, SEBI may grant a certificate

of registration subject to certain conditions.

Commencement ofBusiness - A depository that has obtained registration

as stated above, can function only if it obtains a certificate ofcommencement of business from SEBI. A depository must apply for and

obtain a certificate ofcommencement of business from SEBI within one year

from the date of receiving the certificate of registration from SEBI.

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SEBI grants a certificate of commencement of business if it is

satisfied that the depository has adequate systems and safeguards to prevent

manipulation of records and transactions. SEBI takes into account all

matters relevant to the efficient and orderly functioning of the depository. It

particularly examines whether :

1. The depository has a net worth of not less than Rs. 100 crore;

2. The Bye-Laws of the depository have been approved by SEBI;

3. The automatic data processing systems of the depository have been

protected against unauthorised access, alteration, destruction, disclosure or

dissemination of records and data;

4. The network, through which continuous electronic means of

communication are established between the depository, participants, issuers

and issuers' agents, is secure against unauthorised entry or access.

5. The depository has established standard transmission and encryption

formats for electronic communication of data between the depository,

participants, issuers and issuers' agents;

6. The physical or electronic access to the premises, facilities, automatic data

processing systems, data storage sites and facilities including back-up sites,

and to the electronic data communication network connecting the DPs,

issuers and issuers' agents is controlled, monitored and recorded;

7. The depository has a detailed operational manual explaining all aspects of

its functioning, including the interface and method of transmission of

Information between the depository, issuers, issuers' agents, DPs andbeneficial owners;

8. The depository has established adequate procedures and facilities to

ensure that its records are protected against loss or destruction and

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arrangements have been made for maintaining back-up facilities at a location

different from that of the depository;

9. The depository has made adequate arrangements including insurance for

indemnifying the beneficial owners for any loss that may be caused to such

beneficial owners by the wrongful act, negligence or default of the

depository or its participants or of any employee of the depository or

participant;

10. The granting of certificate of commencement of business is in the

interest of 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 form, the issuer enters into an agreement with the depository to enable

the investors to dematerialise their securities.

No such agreement is necessary where:

i. Depository, is the issuer of securities, or;

ii. The State or Central Government is the issuer of government securities.

Where the issuer has appointed a registrar to the issue or share

transfer, the depository enters into a tripartite agreement with the Issuer and

Registrar & Transfer (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 Agent for the securities issued by State and Central

Governments.Rights and Obligations of Depositories Depositories have the rights

and obligations conferred upon them under the Depositories Act, the

regulations made under the Depositories Act, Bye- Laws approved by SEBI,

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and the agreements made with the participants, issuers and their R&T

agents.

Every depository must have adequate mechanisms for reviewing,

monitoring and evaluating the depository's controls, systems, procedures and

safeguards. It should conduct an annual inspection of these procedures and

forward a copy of the inspection report to SEBI. The depository is also

required to ensure that the integrity 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 records should be available at a different

place. Adequate measures should be taken, including insurance, to protect

the interests of the beneficial owners against any risks.

Every depository is required to extend all such co-operation to the

beneficial owners, issuers, issuers' agents, custodians of securities, other

depositories and clearing organizations, as is necessary for the effective,

prompt and accurate clearance and settlement of securities transactions and

conduct of business.

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 recover it from such DPs.

Bye-Laws - A depository is required to make Bye-Laws governing its

operations. The Bye- Laws have to be in conformity with the Depositories

Act and the regulations made there under, and need to be approved by SEBIbefore becoming effective.

Depository - Every depository is required to maintain the following records

and documents.

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These have to be preserved for a minimum period of five years.

1. Records of securities dematerialised and rematerialised.

2. The names of the transferor, transferee, and the dates of transfer of

securities.

3. A register and an index of beneficial owners.

4. Details of the holdings of the securities of beneficial owners as at the end

of each day.

5. Records of instructions received from, and sent to, participants, issuers,

issuers' agents and beneficial owners.

6. Records of approval, notice, entry and cancellation of pledge or

hypothecation.

7. Details of participants.

8. Details of securities declared to be eligible for dematerialisation in the

depository.

9. Such other records as may be specified by SEBI for carrying on the

activities as a depository.

Services of Depository - A depository established under the Depositories

Act can provide any service connected with recording of allotment of

securities or transfer of ownership of securitiesin the record of a depository.

Any person willing to avail the services of the depository can do so by

entering into an agreement with the depository through any of its

participants. A depository can provide depository services only through aDP. A depository cannot directly open accounts and provide services to

clients. Every depository in its Bye-Laws must state which securities are

eligible for demat holding. Generally, the following securities are eligible

for dematerialisation:

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(a) Shares, scrips, stocks, bonds, debentures, debenture stock or other

marketable securities of a

like nature in or of any incorporated company or other body corporate.

(b) Units of mutual funds, rights under collective investment schemes and

venture capital funds, commercial paper, certificates of deposit, securitised

debt, money market instruments, government securities, national saving

certificates, kisan vikas patra and unlisted securities.

(c) Securities admitted to NSDL depository are notified to all DPs through

circulars sent by email. Investors are informed about these securities through

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 dematerialisation of securities. Dematerialisation is

the process of converting securities held in physical form into holdings inbook entry form.

Account Transfer: The depository gives effects to all transfers

resulting from the settlement of trades and other transactions between

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various beneficial owners by recording entries in the accounts of such

beneficial owners.

Transfer and Registration: A transfer is the legal change of ownership

of a security in the records of the 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 ownership 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 depositories, on the instructions of

the beneficial owners.

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 receive corporate benefits. In the other case,

depository itself takes the responsibility of distribution of corporate benefits.

Pledge and Hypothecation: The securities held with NSDL may be used as

collateral to secure loans and other credits by the clients. In a manualEnvironment, borrowers 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 pledging/ hypothecating the securities makes

the process very simple and cost effective. The securities

pledged/hypothecated are transferred to a segregated or collateral account

through book entries in the records of the depository.

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Linkages with Clearing System: Whether it is a separate clearing corporation

attached to a stock exchange or a clearing house (department) of a stock

exchange, the clearing system performs the functions of ascertaining the

pay-in (sell) or pay-out (buy) of brokers who have traded on the stock

exchange. Actual delivery of securities to the clearing system from the

selling brokers and delivery of securities from the clearing system to the

buying broker is done by the depository. To achieve this, depositories and

the clearing system should be electronically linked.

BENEFITS OF DEPOSITORY SYSYEM

No risks associated with physical certificates such as loss of

share certificate, Fake securities, Etc.

No bad delivery.

Faster settlement cycles.

Low transaction cost for purchase and sale of securities

compared to physical mode.

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Increase liquidity of securities

Reduction of paper work

Allotment of IPO, Bonus, Rights shares etc. in electronic form

Wavier of stamp duty on transfer of securities

Facilities offered by depository system

Dematerialisation

Rematerialisation

Electronic settlement of trades in stock exchanges

connected to depositories.

Pledging/hypothecation of dematerialized securities.

Electronic credit of securities allotted in public, rights,

bonus issue.

Nomination facility.

Freezing of De-mat accounts, so that the debits from the

dematerialization are not permitted.

Services related to change of address, nomination,

mandate, transmission, etc.

Other services viz.holding debt instruments in the same

demat account.

Safety features in the depository system

To ensure safety to the investors the following measures exist-

Strict norms for becoming depository participant- Net worthcriteria, SEBI approval etc. is mandatory. DP cannot effect ant

debit or credit in the demat account of the investor without the

valid authorization of the investor. Regulation reconciliation

between DP and the depositories. Periodic inspection by

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Depositories of the office of the DP and Registrar. All

investors have a right to receive their statements of accounts

periodically from the DP.

In the depository system, the depository holds the investor

accounts on trust. Therefore if the DP goes bankrupt the

creditors of the DP will have no access to the holdings in the

name of the clients of the DP.

Compulsory internal audit of operations of DP by practicing

company secretary of the chartered accountant every quarter.

Various procedures for backup and safe keeping of data at all

the levels.

SEBI has made compulsory trading of shares of all the

companies listed in Stock Exchange in demat form w.e.f 2

January 2002. Hence, if the investor wants to trade in respect of

the companies, which have established connectivity with NSDL

& CDSL, he may have to open a beneficiary account.

Beneficiary account

A beneficiary account is an account opened by the investor or a broker with

a DP of his choice, to hold shares in dematerialized form and undertake scrip

less trading.

Investor contacting the depository

The investor must open a demat account with a Depository Participant.

Opening a demat account with a DP is similar to opening an account with

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bank. The selection of DP is to be done by the investor based on fee payable,

proximity, service levels, etc.

Documents required for opening demat account

For demat account opening the following documents are required to

be given-

Demat account opening form duly filled.

Address proof.

Photograph

Identity proof

Other formalities in Demat account opening

Once a demat account is opened, the investor must sign an agreement

with the DP. The investor will be allotted an account no. known as client

identity. The client identity number along with the DP identity number

forms a unique combination. Both these numbers should be quoted in all the

future dealing with Depositories /DP /RTA /Company. However in case of

CDSL there is no DP identity and the 16-digit Client identity itself is a

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unique number. The investor must collect forms like dematerialization

request form (DRF), Delivery instruction slips etc.

Certain points to be considered while opening Demat account

Demat account cannot be opened in the name of the partnership firms, as a

partnership

firm is not a legal entity. However, a demat account can be opened in the

name of the partners.

Demat account cannot be opened in the name of the HUF. It has to be

opened in the name of the Karta of the HUF.

In the case of a minor, the depository account should be opened in the

name of the minor and the guardians name should be mentioned. The

guardian will sign as signatory on behalf of the minor.

Investor can open any number of DP accounts with any number of DPs.

However, investorhas to incur cost for each of such account.Investor must

open different Demat accounts for shares held in different combination of

names. Alternatively investor can submit the certificate for Demat along

with transposition form.

Minimum balance of securitiesn required to be maintained in

Demat account

There is no minimum balance required to be maintained in a Demat account

and an investor can even maintain nil balance. Other steps the investor

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should take The investor should inform his DP of any change in his address,

bank account, nomination, etc. immediately upon change thereof.

Charges for Demat account opening and other depository trading

The depository does not charge any fee directly from the investors.

The depository charges only the DPs. However, the DP is free to charge its

clients for the services offered. The charges of DPs also vary.

Stock exchanges connected to the Depositories for Demat trading

At present the following 10 stock exchanges are connected to the

Depositories-

National Stock Exchange

The Stock Exchange Mumbai

Calcutta Stock Exchange

Delhi Stock Exchange Ludhiana Stock Exchange

Banglore Stock Exchange

Over the counter stock exchange of India

Madras Stock Exchange

Inter connected Stock Exchange

Ahmedabad Stock Exchange

Market trade and off market trade

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Trade done and settled through a stock exchange and clearing

corporation is market trade. Trade done privately without the involvement of

the Stock Broker of Stock Exchange is off market trade.

Buying and selling of shares by the investor

The investor can buy and sell shares only through a stockbroker and

not through a DP. DP helps in delivering the shares against a sale transaction

or receiving the shares for a purchase transaction.

Corporate benefits

Corporate benefit is a corporate event. It can be cash corporate benefit like

dividend, interest, etc.or non-cash corporate benefits like rights, bonus etc.

When any corporate event such as right or bonus or dividend is

announced for a particular security, depository will give the details of all

clients having electronic holdings in thatsecurity as of the record date to the

RTA/Company will then calculate the corporate benefits due to all the

shareholders. The disbursements of cash benefits such as dividend/interests

will be done by the RTA/Company directly to the shareholders. Non-cash

benefits will be distributed through depository by crediting the entitled

quantity of shares into shareholders demat account.

Direct credit of shares in electronic form:

In the public/Right issue application form of depository eligible companies,

there will be a provision for the investor to indicate the manner in which

hewants the securities allotted to him. Even in the case of bonus issue the

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investor is given an option for getting the shares allotted in physical or

electric form. The investor must mention his client ID. Number and DP ID

No.

Advantage of getting allotment in electronic form:

SEBI has announced that the shares of all the companies going in for public

issue will have to be compulsorily settled in demat form by all investors. It is,

therefore, advantageous for an investor to prefer the allotment in demat form,

so that the shares have higher liquidity.

In case of Discrepancies in corporate benefits the investor can approach his

DP who in turn will contact the RTA/Company for clarifications regarding

allotment of securities. Clearing members, Clearing corporations and other

intermediaries cannot have voting rights in respects of the shares held in

pool account. Further the clearing member or cleaning corporation is also

responsible for distribution of bonus, right and other corporate benefits lying

in his account to the investor.

Meaning of Transfer, Transmission and Transposition

Transfer

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Depository is electronically linked to depository participants, issuer

company or Registrar & transfer agent and the clearing corporation/ clear

house of the stock exchange. This is done in order to facilitate settlement of

trades and to perform a daily, reconciliation of all the account balances held

with depository. Thus, an integrated system is set up for maintenance of

investor accounts.

Transmission

In the case of transmission, the claimant will have to fill a transmission

request form, supported by documents like death certificates, etc. The DP,

after ensuring that the application is genuine, will transfer securities to the

demat account of the claimant. For this purpose claimant must have a

depository account. The major advantage in transmission of dematerialized

holdings is the transmission formalities for all securities held with the DP

can be completed in one go, unlike in the case of share certificate, where the

claimant will have to interact with each RTA/Company.

Transposition

In case of transportation-cum-dematerialization, the investor can get the

securities dematerialized in the same account if the names appearing on the

certificate match with the names in which the demat account has been

opened but are in a different order, by submitting the security certificate

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along with the transportation form and the Dematerialisation request form

(DRF) to the DP.

Pledging

Pledging of dematerialized securities:

Pledging dematerialized securities is easier and more advantageous as

compared to pledging physical securities. The procedure as follows

Both borrower (pledger) as well as the lender (pledgee) must have

depository account.

The pledger must initiate the pledge by submitting to his DP the details of

the securities to be pledged in a standard format. The pledge should confirm

the request through his DP.

Once this is done the securities are pledged. All financial transactions

between the pledger and the pledgee are handled outside the depository

system.

Procedure for the closure of pledge

After the borrower has repaid the loan, the borrower can request for a

closure of pledge by instructing his DP in a prescribed format. The lender on

receiving the repayment will instruct his DP confirmed the closure of the

pledge.

Change of securities offered in a pledgeIf the pledger (lender) agrees, the investor may change the securities offered

in a pledge.

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Nomination

Shares held in physical as well as electronic form can be nominated.

Nomination can be made only by individuals holding beneficiary accounts

on their own behalf either singly or jointly. On individuals, society, trust,

body corporate ,partnership firm, Karta or Hindu undivided Family, holder

of power of attorney cannot nominate.

Nomination is permitted for accounts with joint holder, but in case of

death of any of the joint holder, the securities will be transmitted to the

surviving holder(s) only in the event of death of all the joint holders, the

securities will be transmitted to the nominee.

Only an individual can be a nominee. A nominee shall not be a society, trust,

body corporate, partnership firm, karta of Hindu undivided Family or a

power of attorney holder.

A minor cannot nominate either directly or through its guardian.

A minor can be a nominee. In such a case, the guardian will sign on behalf

of the nominee and in addition to the name and photograph of the nominee,

the name, address and the photograph of the guardian must be

given.Separate nomination cannot be made for each security. Nomination

can be made Demat account wise and not security wise.

The investor must fill in and submit to his DP the nomination form.

The account holder, Nominee and two witnesses must sign this form and the

name; address and photograph of the nominee must be submitted.

The nomination can be changed anytime by the account holder byfilling up the revised nomination form and submitting it to the DP. The

account holder, Nominee and two witnesses must sign this form and the

name; address and photograph of the nominee must be submitted. In case of

joint holders, all joint holders must sign.

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Demat of debt instrument

Debt instrument can also be held in demat form. Instruments like bond,

debentures, commercial papers, certificates of deposit, etc. irrespective

whether these instruments arelisted/unlisted/privately placed or even issued

to a single holder can be dematerialized. Commercial paper can also be kept

in demat form. As per RBI Monetary and credit policy banks, Financial

Institutions, primary Dealers and satellite dealers are directed to convert

their outstanding investment in commercial papers in script form, into

Demat form. The above entities have also been directed to make fresh

investment in commercial paper only in demat form.Bonds and debentures

can also kept in demat form. In its midterm review of the monetary and

credit policy RBI has mentioned that banks and financial institutions shall

make investment in debentures and bonds only in demat form. Any new

instrument can be issued directly indematerialized form without recourse to

printing of either letter of allotment or certificates.Securities will be directly

credit into the demat accounts of the investor by the depositories on receipt

of allotment details from RTA/Company. The investor need not open

separate demat account for demat of debt instrument. The procedure of

dematerialization of debt instrument is same as that carried out for equity

shares. In order to dematerialized his/her certificates; an investor will have

to first open a demat account with a DP and the a request for the

dematerialization of certificates by filling up a dematerialization requestform (DRF), which is available with DP and submitting the same alongwith

the physical certificates. The investor has to ensure that before the

certificates are handedover to the DP for demat, he marks Surrendered for

Dematerialization on the face of thecertificates.

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Account opening

Demat/Remat

Account Maintenance

Custody

Transaction, etc.

Knowing of securities balance in demat account The investor is provided

with a transaction statement by his DP at regular intervals. Based on

that the investor will know his security balances.

Receiving Transaction statement by investor :The DP will send a

transaction statement once in a quarter if there is no transaction during the

quarter. If there are any transactions DP will send the statements within

fifteen days of the transaction.

Freezing of demat account

The depository system provides the facility to freeze the demat account for

any debits or for both debits and credits. In an account, which is free zed of

debits, no debits will be permitted from the account, till the time it is

defreeze. This is in additional security feature of the investors.

Standing instruction to DP

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The investor can give one time standing instruction to his DP to receive all

the credits coming to his depository account automatically. However, the

investor cannot give standing instruction for any debits in his account.

Access of investor accounts by all DPs

A DP cannot access the investors account of any other DP.The DP can

access only those investors accounts serviced by them.

Furnishing of bank account particulars in DP. Details of bank account of the

client, including the 9-digit code number of the bank and branch appearing

on the MICR cheque issued by the bank have to be given to the DP at the

time of account opening. Companies use this information for printing them

on dividend/interest warrants etc., to prevent its misuse. In case the client

wishes to change this bank account details, he can do so by submitting the

change in writing to the DP.

Procedure of closure of demat account

An investor can close a demat account by giving an application in prescribed

form. In case there is any balance in the demat account sought to be closed,

the following steps are necessary-

1. Rematerialisation of all securities standing to the credit of the demat

account at the time of making the application for the closure.

2. Transferring the balance to the credit of another demat account , with the

same participant or with a different participant.

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Dematerialization

Dematerialization is the process of conversion of shares or other securities

held in physical form into electronic form.

Whom to approach

The investor must approach his DP for Dematerialization

The shares that an investor can dematerialize

The investor can demat the shares of any company that has established

connectivity with NSDL or CDSL

Steps involved in dematerialization

1. Investor must submit request form and share certificate to DP.

2. DP will check whether security is available for Demat. Investor must

deface the sharecertificate by stamping surrendered for dematerialization

and DP will punch two holes on the name of the company and will draw two

parallel lines across the face of the certificate.

3. DP enters the Demat request in their system to be sent to the depository.

DP dispatches the physical certificates along with the DRF to the RTA/

Company.

4. Depository records the details of the system and forwards the request to

Registrar and transfer agent or issuer i.e. the company whose shares aresought to be dematerialized.

5. RTA Company on receiving the physical documents verifies request and

check them. Once the RTA/Company finds that shares are in order,

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dematerialization of the concerned securities is electronically confirmed to

the depository

6. Depository credits the dematerialized securities to the beneficiary account

of the investor and intimates the DP electronically. The DP issues

a statement of transaction to the client.

Signing of the demat request form in case of joint holders

All joint holders should sign the DRF.

Company identification number for demat purposes

Once the company is admitted in the depository system, the depository allots

an ISIN. This number is unique for each security of the company that is

admitted in the depository.

Mentioning of the ISIN in the DRF

The ISIN should be mentioned in the DRF.This to certain extent ensures that

the security mentioned in the DRF is the one which the investor intends to

dematerialize.

Distinguishing between partly paid-up share and fully paid up shares in

the depository

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Parties paid up shares and fully paid up shares are identified by separate

ISINs (International security identification number). These are also traded

separately at the stock exchanges. The company issues call notices to the

beneficial holders of partly paid up securities in the electronic form. The

details of such beneficial holders will be provided to the RTA/company will

automatically convert the partly paid up shares to fully paid shares.

Rematerialisation

Rematerialisation is conversion of electronic holdings into physical

certificate form.

Steps involved for Rematerialisation

The investor must fill up a remat form (RRF) and give it to the DP. The DP

will forward the request depository after verifying that the shareholder has

necessary balances. Depository in turn will intimate the RTA/Company will

print the certificate and dispatch the same to the investor.

Electronic settlement of the Trades

Procedure for selling dematerialization securities in the stock exchanges is

similar to the procedure for selling physical securities Instead of delivering

physical securities to the broker, the investor must instruct his/her DP to

debit his/her demat account with the number of securities sold by him/her

and credit brokers clearing account.

Procedure for selling securities is given below:

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Investor sells securities in any of the stock exchange linked to depository

through a broker. Investor gives instruction to DP to debit his account and

credit the brokers (clearing account pool) account before the pay-in-day.

Investors broker transfers the securities to clearing corporation. The broker

receives payment from the stock exchange (Clearing Corporation). The

investor receives payment from the broker for the sale in the same manner

payment is received for a sale in the physical mode.

Procedure for purchase of dematerialized shares

The procedure or buying dematerialized securities in stock exchanges is

similar to the procedure for buying physical securities. Investor may give a

one time standing instruction to receive credits into his /her account or may

give separate instruction each time in he prescribed format. The transaction

relating to purchase of securities are summarized below. Investor purchases

securities in any of the stock exchanges connected to depository through a

broker.

Broker receives payment from investors.

Broker arranges payment to clearing corporation.

Broker receives credit of securities in clearing account on the payout

day.

Broker gives instruction to DP to debit clearing account and credit

clients account.

Investor receives shares in his account.The investor should ensure that the broker transfer the securities

purchased to hisaccount, before the book closure. If the securities remain in

the clearing account of thebroker, the company may give corporate benefits

to the broker. Therefore, the investor has tocollect benefits from the broker.

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Some important Processes in depositary system

Dematerialization

Rematerialization

Initial public offers

Trading & settlements

On Market transactions

Off market transactions

Inter Depository transactions

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Dematerialization Process

Physical Securities Electronic Form.

Pre-requisites:

Demat Account with any DP of the Depository.

ISIN for the securities available with the Depository.

Investor should be registered holder for the securities in the books of the

company.

Rematerialization

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Rematerialization or remat is a compiler optimization which saves time by

recomputing a value instead of loading it from memory. It is typically tightly

integrated with register allocation, where it is used as an alternative to spilling

registers to memory. It was conceived by Preston Briggs, Keith D. Cooper,

and Linda Torczon in 1992.Rematerialization works by keeping track of the

expression used to compute each variable, using the concept of available

expressions. Sometimes the variables used to compute a value are modified,

and so can no longer be used to rematerialize that value. The expression is

then said to no longer be available. Other criteria must also be fulfilled, for

example a maximum complexity on the expression used to rematerialize the

value; it would do no good to rematerialize a value using a complex

computation that takes more time than a load. Usally the expression must also

have no effects.

Rematerialization process

Initial public offers

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An initial public stock offering (IPO) referred to simply as an

"offering" or "flotation," is when a company (called the issuer) issues

common stock or shares to the public for the first time. They are often issued

by smaller, younger companies seeking capital to expand, but can also be

done by large privately-owned companies looking to become publicly

traded.

In an IPO the issuer may obtain the assistance of an underwriting firm,

which helps it determine what type of security to issue (common or

preferred), best offering price and time to bring it to market.

An IPO can be a risky investment. For the individual investor, it is tough to

predict what the stock or shares will do on its initial day of trading and in the

near future since there is often little historical data with which to analyze the

company. Also, most IPOs are of companies going through a transitory

growth period, and they are therefore subject to additional uncertainty

regarding their future value.

The first sale of stock by a private company to the public. IPOs are

often issued by smaller, younger companies seeking the capital to expand,

but can also be done by large privately owned companies looking to become

publicly traded. In an IPO, the issuer obtains the assistance of an

underwriting firm, which helps it determine what type of security to issue

(common or preferred), the best offering price and the time to bring it to

market.Also referred to as a "public offering".

IPOs can be a risky investment. For the individual investor, it is tough to

predict what the stock will do on its initial day of trading and in the near

future because there is often little historical data with which to analyze the

company. Also, most IPOs are of companies going through a transitory

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growth period, which are subject to additional uncertainty regarding their

future values.

Initial public offers process

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Trading & settlements

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Transfer of securities in/ out of the Demat A/c can arise in the following

instances:

For execution of Off Market Transactions.

For settling On Market Transactions.

For Inter depository transactions.

Off Market Transactions

Transaction done on person to person basis without going through stock

exchange mechanism.

Pre-requisites:

Transfer of securities from one BO A/c to another BO A/c.

Both A/cs are with same Depository though with different DPs.

Neither buyers A/c nor sellers A/c is with clearing house/clearing

corporation.

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Off market transaction process

On Market Transaction

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Trades done by investors through stock exchange mechanism and settled

using same stock exchange mechanism. Seller as well as buyer account is

with CH/CC

Inter Depository Transactions.

SEBI (Depository and participants) Regulations, 1996 requires depositories

to be inter connected.

Debit/ credit instructions have to given on inter-depository delivery or

receipts forms to the DPs of seller and the buyer.

These instructions are exchanged online for each day between the

depositories.

Securities available for dematerialization on both depositories.

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National Securities Depository Limited

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In a span of about nine years, investors have switched over to

electronic [demat] settlement and National Securities Depository Limited

(NSDL) stands at the centre of this change. In order to provide quality

service to the users of depository, NSDL launched a certification programme

in depository operations in May 1999. This certification is conducted using

NCFM infrastructure created by NSE and is called "NSDL - Depository

Operations Module". The programme is aimed at certifying whether an

individual has adequate knowledge of depository operations, to be able to

service investors. Depository Participants are required to appoint at least one

person who has qualified in the certification programme at each of their

service centres. This handbook is meant to help the candidates in their

preparation for the certification programme.

This handbook has been divided into four volumes for readers'

convenience. The first volumegives an overview of the Indian capital market

and NSDL depository system. The second volume deals with admission

procedure for different business partners of NSDL, their obligations,

practices, systems and procedures to be followed by them and benefits and

safety of depository system. The third volume helps in acquiring a working

level understanding of certain basic services offered by NSDL like account

opening, dematerialisation, 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 (MAPIN) and Tax

Information Network (TIN).

The procedures explained in the handbook are based on the

Depositories Act, Securitiesand Exchange Board of India (Depositories &

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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 assessment 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 the end of the fourth

volume. Readers may give their feedback, which will be of great help in

enhancing the value of this Handbook in its subsequent editions.

National Securities Depository Limited

National Securities Depository Limited is the first depository to be

set-up in India. It was incorporated on December 12, 1995. The Industrial

Development Bank of India (IDBI) - the largest development bank in India,

Unit Trust of India (UTI) - 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. NSDL had a paidup equity capital of Rs. 105 crore. The paid up

capital has been reduced to Rs. 80 crore since NSDL has bought back its

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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.

The following organizations are shareholders of NSDL as on March 31,

2005.

1. Industrial Development Bank of India

2. Administrator of the Specified Undertaking of the Unit Trust of India -

DRF

3. National Stock Exchange

4. State Bank of India

5. Oriental Bank of Commerce

6. Citibank N.A.

7. Standard Chartered Bank

8. HDFC Bank Limited

9. The Hongkong and Shanghai Banking Corporation Limited

10. Deutsche Bank A.G.

11. Dena Bank

12. Canara Bank

Management of NSDL

NSDL is a public limited company managed by a professional Board of

Directors. The day-today operations are conducted by the Chairman &

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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 nomination, etc. are governed by the Bye-

Laws of NSDL in this regard.

Bye-Laws of NSDL

Bye-Laws of National Securities Depository Limited have been

framed under powers conferred under section 26 of the Depositories Act,

1996 and approved by Securities and Exchange Board of India. The Bye-

Laws contain fourteen chapters and pertain to the areas listed below :

Amendments to NSDL Bye-Laws require the approval of the Board of

Directors of NSDL and SEBI.

1. Short title and commencement

2. Definitions

3. Board of Directors

4. Executive Committee

5. Business Rules

6. Participants

7. Safeguards to protect interest of clients and participants.

8. Securities

9. Accounts/transactions by book entry

10. Reconciliation, accounts and audit

11. Disciplinary action

12. Appeals

13. Conciliation

14. Arbitration

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Business Rules of NSDL

Amendments to NSDL Business Rules require the approval of NSDLExecutive Committee 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:

(dematerialization and rematerialisation).

_ Maintains investor holdings in the electronic form.

_ Effects settlement of securities traded on the exchanges.

_ carries out settlement of trades not done on the stock exchange (off-market

trades).

_ Transfer of securities.

_ Pledging/hypothecation of dematerialised securities._ Electronic credit in public offerings of companies or corporate actions.

_ Receipt of non-cash corporate benefits like bonus rights, etc. in electronic

form.

_ Stock Lending and Borrowing.

Services Offered by NSDL

NSDL offers a host of services to the investors through its network of DPs:

_Maintenance of beneficiary holdings through DPs

_ Dematerialisation

_ Off-market Trades

_ Settlement in dematerialised securities

_ Receipt of allotment in the dematerialised form

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_ Distribution of corporate benefits

_ Rematerialisation

_ Pledging and hypothecation facilities

_ Freezing/locking of investor's account

_ Stock lending and borrowing facilities

Fee Structure of NSDL

NSDL charges the DPs and not the investors directly. These charges

are fixed. The DPs in turn, are free to charge their clients, i.e., the investors

for their services. 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 also carries out periodic visits to the offices of its constituents -

R&T agents, DPs and clearing corporations to review the operating

procedures, systems maintenance and compliance with the Bye-Laws,

Business Rules and SEBI Regulations.

Additionally, DPs are required to submit to NSDL, internal audit reports

every quarter. Internal audit has to be conducted by a chartered accountant

or a company secretary in practice. The Board of Directors appoints a

Disciplinary Action Committee (DAC) to deal with any matter relating to

DPs clients, Issuers and R&T agents. The DAC is empowered to suspend or

expel aDP, declare a security as ineligible on the NSDL system, freeze a DP

account and conductinspection or call for records and issue notices.

If a DP is aggrieved by the action of the DAC, it has the right to

appeal to the EC againstthe action of the DAC. This has to be done within

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30 days of the action by DAC. The EC has to hear the appeal within two

months from the date of filing the appeal. The EC has the power tostay the

operation of the orders passed by the DAC. The information on all such

actions has to befurnished to SEBI.

Settlement of Disputes All disputes, differences and claims arising

out of any dealings on the NSDL, irrespectiveof whether NSDL is a party to

it or not, have to be settled under the Arbitration and Conciliation Act 1996.

Account holders (investors) open account with the DPs. The account details,

entered in a computer system maintained by Depository Participants called

DPM, are electronically conveyed to the central system of NSDL called DM.

Companies who have agreed to offer demat facility to 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,

confirm such requests or to receive beneficial owner data (Benpos) from the

depository. Stock exchanges receive pay-in (receiving securities against

sales made by brokers) or to payout (giving securities to brokers against

their purchases) using a computer system connected to NSDL called DPM

(CC).

All the computer systems installed 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 terminal) 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 then will reach the target. No two business partners'

systems can communicate to each other without passing through the DM.

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Maintenance of Accounts at the Central System

The NSDL central system known as DM maintains accounts of all

account holders in thedepository system. All the transactions entered at any

point in the computer system connected toit are first effected in the central

system and subsequently at these computers. Thus, the central system of

NSDL has the records of all details of every transaction conducted in the

depositorysystem.

Distributed Database

Each of the computer systems connected to NSDL system has its

owndatabase relating to its clients. This helps in giving prompt and accurate

service to the clients. However each of the databases is reconciled with the

data at the central system everyday in order to ensure that the data in the

distributed database tallies with the central database.

Common Software

NSDL develops software required by depository participants, companies,

R&T Agents and clearing corporations for conducting depository operations.

Thus, the computer systems used by all the entities will have common

software given by NSDL. However, depending on the business potential,

branch networks and any other specific features, DPs may develop software

of their own for co-ordination, communication and control and provide

service to their clients. Such exclusive software is called "back office

software". DPM system given by NSDL gives "export and import" facility to

take out the transaction details to be used by back office software and to feed

in transaction details generated from the back office software.

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Connectivity

The computer system used by DPs, companies, R&T Agents and

stock exchanges may be connected to NSDL central system through V-SATnetwork 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. V-SAT uses satellites for communication purposes. Some business

partners may connect using leasedlines provided by MTNL/ BSNL. V-SAT

or leased line connections are called primary connectivity. If primary

connectivity fails for any reason, BPs must have the ability to connect

through other means. Such other meansare PSTN lines, ISDN lines, POP

lines(normal telephone lines) through which they can dial in to the NSDL

system and conduct their transactions.

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Central Depository Services (India)

Limited

Central Depositary Securities Limited

A Depository facilitates holding of securities in the electronic form

and enables securities transactions to be processed by book entry by a

Depository Participant (DP), who as an agent of the depository, offers

depository services to investors. According to SEBI guidelines, financial

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institutions, banks, custodians, stockbrokers, etc. are eligible to act as DPs.

The investor who is known as beneficial owner (BO) has to open a demat

account through any DP for dematerialisation of his holdings and

transferring securities.

The balances in the investors account recorded and maintained with

CDSL can be obtained through the DP. The DP is required to provide the

investor, at regular intervals, a statement of account which gives the details

of the securities holdings and transactions. The depository system has

effectively eliminated paper-based certificates which were prone to be fake,

forged, counterfeit resulting in bad deliveries. CDSL offers an efficient and

instantaneous transfer of securities.

CDSL was promoted by Bombay Stock Exchange Limited (BSE)

jointly with leading banks such as State Bank of India, Bank of India, Bank

of Baroda, HDFC Bank, Standard Chartered Bank, Union Bank of India and

Centurion Bank.

CDSL was set up with the objective of providing convenient, dependable

and secure depository services at affordable cost to all market participants.

Some of the important milestones of CDSL system are:

CDSL received the certificate of commencement of business from SEBI in

February, 1999

1) Honourable Union Finance Minister, Shri Yashwant Sinha flagged off theoperations of CDSL on july 15,1999.

2) Settlement of trades in the demat mode through BOI Shareholding

Limited, the clearing house of BSE, started in july 1999.

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3) All leading stock exchanges like the National Stock Exchange, Calcutta

Stock Exchange,Delhi stock Exchange, The Stock Exchange, Ahmedabad,

etc have establishedconnectivity with CDSL.

4) As at the end of Dec 2007, over 5000 issuers have admitted their

securities (equities, bonds, debentures, commercial papers), units of mutual

funds, certificate of deposits etc. into the CDSL system.

Shareholders of CDSL

CDSL was promoted by Bombay Stock Exchange Limited (BSE) in

association with Bank of India, Bank of Baroda, State Bank of India and

HDFC Bank. BSE has been involved with this venture right from the

inception and has contributed overwhelmingly to the fruition of the project.

The initial capital of the company is Rs.104.50 crores. The list of

shareholders with effect from 11th December, 2008 is as under.

Sr. Name of shareholders Value of % terms to total equity

No. holding (in

Rupees Lacs)

1 Bombay Stock Exchange Limited 3,825.46 36.61

2 Bank of India 1,000.00 9.57

3 Bank of Baroda 1,000.00 9.57

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4 State Bank of India 1,000.00 9.57

5 HDFC Bank Limited 1,500.00 14.36

6 Standard Chartered Bank 750.00 7.18

7 Canara Bank 674.46 6.45

8 Union Bank of India 200.00 1.91

9 Bank of Maharashtra 200.00 1.91

10 The Jammu and Kashmir Bank Limited 200.00 1.91

11 The Calcutta Stock Exchange 100.00 0.96

Association Limited

12 Others 0.08 --

TOTAL 10,450.00 100.00

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RESEARCHMETHODOLOGY

RESEARCH METHODOLOGY

While great devices are invented in the laboratory, great products are

invented in the Research Departments

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Research Methodology refers to search of knowledge.one can also define

reseach methodology as a scientific and systematic search for required

information on aspecific topic.

The word research methodology comes from the word advance learner

s dictionary meaning of research as a careful investigation or inquiry

especially through research for new facts in my branch of knowledge for

example some author have define research methodology as systemstized

effort to gain new knowledge.

In my case I am Choosing the problem Working of depository

system To study the opinion of the customers about the different type of

Depositories available in the market and to know why they are using that

particular Depository.

OBJECTIVES OF THE STUDY

To acquaint myself with the Depository system

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To Know about Depositories NSDL and CDSL

To know more about the likings of the customers towards a

particular Depository.

To find out that factors or speculations those are responsible for

creating a negative image of DS in the mind of investor.

Getting the information about the awareness of depository

system.

Find out the satisfactory level of the investors regarding this

system.

To find out the truth which is hidden and which has not been

discovered as yet.

To find out the suggestions of the dealers as well as customers.

To know the major factors influencing their buying decisions.

TYPES OF RESEARCH

ANALYTICAL RESEARCH: It has to used facts or information already

available and analyze these to make a critical evaluation of material.

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SAMPLE SIZE:Considering the constraints it was decided to conduct the

study based on sample size of 100 people in specific age groups.

METHODS OF DATA COLLECTION

In the project work Primary and secondary (both) sources of data has been

used:

PRIMARY SOURCE:I have gathered information about our project from

the interaction with the customers of our company i.e. Religare Securities

Limited. The sampling method used was basically convenience sampling

and most of the calls made were cold calls made on the generateddatabase

of recipients of other companies.

SECONDARY DATA: The secondary data, I have collected from the

various websites of reliance money, various journals, magazines etc.

TOOL OF ANALYSIS

In the project work quantitative technique & percentage method has been

used.

RESEARCH DESIGN

Chapter Overview

For the proper analysis of data simple quantitative technique such as

percentage were used. It help in marketing more accurate generalization

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From the data available .The data which was collected from a sample of

population was assumed to be representing entire population was interested .

Restatement of the Problem

The problem is to be studied under the following research design in finding

out the consumer perception of working of depositories in the area of

Karnal.

Description of the Research Design

For the purpose of my survey I decided to follow the conclusive research

design. Under this I selected the descriptive design.

Research Instrument

For my survey, I used personal Interview of the respondents by asking them

a list of questions from the questionnaire prepared by me for collecting the

desired information & have been fulfilling the questionnaires there & then

according to information given by each person.

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DATA ANALYSISAND

INTERPRETATION

Ques. 1 Knowledge about Depository system.

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A) Yes 97

B) No 03

97%

3%

0%

20%

40%

60%

80%

100%

120%

YES NO

KNOWLEDGE LEVEL

PERCENTAGE

Series1

INFERENCE: This shows the awareness about the Depository system.100

people are

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