DEPOSITORY SYSTEM

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DEPOSITORY SYSTEM

• This system came in to force with effect from
  September 20, 1995.

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What Is 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.

3
Feature of scrip based system

• There is physical movement of securities
  certificates along with transfer deeds.
• Registration with the company.

4
Problems with scrip based system

1. Time consuming (processing time by co.)
2. Bad deliveries due to signature difference
3. Mistakes in completion of transfer deeds
4. Tearing and mutilation of certificates
5. Fake certificates
6. Cost of transfer stamp duty
7. Postal delays and charges etc.

5
What is depository system

• A system in which securities of an investor are
  held by depository on behalf, and at the request,
  of an investor in an Electronic Form.
• This system is also know as Scrip Less Trading
  system.

6
Features of Depository system

• In the depository system, securities are held in
  depository accounts, which is more or less
  similar to holding funds in bank accounts.
• Transfer of ownership of securities is done
  through simple account transfers.
• This method does away with all the risks and
  hassles normally associated with paperwork.
• Consequently, the cost of transacting in a
  depository environment is considerably lower as
  compared to transacting in certificates.

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Whole system of Depository
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Constituents of depository system

• There are basically four participant
• The Depository
• The Depository Participant
• The Issuing Company
• The Investor

9
Who is depository?

• 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

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Features of depository system in India

1. In the depository system, the apex body is the
   Depository..
2. A depository can be compared with a bank
3. Depository services through depository
   participants.
4. Fungibility
5. Registered Owner/ Beneficial Owner (two types of
   owner)

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Who can be a depository

• Depository Act, 1996 provides that -
• Depository means
• A company formed and registered under the
  companies Act, 1956, and
• Which has got a Certificate of Registration from
  the SEBI.

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Depositories in India

• 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.

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NATIONAL SECURITIES DEPOSITORIES LIMITED

• NSDL is the first and largest depository in
  India, and established in August 1996
• It has 267 depository Participants (as on
  13.12.08)
• Address
• Trade World, a Wing, 4th 5th Floors
• Kamala Mills Compound
• Lower Parel
• Mumbai 400013 website nsdl.co.in

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PROMOTERS OF NSDL

1. Industrial Development Bank of India Limited
2. Unit Trust of India
3. National Stock Exchange of India Limited

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SHAREHOLDERS OF NSDL

• State Bank of India
• Oriental Bank of Commerce
• Citibank
• Standard Chartered Bank
• HDFC Bank Limited
• The Hongkong and Shanghai Banking Corporation
  Limited
• Deutsche Bank
• Dena Bank
• Canara Bank
• Union Bank of India

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CENTRAL DEPOSITORY SERVICES (INDIA) LIMITED

• This is the second depository in India.
• This was formed and registered in 1999.
• It has 455 DPs as on 4.08.08
• Address
• Phiroz Jeejeebhoy Towers
• 16th Floor, Dalal Street
• Mumbai website www.cdslindia.com

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PROMOTERS OF CDSL

• Bombay Stock Exchange Limited
• Bank of India,
• Bank of Baroda,
• State Bank of India and
• HDFC Bank

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SHAREHOLDERS OF CDSL

• Standard Chartered Bank
• Centurion Bank of Punjab Ltd
• Canara Bank
• Union Bank of India
• Bank of Maharashtra
• Jammu and Kashmir Bank Limited
• The Calcutta Stock Exchange Association Limited
• Others

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A Bank-Depository Analogy
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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
  gets proper registration from SEBI.
• A DP is just like a Branch of a Bank.

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Who can be 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
• Custodians,
• 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

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Types of ownership
In the depository system, the ownership of
securities dematerialized is bifurcated in to
REGISTERED OWNER
BENEFICIAL OWNER
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Who is registered owner

• The registered owner is that person whose name is
  registered 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.

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Who is the Beneficial owner

• 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 , right share right etc are all
  exercised by the Beneficial owner.

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Benefits of depository system/holding securities
in dematerialized form

• Depository system provides benefits to
• The investors, and
• The issuers.

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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 paper work 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 case of depository mode.
• The investment, automatically, becomes more
  liquid.
• 
  contd.

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Contd.

1. The problem of odd lot is also eliminated, as the
   depository mode does not have any concept of
   market lot.
2. Holding investments in equity and debt in a
   single account.
3. 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.
4. Transmission of securities is done by DP
   eliminating correspondence with companies.
5. Nomination facility.

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Benefits to the issuing company

• The company saves a lot of paper work which
  otherwise 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.

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How can services of Depository availed by an
investor?

• ACCOUNT OPENING
• In order to avail of depository facilities, an
  investor has to open a beneficiary account with a
  depository participant 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 cashone can hold securities in a
  depository account and transfer securities across
  depository accounts without actually handling
  share certificates.
• 
  contd.

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Contd.

• The account holder is called 'beneficial owner'
  in a depository system and the account is known
  as 'beneficiary account'.

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Features of Beneficiary Account

• 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 dematerialise existing physical holdings, the
  beneficiary account must be opened in the same
  ownership pattern in which the securities are
  held in the 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

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Procedure of Opening An Account

• Investor will choose a DP for the purposes of
  opening beneficiary account. The choice of the
  investor may be based on convenience, comfort,
  services offered, cost or any other reason.
• The investor will obtain the relevant account
  opening form from the chosen DP.
• 
  contd.

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Contd.

• For the purpose of verification, investor has to
  submit the following documents along with the
  prescribed account opening form.
• Proof of Identity(POI) (voter card, pan card,
  driving license etc.)
• Proof of Address (POA) (ration card, ank pass
  book copy voter id card etc.)
• Passport-size photograph

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Contd.

• Copy of PAN card
• The DP will also provide a copy of the DP-Client
  agreement.

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Some other aspects

• The demat account cannot be operated on "either
  or survivor" basis like the bank account. In case
  of the joint account for the beneficial owners,
  all the joint holders have to sign the account
  opening form.
• The investor will submit to his DP the duly
  filled in account opening form DP-client
  agreement along with the documents.
• On successful opening of the account, the DP will
  give
• Client Id - an eight digit number to be used
  along with DP Id for any future transactions.
• Delivery Instruction slip book.

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Some other aspectscontd.

• More than one demat account can be opened in the
  similar / identical name and order with the same
  DP or different DPs.
• A periodical statement of holdings and
  transactions is provided by DP. This can also be
  asked for from the DP

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What is dematerialisation?

• Dematerialisation is the process by which
  physical certificates 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.

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Process of dematerialisation

• An investor intending to dematerialise its
  securities needs to have an account with a DP.
• The client (registered owner) will submit a
  request to the DP in the Dematerialisation
  Request Form for dematerialisation, along with
  the certificates of securities to be
  dematerialised. Before submission, the client 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 the security type (equity,
  debenture etc.) are as given in the DRF. If the
  form and security count is in order, the DP will
  issue an acknowledgement slip duly signed and
  stamped, to the client.

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Contd.

• After intimating NSDL electronically, the DP
  sends the securities to the concerned Issuer/ RT
  agent. NSDL in turn informs the Issuer/ RT agent
  electronically, using NSDL Depository system,
  about the request for dematerialisation. If the
  Issuer/ RT agent finds the certificates in
  order, it registers NSDL as the holder of the
  securities (the investor will be the beneficial
  owner) and communicates to NSDL the confirmation
  of request electronically. On receiving such
  confirmation, NSDL credits the securities in the
  depository account of the investor with the DP.
• This procedure takes 15to 30 days.

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Rematerialisation

• Rematerialisation is the process by which a
  client can get his electronic holdings converted
  into physical certificates.
• A client can rematerialise his dematerialised
  holdings at any point of time.
• The rematerialisation process is completed within
  30 days.
• The securities sent for rematerialisation cannot
  be traded.

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Procedure of rematerialisation

• The client has to submit the rematerialisation
  request to 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 the
  request form to the Issuer/ RT agent.
• The Issuer/ RT agent then prints the
  certificates, dispatches the same to the client
  and simultaneously electronically confirms the
  acceptance of the request to NSDL.
• Thereafter, the clients blocked balance are
  debited.

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Thank you

• By
• CS Ajay Khandelwal