DEPOSITORY SYSTEM IN INDIA

Introduction to depository The Depositories Act: The Depositories Act, 1996 was enacted to provide for regulation of depositories in securities and for matters connected therewith or incidental thereto. It came into force from 20th September, 1995. The Depositories Act, 1996, ushered in an era of efficient capital market infrastructure, improved investor protection, reduced risks and increased transparency of transactions in the securities market. It also immensely benefited the issuer companies, in terms of reduced costs and the effort expended in managing their shareholder populace. Perhaps, no other single act other than the Depositories Act has had such profound all round impact on every single stakeholder in the Indian capital markets. This legislation envisaged multiple depositories in India to ensure benefits of competition for the users of the depository system. The Depositories Act which facilitated establishment of depositories (like CDSL, NSDL) in India sought to effectively curb irregularities in the capital market, and protect the interests of the investors, and paved a way for an orderly conduct of the financial markets through free transferability of securities with speed, accuracy, transparency etc. India has adopted the Depository System for securities trading in which book entry is done electronically and no paper is involved. The physical form of securities is extinguished and shares or securities are held in an electronic form. Before the introduction of the depository system through the Depository Act 1966, the process of sale, purchase and transfer of securities was a huge problem, and there was no safety at all.

Key Features of the Depository System in India

1. Multi-Depository System: The depository model adopted in India provides for a competitive multi-depository system. There can be various entities providing depository services. A depository should be a company formed under the Company Act, 1956 and should have been granted a certificate of registration under the Securities and Exchange Board of India Act, 1992. Presently, there are two depositories registered with SEBI, namely:

National Securities Depository Limited (NSDL), and

Central Depository Service Limited (CDSL) 2. Depository services through depository participants: The depositories can provide their services to investors through their agents called depository participants. These agents are appointed subject to the conditions prescribed under Securities and Exchange Board of India (Depositories and Participants) Regulations, 1996 and other applicable conditions. 3. Dematerialisation: The model adopted in India provides for dematerialisation of securities. This is a significant step in the direction of achieving a completely paper-free securities market. Dematerialization is a process by which physical certificates of an investor are converted into electronic form and credited to the account of the depository participant. 4. Fungibility: The securities held in dematerialized form do not bear any notable feature like distinctive number, folio number or certificate number. Once shares get dematerialized, they lose their identity in terms of share certificate distinctive numbers and folio numbers. Thus all securities in the same class are identical and interchangeable. For example, all equity shares in the class of fully paid up shares are interchangeable. 5. Registered Owner/ Beneficial Owner: In the depository system, the ownership of securities dematerialized is bifurcated between Registered Owner and Beneficial Owner. According to the Depositories Act, Registered Owner means a depository whose name is entered as such in the register of the issuer. A Beneficial Owner means a person whose name is recorded as such with the depository. 6. Free Transferability of shares: Transfer of shares held in dematerialized form takes place freely through electronic book-entry system.

Meaning of Depository A depository is an organisation which holds securities (like shares, debentures, bonds, government securities, mutual fund units etc.) of investors in electronic form at the request of the investors through a registered Depository Participant. It also provides services related to transactions in securities. A Depository is a file or a set of files in which data is stored for the purpose of safe keeping or identity authentication, defined by Germany Depository.

In India, the Depositories Act, 1996 defines a depository to mean A Company formed and registered under the Companies Act, 1956 and which has been granted a certificate of registration under sub-section (1A) of section 12 of the Securities and Exchanges Board of India Act, 1992.

Meaning of Depository Participant:

A Depository Participant (DP) is an agent of the depository through which it interfaces with the investor and provides depository services. Public financial institutions, scheduled commercial banks, foreign banks operating in India with the approval of the Reserve Bank of India, state financial corporations, custodians, stock-brokers, clearing corporations /clearing houses, NBFCs and Registrar to an Issue or Share Transfer Agent complying with the requirements prescribed by SEBI can be registered as DP. Banking services can be availed through a branch whereas depository services can be availed through a DP.

Minimum Net worth: The minimum net worth stipulated by SEBI for a depository is Rs.100 crore.

How many Depository Participants are registered with SEBI? There are total 863 DPs registered till January 31,2013 (of which 580 of CDSL and 283 of NSDL).

No. of Depository in the country Currently there are two depositories operational in the country. 1. National Securities Depository Ltd. - NSDL 2. Central Depository Services Ltd. - CDSL

Central Depository Services (India) 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 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. Honourable Union Finance Minister, Shri Yashwant Sinha flagged off the operations of CDSL on July 15, 1999. Settlement of trades in the demat mode through BOI Shareholding Limited, the clearing house of BSE, started in July 1999. All leading stock exchanges like the National Stock Exchange, Calcutta Stock Exchange, Delhi Stock Exchange, The Stock Exchange, Ahmedabad, etc have established connectivity with CDSL.

As at the end of Jan 2012, over 10,000 issuers have admitted their securities (equities, bonds, debentures, commercial papers), units of mutual funds, certificate of deposits etc. into the CDSL system.

Promoters 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 5th July, 2010 is as under.

Sr. No. 1 2 3 4 5 6 7 8 9 10

Name of shareholders

Value of holding (in Rupees Lacs)

% terms to total equity 54.20 5.57 5.07 9.57 7.18 7.18 6.45 1.91 1.91 0.96

Bombay Stock Exchange Limited Bank of India Bank of Baroda State Bank of India HDFC Bank Limited Standard Chartered Bank Canara Bank Union Bank of India Bank of Maharashtra The Calcutta Stock Exchange Limited

5,663.46 582.00 530.00 1,000.00 750.00 750.00 674.46 200.00 200.00 100.00

11

Others TOTAL

0.08 10,450.00

0.00 100.00

WHY A DEMAT ACCOUNT WITH CDSL? Convenience: Wide DP Network: CDSL has a wide network of DPs, operating from over 10,000 sites, across the country, offering convenience for an investor to select a DP based on his location. On-line DP Services:The DPs are directly connected to CDSL thereby providing on-line and efficient depository service to investors. Wide Spectrum of Securities Available for Demat:The equity shares of almost all A, B1 & B2 group companies are available for dematerialisation on CDSL, consisting of Public (listed & unlisted) Limited and Private Limited companies. These securities include equities, bonds, units of mutual funds, Govt. securities, Commercial papers, Certificate of deposits; etc. Thus, an investor can hold almost all his securities in one account with CDSL. A BO can also hold warehouse receipts pertaining to commodities, in a demat account. However, a separate account should be opened for holding warehouse receipts. Competitive Fees Structure: CDSL has kept its tariffs very competitive to provide affordable depository services to investors. Internet Access:A DP, which registers itself with CDSL for Internet access, can in turn provide demat account holders with access to their account on the Internet. Dependability: On-line Information to Users: CDSL's system is built on a centralised database architecture and thus enables DPs to provide on-line depository services with the latest status of the investor's account.

Convenient to DPs: The entire database of investors is stored centrally at CDSL. If there is any system-related issues at DPs end, the investor is not affected, as the entire data is available at CDSL. Contingency Arrangements:CDSL has made provisions for contingency terminals, which enables a DP to update transactions, in case of any system related problems at the DP's office. Meeting User's Requirements: Continuous updation of procedures and processes in tune with evolving market practices is another hallmark of CDSL's services. Audit and Inspection: CDSL conducts regular audit of its DPs to ensure compliance of operational and regulatory requirements. Dormant Account Monitoring: CDSL has in place a mechanism for monitoring dormant accounts. Helpdesk: DPs and investors can obtain clarifications and guidance from CDSL's prompt and courteous helpline facility. Security: Computer Systems: All data held at CDSL is automatically mirrored at the Disaster Recovery site and is also backed up and stored in fireproof cabinets at the main and disaster recovery site. Unique BO Account Number: Every BO in CDSL is allotted a unique account number, which prevents any erroneous entry or transfer of securities. If the transferor's account number is wrongly entered, the transaction will not go through the CDSL system, unless corrected. Data Security: All data and communications between CDSL and its users is encrypted to ensure its security and integrity. Claims on DP: If any DP of CDSL goes into liquidation, the creditors of the DP will have no access to the holdings of the BO. Insurance Cover: CDSL has an insurance cover in the unlikely event of loss to a BO due to the negligence of CDSL or its DPs.

How to open a DEMAT account? Any Individual eligible to acquire and hold securities in his name can open a demat account in the CDSL system through a registered Depository Participant (DP) of CDSL of his choice. While choosing his DP the individual may take into consideration the service standards, charges and convenience of location etc. Points To Be Noted for Opening a Demat A/C

Obtain and personally submit the duly completed account opening form. Provide to DP a copy of your PAN card along with a copy of your passport or driving license or voter-ID card or ration card or Aadhar card as your proof of address. If you are already registered with a KRA, you are not required to submit PAN card and proof of address again.

Execute the DP-Investor agreement to be made available by DP. Obtain your unique account number (BO-ID) from your DP. Obtain pre-printed Delivery Instruction slips for effecting delivery of securities Understand the cut-off timings from DP for depositing delivery instructions for trades done by you on the stock exchange.

Minimum Account Balance : There is no requirement of holding minimum-security balance in a demat account; you can maintain zero balance in your account. Ready availability of account enhances your transaction making ability. Nomination : Individuals holding beneficiary (demat) accounts either singly or jointly, have the facility of making nomination. (Non-individuals including societies, trusts, body corporate, partnership firms, kartas of HUF, holders of power of attorney however, cannot nominate). If the sole or all the joint holders are deceased, the shares will be transmitted in the name of the nominee. It may be noted that in the event of the death of one of the joint holders, the securities will be transmitted in the names of the surviving holders. Statement of Account :

A periodical statement of holdings and transactions is provided by DP. The same can also be downloaded through CDSL internet facility by registered users. You may click on easi link for obtaining more information about the CDSL internet facility easi and easiest. Credit Confirmation: In order to receive all the credits coming to demat account automatically, a one time standing instruction can be given to the DP at the time of opening your account. Otherwise, a receipt instruction has to be given to the DP every time credit is expected in the demat account. Number of Accounts : Though there is no restriction on number of demat accounts that can be opened by a beneficial owner, the DPs will exercise due diligence before opening such accounts. Change of Address: For any change of address, if any, communication to your DP in writing is sufficient. The DP will ensure that the change is incorporated for all securities held in your demat account. You need not write to all the companies separately.

Benefits:

As an investor you will enjoy many benefits if you open a demat account and maintain securities in electronic form. Some of the benefits provided by CDSL are: -

No bad deliveries. Reduced paper work. No risk of loss, mutilation or theft of share certificates. Elimination of all risks associated with physical certificates. Pay - in and pay - out of securities will take place on the same day. Problems related to change of address of investor, transmission, etc are eliminated. Fast settlement cycles. No stamp duty for transfer of securities. Low transaction cost for buying and selling . Low interest rates on loans granted against pledge of dematerialised securities by banks. Low margin on securities pledged with banks.

DP:

CDSL's demat services are extended through its agents called Depository Participants (DP). The DP is the link between the investor and CDSL. An investor who opens a demat account with a DP can utilise the services offered by CDSL. While the DP processes the instructions of the investor , the account and records thereof is maintained with CDSL. A DP is thus a "Point of Service" for the investor. Services The Depository Participant (DP) is the link between the investor, the company and CDSL and provides the following services: Account Opening To utilise the services offered by a depository, any person having investment in any security or intending to invest in securities needs to have a demat account with a CDSL-DP. The holder of such demat account is called as "Beneficial Owner (BO)". A BO can maintain a demat account with zero balance in such account. A BO can open more than one account with the same or multiple DPs, in the same name/s and order, if he/she desires so. The investor can approach any DP/s of his/her choice to open a demat account. Dematerialisation Dematerialisation is a process by which physical certificates (of shares / debentures / other securities) are converted into electronic balances. A BO has to submit the request for dematerialisation by submitting the demat request form (DRF) duly completed along with the concerned physical certificates, to his/her DP. Processing Delivery & Receipt Instructions To settle trades done on a stock exchange (on-market trades) and trades, which are directly settled between two BOs (off-market trades), BOs submit duly completed delivery instructions in the prescribed form to DP. For receipt of securities into his/her account, a BO can give one time "standing instruction" to DP. Once such a standing instruction is given to the DP, there is no need to submit separate instructions for receipt every time the investor buys securities. Account Statement

Generally a DP sends to the BO, a statement of his account, monthly, if there is any transaction in the account or every quarter if the account is not operated during that period.The balances and transactions can also be viewed by the BOs through CDSL web based facility 'easi'. Rematerialisation Rematerialisation is the process by which the electronic balances held in the demat account can be converted back into physical certificates. Pledging If the BO decides to pledge any securities in his BO account, he can avail of the same by submitting the pledge creation form duly completed, to his DP. Nomination Individual BOs have a facility for nomination in favour of an individual. If the sole or all the joint holders are deceased, the shares of different companies held in the demat account will be transmitted easily to the demat account of the nominee on submission of the death certificate and transmission form. It may be noted that in the event of the death of one of the joint holders, the securities will be transmitted in the demat account of the surviving holders. Transmission of securities CDSL offers a facility for transmission of balances held in BO account/s (to other BO account/s) if so required due to death, lunacy, bankruptcy, insolvency or required due to operation of any law. Change in Address A BO who wishes to register his change in address submits his/her request in writing to his/her DP. The changes entered by the DP in the CDSL system will be automatically downloaded to all the companies in which the BO is holding securities. This facility offered by CDSL saves money, time and effort for the BO. Bank Account Details SEBI has made it mandatory for companies to print details of bank account of the BO on dividend/interest warrants etc. to prevent possibilities of misuse of the warrants. All BOs should submit a request in writing to the DP if they wish to record / change their bank account details. SMS

CDSL sends SMS regarding transactions and modifications in account details to the mobile number registered in the account. Eligibility: In terms of the Depositories Act, 1996 and SEBI (Depositories & Participants) Regulations,1996, only the following entities are eligible to become a Depository Participant:

Public Financial Institution Banks including Foreign Banks State Financial Corporation An Institution engaged in providing financial services promoted by above mentioned jointly and severally.

Custodian of Securities Clearing Corporation or Clearing House of a Stock Exchange Stock Broker Non Banking Financial Company Registrar & Transfer Agents

Electronic Access To Securities Information 1. What is easi? easi (electronic access to securities information) is a convenient, easy to operate internet based facility, which allows registered Beneficial Owners (BOs) & Clearing Members (CMs) to access their demat account through the internet to check the details of their holdings and/or transactions,anytime anywhere, through CDSLs .

About NSDL NSDL, the first and largest depository in India, established in August 1996 and promoted by institutions of national stature responsible for economic development of the country has since established a national infrastructure of international standards that handles most of the securities held and settled in dematerialised form in the Indian capital market. Although India had a vibrant capital market which is more than a century old, the paper-based settlement of trades caused substantial problems like bad delivery and delayed transfer of title till recently. The enactment of Depositories Act in August 1996 paved the way for establishment of NSDL, the first depository in India. This depository promoted by institutions of national stature responsible for economic development of the country has since established a national infrastructure of international standard that handles most of the trading and settlement in dematerialised form in Indian capital market. Using innovative and flexible technology systems, NSDL works to support the investors and brokers in the capital market of the country. NSDL aims at ensuring the safety and soundness of Indian marketplaces by developing settlement solutions that increase efficiency, minimise risk and reduce costs. At NSDL, we play a quiet but central role in developing products and services that will continue to nurture the growing needs of the financial services industry. 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. Promoters / Shareholders NSDL is promoted by Industrial Development Bank of India (IDBI) - the largest development bank of 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 have taken a stake in NSDL.

Promoters

Industrial Development Bank of India Limited (Now, IDBI Bank Limited) Unit Trust of India (Now, Adminstrator of the Specified Undertaking of the Unit Trust of India) National Stock Exchange of India Limited Other shareholders

State Bank of India HDFC Bank Limited Deutsche Bank A.G. Axis Bank Limited Citibank N.A. Standard Chartered Bank The Hongkong and Shanghai Banking Corporation Limited Oriental Bank of Commerce Union Bank of India Dena Bank Canara Bank Legal Framework As a part of its on-going market reforms, the Government of India promulgated the Depositories Ordinance in September 1995. Based on this ordinance, Securities and Exchange Board of India (SEBI) notified its Depositories and Participants Regulations in May 1996. The enactment of the Depositories Act the following August paved the way for the launch of National Securities Depository Ltd.(NSDL) in November 1996.The Depositories Act has provided dematerialisation route to book entry based transfer of securities and settlement of securities trade. In exercise of the rights conferred by the Depositories Act, NSDL framed its ByeLaws and Business Rules. The ByeLaws are approved by SEBI.

Depository System - Business Partners NSDL carries out its activities through various functionaries called "Business Partners" who include Depository Participants (DPs), Issuing companies and their Registrars and Share Transfer Agents, Clearing corporations/ Clearing Houses of Stock Exchanges. Depository Participant (DP) The investor obtains Depository Services through a DP of NSDL. A DP can be a bank, financial institution, a custodian, a broker, or any entity eligible as per SEBI (Depositories and Participants) Regulations, 1996. The SEBI regulations and NSDL bye laws also lay down the criteria for any of these categories to become a DP. Just as one opens a bank account in order to avail of the services of a bank, an investor opens a depository account with a DP in order to avail of depository facilities. Though NSDL commenced operations with just three DPs, Depository Participant Services are now available in most of the major cities and towns across the country.

Issuing Companies / their Registrar & Transfer Agents Securities issued by issuers who have entered into an agreement with NSDL can be dematerialised in the NSDL depository. As per this agreement, issuer agrees to verify the certificates submitted for dematerialisation before they are dematerialised and to maintain electronic connectivity with NSDL. Electronic connectivity facilitates dematerialisation, rematerialisation, daily reconciliation and corporate actions.

Clearing Corporation / House The clearing corporations/houses of stock exchanges also have to be electronically linked to the depository in order to facilitate the settlement of the trades done on the stock exchanges for dematerialised shares. At present, all the major clearing corporations/houses of stock exchanges are electronically connected to NSDL.

Why NSDL

Benefits In the depository system, the ownership and transfer of securities takes place by means of electronic book entries. At the outset, this system rids the capital market of the dangers related to handling of paper. NSDL provides numerous direct and indirect benefits like

Elimination of bad deliveries - In the depository environment, once holdings of an investor are dematerialised, the question of bad delivery does not arise i.e. they cannot be held "under objection". In the physical environment, buyer was required to take the risk of transfer and face uncertainty of the quality of assets purchased. In a depository environment good money certainly begets good quality of assets.

Elimination of all risks associated with physical certificates - Dealing in physical securities have associated security risks of theft of stocks, mutilation of certificates, loss of certificates during movements through and from the registrars, thus exposing the investor to the cost of obtaining duplicate certificates etc. This problem does not arise in the depository environment.

No stamp duty for transfer of any kind of securities in the depository. This waiver extends to equity shares, debt instruments and units of mutual funds.

Immediate transfer and registration of securities - In the depository environment, once the securities are credited to the investors account on pay out, he becomes the legal owner of the securities. There is no further need to send it to the company's registrar for registration.

Faster settlement cycle - The settlement cycle follow rolling settlement on T+2 basis i.e. the settlement of trades will be on the 2nd working day from the trade day. This will enable faster turnover of stock and more liquidity with the investor.

Faster disbursement of non cash corporate benefits like rights, bonus, etc. - NSDL provides for direct credit of non cash corporate entitlements to an investors account, thereby ensuring faster disbursement and avoiding risk of loss of certificates in transit.

Reduction in brokerage by many brokers for trading in dematerialised securities - Brokers provide this benefit to investors as dealing in dematerialised securities reduces their back office cost of handling paper and also eliminates the risk of being the introducing broker.

Reduction in handling of huge volumes of paper Periodic status reports Basic Services Under the provisions of the Depositories Act, NSDL provides various services to investors and other participants in the capital market like, clearing members, stock exchanges, banks and issuers of securities. These include basic facilities like account maintenance, dematerialisation, rematerialisation, settlement of trades through market transfers, off market transfers & interdepository transfers, distribution of non-cash corporate actions and nomination/ transmission. The depository system, which links the issuers, depository participants (DPs), NSDL and Clearing Corporation/ Clearing house of stock exchanges, facilitates holding of securities in dematerialised form and effects transfers by means of account transfers. This system which facilitates scripless trading offers various direct and indirect services to the market participants. Account Maintenance To avail of the various services offered by NSDL an investor/ a broker/ an approved intermediary (for lending & borrowing) has to open a NSDL depository account with any of its DPs. Depository accounts are of three types Beneficiary account An investor who wants to hold securities in dematerialised (demat) form and receive or deliver securities by inter-account transfers must have a depository account called beneficiary account with a DP of his choice. Clearing member account Member brokers of those stock exchanges which have established electronic connectivity with NSDL need to open a clearing member account, with a DP of his choice, to clear and settle trades in the demat form. This account is popularly known as Settlement account or Pool account. This account is meant only to transfer securities to and receive securities from the

clearing corporation/ house and hence, the member broker does not have any ownership (beneficiary) rights over the shares held in such an account. Further, clearing members of stock exchanges permitting Automatic Lending or Borrowing Mechanism (ALBM) transactions can request for a "clearing member ALBM" account to participate in ALBM transactions. These additional CM Accounts maintained for the purpose of ALBM transactions will have to be necessarily opened with the clearing house of the concerned stock exchange e.g. a BSE clearing member's "normal clearing member account" could be with a DP XYZ, but his "clearing member ALBM" account will have to necessarily be with the clearing house of the BSE. Intermediary account Any person choosing to act as an approved 'intermediary' for stock lending and borrowing needs to open an intermediary account with any DP of his choice. An intermediary account may be opened with the DP only after the intermediary has obtained registration from the Securities & Exchange Board of India and with the prior approval of NSDL. This account is meant only to deposit the securities received from the lender and lend them to the borrower under stock lending and borrowing scheme. The intermediary does not have any ownership (beneficiary) rights over the shares held in such an account.

Various services offered by DPs with respect to these accounts are as follows Standing Instruction Facility DP enters the advise for the transfer of securities to or from a beneficial owner's account only on receipt of instructions from the client. The clients need to give delivery instruction to transfer securities from their account & receipt instruction to get credit into their account. However, for ease of operation, a facility of standing instruction is provided to the clients for receiving securities to the credit of their accounts without any further instruction from them. Change in Address The client can change his address by submitting the changes in writing to the DP along with proof of identity, proof of new address with original document of new address for verification and latest transaction statement received from the DP of the client. The changes conveyed to the

DP will be automatically communicated to the companies in which he is holding shares in dematerialised form. Bank Account Details Details of bank account of the client, including the 9-digit code number of the bank and branch appearing on the MICR cheques issued by the bank have to given to the DP at the time of account opening. Companies use this information for printing them on dividend/interest warrants to prevent its misuse. In case the client wish to change this bank account details, he can do so by submitting the changes in writing to the DP. Nomination A client can make a nomination of his account in favour of any person by filing the nomination form with his DP. Such nomination is considered to be conclusive evidence of the account holder'(s) disposition in respect of all the securities in the account for which the nomination is made. The nomination can be changed/deleted anytime by the account holder/s by simply filling the nomination form and submitting it to the DP. Transposition cum Demat This is a facility whereby securities held jointly can be dematerialised in an account of same joint holders but having different sequence of names. e.g. securities held in joint names of X and Y can also be dematerialised in an account opened in the names of Y and X by submitting an additional form called Transposition Form alongwith Dematerialisation Request Form (DRF) to the DP. Consolidation of Accounts Some clients could have opened multiple accounts to dematerialise their shares held in multiple combinations & sequence of names. However, they may not need so many accounts after they have dematerialised their securities and may want to bring all their shareholdings into one or fewer accounts. Using off-market account transfer instruction such consolidation can be done. Closure of Account A client can close a depository account by giving an application in the prescribed form. In case there is any balance in the account sought to be closed, the following steps are necessary:

Re-materialisation of all securities standing to the credit of the account at the time of making the application for closure; or

Transferring the balance to the credit of another account opened by the same account older(s) either with the same DP or with a different DP. Freezing of Accounts Account freezing means suspending any further transaction from the depository account till the account is de-frozen. A depository account maintained with a DP can be frozen if the DP receives a written instruction in prescribed form from the client. A frozen account can be defrozen or re-activated if the client submits written instruction in prescribed form to the DP. Dematerialisation Dematerialisation is the process by which a client can get physical certificates converted into electronic balances. An investor intending to dematerialise its securities needs to have an account with a DP. The client has to deface and surrender the certificates registered in its name to the DP. After intimating NSDL electronically, the DP sends the securities to the concerned Issuer/ R&T agent. NSDL in turn informs the Issuer/ R&T agent electronically, using NSDL Depository system, about the request for dematerialisation. If the Issuer/ R&T 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. Features

Holdings in only those securities that are admitted for dematerialisation by NSDL can be dematerialised.

Only those holdings that are registered in the name of the account holder can be dematerialised. Names of the holders of the securities should match with the names given for the demat account. If the same set of joint holders held securities in different sequence of names, these joint holders by using Transposition cum Demat facility can dematerialise the securities in the same account even though share certificates are in different sequence of names. e.g., If there are two share certificates one in the name of X first and Y second and another in the name of Y first and X

second, then these shares can be dematerialised in the depository account which is in any name combination of X and Y i.e., either X first and Y second or Y first and X second. Separate accounts need not be opened to demat each share certificate. If shares are in the name combinations of X and Y, it cannot be dematerialised into the account of either X or Y alone.

Check the demat performance of the companies whose shares are to be given for dematerialisation.

Demat requests received from client (registered owner) with name not matching exactly with the name appearing on the certificates merely on account of initials not being spelt out fully or put after or prior to the surname, can be processed, provided the signature of the client on the Dematerialisation Request Form (DRF) tallies with the specimen signature available with the Issuers or its R & T agent.

A client may, in the normal course, receive demat confirmation in about 30 days from the date of submission of demat request to the DP.

There are special processes for Securities issued by Government of India and simultaneous transmission and demat.

Procedure

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.

The DP will scrutinize the form and the certificates. This scrutiny involves the following Verification of Client's signature on the dematerialisation request with the specimen signature (the signature on the account opening form). If the signature differs, the DP should ensure the identity of the client.

Compare the names on DRF and certificates with the client account.

o o o o

Paid up status ISIN (International Securities Identification Number) Lock - in status Distinctive numbers In case the securities are not in order they are returned to the client and acknowledgment is obtained. The DP will reject the request and return the DRF and certificates in case:

o o

A single DRF is used to dematerialise securities of more than one company. The certificates are mutilated, or they are defaced in such a way that the material information is not readable. It may advise the client to send the certificates to the Issuer/ R&T agent and get new securities issued in lieu thereof.

Part of the certificates pertaining to a single DRF is partly paid-up; the DP will reject the request and return the DRF along with the certificates. The DP may advise the client to send separate requests for the fully paid-up and partly paid-up securities.

Part of the certificates pertaining to a single DRF is locked-in, the DP will reject the request and return the DRF along with the certificates to the client. The DP may advise the client to send a separate request for the locked-in certificates. Also, certificates locked-in for different reasons should not be submitted together with a single DRF

In case the securities are in order, the details of the request as mentioned in the form are entered in the DPM (software provided by NSDL to the DP) and a Dematerialisation Request Number (DRN) will be generated by the system.

The DRN so generated is entered in the space provided for the purpose in the dematerialisation request form.

A person other than the person who entered the data is expected to verify details recorded for the DRN. The request is then released by the DP which is forwarded electronically to DM (DM Depository Module, NSDL's software system) by DPM.

The DM forwards the request to the Issuer/ R&T agent electronically. The DP will fill the relevant portion viz., the authorisation portion of the demat request form. The DP will punch the certificates on the company name so that it does not destroy any material information on the certificate.

The DP will then despatch the certificates along with the request form and a covering letter to the Issuer/ R&T agent.

The Issuer/ R&T agent confirms acceptance of the request for dematerialisation in his system DPM (SHR) and the same will be forwarded to the DM, if the request is found in order.

The DM will electronically authorise the creation of appropriate credit balances in the client's account.

The DPM will credit the client's account automatically. The DP must inform the client of the changes in the client's account following the confirmation of the request.

The issuer/ R&T may reject dematerialisation request in some cases. The issuer or its R&T Agent will send an objection memo to the DP, with or without DRF and security certificates depending upon the reason for rejection. The DP/Investor has to remove reasons for objection within 15 days of receiving the objection memo. If the DP fails to remove the objections within 15 days, the issuer or its R&T Agent may reject the request and return DRF and accompanying certificates to the DP. The DP, if the client so requires, may generate a new dematerialisation request and send the securities again to the issuer or its R&T Agent. No fresh request can be generated for the same securities until the issuer or its R&T Agent has rejected the earlier request and informed NSDL and the DP about it. Rematerialisation Rematerialisation is the process by which a client can get his electronic holdings converted into physical certificates. 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/ R&T agent. The Issuer/ R&T agent then prints the certificates, despatches the same to the client and simultaneously electronically confirms the acceptance of the request to NSDL. Thereafter, the client's blocked balances are debited. Features

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.

Procedure

The client will submit a request to the DP for rematerialisation of holdings in its account. On receipt of the request form, the DP will verify that the form is duly filled in and issue to the client, an acknowledgement slip, signed and stamped.

The DP will verify the signature of the client as on the form with the specimen available in its records.

If the signatures are different the DP will ensure the identity of the client. If the form is in order the DP will enter the request details in its DPM (software provided by NSDL to the DP). While entering the details, if it is found that the client's account does not have enough balance, the DP will not entertain the request.

The DP will intimate the client that the request cannot be entertained since the client does not have sufficient balance.

If there is sufficient balance in the client's account, the DP will enter the request in the DPM and the DPM will generate a Rematerialisation Request Number (RRN).

The RRN so generated is entered in the space provided for the purpose in the rematerialisation request form.

Details recorded for the RRN should be verified by a person other than the person who entered the data. The request is then released to the DM by the DP.

The DM forwards the request to the Issuer/ R&T agent electronically. The DP will fill the authorisation portion of the request form. The DP will then despatch the request form to the Issuer/ R&T agent. While processing the request, the Issuer/ R&T agent may report some objections. Depending on the nature of objection, the Issuer/ R&T agent may reject the request or process it partially, seeking rectification for the remaining, and send an objection memo to the DP.

The Issuer/ R&T agent accepts the request for rematerialisation prints and despatches the certificates to the client and sends electronic confirmation to the DM.

The DM downloads this information to the DPM and the status of the rematerialisation request is updated in the DPM.

The DP must inform the client about the changes in the client account following the acceptance of the request.

Market Transfers Trading in dematerialised securities is quite similar to trading in physical securities. The major difference is that at the time of settlement, instead of delivery/receipt of securities in the physical form, the same is affected through account transfers.

Off - Market Transfers Trading in dematerialised securities is quite similar to trading in physical securities. The major difference is that at the time of settlement, instead of delivery/receipt of securities in the physical form, the same is affected through account transfers. Inter-Depository Transfers Transfer of securities from an account in one depository to an account in another depository is termed as an inter-depository transfer. This facility is quite similar to the account transfers within NSDL.

It can be done only for securities that are available for dematerialisation on both the depositories. The account in NSDL can be either a clearing account or a beneficiary account. For debiting the clearing account or the beneficial account with NSDL, the form for "Interdepository delivery instruction" is required to be submitted by the clearing member/beneficial owner to its DP.

For crediting the clearing account or the beneficial account, the standing instruction given for automatically crediting the account is applicable. In case the standing instructions are not given, then the form for "Inter-Depository Receipt Instruction" is required to be submitted by the clearing member/beneficial owner to its DP.

As both the depositories are connected to each another, the batches to effect inter - depository transfers are presently exchanged on each working day.

Online transfer of inter depository instructions has commenced w.e.f December 14, 2002. In the online inter depository transfer (OLIDT) module, Inter Depository Transfer instructions for the day will be exchanged online between the two depositories. Thus, the instructions executed by DPs may get settled at shorter intervals.

The deadline time for DPs to verify & release Inter Depository Transfer delivery/ receipt instructions is 6 p.m. on weekdays and 2.30 p.m. on Saturdays.

The Issuer/Registrar & Transfer Agent is informed about the transfer by both the depositories and it amends its records accordingly.

Government securities cannot be transferred from one depository to another using this facility. Transmission One of the lesser-known but widely experienced problems with respect to dealing in share certificates is transmission of shares. The Companies Act distinguishes transmission of shares from transfer of shares. While transfer of shares relates to a voluntary act of the shareholder, transmission is brought about by operation of law. The word 'transmission' means devolution of title to shares otherwise than by transfer, for example, devolution by death, succession, inheritance, bankruptcy, marriage, etc. While transfer of shares is brought about by delivery of a proper instrument of transfer (viz, transfer deed) duly stamped and executed, transmission of shares is done by forwarding the necessary documents (such as a notarised copy of death certificate) to the company. On registration of the transmission of shares, the person entitled to transmission of shares becomes the shareholder of the company and is entitled to all rights and subject to all liabilities as such shareholder. In case the deceased shareholder had holdings in different companies, then in order to effect transmission of shares for these shares, the relevant documents must be sent to each of the companies, alongwith the share certificates. This results in a heavy reliance on the postal system. Follow-up may have to be made with each of the companies in order get the transmission effected before the book closure, if the survivor(s) wishes to avail of the benefits accrued through these shares. Corporate Actions Features Corporate actions are benefits given by a company to its investors. These may be either monetary benefits like dividend, interest or non-monetary benefits like bonus, rights, etc. NSDL facilitates distribution of corporate benefits.

Monetary benefits (dividends etc) NSDL will give the beneficiary ownership details to the Issuer/R & T Agent. The Issuer/R & T Agent will carry out the necessary processing and the distribution of such benefits will be outside the system. Non-monetary benefits (rights bonus etc) NSDL will give the beneficiary ownership details to the Issuer/ R & T Agent. The Issuer/R & T Agent will carry out the necessary processing and upload the beneficiary ownership details to NSDL. NSDL will then credit the beneficiary owners' accounts by downloading the data to the DPs.

Value added services

Automatic Delivery Out Instructions (Auto DOs) Delivery-out instructions for moving securities from CM Pool Account to CM Delivery Account can be generated automatically by the respective Clearing Corporations based on the net delivery obligations of its Clearing Members. The Clearing Corporation can generate Auto DOs on behalf of those Clearing Members who have authorised it in this regard. The Auto DOs will be generated around the time of download of the delivery obligations to the Clearing Members. Such Clearing Members will not be required to give delivery-out instruction forms to the Participants for Pay-in to the Clearing Corporation in respect of the automatically generated DOs. The Clearing Members can know the Auto DOs either by way of download from the Clearing Corporation or through the Auto DO Report from the Participants or from SPEED facility on Internet. Auto DOs will not be generated in the following cases and the Clearing Members will have to give Delivery-out Instruction forms to their Participants as usual Dividend Distribution At present, NSDL merely facilitates distribution of cash corporate benefits like dividend etc., to shareholders. Details in respect of all beneficial owners of the security as on the record date of

the concerned company are provided by NSDL to the company/ its registrar and share transfer agent (R & T agent). Thereafter, the company/ R & T agent dispatches dividend entitlements to the eligible beneficial owners in the same way as is done for shareholders holding physical certificates. NSDL intends to extend the service of distributing cash benefits directly to beneficial owners. On a pilot basis NSDL had extended the dividend distribution service to shareholders of certain companies. Keeping in view this successful experiment, NSDL, in future, may consider extending this service to other issuers too who have joined the NSDL depository system. Advantages

Issuer will be giving a single cheque to NSDL. Savings in administrative cost for printing of paper instruments in MICR format and dispatching by registered post.

Loss of instrument in-transit and fraudulent encashment thereof can be totally eliminated. Effortless receipt for investor - no need to visit the bank for depositing the warrant. Reconciliation will be smooth. Investor grievances will be handled by NSDL. Issuer can ensure better investor service. Stock Lending and Borrowing The transactions involving lending and borrowing of securities are executed through approved intermediaries duly registered with SEBI under the Securities Lending Scheme, 1997. Such an intermediary may deal in the depository system only through a special account (known as Intermediary Account) opened with a DP. An intermediary account may be opened with the DP only after the intermediary has obtained SEBI approval and registered itself with SEBI under the Securities Lending Scheme. The intermediary has also to obtain approval of NSDL.

Pledge / Hypothecation Features

Securities held in a depository account can be pledged/hypothecated to avail of loan/credit facility. Pledge of securities in NSDL depository requires that both the borrower (pledgor) and the lender (pledgee) should have account in NSDL depository. The pledge/hypothecation transactions go through the following procedures:

Pledge/hypothecation creation Pledge/hypothecation closure Pledge/hypothecation invocation Public Issues Investors have an option to seek allotment of public issues in electronic form. As per SEBI guidelines trades in shares issued through public issue shall be settled only in demat form. Therefore, it is advisable that investors seek allotment in demat form. Features NSDL depository system provides facility for allotments of securities directly in to the depository account of the investors in the dematerialised form.

Dematerialisation and Settlement of Warehouse Receipts NSDL, the first depository in the country was established in the year 1996 to remove the difficulties arising out of use of physical (paper) certificates for settlement of trades on stock exchanges and improving settlement efficiency. The depository system has successfully met its objectives. On the basis of the success of demat, rolling settlements were introduced and today, India is one among the few countries that have T + 2 rolling settlement system. With the increase in activity in the commodities futures market and establishment of national level screen-based multi-commodities exchanges, need for an efficient settlement system in that market is felt. Broadly, a commodity futures contract may be settled either by cash or by delivery of commodity depending upon the terms of the trade, demand of the buyer and rules of the exchange. If the trade is expected to be settled by way of delivery of commodity, the clearing house of the commodity exchange will receive warehouse receipts from the seller instead of actual commodities and pass such warehouse receipts over to the buyer. In case of national commodity exchanges, buyers and sellers could operate from different parts of the country and if

warehouse receipts are in physical form, the warehouse receipts have to be delivered across the country from the seller to the buyer which could lead to systemic inefficiencies. Warehouse receipts are title documents issued by warehouses to depositors against the commodities deposited in the warehouses. These documents are transferred by endorsement and delivery. Either the original depositor or the holder in due course (transferee) can claim the commodities from the warehouse. Warehouse receipts in physical form suffer all the disadvantages of the paper form of title documents. Some of these limitations are as follows

Need for splitting the warehouse receipt in case the depositor has an obligation to transfer only a part of the commodities;

Need to move the warehouse receipt from one place to another with risk of theft/mutilation, etc. if the transferor and transferee are at two different locations;

Risk of forgery Drawing lessons from the depository system for securities, NSDL and national level multicommodity exchanges have worked out a scheme to extend depository services for settling trades in commodity futures. Investors trading in commodity futures may follow the steps enumerated below to avail of depository services for receiving and delivering warehouse receipts.

SMS Alert Facility for NSDL demat account holders

Introduction NSDL provides SMS Alert facility for demat account holders whereby they can receive alerts directly from NSDL for following:

All Debit Transfers Credits for IPO, sub-division and bonus Failed instructions Overdue instructions Change of mobile number Change of address

Debit of Mutual Fund units Invocation of pledged securities Registration and De-registration of Power of Attorney Modification / Cancellation of nominee name

Charges No charge is levied by NSDL on Depository Participants (DPs) for providing this facility to investors.

Registration This facility will be available to the investors provided they have given their mobile numbers to their DPs and the DPs have captured the numbers in the DPM system and have also enabled (ticked) the SMS flag in their DPM system.

Contact The investors may contact their respective DPs in case they do not receive SMS alert inspite of registering for this facility. Those investors who have provided their mobile numbers to their DPs but do not wish to avail this facility may also inform their DPs accordingly provided such accounts are not operated by Power of Attorney.

E-services SPEED-e NSDL launched SPEED-e (pronounced as speedy) in September, 2001. Any Participant of NSDL can subscribe to SPEED-e, the common infrastructure of NSDL. SPEED-e enables demat account holders (including Clearing Members) to submit delivery instructions directly on the Internet through SPEED-e website https://eservices.nsdl.com. SPEED-e is available only to

those Participants who have subscribed to it and the Users sign an agreement with the Participant. A demat account holder will have the option of accessing SPEED-e either as a Password User or as a Smart Card / e-Token User. A Clearing Member must be a Smart Card / e-Token User to be able to access SPEED-e. Password Users can debit their demat accounts only in favour of specified Pre-Notified Clearing Member accounts (upto three), while Smart Card / e-Token User can submit instructions in favour of any number of accounts.

IDeAS IDeAS (Internet-based Demat Account Statement) is the facility for viewing balances and transactions in the demat account updated on an online basis with a delay of maximum 30 minutes. This facility is available to the Users of SPEED-e, Clearing Members who have subscribed to IDeAS and to those clients whose Participants are registered for IDeAS. A demat account holder or a Clearing Member will have the option to access IDeAS either as a Password or a Smart Card / e-Token User. NSDL has launched a facility called IDeAS from January 1, 2004 for investors to view balances and transactions in demat accounts updated on an online but not real time basis. This facility is available to all the clients including Clearing Members (CMs) who have opened an account with any of the Participants under NSDL system. STeADY [Securities Trading Information easy Access and DeliverY] What is STEADY? STEADY is a facility which enables the brokers to deliver/submit contract notes to custodians/ fund managers electronically by transmitting digitally signed trade information with encryption. It further enables fund managers to enrich the contract note and convert it into instructions for the custodian. SMILE SMILE is an secured internet based facility which provides an online interface enabling subscribers to validate DP ID, Client ID and PAN of investors through a file upload. This facility is available to Book Running Lead Managers, Syndicate Members, etc., for Initial Public Offer, Public Issues etc.

SPICE (Submission of Power of attorney based Instructions for Clients Electronically) Clearing Members (Clients who have given Power of Attorney (POA) in favour of the Clearing Member) can submit auto pay-in instructions to Participants (where Clients maintain demat accounts) on SPEED-e facility to debit the demat accounts of the Clients and credit their Clearing Member (CM) Pool Accounts. Thus, eliminating the need to give paper based delivery instructions to the Participants. SIMPLE (Submission of Instruction through Mobile Phone Login Easily) SIMPLE, a facility that enables the password based users of SPEED-e facility to submit Client to Clearing Member Pool Account transfer instructions on SPEED-e website through their mobile phones (enabled with GPRS).