Introduction to Industry

A stock market, equity market or share market is the aggregation of buyers and sellers (a
loose network of economic transactions, not a physical facility or discrete entity) of stocks
(also called shares), which represent ownership claims on businesses; these may include
securities listed on a public stock exchange as well as those only traded privately. Examples
of the latter include shares of private companies which are sold to investors through equity
crowd funding platforms. Stock exchanges list shares of common equity as well as other
security types, e.g. corporate bonds and convertible bonds.

1.1.1 Size of the market

Stocks can be categorized in various ways. One way is by the country where the company is
domiciled. For example, Nestlé and Novartis are domiciled in Switzerland, so they may be
considered as part of the Swiss stock market, although their stock may also be traded on
exchanges in other countries, for example, as American Depository Receipts (ADRs) on U.S.
stock markets.

At the close of 2012, the size of the world stock market (total market capitalisation) was
about US$55 trillion. By country, the largest market was the United States (about 34%),
followed by Japan (about 6%) and the United Kingdom (about 6%). These numbers
increased in 2013.

As of 2015, there are a total of 60 stock exchanges in the world with a total market
capitalization of $69 trillion. Of these, there are 16 exchanges with a market capitalization of
$1 trillion or more, and they account for 87% of global market capitalization. Apart from the
Australian Securities Exchange, these 16 exchanges are based in one of three continents:
North America, Europe and Asia.

1.1.2 Stock Exchanges

A stock exchange is a place where, or an organization through which, individuals and

organisations can trade stocks. Many large companies have their stock listed on a stock
exchange. This makes the stock more liquid and thus more attractive to many investors. It
may also act as a guarantor of settlement. Other stocks may be traded "over the counter"
(OTC), that is, through a dealer. Some large companies will have their stock listed on more
than one exchange in different countries, so as to attract international investors.

Stock exchanges may also cover other types of securities, such as fixed interest securities
(bonds) or (less frequently) derivatives, which are more likely to be traded OTC.

1.1.3 Trade

Trade in stock markets means the transfer for money of a stock or security from a seller to a
buyer. This requires these two parties to agree on a price. Equities (stocks or shares) confer
an ownership interest in a particular company.

Participants in the stock market range from small individual stock investors to larger trader
investors, who can be based anywhere in the world, and may include banks, insurance
companies or pension funds, and hedge funds. Their buy or sell orders may be executed on
their behalf by a stock exchange trader.

Some exchanges are physical locations where transactions are carried out on a trading floor,
by a method known as open outcry. This method is used in some stock exchanges and
commodity exchanges, and involves traders shouting bid and offer prices. The other type of
stock exchange has a network of computers where trades are made electronically. An
example of such an exchange is the NASDAQ.

A potential buyer bids a specific price for a stock, and a potential seller asks a specific price
for the same stock. Buying or selling at the market means you will accept any ask price or bid
price for the stock. When the bid and ask prices match, a sale takes place, on a first-come,
first-served basis if there are multiple bidders or askers at a given price.

The purpose of a stock exchange is to facilitate the exchange of securities between buyers
and sellers, thus providing a marketplace. The exchanges provide real-time trading
information on the listed securities, facilitating price discovery.

The New York Stock Exchange (NYSE) is a physical exchange, with a hybrid market for
placing orders electronically from any location as well as on the trading floor. Orders
executed on the trading floor enter by way of exchange members and flow down to a floor
broker, who submits the order electronically to the floor trading post for the Designated
Market Maker ("DMM") for that stock to trade the order. The DMM's job is to maintain a
two-sided market, meaning orders to buy and sell the security if there are no other buyers and
sellers. If a spread exists, no trade immediately takes place—in this case the DMM may use
their own resources (money or stock) to close the difference. Once a trade has been made, the
details are reported on the "tape" and sent back to the brokerage firm, which then notifies the
investor who placed the order. Computers play an important role, especially for program
trading.

The NASDAQ is a virtual exchange, where all of the trading is done over a computer
network. The process is similar to the New York Stock Exchange. One or more NASDAQ
market makers will always provide a bid and ask price at which they will always purchase or
sell 'their' stock.

The Paris Bourse, now part of Euronext, is an order-driven, electronic stock exchange. It
was automated in the late 1980s. Prior to the 1980s, it consisted of an open outcry exchange.
Stockbrokers met on the trading floor or the Palais Brongniart. In 1986, the CATS trading
system was introduced, and the order matching process was fully automated.

People trading stock will prefer to trade on the most popular exchange since this gives the
largest number of potential counterparties (buyers for a seller, sellers for a buyer) and
probably the best price. However, there have always been alternatives such as brokers trying
to bring parties together to trade outside the exchange. Some third markets that were popular
are Instinet, and later Island and Archipelago (the later two have since been acquired by
NASDAQ and NYSE, respectively). One advantage is that this avoids the commissions of
the exchange. However, it also has problems such as adverse selection. Financial regulators
are probing dark pools.

1.1.4 Market Participant

Market participants include individual retail investors, institutional investors such as mutual
funds, banks, insurance companies and hedge funds, and also publicly traded corporations
trading in their own shares. Some studies have suggested that institutional investors and
corporations trading in their own shares generally receive higher risk-adjusted returns than
retail investors.

A few decades ago, most buyers and sellers were individual investors, such as wealthy
businessmen, usually with long family histories to particular corporations. Over time,
markets have become more "institutionalized"; buyers and sellers are largely institutions
(e.g., pension funds, insurance companies, mutual funds, index funds, exchange-traded
funds, hedge funds, investor groups, banks and various other financial institutions).

The rise of the institutional investor has brought with it some improvements in market
operations. There has been a gradual tendency for "fixed" (and exorbitant) fees being reduced
for all investors, partly from falling administration costs but also assisted by large institutions
challenging brokers' oligopolistic approach to setting standardised fees. A current trend in
stock market investments includes the decrease in fees due to computerized asset
management termed Robo Advisers within the industry. Automation has decreased portfolio
management costs by lowering the cost associated with investing as a whole.

1.1.5 History
1.1.5.1 Early history

In 12th-century France, the courretiers de change were concerned with managing and
regulating the debts of agricultural communities on behalf of the banks. Because these men
also traded with debts, they could be called the first brokers. A common misbelief (?) is that
in late 13th century Bruges commodity traders gathered inside the house of a man called Van
der Beurze, and in 1409 they became the "Brugse Beurse", institutionalizing what had been,
until then, an informal meeting, but actually, the family Van der Beurze had a building in
Antwerp where those gatherings occurred; the Van der Beurze had Antwerp, as most of the
merchants of that period, as their primary place for trading. The idea quickly spread around
Flanders and neighbouring countries and "Beurzen" soon opened in Ghent and Rotterdam.

In the middle of the 13th century, Venetian bankers began to trade in government securities.
In 1351 the Venetian government outlawed spreading rumors intended to lower the price of
government funds. Bankers in Pisa, Verona, Genoa and Florence also began trading in
government securities during the 14th century. This was only possible because these were
independent city-states not ruled by a duke but a council of influential citizens. Italian
companies were also the first to issue shares. Companies in England and the Low Countries
followed in the 16th century.

1.1.5.2 Official Beginning

The Dutch East India Company (founded in the year of 1602) was the first joint-stock
company to get a fixed capital stock and as a result, continuous trade in company stock
occurred on the Amsterdam Exchange. Soon thereafter, a lively trade in various derivatives,
among which options and repos, emerged on the Amsterdam market. Dutch traders also
pioneered short selling – a practice which was banned by the Dutch authorities as early as
1610.

There are now stock markets in virtually every developed and most developing economies,
with the world's largest markets being in the United States, United Kingdom, Japan, India,
China, Canada, Germany (Frankfurt Stock Exchange), France, South Korea and the
Netherlands.

1.1.6 Importance

1.1.6.1 Function and purpose

The stock market is one of the most important ways for companies to raise money, along
with debt markets which are generally more imposing but do not trade publicly. This allows
businesses to be publicly traded, and raise additional financial capital for expansion by
selling shares of ownership of the company in a public market. The liquidity that an
exchange affords the investors enables their holders to quickly and easily sell securities. This
is an attractive feature of investing in stocks, compared to other less liquid investments such
as property and other immoveable assets. Some companies actively increase liquidity by
trading in their own shares.

History has shown that the price of stocks and other assets is an important part of the
dynamics of economic activity, and can influence or be an indicator of social mood. An
economy where the stock market is on the rise is considered to be an up-and-coming
economy. The stock market is often considered the primary indicator of a country's economic
strength and development.
Rising share prices, for instance, tend to be associated with increased business investment
and vice versa. Share prices also affect the wealth of households and their consumption.
Therefore, central banks tend to keep an eye on the control and behaviour of the stock
market and, in general, on the smooth operation of financial system functions. Financial
stability is the raison d'être of central banks.

Exchanges also act as the clearinghouse for each transaction, meaning that they collect and
deliver the shares, and guarantee payment to the seller of a security. This eliminates the risk
to an individual buyer or seller that the counterparty could default on the transaction.

The smooth functioning of all these activities facilitates economic growth in that lower costs
and enterprise risks promote the production of goods and services as well as possibly
employment. In this way the financial system is assumed to contribute to increased
prosperity, although some controversy exists as to whether the optimal financial system is
bank-based or market-based.

Recent events such as the Global Financial Crisis have prompted a heightened degree of
scrutiny of the impact of the structure of stock markets (called market microstructure), in
particular to the stability of the financial system and the transmission of systemic risk.

1.1.6.2 Relation to the modern financial system

The financial system in most western countries has undergone a remarkable transformation.
One feature of this development is disintermediation. A portion of the funds involved in
saving and financing, flows directly to the financial markets instead of being routed via the
traditional bank lending and deposit operations. The general public interest in investing in the
stock market, either directly or through mutual funds, has been an important component of
this process.

Statistics show that in recent decades, shares have made up an increasingly large proportion
of households' financial assets in many countries. In the 1970s, in Sweden, deposit accounts
and other very liquid assets with little risk made up almost 60 percent of households'
financial wealth, compared to less than 20 percent in the 2000s. The major part of this
adjustment is that financial portfolios have gone directly to shares but a good deal now takes
the form of various kinds of institutional investment for groups of individuals, e.g., pension
funds, mutual funds, hedge funds, insurance investment of premiums, etc.

The trend towards forms of saving with a higher risk has been accentuated by new rules for
most funds and insurance, permitting a higher proportion of shares to bonds. Similar
tendencies are to be found in other developed countries. In all developed economic systems,
such as the European Union, the United States, Japan and other developed nations, the trend
has been the same: saving has moved away from traditional (government insured) "bank
deposits to more risky securities of one sort or another".

A second transformation is the move to electronic trading to replace human trading of listed
securities.

1.1.7 Behaviour of the stock market

NASDAQ in Times Square, New York City

Investors may temporarily move financial prices away from market equilibrium. Over-
reactions may occur—so that excessive optimism (euphoria) may drive prices unduly high
or excessive pessimism may drive prices unduly low. Economists continue to debate
whether financial markets are generally efficient.

According to one interpretation of the efficient-market hypothesis (EMH), only changes in

fundamental factors, such as the outlook for margins, profits or dividends, ought to affect
share prices beyond the short term, where random 'noise' in the system may prevail. The
'hard' efficient-market hypothesis does not explain the cause of events such as the crash
in1987, when the Dow Jones Industrial Average plummeted 22.6 percent—the largest-
ever one-day fall in the United States.

This event demonstrated that share prices can fall dramatically even though no generally
agreed upon definite cause has been found: a thorough search failed to detect any 'reasonable'
development that might have accounted for the crash. (Note that such events are predicted to
occur strictly by chance, although very rarely.) It seems also to be the case more generally
that many price movements (beyond that which are predicted to occur 'randomly')
are not occasioned by new information; a study of the fifty largest one-day share price
movements in the United States in the post-war period seems to confirm this.

A 'soft' EMH has emerged which does not require that prices remain at or near equilibrium,
but only that market participants not be able to systematically profit from any momentary
market 'inefficiencies'. Moreover, while EMH predicts that all price movement (in the
absence of change in fundamental information) is random (i.e., non-trending), many
studies have shown a marked tendency for the stock market to trend over time periods of
weeks or longer. Various explanations for such large and apparently non-random price
movements have been promulgated. For instance, some research has shown that changes in
estimated risk, and the use of certain strategies, such as stop-loss limits and value at

risk limits, theoretically could cause financial markets to overreact. But the best explanation
seems to be that the distribution of stock market prices is non-Gaussian (in which case
EMH, in any of its current forms, would not be strictly applicable).

Other research has shown that psychological factors may result in exaggerated (statistically
anomalous) stock price movements (contrary to EMH which assumes such behaviors 'cancel
out'). Psychological research has demonstrated that people are predisposed to 'seeing'
patterns, and often will perceive a pattern in what is, in fact, just noise, e.g seeing familiar
shapes in clouds or ink blots. In the present context this means that a succession of good
news items about a company may lead investors to overreact positively, driving the price up.
A period of good returns also boosts the investors' self-confidence, reducing their
(psychological) risk threshold.

Another phenomenon—also from psychology—that works against an objective assessment is

group thinking. As social animals, it is not easy to stick to an opinion that differs markedly from
that of a majority of the group. An example with which one may be familiar is the
reluctance to enter a restaurant that is empty; people generally prefer to have their
opinion validated by those of others in the group.

In one paper the authors draw an analogy with gambling. In normal times the market
behaves like a game of roulette; the probabilities are known and largely independent of the
investment decisions of the different players. In times of market stress, however, the game
becomes more like poker (herding behaviour takes over). The players now must give heavy
weight to the psychology of other investors and how they are likely to react psychologically.

In the period running up to the 1987 crash, less than 1 percent of the analyst's
recommendations had been to sell (and even during the 2000–2002 bear market, the average
did not rise above 5%). In the run up to 2000, the media amplified the general euphoria, with
reports of rapidly rising share prices and the notion that large sums of money could be
quickly earned in the so-called new economy stock market.

Stock markets play an essential role in growing industries that ultimately affect the economy
through transferring available funds from units that have excess funds (savings) to those who
are suffering from funds deficit (borrowings) (Padhi and Naik, 2012). In other words, capital
markets facilitate funds movement between the above-mentioned units. This process leads to
the enhancement of available financial resources which in turn affects the economic growth
positively. Moreover, both economic and financial theories argue that stock prices are
affected by macroeconomic trends.

Many different academic researchers have stated companies with low P/E ratios and smaller
sized companies have a tendency to outperform the market. Research carried out states mid-
sized companies outperform large cap companies and smaller companies have higher
returns historically.

1.1.7.1 Irrational behaviour

Sometimes, the market seems to react irrationally to economic or financial news, even if that
news is likely to have no real effect on the fundamental value of securities itself. But, this may be
more apparent than real, since often such news has been anticipated, and a counter reaction may
occur if the news is better (or worse) than expected. Therefore, the stock market may be swayed
in either direction by press releases, rumours, euphoria and mass panic.

Over the short-term, stocks and other securities can be battered or buoyed by any number of
fast market-changing events, making the stock market behaviour difficult to predict.
Emotions can drive prices up and down, people are generally not as rational as they think,
and the reasons for buying and selling are generally obscure. Behaviourists argue that
investors often behave 'irrationally' when making investment decisions thereby incorrectly
pricing securities, which causes market inefficiencies, which, in turn, are opportunities to
make money. However, the whole notion of EMH is that these non-rational reactions to
information cancel out, leaving the prices of stocks rationally determined.

The Dow Jones Industrial Average biggest gain in one day was 936.42 points or 11 percent,
this occurred on October 13, 2008.

Introduction to Topic
1.2.1 INTRODUCTION TO DEPOSITORY

A significant development of the 20th century particularly in its later part is expansion of
financial market world over which mostly was driven by globalization, technology,
innovations and increasing trade volume. India has not been an exception with probably
largest number of listed companies with a very large investor population and ever increasing
volumes of trades.
However, this continuous growth in activities increased problems associated with stock
trading. Most of these problems arose due to the intrinsic nature of paper based trading and
settlement, like theft or loss of share certificates. This system required handling of huge
volumes of paper leading to increased costs and inefficiencies. The process beginning from
buying shares through the stock exchanges till getting the certificates duly endorsed in the
buyer’s name was indeed quite complex and time-consuming and was riddled with a variety
of problems. Growing number of investors participating in the capital market has increased
the possibility of being hit by a bad delivery, The cost and time spent by the brokers for
rectification of these bad deliveries tends to be higher with the geographical spread of the
clients. The increase in trade volumes lead to exponential rise in the back office operations
thus limiting the growth potential of the broking members. The inconvenience faced by
investors (in areas that are far flung and away from the main metros) in settlement of trade
also limits the opportunity for such investors, especially in participating in auction trading.
The physical form of holding and trading in securities also acted as a bottleneck for broking
community in capital market operations. Risk exposure of the investor also increased due to
this trading in paper. Some of these associated risks were: delay in transfer of shares,
possibility of forgery on various documents leading to bad deliveries, legal disputes etc., and
possibility of theft of share certificates, prevalence of fake certificates in the market,
mutilation or loss of share certificates in transit. Thus, the system of security transactions was
not as investor-friendly as it ought to be. In this scenario dematerialized trading under
depository system is certainly a welcome move. This popular financial service emerged in
Germany first time.
1.2.2 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.

1.2.3 Depositories Act, 1996

The Depositories Act, 1996 provides for the establishment of depositories in securities with
the objective of ensuring free transferability of securities with speed, accuracy and security
by (a) making securities freely transferable subject to certain exceptions; (b)
dematerialization of the securities in the depository mode; and (c) providing for maintenance
of ownership records in a book entry form. In order to streamline the settlement process, the
Act envisages transfer of ownership of securities electronically by book entry. The Act has
made the securities of all companies freely transferable in the depository mode, restricting the
company’s right to use discretion in effecting the transfer of securities. The other procedural
and the transfer deed requirements stated in the Companies Act have also been dispensed
with.

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 recognized 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
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 of Business – A depository that has obtained registration as stated above,

can function only if it obtains a certificate of commencement of business from SEBI. A
depository must apply for and obtain a certificate of commencement of business from SEBI
within one year from the date of receiving the certificate of registration from SEBI.
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
unauthorized 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 unauthorized 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 and beneficial owners;

8. The depository has established adequate procedures and facilities to ensure that its
records are protected against loss or destruction and 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 dematerialize 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, 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 SEBI before becoming effective.
Depository – Every depository is required to maintain the following records and documents.
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

1.2.4 Comparison between banks and depository-

Similarity:
Promoted by reputed persons and institutions: Both bank and depository are Promoted by
persons and institutions of repute and good standing. For e.g.-HDFC bank was promoted
by housing Development Corporation Ltd. and similarly NSDL is promoted by Industrial
Unit Trust of India (UTI) and National Stock
Exchange of India Limited (NSE).
2. Renders safe keeping services: Both banks and depository provide safe keeping services.
Banks provides safe custody of cash and locker facility for keeping valuable articles to its
clients. Depositories also provide safe keeping of shares, debentures, bonds, government
securities, mutual fund units to its clients.
3. Central office and branches: Like bank every depository has one central office which is
the main office and other branch offices which are situated in different cities and follow
the guidelines of central office.
4. Charge of fees- banks charge fees for locker facilities to its clients, similarly depository
charges fees for safe keep of share certificates in electronic form.
5. Transfer of funds and securities : Funds/securities are transferred only at the instruction of
the account holder
6. Written confirmation of transfer (of shares and currencies )
7. Account is operated by power of attorney: a person under power of attorney can operate
the account.
8. Customers are entitled to get statement s of accounts
9. Nomination facility: in case of bank accounts customer can nominate any person to
whom account will be transferred in case of death of the person similarly in case of
depository, a customer can nominate a person to whom the shares will be transferred.
10. Currencies (in case of banks ) and shares (in case of depositories) when held do not have
any distinctive number

5 Differentiation:
Bank Account Vs. Depository

A Bank A Depository (like CDSL)

For opening a bank account, such as a A Demat account is opened by an investor

savings bank account, a minimum balance without any securities, i.e. with zero balance.
has to be deposited along with the account

A customer having an account with a bank An account holder of the depository is called
is called as an Account Holder. as Beneficial Owner (of the securities).

A bank is entitled to use funds lying in the A depository is not entitled to use the
savings or current deposit accounts of the securities lying in the demat accounts of the
customers in the normal course of business customers and hence does not pay any interest
and pays interest to them for the use. to them.

A bank account can be operated upon A demat account can be opened, operated
“jointly”, or, by “either or survivor” of the upon only by ALL the account holders
account holders or by “any one/two/three JOINTLY, at present.
of", the joint account holders.

In the bank account, addition or deletion In the demat account, addition or deletion of
of name(s) of one or more of the account name(s) of one or more of the account holders
holders is permitted. (beneficial owners) is NOT permitted.

In the bank account, there is no In demat account, the beneficial owners is

requirement of execution of an agreement required to sign a DP-BO agreement before
between the bank and account holder at opening the demat account.
the time of opening the account
LEGAL FRAMEWORK

1.2.6.1 Introduction

The depositories in India are regulated under the following legal framework:

• The Depositories Act, 1996

• SEBI (Depositories and Participants) Regulations, 1996
• Companies Act, 1956
• Securities and Exchange Board of India Act, 1992
• Prevention of Money Laundering Act, 2002
Apart from the above-mentioned Acts and Regulations, following govern the business and
operations of a depository.
• Bye Laws of the depository
• Operating Instructions of the depository
2.6.2 The Depositories Act, 1996 gives power to depositories to make bye-laws

But such bye laws should be consistent with the provisions of this Act and the SEBI
Regulations. Such bye-laws shall provide for:

a) The eligibility criteria for admission and removal of securities in the depository;
b) The conditions subject to which the securities shall be dealt with;
c) The eligibility criteria for admission of any person as a participant;
d) The manner and procedure for dematerialisation of securities;
e) The procedure for transactions within the depository;
f) The manner in which securities shall be dealt with or withdrawn from a depository;
g) The procedure for ensuring safeguards to protect the interests of participants and beneficial
owners;
h) The conditions of admission into and withdrawal from a participant by beneficial owner;
i) The procedure for conveying information to the participants and beneficial owners on
dividend declaration, shareholder meetings and other matters of interest to the beneficial
owners;
j) The manner of distribution of dividends, interest and monetary benefits received from the
company among beneficial owners;
k) The manner of creating pledge or hypothecation in respect of securities held with a
depository;
l) Inter se rights and obligations among the depository, issuer, participants, and beneficial
owners;
m) The manner and the periodicity of furnishing information to the Board, issuer and other
persons;
n) The procedure for resolving disputes involving depository, issuer, company or a beneficial
owner;
o) The procedure for proceeding against the participant committing breach of the regulations
and provisions for suspension and expulsion of participants from the depository and
cancellation of agreements entered with the depository;
p) The internal control standards including procedure for auditing, and monitoring.
Reviewing

2.6.3 SEBI (Depositories and Participants) Regulations, 1996

Board (SEBI) grants a certificate of registration to a depository subject to the following
conditions, namely:

a) The depository shall pay the registration fee specified within fifteen days of receipt of
intimation from the Board;
b) The depository shall comply with the provisions of the Act, the Depositories Ordinance,
the bye-laws, agreements and these regulations;
c) The depository shall not carryon any activity other than that of a depository unless the
activity is incidental to the activity of the depository;
d) the sponsor shall, at all times, hold at least fifty one per cent of the equity capital of the
depository and the balance of the equity capital of the depository shall be held by its
participants;
e) No participant shall at any time, hold more than five per cent of the equity capital of the
depository;
f) If any information previously submitted by the depository or the sponsor to the Board is
found to be false or misleading in any material particular, or if there is any change in such
information, the depository shall forthwith inform the Board in writing;
g) The depository shall redress the grievances of the participants and the beneficial owners
within thirty days of the date of receipt of any complaint from a participant or a beneficial
owner and keep the Board informed about the number and the nature of redressals;
h) The depository shall make an application for commencement of business under regulation
14 within one year from the date of grant of certificate of registration under this regulation;
i) The depository shall amend its bye-laws as directed by SEBI.

1.2.6.4 Certificate of Commencement of Business

The Board shall take into account for considering grant of certificate of commencement of
business, the following points, namely, whether

a) The depository has a net worth of not less than rupees one hundred crore;
b) The bye-laws of the depository have been approved by the Board;
c) The automatic data processing systems of the depository have been protected against
unauthorised access, alteration, destruction, disclosure or dissemination of records and data.

d) the network through which continuous electronic means of communications are

established between the depository, participants, issuers and issuer’s agents is secure against
unauthorised entry or access;
e) The depository has established standard transmission and encryption formats for electronic
communications of data between the depository, participants, issuers and issuers’ agents;
f) the physical or electronic access to the premises, facilities, automatic data processing
systems, data storage sites and facilities including back up sites and facilities and to the
electronic data communication network connecting the depository, participants, issuers and
issuer’s agents is controlled, monitored and recorded;
g) the depository has a detailed operations manual explaining all aspects of its functioning,
including the interface and method of transmission of information between the depository,-
issuers, issuers’ agents, participants and beneficial owners;
h) the depository has established adequate procedures and facilities to ensure that its records
are protected against loss or destruction and arrangements have been made for maintaining
back up facilities at a location different from that of the depository;
i) 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; and
j) The grant of certificate of commencement of business is in the interest of investors in the
securities market.
The Board shall, before granting a certificate of commencement of business makes a

1.2.6.5 Depository

Physical verification of the infrastructure facilities and systems established by the depository.

1.2.6.6 Record of Services by Depository Participant (DP)

i) Types of records
Every participant shall maintain the following records and documents, namely:
a) Records of all the transactions entered into with a depository and with a beneficial owner;
b) Details of securities dematerialised, rematerialised on behalf of beneficial owners with
whom it has entered into an agreement;

c) Records of instructions received from beneficial owners and statements of account

provided to beneficial owners; and
d) Records of approval, notice, entry and cancellation of pledge or hypothecation, as the case
may be.
Every participant shall make available for the inspection of the depository in which it is a
participant all records referred above. Every participant shall allow persons authorised by the
depository in which it is a participant to enter its premises during normal office hours and
inspect its records.
Every participant shall intimate the Board the place where the records and documents are
maintained.
The participant shall preserve records and documents for a minimum period of five years.
ii) Where records are kept electronically by the participant, it shall ensure that the integrity of
the 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 and in the event of loss or
destruction, ensure that sufficient back up of records is available at all times at a different
place.
iii) If a participant enters into an agreement with more than one depository, it shall maintain
the specified records separately in respect of each depository.
iv) No participant shall assign or delegate its functions as participant to any other person,
without the prior approval of the depository.

1.2.6.7 Agreement by Issuer

Every issuer whose securities have been declared as eligible to be held in dematerialised form
in a depository shall enter into an agreement with the depository.

1.2.6.8 Records to be maintained by Depository

Every depository shall maintain the following records and documents, namely:
a) Records of securities dematerialised and rematerialized;
b) The names of the transferor, transferee, and the dates of transfer of securities;
c) A register and an index of beneficial owners;
d) Records of instructions received from and sent to participants, Issuers, issuers’ agents and
beneficial owners;
e) Records of approval, notice, entry and cancellation or pledge or hypothecation, as the case
may be;
f) Details of participants;
1.2.7 DEMATERIALISATION PROCESS

6
NSDL Depository
Participant
3

Registrar Investor

1. Investors surrender certificates for dematerialization to DP.

2. DP intimates depository of the request through the system.
3. DP submits the certificates to the registrar.
4. Registrar confirms the dematerialization request from depository.
5. After dematerialization registrar updates accounts and informs depository
of-the completion of dematerialization.
6. Depository updates its accounts and informs the DP.
7. DP updates its accounts and informs investors.

i) Appointing DP

Any investor who intends to transact through depository system has to engage one
depository participant (DP). He can approach a DP of his choice and open an
account with him just like one opens an account with a bank. Investor gets an
identification number called Client ID (just as one gets ones bank account number)
which serves as a reference point for all his transactions with D.P.

Every investor before getting his holding dematerialised has to enter into an
agreement with the depository through a participant. This step is necessary whether
investor already has securities or securities are yet to be issued in a fresh issue. The
investor contracts only with that depository which accepts his security in ‘depository
mode’ since it is not necessary that all eligible securities must be in depository mode
and with all the depositories. The decision on whether or not to hold securities within
the depository mode and if in depository mode, with which depository or
participants, would be entirely with the investor.
 ii) Request for ‘Demat’

After any agreement is entered for getting securities dematerialised and his
account is opened, the investor makes an application to depository participants
in form called
‘Dematerialisation Request Form’ (DRF) to be provided by the DP and hands over
his share certificates duly cancelled by writing’ surrendered for dematerialisation’ to
them for demat. The DP will accept certificates registered only in investor’s name.

The request for dematerialisation with the depository participants is sent to the
depository through depository network with which DP is connected.

iii) Approach the Company or Registrar of Transfer

The depository will electronically intimate the issuer or its ‘Registrar and transfer
agent’ of the dematerialisation request. The issuer or the ‘Registrar and transfer

Agent’ has to verify the validity of the security certificates as well as the fact that the
DRF has been made by the person recorded as a member in its Register of Members. If
the issuer or its Registrar is satisfied, it dematerialises the scrip and updates its record.

iv) Confirmation of Demat

The Registrar to transfer or the concerned company when satisfied with the case of
demat has to inform the depository of the completion of dematerialisation authorising
an electronic credit for that security in favour of the investor.

v) Crediting the Client’s Account

DP credits investor’s account with the number of shares so dematerialised and thereafter
investor hold the securities in electronic form. If there is rejection of demat request then
such credit is not given. After crediting the account, the client is sending the necessary
information in form of a statement like we get bank statement after bank transactions

Literature Review-

SOURCE-1

Depository in the Debt Market:The Unfinished Agenda

By- T. Koshy
Share on-1997

Though the Indian capital market is over 100 years old, it continues mainly as a market
for equity related products. Debt is more or less financed through banks and financial
institutions, although in the recent past, financial markets are playing an increasingly
significant role. Even the Government securities market essentially consists of primary
issues and inter-institutional trades. However, due to a variety of institutional and
regulatory reasons, the Indian debt market has not been able to achieve even a fraction
of its true potential. Although an exemption in stamp duty may appear to be against the
interests of State Governments – owing to a loss in revenue – the resultant increase in
liquidity will go a long way in improving their fund raising efforts as also of their state
financial institutions and municipalities for infrastructure projects. The National
Securities Depository Limited (NSDL) has already taken up this matter with the State
Governments. NSDL has requested for a revenue- neutral policy change which will
imply the levying of a one-time charge at the time of issue and eliminating duty at the
time of transfer. This research paper explain different advantages which debt market
participants will enjoy if they join the NSDL

SOURCE-2

Indian Securities Depository system, what has Gone Wrong?

By- LC Gupta, Naveen Jain

Share on-2003

Unknowingly and unintentionally’ the share depository system is adversely affecting

million of small investors and hurting the equity market’s growth by causing such
investors to gradually withdraw from the market. This paper attempts to explain how
this has come about and what corrective action is needed
SOURCE-3
Dematerialized Securities

By- Trinath Tadakamalla

Share on-2004

Dematerialized securities are securities that are not on paper and a certificate to that
effect does not exist. They exist in the form of entries in the book of depositories.
Essentially, unlike the traditional method of possessing a share certificate to the effect
of ownership of shares, in the demat system, the shares are held in a dematerialized
form. This system works through a depository who is registered with the Securities
and Exchange Board of India (SEBI) to perform the functions of a depository as
regulated by SEBI.
Under Section 68 B of the Companies Act, inserted by the Companies (Amendment)
Act,2000, it is mandated that every initial public offer made by a listed company in the
excess of Rs 10 Crores has to be issued in dematerialized form by complying with the
requisite provisions of the Depositories Act, 1996. This article explains Dematerialized
securities and Dematerialization process.

SOURCE-4

Dematerialisation of Securities

By- Iti Jain & Sudhanshu Roy

Share on-2004

This paper is mainly a study of the ‘dematerialisation’ process in the Indian capital
market, which was introduced through the aforesaid enactment. The paper is divided
into five parts. First part introduces the depository system in India and also looks at the
need and objectives of the depository system in India. Second part introduces the
process of dematerialisation looking at the players involved in dematerialisation. Third
part further dissects the demat process and looks at the procedure involved in
dematerialisation of securities. Second last part looks at the pros and cons of
dematerialisation while the last part finally concludes the paper evaluating the success
and failure of the dematerialisation in the Indian capital market.

Dematerialisation of Equity Shares in India: Liquidity, Returns and

Volatility By- Dr. M. T. Raju, Dr. Prabhakar R. Patil

Share on-2005

Dematerialisation of shares is an important milestone in the annals of Indian Capital

Markets. Understanding and measuring the impact of it on various segments is
necessary since it stirred the microstructure of Indian capital markets in general and
stock exchanges in particular. Demand and Supply forces determine prices of a product.
Liquidity plays an important role in the interplay of demand and supply forces. The
impact of dematerialisation on liquidity in the Indian stock exchanges is quantified and
analysed. Quality of shares changed for better owing to dematerialisation and thus
investors are expected to earn higher returns as a natural step, albeit, for some time
only. Changes in quality of shares are expected to cause changes in demand and supply
for shares, which in turn, influences the levels in share prices (volatility). All these three
issues are studied in the present paper. Liquidity and returns improved substantially in
the post-demat period while volatility was very much below the daily changes
permitted.

SOURCE-5

Dematerialisation- An Introduction

By- Prof. G. Vasudha

Share on-2006

Dematerialisation is the process of converting the physical form of shares into electronic
form. Prior to dematerialisation the Indian stock markets have faced several problems like
delay in the transfer of certificates, forgery of certificates etc. Dematerialisation helps to
overcome these problems as well as reduces the transaction time as compared to the
physical segment. The article discusses the procedures, advantages and problems of
dematerialisation. The Indian Stock markets have seen a major change with the
introduction of depository system and scrip less trading mechanism. There were various
problems like inordinate delays in the transfer of share certificates, delay in receipt of
securities and inadequate infrastructure in banking and postal segments to handle a large
volume of application and storage of share certificates .To overcome these problems
physical dealing in securities should be eliminated .

The Indian stock market introduced the system of dematerialisation recognizing the
need for scrip less trading.
SOURCE-6

Development of Securities Market – The Indian Experience

By- Narendra Jadhav

Share on-2007

Well-developed securities markets are the backbone of any financial system. Apart from
providing the medium for channelizing funds for investment purposes, they aid in
pricing of assets and serve as a barometer of the financial health of the economy. The
Indian securities markets have witnessed reforms in the post-liberalization era in terms
of market design, technological developments, settlement practices and introduction of
new instruments. The markets have achieved tremendous stability and as a result, have
attracted huge investments by foreign investors. There still is tremendous scope for
improvement in both the equity market and the government securities market. However,
it is the corporate debt market, which needs to be given particular emphasis given its
importance for providing long-term finance for development.
SOURCE-7

Demat Processing in India

By- Nidheesh K B
Share on-2008

A new phase in the Indian stock markets began in the 1970s, with the introduction of
Foreign Exchange Regulation Act (FERA) that led to divestment of foreign equity by
the multinational companies, which created a surge in retail investing. The early 1980s
witnessed another surge in stock markets when major companies such as Reliance
accessed equity markets for resource mobilisation that evinced huge interest from retail
investors. A new set of economic and financial sector reforms that began in the early
1990s gave further impetus to the growth of the stock markets in India. As a part of the
reform process, it became imperative to strengthen the role of the capital markets that
could play an important role in efficient mobilisation and allocation of financial
resources to the real economy. Towards this end, several measures were taken to
streamline the processes and systems including setting up an efficient market
infrastructure to enable Indian finance to grow further and mature. The importance of an
efficient micro market infrastructure came into focus following the
incidence of market abuses in securities and banking markets in 1991 and 2001 that led
to extensive investigations by two respective Joint Parliamentary Committees. The
Securities and Exchange Board of India (SEBI), which was set up in 1988 as an
administrative arrangement, was given statutory powers with the enactment of the SEBI
Act, 1992.

Objectives of the study is To study and analyse the process of Dematerialisation and
Investors opinion towards Demat Processing., To know and explain procedure for
opening of Demat account and process of dematerialization of securities to eliminate
the problem related with physical holdings of securities., To explain the advantages of
Dematerialisation of securities, convince and make them to dematerialize their
securities., To know the problem faced by the investor and reason for physical holdings
of securities without dematerialization of securities., To give awareness among the
investors about Demat and to make them to open Demat Account.
SOURCE-8

Story of Demat Scams

By- Dr. Kirit Somaiya

Share on-2008

21st Century India is moving in the direction of becoming a Developed Country.

Importance on the growth, Government investment in infrastructure from the year 2000
has changed the picture of Indian economy. Rs 1,00,000 crore Government spending on
the core and infrastructure industries during 2001-03, has created a boom in the Indian
Economy. Indian industries have gained self-confidence to compete with the world. The
boom in the economy resulted in the boom in finance industry and that of Capital
Market. It is unique in India that every bull run in the Capital Market has got
supplemented by a scam. Harshad Mehta Scam
– 1992, the scam of CRB-NBFC, the plantation companies and the Ketan Parekh
Scam.It is the sad part of the Indian Capital Market that every IPO boom has a scam. It
was during 1986-88, the primary market momentum had a mini-scam of mini-steel
plants and mini-cement plant public issues. These companies tapped the market, fooled
the Small Investors, collected hundreds of crores of Rupees, diverted the funds. Small
Investor was the loser.This paper is mainly a study of the different Demat Scams that
take place in India 2006

Workbook for NISM-Series-VI: Depository Operations Certification Examination

By- NISM
Share on-2010

This workbook has been developed by the certification team of NISM. This workbook
has been developed by NISM in cooperation with the Examination Committee for
Depository Operations Examination consisting of representatives from National
Securities Depository Limited (NSDL) and Central Depository Services Limited
(CDSL). This workbook has been developed to assist candidates in preparing for the
National Institute of Securities Markets (NISM) Certification Examination for
Depository Operations. It provides basic information about Indian capital market,
working and functions of depository.
SOURCE-10

Inspection Manual

By- Central Depository Services (India) Limited

Share on-2010

CDSL has formulated bye laws, operating instructions and also it comes out with
amendments regularly through communiqués. It is very crucial for depository to
ascertain whether the RTA so registered carries on the operations in the overall interest
of the capital market and the investors. To achieve this objective, CDSL conducts
regular Inspection of its DPs and RTAs through their own staff and independent firms
of professionals.
The underlying focus of these inspections is to improve the operations of the RTA, to
verify whether RTA are aware of and adhere to the Act, Rules, Regulations, various
communiqués issued by CDSL and to ensure better and efficient record keeping by
them so that better services are provided to the investor.

Research Methodology

Introduction:-
This chapter studies the entire and how the report was carried out and also explains how
the research was conducted, the area of the study, sample size and sampling technique.
This research also indicates how the data was collected and analyzed.

Meaning of Research:-

Research is defines as to search of knowledge scientifically and systemic collection of

information.

In other words, research is the careful survey of markets especially through search for
new facts in of knowledge.

Research refers to the systematic method consisting of:

 Identifying the problem, 


 Formulating of hypothesis, 

 Collection of data, 

 Analyzing the data 

 Drawing certain conclusions in the form of solutions towards the objective of study
Research methodology is a way to solve the problem systematically and studying how
research is done. 

1 Conceptualization
There are two depositories in India at present i.e.
1. NSDL: National Securities Depository limited
2. CDSL: Central Depository Services (India) Limited

National Securities Depository Limited

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.

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 paid-up equity capital of Rs. 105 crore. The paid up capital has been
reduced to Rs. 80 crore since NSDL has bought back its 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. Citibank N.A.
6. Standard Chartered Bank
7. HDFC Bank Limited
8. The Hongkong and Shanghai Banking Corporation Limited
9. Deutsche Bank A.G.
10. Dena Bank
11. 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 & 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:
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
Amendments to NSDL Bye-Laws require the approval of the Board of Directors of
NSDL and SEBI.
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 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

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.

A professional Board of Directors with vast and varied experience in capital markets
and banking is at the helm of affairs at CDSL.

Significance of Study

The significance of the study is to know the working of dematerialisation of securities

in India. This study helps in know the process of dematerialisation and to know about
the two depositories i.e. NSDL and CDSL. The study also tells about the stock market
and various stock exchange agencies working all over the world. It also tells about the
various acts and legal framework of depositories. It tells about all the details of working
of depositories with detailed rules and regulations.
3 Objectives of the Project

Main objective-
  To study the working system of depository in India 

Sub objectives-
 To study various benefits of depositories. 

 To study the conceptual knowledge system of depository in India 

 To provide information about the types of accounts that can be opened in
depository. 

 To know about the investors views regarding NSDL’s services in India 

 To study the process of Settlement. 

 To study the process of DEMAT. 

 To study the process of Dematerialization of shares. 

3.4 Scope of the Study

The scope of the study gives a detail description of the following activities like Inter
Connected Stock Exchange and its functions, Dematerialization of securities, Online
trading procedure, Depository participant’s services through depositories, Depository
participants services through depositories etc.
Research Design

A research design is an arrangement of conditions for collection and analysis of data in

a manner that aims to combine relevance to the research purpose with economy in
procedure. It constitutes the blueprint for collection, measurement and analysis of data.
The research design used in this research is ‘exploratory research’.

Exploratory research: is one type of research design, which has as its primary
objective the provision of insights into and comprehension of the problem situation
confronting the research.

Exploratory research was performed to gain detailed knowledge and understanding of

the functioning of depository in the country by using both primary and secondary data.

3.6 Collection of Data-

Data collection is the most important element of a survey and while collecting data
absolute care must be done because data constitute the base on which the statistical
analysis is done. The entire decision would be wrong if the data is inaccurate .

3.7 Sources of Collection Data-

 PRIMARY SOURCE OF DATA: the primary data is in the form of questionnaire

 which is used to gather investor’s views about depository system’s services in India.
The sampling method used was basically convenience sampling. 

Sample size: The study is based on sample size of 150 people who have demat
account
in NSDL

 SECONDARY SOURCE OF DATA: For this project secondary data is also used.
Secondary data is the data compiled by someone other than the user. It includes
published data in the form of documents, research papers, web pages and other
organisational records. 

It is recommended to use secondary data in order to avoid duplicating of effort, running

up
unnecessary costs, and tiring of informants.
Types of secondary data used-

In this project the secondary data used was of the following types

1. Internal secondary data – the data which is available within the organisation – was
obtained from the website of Ludhiana Stock Exchange ‘www.lse.org’.
2. External secondary data - the data which is obtained from sources external to the
organisation as commercial publications, government publications, professional
organisations, trade associations professional marketing research agencies etc.

All secondary data used in this project was in the electronic form, and was obtained
from the internet.

3.8 Sampling Technique

Sampling techniques are the strategies adopted by the researchers during the
sampling process.
There are various types of sampling techniques-
 Simple Random Sampling 

 Stratified Sampling 

 Cluster Sampling 

 Systematic Sampling 

 Convenient Sampling 

 Judgement Sampling 
 I use Convenient Sampling in this project.

3.9 Analytical Tool Used-

The following tools are used in this project:

 Figures 

 Tables 

 Bar diagram 
3.10 LIMITATION OF STUDY

 The study is limited to the depository participants services. 


 Because of not considering the entire depository system the exact pattern of
trading is missing in this study. 

 NSDL analysis, problems relating to the management and listing of
securities and SEBI guidelines are not covered in this study. 

 Information is partly based on secondary data and hence the reliability of the
study is not up to mark. 

 Lack of necessary infrastructure and personnel at the depository participant. 

 Multiple frameworks including Depositories Act and By-Laws of various
depositories need to be followed. 

SWOT ANALYSIS-

SWOT Analysis is a method used to check the strength, weakness, opportunities and
threats of the organisation. It involves in analysing the external and internal factors that
may be favourable or unfavourable in achieving the objectives of the organisation.

 STRENGTHS: 

1. Low brokerage system.
2. Effective after sale services system.
3. Freedom acts with different facilities.
4. Personalize activities.
5. Low charges with respect to its services.
6. Free annual maintenance of DEMAT Accounts.

 WEAKNESSES:
1. Lack of aggressive marketing.
2. Improper billings.
3. Expensive because separate accounts has to be opened according to holdings.
4. Awareness about E-banking portal is yet to created among the masses.
5. Small range of offerings.
6. Defects in internal legal regulations.
7. Deficiencies in corporate governance, internal control and audit system.

 OPPORTUNITIES: 

1. Growing capital market in India and other country.
2. Better governance by SEBI.
3. Decreasing interest rate in India as people are motivated to earn more return
through capital market.
4. Large untapped market.
5. Opportunity to educate investors about their products and inspire them to invest
more and encourage them.
Rapid penetration of Internet and computers will be instrumental in increasing e-
broking business
THREATS:
1. Increasing competition in security market.
2. Loss in faith in share market after big scams in share market.
3. Instability of customers to pay brokerage at the right time.
4. High risk involved in stock market.
5. Change in government and economies.
6. Slowdown of Indian and global economy.

4.2 Analysis-

I used a structured questionnaire for eliciting the required responses relating to

Depository Services. Respondents chosen for this research are only those who have a
DEMAT account with any depositary participant. 150 respondents were approached for
this purpose, out of which 80 were male and 70 were female respondents. All the
respondents co-operated with the researcher in filling the questionnaire.
The various responses were classified, and tabulated. A simple statistical analysis was
made by the researcher. An attempt is made to present the analysis which covers
various aspects of
Depository Services that affect a customer’s opinion related to depository system’s
services
Q.1 Do you indulge in share trading

TABLE 4.1
Male Female

Do you Frequency Percentage Frequency Percentage

indulge in
share trading

Yes 60 75 40 57.14

No 20 25 30 42.86

Total 80 100 70 100

 100
90
80
70
60
50 male
40 female
30
20
10
0
Do you indulge Yes No Total
in share
trading

FIG. 4.1

Analysis and interpretation-

From the above graph it shows that 60 males with (75%) and 40 females with
(57.14%)
indulge in share trading.
4.2 Since how long you are holding and trading in securities?

TABLE 4.2
Male investors Female investors
Time (In Frequency Percentage Frequency Percentage
years)
Below 5 30 50 25 62.5
years
5-10 years 20 33.33 15 37.5
10-15 6 10 0 0
years
Above 15 4 6.66 0 0
years
Total 60 100 40 100

100
80
60
40 MALE
20 FEMALE
0
Time Below 5-10 10-15 Above Total
(In 5 years years years 15
years) years
Analysis and Interpretation-
From above table and graph it is clear that 50% of males and 62.5% of females are trading in
security market for a period of less than 5 years and no female is trading for a period more than
10 years.

\\\