Rama Krishna Vadlamudi November 20th, 2009

India’s capital markets regulator, Securities and Exchange Board of India, SEBI,
has made dematerialized settlement mandatory for all transactions in securities.
This was done in a phased manner, thus bringing most of the securities in India
into dematerialized form. Now, the settlement of trades on stock exchanges is
almost 100 per cent in demat form.

The dematerialization was brought in to prevent physical certificates from

sneaking into circulation, avoiding bad deliveries and associated problems that
existed before the pre-demat era. Companies have to mandatorily go for
dematerialized form of securiteis before making a public or rights issue or an
offer for sale. It has also been made compulsory for public listed companies
making IPO of any security for Rs. 10 crore or more only in dematerialized form.

Movement of securities has become almost instantaneous in the dematerialized

environment. Two depositories, namely, National Securities Depositories Limited
(NSDL) and Central Depository Services (India) Limited (CDSL) provide
electronic transfer of securities and more than 99 per cent of turnover is settled in
dematerialized form. All actively traded scrips are held, traded and settled in
demat form. As per the schedule of the clearing agency, the securities will be
transferred in-and-out of members’ demat account by these two depositories,
seamlessly and simultaneously, through depository participants’ (DPs) pool
accounts. A DP is an inter-face between a demat accountholder and a
depository.

Each instrument or security is identified separately in NSDL/CDSL system

through a unique code called ISIN (International Securities Identification
Number). The description of each instrument is communicated to all the
Depository Participants and Issuers through circulars.

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ISIN is an alphanumeric code (12-digit):
• Used by share custodians to track holdings of institutional investors in a
format which is consistent across markets worldwide
• Designed by United Nations International Organization for Standardization
(under ISO: 3166)
• ISIN is issued by National Numbering Agency (NNA)
• SEBI acts as NNA in India
• Physical and Demat shares will have different ISINs
• Fully paid-up and partly paid up shares will have different ISINs
• SEBI being the National Numbering Agency for India has permitted NSDL
(National Securities Depository Limited) to allot ISIN for demat shares
NSDL ensures the following during allotment of ISINs:
• The ISINs allotted by NSDL does not at any point of time breach the
uniqueness of ISIN of physical form for the same security
• ISIN for a security is allotted only when the security is admitted to NSDL or
on receipt of request for ISIN from CDSL
• The numbering system is simple
• The numbering system of ISIN is in compliance with the structure of ISIN
adopted by SEBI
• In case, any corporate action results in a change in ISIN, then the
securities bearing the new ISIN is treated as newly listed security for
group categorization
Numbering System of ISIN: The numbering structure for securities in NSDL is
of 12-digit alpha-numeric string.
1. The first two characters represent country code i.e. IN (as per ISO 3166).
2. The third character represents the Issuer Type as detailed in Table 1
below. The list may be expanded as per the needs. Maximum issuer types
can be 35 (A to Z & 0 to 8. The partly paid-up shares are identified by 9).
3. The next four characters (fourth to seventh character) represent company
identity. The first 3 characters are numeric. The fourth character is alpha
character. The numbering begins with ‘001A’ and continues till ‘999A’ and
proceeds to ‘001B’.
4. The next two characters (the eight and ninth characters) represent
security type for a given issuer. Both the characters are numeric. The
security types are planned which may be expanded as per the need as
detailed in Table 2.
5. The next two characters (the tenth and eleventh characters) are serially
issued for each security of the issuer entering the system.

6. Last digit is double-add-double check digit.

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 Table 1: Issuer Type (the third character)

CODE
ISSUER TYPE
ALLOTTED

Central Government A

State Government B

Municipal Corporation C

Union Territories D

Company, Statutory Corporation, Banking Company E

Mutual Funds including UTI F

NB: ISINs for Government Securities (G-Secs) are allotted by Reserve Bank of India

Table 2: Security Type (the eighth & ninth characters)

SECURITY TYPE CODE

Equity Shares 1
Postal Savings Scheme 2
Preference Shares 3
Bonds 4
Deep Discount Bonds 5
Floating Rate Bonds 6
Commercial Papers 7
Step Discount Bonds 8
Regular Return Bonds 9
Certificates of Deposit 10
Securitised Instruments 11
Debentures 12
Units 13
Government Securities 14
Warrants 15
Commodities 16
RBI Relief Bonds (incl National Savings Certificates VII issue) 17

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 ADDITIONAL READING

The stamp duty on transfer of demat securities has been waived. There are two
depositories in India, namely, NSDL and CDSL. They have been set up to
provide instantaneous electronic transfer of securities.

In order to promote dematerialisation of securities, India’s leading financial

institutions, along with National Stock Exchange, had in August 1996 established
the National Securities Depository Ltd. (NSDL), the first depository in the country,
with the objective of enhancing the efficiency in settlement systems as also to
reduce the menace of fake/forged and stolen securities. This has ushered in an
era of dematerialized trading and settlement.

CDSL was set up in February, 1999 to provide depository services. 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

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