NSDL

Presently there are two depositories in the country, namely, National Securities Depositories Services Ltd(NSDL) and Cenyral depositories Services Ltd(CDSL) we discus the depository system in India with reference to the NSDL.

NSDL(National Securities depositories Limited):-

Set up as the first depository company in the country, it has been sponsored by the unit trust of India, NSE, and state bank of India, HDFC bank and Citibank. As a public limited company, it is managed by board of directors. It is governed by its bye-lows and business operations are regulated by its business rules. It was established in 1996.NSDL started operations in November196 and has made significant progress since then.

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FUNCTION:The NSDL performs the following function through depository participants. 1. Maintenance of individual investors beneficial holdings in an electronic form. 2. Dematerialization and rematerialisation of securities. 3. Account transfer for settlement of trade in electronic shares. 4. Allotments in the electronic forms in case of initial public offering. 5. Distribution of non-cash corporate action. 6. Facility for freezing/locking of investor account. 7. Facility for pledge and hypothecation of securities. In the first 16 months of its operation, 186 companies constituting over 50% of the total market capitalization have signed up agreements with NSDL to get their securities admitted foe decentralization. A total of 163 crore shares valued at Rs. 19600 crores have already been dematerialized. According to NSDL, the dematerializations volume has crossed Rs. 463385 crores as on march 2001. There are 218 depository participants operational as on march 2004 which are providing services at about 1425 locations in India. Over 24 lakh clients have opened accounts with these DPs. There are 5632 corporate as available for dematerialization. Right now, seven stock exchanges- the NSE, BSE, CSE, DSE, OTCEI, Ludhiana and Bangalore stock exchanges have established connectivity with NSDL.

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Services offered by NSDL:As a depository, it offered a host of services to the investor through its network of depository participants (DPs) Maintenance of beneficial Holdings through DPs: The NSDL maintains account of investor holdings through its DPs. However, it has a record of the accounts of individual investors to ensure proper flow of information to companies. The DPs provide a statement of holding of each of their clients which is similar to such documents provided by a commercial bank. Dematerialization: Conversion of physical certificates into dematerialized holdings at the request of the investors is called dematerialization. Only shares registered in the name of account holder are accepted for dematerialization at NSDL. Dematerialization takes place through the following steps: 1. The investor surrenders defaced certificates along with the

dematerialization request from (DRF) to his (DP). 2. The DP intimates the NSDL of the request through the system. 3. The DP submits the certificates along with the DRF to the registrar. 4. The registrar confirms the dematerialization request from the NSDL. 5. The registrar validates the request, updates records and informs the NSDL. 6. The NSDL credits the DPs accounts and informs the DP. 7. the DP updates the investors account and informs the investors.

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2 NSDL 6 Depository Participant 1 4 5 3 Registrar Investor 7

The entire process of dematerialization takes place 15 days time. However, for those cases where a very large amount of certificates are submitted from institution for dematerialization, upto 30 days are allowed for dematerialization. Trading and settlement in dematerialized securities: Trading in dematerialized securities is separate from tradind in pyshical securities. An investor who has sold securities in the physical market can deliver either physical or dematerialized securities. But physical securities cannot be delivered against obligations in the market for dematerialized securities. Receipt of allotment in the dematerialized form: In the cash of public issues, the applicant specify upfront the manner in which he wishes to receive his allotment, that is, in the form of physical certificates or in the form of electronic credit in an account maintained with a DP. In the cash of investor prefers the electronic mode, he has to mention his account number, name of his DP and DP identification number, so that the B.R.C.M. COLLEGE OF BUSINESS ADMINISTRATION Page 4

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allotted securities are credited in to his account. Thus, it is possible for an investor to receive allotment of securities directly into his account. Receipt of corporate benefits: The NSDL provides details of the beneficial owners as on a given day to the Issuer Company/ registrar so as to enable the company to calculate the benefits arising out of these holdings. Shareholders would be given the option of receiving their securities entitlements in the form of physical certificates or in the form of dematerialized holdings with the NSDL. If the investor chooses to receive securities in the dematerialized form, he can get a direct credit to his account, thereby avoiding the risk of loss of certificates in transit. The cash benefits are forwarded directly to the investor by the company or its registrar and transfer agent. Rematerialisation: The conversation of dematerialized holdings back into physical certificates is called rematerialisation. Typically, rematerialisation takes place through the following steps: 1. The beneficial owner submits a rematerialisation request form (PRF) to the (DP). 2. The DP intimates the NSDL of the request through the system. 3. The DP submits the RRF to the registrar. 4. The NSDL the confirms rematerialisation request to the registrar. 5. The registrar updates accounts and prints certificates and informs the NSDL. 6. The NSDL updates accounts and downloads details to the DP. 7. The registrar dispatches the certificates to the investor.

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NSDL 2 6 Depository Participant 1 4 5 3 Investor 7

Registrar

The entire process of rematerialisation takes a maximum of 30 days. Pledging and hypothecation facilities: The NSDL provides beneficial owners with the facility to

pledge/hypothecate securities held in dematerialized form. The securities lying in the beneficiary account of the investor-borrower can be pledged in favor of a lender. The pledged securities are blocked in favour of the lender/pledge. Who can release the pledge once its loan is repaid by the borrower? If the borrower fails to repay the loan, the pledge can invoke the pledge in accordance with the pledge deed. On invoking the pledge, the securities would be transferred to the lenders account and, hence, changed in its name immediately.

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Freezing/Locking of an investors account: An investor can freeze/lock his account for any given period of time. If he so desires. During this period, no debit can be made to the investors account. Stock lending and borrowing facilities: The NSDL also facilities stock lending and borrowing of securities held in dematerialized form. Market trade (sale of securities): In the course of selling securities, an investor intimates his broker to sell his securities in the depository or physical segment of the market. After the deal is executed, the investor gives his DP a delivery instruction slip, authorizing him to debit his account. The clearing member gives his DP a corresponding receipt instruction slip, authorizing his DP to credit his account with the sold securities. The participant then debits the investors account and credits the clearing members account. On the pay-in-day, the DP debits the clearing members account and delivers the securities to the CC/CH. Market trade (purchase of securities): An investors purchasing securities intimates his broker to purchase securities from the depository segment of the market. After the deal is executed, the investor gives his DP a receipt instruction slip, authorizing the DP to credit his account with the purchased securities. On the pay-out day, the securities due to the clearing member are given who then gives a corresponding delivery instruction slip to his DP, authorizing the DP to transfer the securities from his account to the investors account. The DP transfers the purchased securities from the clearing members account to the investors account. In the depository segment, pay-in and pay-out of securities takes place on the same day.

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Off-market trades: These are the trades that are not cleared and settled through the CC/CH of the stock exchange. The buyer and the seller negotiate the trade with each other. The seller then gives his DP a delivery instruction slip, authorizing the DP to debit his account with the sold securities. The buyer gives his DP the corresponding receipt instruction slip, authorizing the DP to credit his account with the purchased securities. Bye-laws: The bay-laws of NSDL have been formed by powers conferred by section 26 of the depository Act, 1996 and approved by the SEBI. They contain, interalia, provisions releting to the: board of directors, executive committee, business rules, participants, safeguards to protect interest of client and participants, securities, accounts/transactions of book entry, reconciliation, accounts and audit, displinary action, appeals, conciliation and arbitration. Business rules: The business rules of the NSDL are applicable to all the users of depository and clients. These relate to the following aspect of the depository: code of ethics for participants, admission of participants, hardware and software requirements, fee and deposits, withdrawal and deposit of securities to/from a client account, transaction in account, conduct of business with the clearing corporation and clearing members, manner of advice, statements and reports from the depository, reconciliation of records, records, funds and claims and penalties.

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