DEPOSITORY SYSTEM

1. DEPOSITORY SYSTEM This system came in to force with effect from September 20, 1995.

2. What Is Scrip Based System? • Scrip based system of securities transactions involves enormous paper work involving certificates and transfer deeds. • Simply, securities are held in physical form.

3. Feature of scrip based system: • There is physical movement of securities certificates along with transfer deeds. • Registration with the company.

4. Problems with scrip based system: • Time consuming (processing time by co.) • Bad deliveries due to signature difference • Mistakes in completion of transfer deeds • Tearing and mutilation of certificates • Fake certificates • Cost of transfer : stamp duty • Postal delays and charges etc.

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

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

7. Whole system of Depository

8. Constituents of depository system There are basically four participant: • The Depository • The Depository Participant • The Issuing Company • The Investor

9. Who is depository? • Depository facilitates holding of securities in the electronic form and enables securities transactions to be processed by book entry by a Depository Participant (DP), who as an agent of the depository, offers depository services to investors

10. Features of depository system in India • In the depository system, the apex body is the Depository.. • A depository can be compared with a bank • Depository services through depository participants. • Fungibility • Registered Owner/ Beneficial Owner (two types of owner)

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

12. Depositories in India • The depository model adopted in India provides for a competitive multi-depository system. There can be various entities providing depository services. Such system is known as Multi-Depository System. • At present two Depositories are registered with SEBI.

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

14. PROMOTERS OF NSDL • Industrial Development Bank of India Limited • Unit Trust of India • National Stock Exchange of India Limited

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

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

17. PROMOTERS OF CDSL • Bombay Stock Exchange Limited • Bank of India, • Bank of Baroda, • State Bank of India and • HDFC Bank

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

19. A Bank-Depository Analogy

20. Who Is Depository Participant: • A Depository Participant (DP) is an agent of the depository through which it interfaces with an investor. • A DP can offer depository services only after it gets proper registration from SEBI. • A DP is just like a Branch of a Bank.

21. Who can be Depository Participant? In terms of the Depositories Act, 1996, SEBI (Depositories & Participants) Regulations,1996, only the following entities are eligible to become a Depository Participant: • Financial Institutions, • Banks, including approved foreign bank • Custodians, • Stockbrokers, • A clearing corporation or a clearing house of a stock exchange • A non-banking finance company, • A registrar to an issue or share transfer agent

22. Types of ownership In the depository system, the ownership of securities dematerialized is bifurcated in to: REGISTERED OWNER BENEFICIAL OWNER

23. Who is registered owner • The registered owner is that person whose name is registered in the register of members of the company (issuer) • For the securities dematerialized, NSDL/CDSL is the Registered Owner in the books of the issuer. • But Registered Owner does not enjoy any right and liability attached with the security.

24. Who is the Beneficial owner • Beneficial owner is that person who enjoys all rights, duties, and liabilities attached with the security. • It means voting right, dividend right, bonus share right , right share right etc are all exercised by the Beneficial owner.

25. Benefits of depository system/holding securities in dematerialized form Depository system provides benefits to: • The investors, and • The issuers.

26. Benefits to investors: • The transactions in electronic mode eliminated the risk and problems of delays. • The risk of bad deliveries is totally eliminated • There is no requisite of filling up the transfer deeds, payment of transfer stamp duty and a lot of other paper work at the end of the investor. • It totally eliminates the risk associated with fraudulent interception of certificates in postages or transits.. • Transfer of ownership of securities is immediate in case of depository mode. • The investment, automatically, becomes more liquid. • contd.

27. Contd. • The problem of odd lot is also eliminated, as the depository mode does not have any concept of market lot. • Holding investments in equity and debt in a single account. • Change in address recorded with DP gets registered with all companies in which investor holds securities electronically eliminating the need to correspond with each of them separately. • Transmission of securities is done by DP eliminating correspondence with companies. • Nomination facility.

28. Benefits to the issuing company: • The company saves a lot of paper work which otherwise is required in the physical mode. • The company saves a postal cost for the dispatch of right shares, bonus shares or share certificates after affecting the transfer. • By offering depository services to its shareholders, a company may send a positive sign to its shareholders about its concern for their welfare. • Depository services adds liquidity to the security thus fund raising capacity of the company.

29. How can services of Depository availed by an investor? • ACCOUNT OPENING: • In order to avail of depository facilities, an investor has to open a beneficiary account with a depository participant of his choice.This is similar to opening a bank account to use the banking services. • Just as one can hold funds in a bank account and transfer funds across accounts without actually handling cash;one can hold securities in a depository account and transfer securities across depository accounts without actually handling share certificates. contd.

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

31. Features of Beneficiary Account Features of Beneficiary Account • No minimum balance is required to be retained in a beneficiary account. • An investor can close a beneficiary account with one DP and open an account with another DP. • To dematerialise existing physical holdings, the beneficiary account must be opened in the same ownership pattern in which the securities are held in the physical form e.g: • If one certificate is in individual name and another certificate is jointly held by X & Y, two different accounts should be opened

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

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

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

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

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

37. What is dematerialisation? • Dematerialisation is the process by which physical certificates of securities of an investor are converted to an equivalent number of securities in electronic form and credited into the investor’s account with his/her DP. • It is to be noted that an investor can hold shares in physical form but for the purpose of trading in stock exchanges shares should be in electronic form.

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

39. Contd. • 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. • This procedure takes 15to 30 days.

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

41. Procedure of rematerialisation • The client has to submit the rematerialisation request to the DP with whom he has an account. • The DP enters the request in its system which blocks the client's holdings to that extent automatically. • The DP releases the request to NSDL and sends the request form to the Issuer/ R&T agent. • The Issuer/ R&T agent then prints the certificates, dispatches the same to the client and simultaneously electronically confirms the acceptance of the request to NSDL. • Thereafter, the client’s blocked balance are debited.

42. Thank you By: CS Ajay Khandelwal