The inability of the poor to meet the “creditworthiness” requirements of the banking sector make them take

recourse to the institutions that still remain outside the regulatory framework of banking. But this market is
shrinking.(Unorganized money market)

Capital Market: The primary market in which public issue of securities is made through a prospectus is a retail
market and there is no physical location.

The secondary market or stock exchange is a market for trading and settlement of securities that have already
been issued

Since 1995, trading in securities is screen-based and Internet-based trading has also made an appearance in India

An active secondary market actually promotes the growth of the primary market and capital formation because
investors in the primary market are assured of a continuous market and they can liquidate their investments.

major players in the primary market: merchant bankers, mutual funds, financial institutions, foreign institutional
investors (FIIs) and individual investors.

In the secondary market, there are the stock exchanges, stock brokers (who are members of the stock exchanges),
the mutual funds, financial institutions, foreign institutional investors (FIIs), and individual investors

Capital Issues (Control) Act, 1947 : Under the Act, any firm wishing to issue securities had to obtain approval from
the Central Government, which also determined the amount, type and price of the issue. This Act was repealed
and replaced by SEBI Act in 1992.

Under the SC(R)A, the secondary market was fragmented regionally, with each stock exchange a self-regulating
organisation following its own policy of listing, trading and settlement.

The interests of the brokers, who were market players and dominated the governing boards of stock exchanges,
took priority over the interest of investors.

SEBI Act, 1992 was enacted to empower SEBI with statutory powers for (a) protecting the interests of investors in
securities (b) promoting the development of the securities market and (c) regulating the securities market

In the interest of investors, SEBI issued Disclosure and Investor Protection (DIP) Guidelines. Issuers are now
required to comply with these Guidelines before accessing the market.

Derivative trading took off in June 2000 on two exchanges. Now different types of derivative contracts i.e. index
future, index options, single stock futures and single stock options are available in the market.

NSE started with the concept of an independent governing body without any broker representation. It was
specified in 1993 that the governing boards of stock exchanges must have 50% non-broker members, and that on
committees handling matters of discipline, default, etc., brokers would be in the minority. All stock exchanges
were mandated to appoint a non-broker executive director who would be accountable to SEBI for implementing
the policy directions of the Central Government/ SEBI.

Indian capital markets have also moved to rolling settlements on a T+2 basis where trades are settled on the
second day after trading.

NSE introduced screen-based trading system (SBTS)

The unscrupulous operators used this information asymmetry to manipulate the market. The information
asymmetry helped brokers to perpetrate a manipulative practice known as “gala”. Gala is a practice of extracting
highest price of the day for “buy” transaction irrespective of the actual price at which the purchase was actually
done and give lowest price of the day for “sell” transactions irrespective of the price at which sale was made

To obviate these problems, the Depositories Act, 1996 was passed. It provides for the establishment of
depositories in securities with the objective of ensuring free transferability of securities with speed, accuracy and
security. It does so by (a) making securities of public limited companies freely transferable, subject to certain
exceptions; (b) dematerialising the securities in the depository mode; and (c) providing for maintenance of
ownership records in a book entry form

Two depositories, viz., NSDL and CDSL, have come up to provide instantaneous electronic transfer of securities

Capital Market Intermediaries: They enable the issuers of securities to interact with the investors in the
primary as well as the secondary arena.

1- Merchant bankers (Category I) are mandated by SEBI to manage public issues (as lead managers) and
open offers in take-overs.
SEBI authorises merchant bankers (Category I) for an initial period of three years, if they have a minimum
net worth of ` 5 crore. An initial authorisation fee, an annual fee and renewal fee is collected by SEBI.

2- Credit rating agencies: Under the SEBI guidelines all issuers of debt have to get the instruments rated
3- R&T Agents: The R&T Agent is appointed by the Issuer to act on its behalf to service the investors in
respect of all corporate actions like sending out notices and other communications to the investors as well
as despatch of dividends and other non-cash benefits
4- NSE encouraged the setting up of corporate broking members and has today only 10% of its members
who are not corporate entities.
5- Custodians: The Stock Holding Corporation of India Limited was set up to act as a custodian for securities
of a large number of banks and institutions who were mainly in the public sector
Some of the banks and financial institutions also started providing “Custodial” services to smaller
investors for a fee
But they still remain an important intermediary providing services to the investors who still hold securities
in physical form
6- Mutual funds are financial intermediaries, which collect the savings of small investors and invest them in
a diversified portfolio of securities to minimise risk and maximise returns for their participants
Open ended MF: easy liquidity
Close ended MF: A closed-ended fund has a stipulated maturity period, generally five years
Growth fund, income fund, balanced fund, money market or liquid fund

Depositories: The depositories are an important intermediaries in the securities market.

In India, the Depositories Act defines a depository to mean “a company formed and registered under the
Companies Act, 1956 and which has been granted a certificate of registration under sub-section (IA) of
section 12 of the Securities and Exchange Board of India Act, 1992.” The principal function of a depository
is to dematerialise securities and enable their transactions in book-entry form.
A Depository Participant (DP) is described as an agent of the depository. They are the intermediaries between the
depository and the investors.

As per the provisions of this Act, a DP can offer depository-related services only after obtaining a certificate
of registration from SEBI.
SEBI (D&P) Regulations, 1996 prescribe a minimum net worth of ` 50 lakh for the applicants who are stockbrokers
or non-banking finance companies (NBFCs), for granting a certificate of registration to act as a DP
For R & T Agents a minimum net worth of ` 10 crore is prescribed in addition to a grant of certificate of registration
by SEBI.

If an NBFC seeks to act as a DP on behalf of any other person, it needs to have a networh of ` 50 cr.

NSDL: 300 Lakh for DP

SEBI : 50 lakh for DPs

Issuing security in book entry form is called as Subsidiary General Ledger (SGL) form

SGL-1 a/c opened directly with RBI

The RBI has permitted banks, registered primary dealers and certain other entities like NSCCL, SHCIL and NSDL to
provide SGL facilities to subscribers

Internet Initiatives at NSDL

Securities Position Easy Electronic Dissemination-e (SPEED-e) SPEEED e is website of NSDL from which a/c holder
can send instruction to DPs

Submission of Instruction through Mobile Phone Login Easily (SIMPLE)y

Securities Trading Information Easy Access and Delivery STEADY will enable electronic communication between
brokers, custodians and fund managers in respect of Custodian trades

Immobilisation of securities is done by storing or lodging the physical security certificates with an
organisation that acts as a custodian - a securities depository.

Registered Owner/ Beneficial Owner

Fungibility - In the depository system, the securities dematerialised are not identified by distinctive numbers or
certificate numbers as in the physical environment. Thus all securities in the same class are identical and
interchangeable.

The principal function of a depository is to dematerialise securities and enable their transactions in book-entry
form

Depository is like a bank.

The operations of the depositories are primarily governed by the Depositories Act, 1996, Securities and Exchange
Board of India (Depositories & Participants) Regulations, 1996, Bye- Laws approved by SEBI, and Business Rules
framed in accordance with the Regulations and Bye-Laws.

Section 9: Securities held in a depository are fungible : All securities held by the depository are in dematerialised
and fungible form

The promoters of a depository are also known as its sponsors. A depository company must have a minimum net
worth of ` 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

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 thereunder, and need to be approved by SEBI
before becoming effective.
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.

The Bye-Laws contain fourteen chapters

Amendments to NSDL Bye-Laws require the approval of the Board of Directors of NSDL and SEBI

at least a day before the effective date for the amendments

Functions and services offered by NSDL

NSDL charges the DPs and not the investors directly. These charges are fixed. The DPs in turn, are free to charge
their clients, i.e., the investors for their services. Thus, there is a two-tier fee structure.

DPs are required to submit to NSDL, internal audit reports on a half yearly basis. Internal audit has to be conducted
by a chartered accountant or a company secretary in practice.

NSDL obtains audited financial reports from all its DPs once every year

Account holders (investors) open account with the DPs. The account details, entered in a computer system
maintained by Depository Participants called DPM, are electronically conveyed to central system of NSDL called
DM

All the computer systems installed by DPs (DPM-DP), companies (DPM-SHRs), and stock exchanges (DPM-CC) are
connected to NSDL central system (DM) through V-SAT (very small aperture terminal) or leased lines or Multi
Protocol Label switching (MPLS). These are collectively called Business Partner Systems.

DPs may develop software of their own for co-ordination, communication and control and provide service to their
clients. Such exclusive software is called “back office software

V-SAT or leased line or MPLS connections are called primary connectivity. If primary connectivity fails for any
reason, BPs must have the ability to connect through other means. Such other means are PSTN lines, ISDN lines,
POP lines(normal telephone lines) through which they can dial in to the NSDL system and conduct their
transactions.

MODULE-2

NSDL depository system comprises NSDL and its business partners, i.e., Depository Participants (DPs), Issuers/R&T
Agents and Clearing Corporations/ Stock Exchanges.

The minimum net worth for a DP prescribed under the Bye-Laws of NSDL is ` 300 lakh.

NBFCs, having a net worth of less than `50 crore, may act as DPs only on their own behalf

DP: A certificate of registration is valid for a period of five years from the date of issue. The SEBI Regulations
require the Participant to make an application for permanent registration three months before expiry date of the
validity of the certificate of registration.
A certificate of registration is valid for a period of five years from the date of issue. The SEBI Regulations require
the Participant to make an application for permanent registration three months before expiry date of the validity
of the certificate of registration.

International Multilateral Agency, who has entered into an agreement with the DP under Regulation 17 of the SEBI
(Custodian of Securities) Regulations 1996, and such agreement states that the Custodian will also act as a DP and
all provisions pertaining to DP shall be applicable.

For DP’s own securities, he should open a separate account called House Account in the depository system.

NSDL takes insurance for itself and on behalf of all DPs. The insurance covers business risk and system failure risk.
DPs may additionally take for themselves insurance to cover risks like theft, fire, etc

The DP should maintain and preserve the records and documents for a minimum period of five years

Prevention of Money Laundering Act 2002 (PMLA) has come into effect from 1st July, 2005. As per the provisions
of the Act, every banking company, financial institution

Anti Money Laundering (AML)

AML procedures should include inter alia, the following three specific parameters which are related to the
overall ‘Client Due Diligence Process’:
a. Policy for acceptance of clients
b. Procedure for identifying the clients
c. Transaction monitoring and reporting especially Suspicious Transactions Reporting (STR).

ies. Further, the records have to be maintained and preserved for a period of ten years from the date of cessation
of the transactions between the client and Participant.

Clearing Corporation/Clearing House (CC/CH)

This term applies to an entity responsible for clearing and settlement of trades done by clearing members on a
recognised stock exchange.

A stock exchange may be admitted as a user on the depository, if it conducts the activity of clearing and settlement
of trades and if it is not a legal counterparty to the trades thereon and holds and manages the trade/ settlement
guarantee fund.

a) The CC/CH applicant has a net worth of `5 crore. In case it does not have a net worth of ` 5 crore, it
must undertake to enhance its net worth to `5 crore within a period of two years.
b) The aggregate value of Client’s assets held by a CC/CH Participant shall not exceed 20 times its net
worth.

Issuers and R&T Agents

The Depositories Act, 1996 gives option to investors to hold their securities either in physical form or in book entry
form with a depository. Issuer of the security i.e. company may offer a facility to hold the securities issued by it in
demat form by entering into an agreement with NSDL. The issuers who intend to offer demat facility will have to
establish connectivity with NSDL either directly or through a Registrar & Transfer Agent having connectivity with
NSDL.

Every Issuer has to provide timely information to NSDL about various corporate actions. These include - book
closure, record dates, dates for payment of interest or dividend, dates for the annual general meeting, dates of
redemption of securities, dates of conversion, dates of exercising warrants and such other information as may be

specified by the Executive Committee of NSDL from time to time.

The Main Features of the Tripartite Agreement
The rights and obligations of NSDL, the Issuer and R&T Agent are embodied in the Tripartite Agreement
between them.

The Issuer/R&T Agent shall furnish a list of authorised officials who shall represent and interact on behalf
of the Issuer and/or R&T Agent with NSDL within 15 days of the execution of this agreement and any changes
including additions/deletions, thereof shall be communicated to NSDL within 15 days of such change.

The Issuer and its R&T Agent undertakes that the dematerialisation and rematerialisation requests are
processed within 15 and 30 days respectively. However, it is agreed that in case of bulk dematerialisation requests,
this period may be extended to 30 days.

The Issuer/R&T Agent agrees to be fully responsible for destruction, mutilation and cancellation of certificates
received and accepted by it for dematerialisation.

The Issuer shall not change, discontinue or substitute its R & T Agent unless the alternative arrangement
has been agreed to by NSDL

The Issuer or its R&T Agent have to verify the validity of the security certificates as well as the fact that the demat
request has been made by the person recorded as a member in its Register of Members. After such verification,
the Issuer or its R&T Agent intimates NSDL and authorises an electronic credit for that security in favour of the
Client. On receipt of such intimation, NSDL makes the credit entries in the account of the Client concerned. No
credit of any securities to the accounts of any client can be made unless NSDL has received intimation from the
Issuer or its R&T Agent.

In the event of intimation being received by the Depository from Issuer or R&T Agent to credit the account of the
Client with securities which do not match with the details of the Client or DP, the balance shall be held in
suspense account

Remat Request Form (RRF)

The DP forwards the RRF to the Issuer or its R&T Agent within 7 days of accepting such request from the client. The
Issuer/R&T Agent, after validating the RRF, confirm to NSDL electronically that the RRF has been accepted.
Thereafter, the Issuer/R&T Agent despatches the security certificates arising out of the rematerialisation request
within a period of 30 days from receipt of such RRF directly to the client. On receipt of such acceptance from the
Issuer/ R&T Agent, NSDL debits the balances from the respective client’s account held with the DP’s

It is the function of the Issuer/R&T Agent to inform NSDL about the corporate actions

On receiving such intimation, NSDL provides the details of the holdings of the clients electronically to the
Issuer/R&T Agent (as of relevant cut off date) for the purpose of corporate actions and distribution of corporate
benefits. The Issuer/R&T Agent distributes dividend, interest or other monetary benefits directly to the eligible
beneficial owners on the basis of the list provided by the NSDL.

In certain cases such as split of shares, consolidation of shares, mergers, demergers, bonus shares, etc. corporate
action is executed automatically as per the fixed ratio defined by Issuer/R & T Agent, through the NSDL system.
This feature is called “Automatic Corporate Action

One of the important reasons for demat rejection is signature mismatch

Ensure that the signatures of all holders are obtained in case of joint accounts.

In physical environment seller was secured but not buyer

NSDL has permitted use of floppies to give debit instructions for large volumes of transactions

A minor however cannot be a joint account holder.

Gaurdian can operate minor’s account

In the depository, the depository holds the investor accounts on trust. Therefore, if the DP goes bankrupt, the
creditors of the DP will have no access to the holdings in the name of the clients of the DP. These investors can
then either rematerialise their holdings or transfer them to a different account held with another DP.

NSDL’s central system comprises an IBM mainframe system with a back-up facility and a remote disaster back-up
site.

Back-up in case of power failure: Continuity in power supply to the main systems is assured by providing dual
uninterrupted power supply (UPS) for IBM-Mainframe and related components wherein the two UPSs are
connected in tandem.

Any change made by DPs in their pricing structure should be notified to the beneficial owners (investors/clients) at
least 30 days in advance

Nominal Value of securities Amount (`)

admitted (`)
Upto 5 crore 6,000
Above 5 crore and upto 10 crore 15,000
Above 10 crore and upto 20 crore 30,000
Above 20 crore 50,000

An Issuer of unlisted securities shall pay a joining fee of ` 30,000 plus taxes

etc., a fee at the rate of ` 10 per record for debits or credits to accounts as the case may be, shall be charged to the
Issuer, subject to a minimum fee of ` 1000 per corporate action. Fee for Distribution of Non-Cash Corporate
Benefits

In case of conversion of shares of non pari-passu to pari-passu, partly-paid to fully-paid etc., no fee shall be
charged

short term debt instruments viz; certificate of deposits, MIBOR linked papers etc., a fee of ` 10,000 shall be
levied on the Issuer for five such issues made in a financial year. Provided however an additional fee of ` 10,000
shall be levied on the Issuer for every additional five issues

In respect of a request made by the Issuer for Beneficiary Owners Position (Benpos), other than for statutory
purposes, NSDL shall levy a fee of ` 5,000/- in case there are upto 10,000 beneficial owners and ` 10,000/- for
other cases

Fee for details of Beneficiary Owners demographic details (Bendem) @ Re. 1 per record subject to
a minimum of ` 10,000 per issue in respect of depository accounts to R & T agents

DP: Each Participant shall pay, at the time of submitting its application, to the Depository, a non-refundable Entry
Fee of ` 25,000.

Security Deposit
Every Participant shall pay to the Depository `10 lakh by way of interest free refundable security deposit.
MODULE 3

Types of account: Beneficial Owner a/c and Clearing member account

A new sub-type viz. “Margin Account” is also available and added to the Client type viz.; ‘Resident’ and ‘Body
Corporate’ under the BO Maintenance Module in depository system application software. The main aim of adding
this new sub-type is to enable Clearing Members (CMs) to open beneficial owner accounts to hold securities for
client margin purposes. New sub-types are also added to enable promoters to separately hold securities issued as
“Promoter” of the company.

Politically Exposed Persons (PEP)

It is mandatory for all DPs to carry out ‘in-person’ verification (IPV) of their Clients

If IPV is done through web camera, then mention “IPV through webcam” as well.

A demat account can have maximum three holders. Proof of identity is to be obtained for all the holders. For First
holder proof of correspondence address as well as permanent address is to be obtained in case the
correspondence address is not the same as the permanent address. For joint holders proof of only permanent
address is to be obtained.

Proof of Identity (POI)

Proof of address (POA)
DPs shall ensure that in case of foreign entities, all transactions in the account are in compliance with FEMA
Regulations.

An authorized official of the DP shall verify the copies of the proof of address / identity documents with the
original documents and write or put a stamp with the words: “verified with original” and affix his/her signature on
the documents submitted by the Client, while exercising such due diligence.

Resident, Financial Institutions, Foreign

There are several client types in the depository system:
Institutional Investors, Non-resident Indian, Body Corporate, Clearing Member (CM), Foreign
National, Mutual Fund, Trust, Bank, Intermediary
Anyone who wants to avail the depository services should sign and submit the Rights and Obligations document to
the DP.

FII clients are not required to sign this standard the Rights and Obligations document. The FII-DP agreement
authorizes the DP to act on behalf of the FII for availing depository services and it should have been filed with SEBI

n NSDL, subsequent to opening of a depository account, certain information such as Client Master Report
alongwith charge structure is required to be provided to the Client.

- A broker account as a clearing account can be opened only after the depository approves it and allots
clearing-member business partner identification number (CM-BP-ID). A broker member can have only one clearing
account per stock exchange of which he is a member .

there are discrepancies in the PAN details that have not been resolved by December 31, 2006, such accounts have
been ‘Suspended for Debit’ until PAN details are verified and updated at the depository system application
software. PAN non-compliant demat accounts shall also be “suspended for credit” other than the credits arising
out of automatic corporate actions
U.N. entities/multilateral agencies which are exempt from paying taxes/filing tax returns in India are
exempted from the mandatory requirement of PAN. The exemption, however, would be subject to the DPs
associated with NSDL collecting documentary evidence in support of such claim of the investors. After these DPs
are satisfied that such entities are exempt from paying taxes/filing tax returns in India, DPs are advised to capture
the appropriate PAN exemption codes provided by the depository systems.

Though the beneficial ownership of jointly held securities vests in all joint holders, communications about the joint
depository account are provided only to the first holder. The dividend and interest warrants, annual reports and
notices for meetings are also issued to the first-named joint holder only.

HUF accounts cannot be opened with joint holders

a depository account cannot be opened in the name of a partnership firm. All the partners of the firm, however,
can sign as joint holders, and a joint account may be opened in the name of the partners

The account number has two parts, i.e., 8-digit DP-ID (identification number of Depository Participant) and 8-digit
client account number. Together this number is unique across depositories.

it may be mentioned that a DP shall not obtain Power of Attorney (POA) from its client(s) as a requirement
for opening a demat account. Further the following needs to be taken care of when executing a POA:
1. POA Holder does not have the sole authority to operate the account;
2. Account holders who have executed a POA cannot be denied Delivery Instruction Slip (DIS) books

The entities which are authorized to do pay in and receive the pay out from a Clearing Corporation (CC)/
Clearing House against trades done by them or their clients are known as clearing members (CM). All pay-
in and pay-out transactions are carried out through their accounts. There are two types of clearing members:
1. All the members of a stock exchange are clearing members; and
2. Custodians who have been permitted by the stock exchange to act as a clearing member.

Before closing the account the DP should ensure that all pending transactions have been settled. The request for
closure should be processed only after ensuring that there is no balance lying in the account

DPs should provide the Statement of Transaction (SOT) to the Client for the period from the beginning of the
quarter in which the account is closed till the date of closure. Further, the SOT should bear the words “Account
Closed” and should be prominent.

they may not need so many accounts after they have dematerialized their shares and may want to bring all their
share holdings into one or fewer accounts. This can be achieved by using normal off market transfer instruction.

The DP may also initiate closure of a client’s account if the client has defaulted in performing its obligations laid
out in the Rights and Obligations document. The DP should give 30 days notice to the client before initiating
closure of his account. The notice should clearly state the reasons for closure of account.

Beneficiary Owner (BO)

The word “transmission” means devolution of title to shares, for example, devolution by death, lunancy,
bankruptcy, winding-up (in case of corporate) etc. The person on whom the shares devolve has to prove his
entitlement by submitting appropriate documents and seek transmission. If the securities are held in the
depository system, documents have to be submitted to the DP.
Nomination

Nomination can be made only by individuals holding beneficiary owner accounts on their own behalf singly or
jointly

Non-individuals including society, trust, body corporate, karta of Hindu Undivided Family (HUF), holder of power of
attorney cannot nominate.

If the Nominee does not have an account with the Depository, the Nominee shall be required to open an
account with any Depository

In case of death of one of the Clients in a joint account, the surviving Client(s) shall request the DP to transmit the
balances lying in the Client account to the account of the surviving Client(s).

Upon death of the Karta of a Hindu Undivided Family (HUF), the surviving member(s) of the HUF may appoint
another person as the new Karta of the HUF.

As already discussed earlier, dematerialization is the process of holding the securities in a fungible form. They do
not bear any distinguishable features like distinctive number, folio number or certificate number. Once the shares
are dematerialized, they lose their identification features in terms of share certificate number, distinctive numbers
and folio numbers. Title to the securities owned is in terms of number of securities and not in terms of distinctive
numbers, certificate numbers etc

Each security is identified in the depository system by an International Securities Identification Number (ISIN) and a
short name

SEBI has delegated the assigning of ISIN of various securities to NSDL. Allotment of ISIN for G-sec is done by
Reserve Bank of India.

Separate DRFs have to be submitted for:

i. Free and locked-in securities;
ii. Each ISIN;
iii. Securities locked-in for different reasons;
iv. Securities of different paid-up value; and
v. For each client account.

DP should ensure that the certificates are defaced and mutilated before they are sent to the Issuer / RTA.
The security certificates are marked (defaced) with the words “Surrendered for Dematerialization” with DP name
and BO ID.

In case of transposition-cum-dematerialization, the Client can get securities dematerialized in the same account if
the names appearing on the certificates match with the names in which the account has been opened but are in a
different order. The same may be done by submitting the security certificates along with the Transposition Form
and DRF.

If the certificates have not been returned undelivered and are not traceable at the Issuer/ RTAgent’s
office, then it will be assumed that the certificates have been lost in transit. In such a case, the DP shall execute an
Indemnity Bond in favor of the Issuer/RTAgent.

The beneficial owner desiring to receive physical security certificates in place of the electronic holding should make
a request to the Issuer or its R&T Agent through his DP in the prescribed Rematerialization Request Form (RRF).
depository removes the balances from the respective client’s account by debiting the account. On
rematerialization, R&T Agent issues security certificates as per the specifications given by the client in the RRF.
Thereafter, the Issuer or its R&T Agent despatches the security certificates for the rematerialized securities to the
client and his name is entered in the Register of Members of the company. The certificate of securities should be
sent to the clients within a period of 30 days from receipt of such RRF by the Issuer or its R&T Agent

When a rematerialization request is sent, the securities in the client account will not be available for
delivery/transfer immediately. The client will have to wait for physical certificates to reach him before they can be
sold. Thus the client would encounter temporary illiquidity on the securities requested for in rematerialized form.

Separate RRF are submitted for

i. free and locked-in securities;
ii. securities locked-in for different reasons;
iii. each ISIN; and
iv. securities of different paid-up value

Transferee however, can give ‘Standing Instructions’ [SI] to its DP for securities to be received .

A beneficiary account can be debited only if the beneficial owner has given ‘Delivery Instruction’ (DI) in the
prescribed form i.e. the Delivery Instruction Slip (DIS).

Any trade that is cleared and settled without the participation of a clearing member or clearing corporation is
called off-market trade, i.e., transfer from one beneficiary account to another due to a trade between them. Large
deals between institution, trades among private parties, transfer of securities between a client and a sub-broker,
large trades in debt instruments are normally settled through off-market route.

A market trade is one that is settled through the participation of a Clearing Corporation/ Clearing House (CC/CH).

Brokers of stock exchanges that offer settlement through depository are required to open a ‘clearing
member account’ accounts are popularly known as ‘Broker settlement Trading and Settlement 53
account’ or ‘Broker pool account’. A

Every settlement number has a trade beginning day, trade-ending day, settlement pay-in day and settlement pay-
out day etc. Stock exchanges divide a period of one year [financial year or calendar year] into several settlement
periods and allocate settlement number for each settlement-period. All these days collectively are called
‘settlement calendar’

The process of a broker/trading member submitting securities sold by him on behalf of his client, to CC/CH of a
stock exchange is called ‘pay-in’.

If the seller client or CM is unable to deliver the securities within a pay-in deadline time, the short deliveries
are auctioned and are purchased by the CC/CH in an open auction. This difference in price is borne
by the defaulter CM.
The process of a CC/CH transferring the securities to the broker’s CM -account for the quantity of securities
purchased by them on behalf of their clients is known as ‘pay-out’.

The Clearing Corporation can generate auto delivery obligations (Dos) on behalf of those CMs who have authorized
it in this regard. The auto DOs will be generated around the time of download of the delivery obligations to the
Clearing Members. Such CMs will not be required to give delivery-out instruction forms to the Participants for Pay-
in to the CC in respect of the automatically generated Dos

Irreversible Delivery-out (IDO): Auto Dos prohibited

For debiting the clearing member account or the beneficiary account with one depository, the form for
“Inter-depository delivery instruction” is required to be submitted by the clearing member/beneficial owner to its
DP.

UNIT 4
the pledgor and the pledgee must have a beneficiary account with NSDL. However, both parties need not have
their depository account with the same DP.

If the lender (pledgee) has unilateral right (without reference to borrower) to appropriate the securities to his
account if the borrower (pledgor) defaults or otherwise, the transaction is called a pledge.

If the lender needs concurrence of the borrower (pledgor) for appropriating securities to his account, the
transaction is called hypothecation.

After the pledgor has repaid the loan to the pledgee, the pledgor initiates the closure of pledge/hypothecation
through its DP and the pledgee instructs its DP to confirm the closure of the pledge/hypothecation. If the pledgor
defaults in discharging his obligation under the agreement, the pledgee may invoke the pledge/ hypothecation

Multiple pledge instructions can be executed on the basis of a single agreement

Status of the pledge/ hypothecation instruction will change to “Partially Closed” (in case only a part of the pledged
quantity is accepted for closure) or “Closed Settled” (as the case may be) and the securities accepted for closure
get debited from the pledged balances of the pledgor and credited to its free/locked-in balances. In case of
rejection by the pledgee, the securities continue to remain as pledged balances in the pledgor’s account

in case of pledge, no confirmation is required in DPM of the pledgor’s DP for transferring securities from pledgor’s
(borrower’s) account to pledgee’s (lender’s) account

It is important to note that locked-in securities cannot be invoked before the lock-in release date. In case of
hypothecation, the pledgor instructs its DP to confirm the invocation of the hypothecation in DPM.

f originally the securities of company AB Ltd. were offered as collateral and the pledgor were to offer securities of
company CD Ltd. or PQ Ltd. or both of them, he may do so if the pledgee agrees to it

Ownership of the pledged/hypothecated securities remains with the pledgor (borrower) until the pledge is
invoked. Hence, all corporate benefits - cash and non-cash - like dividends, bonus, rights etc., will accrue to the
borrower. Dividends will be given to the borrower in the usual manner and bonus shares will be credited to his
account as pledged balances.

NSDL at present, facilitates the distribution of non-cash corporate benefits.

In cases where the details of accounts to which the Issuer / its R&T Agent has made allotment, do not match with
those maintained with NSDL, such records will be rejected. NSDL then requires the Issuer / its R&T Agent to rectify
the records within thirty days from the execution date. In case the Issuer / its R&T Agent fails to rectify the records
within the stipulated period, the allotment of the rejected records will have to be made in physical form outside
the depository system.

The securities arising out of corporate actions like bonus, share splits or consolidation or exchange under a
merger/ acquisition scheme are credited to the account of the pledgor, with pledge marked in favour of the
pledgee, provided that on the execution date of the corporate action, pledge exists for atleast one share
Eligible investors in debt securities will receive interest from the Issuers / its R&T Agents. However, in respect of
Government Securities, NSDL distributes the interest to eligible clients, after RBI has credited interest amount to
NSDL.

According to the Companies Act, 1956 (section 68B) every listed public company, making an initial offer of any
security of `10 crore and above has to issue it only in dematerialised form in accordance with Depositories Act,
1996.

The investor has the choice of holding Certificate of Deposit (CD) in a separate account or all its holdings in one
account. The minimum size to be subscribed/ transacted by investor through the depository system is ` 1 lakh.

The Issuer has to open a redemption account with Depository Participant. The Investors holding CDs in demat form
will give the delivery instruction slip (DIS) to their respective DPs to transfer the CDs to the Issuers Redemption
Account so that the transfer takes place by 3.00 p.m. atleast two working days prior to the maturity date. On
sighting the securities in the redemption account, the Issuer will initiate the steps to pay the investors the
redemption proceeds.

An investor can subscribe to minimum of ` 5,00,000 or multiples thereof, as the face value of a Commercial Paper
in the depository system is taken as ` 5,00,000

The securities (CP) will be credited in the investor’s account in terms of units. For eg. If the investor invests 5 crore
issue in a CP issue, then 100 units will be credited to his account. The investor has the choice of holding
Commercial Paper in a separate account or all its holdings in one account.

CP issued by: Issuing & Paying Agent (IPA).

Redumption: The beneficiary holder should transfer the securities before 3.00 p.m on one working day before the
maturity date so as to give sufficient time for the IPA to process the papers and arrange to effect the payment on
the due date of the CP

There are two types of Government Securities, Dated Securities and Treasury Bills. Dated Securities have a
maturity period of more than one year. Treasury Bills have a maturity period of up to one year. All the activities
relating to issue of government securities (G-Secs) - issue management, settlement of trade, distribution of
interest and redemption - are handled by the Reserve Bank of India through its Public Debt Office (PDO).

The depository acts as a R&T Agent and discharges RTA functions for G-Secs

For FPI: Designated Depository Participants (DDPs)

“Category I foreign portfolio investor” which shall include Government and Government related investors
such as central banks, Governmental agencies, sovereign wealth funds and international or multilateral
organizations or agencies;

For the purposes of this clause, “broad based fund” shall mean a fund, established or incorporated outside
India, which has at least twenty investors, with no investor holding more than forty-nine per cent of the shares or
units of the fund:

“Category III foreign portfolio investor” which shall include all others not eligible under Category I and II
foreign portfolio investors such as endowments, charitable societies, charitable trusts, foundations, corporate
bodies, trusts, individuals and family offices.

At all times the DDP and the Custodian of Securities (“Custodian”) of the FPI shall be the same entity.
Investment holding period under RGESS is for three years which includes ‘Fixed Lock-in’ of one year and ‘Flexible
lock-in’ of two years

With a view to achieve wider financial inclusion, encourage holding of demat accounts and to reduce the cost of
maintaining securities in demat accounts for retail individual investors, depository participants (DPs) are required
to make available a “Basic Services Demat Account” (BSDA) with limited services as per terms specified herein.

The individual shall have only one BSDA in his/her name across all depositories.

Value of securities held in the demat account shall not exceed Rupees Two Lakhs at any point of time
Demat account can be converted into BSDA account

No Annual Maintenance Charges (AMC) shall be levied, if the value of holding is upto `
50,000.
b. For the value of holding from ` 50,001 to ` 200,000, AMC not exceeding ` 100 may be charged.

If the value of holding in such BSDA exceeds the prescribed criteria at any date, the DPs may levy charges
as applicable to regular accounts (non- BSDA) from that date onwards

Charges for statements: Electronic statements shall be provided free of cost. In case of physical
statements, the DP shall provide at least two statements free of cost during the billing cycle. Additional physical
statement may be charged at a fee not exceeding ` 25/- per statement.