asit report

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DECLARATION

I hereby declare that the project report entitled The role of Depositary participant is the

joint result of my work with SHCIL & personal efforts. This report is genenuily prepared by

me with the help of my teacher & SHCIL management. This summer internship project

report is submitted as the partial fulfillment of the course MBA.

Date: Signature:

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TABLE OF CONTENTS

Subject Page Numbers.

Chapter-1 6

Executive Summary 9

Chapter-2

Research Methodology 10

Primary Objective(s) 10

Objective 11

Scope 12

Scope of the Study 12

Limitation 13

Importance of the Study 13

Chapter-3 15

Company Profile 14

Objective of the Company 15

Mission 15

Vision 15

Company Financial Position 19

IPO 26

Capital Market 31

Primary Market 35

Secondary Market 37

Depository System 40

NSDL 41

CSDL 42

Introduction about Project 79

SWOT Analysis 81

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Data Analysis 85

Chapter-5 97

Suggestion And Recommendation 98

Conclusion 100

Chapter-6 101

Bibliography 102

Chapter-7 103

Questionnaire 104

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CHAPTER-1

EXECUTIVE SUMMARY

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EXECUTIVE SUMMARY

The objective of the study was to do the competitive analysis of DP service and broking

service provided by SHCIL and its major competitors in Kanpur region on the basis of 7p s of

service marketing.

The study was conducted to measure the customer satisfaction level of SHCIL. Study was

focuses on clients within Kanpur region. SHCIL provides many products and services but we

focused our study on DP services and Broking services only.

Outcome of the analysis shows that though SHCIL is on the top position as a market share in

Kanpur region, but SHCIL is still behind in many more factors and they need to improve

those factors. Some recommendations are given to improve. (Project study has been done

with the help of primary and secondary data.)

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CHAPTER-2

RESEARCH METHODOLOGY

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RESEARCH METHODOLOGY

Topic: The role of Depository participant

Significance of the study: Improve the goodwill and Creating potential customer

base.

Sample size: 100

Data used: primary and secondary data

Data collection method: personal interviews, telephonic interviews, Questionnaires

Universe: Investor

Sampling technique: random selection

Research design: Descriptive, analytical

OBJECTIVE OF THE REPORT

To find out the various roles played by Stock holding corporation of India ltd as a

depository participant (DP).

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To find out the consumer way towards depository towards SHCIL and analyze the

consumer behaviour adopted by the client.

To develop the practical knowledge of stock market.

To understand the importance of dematerialization of securities and the process

involved.

To understand the market sentiment affects the market and depository participant

role.

SCOPE OF THE STUDY

This report is prepared by marketing research carried out in Kanpur city. This can be further

utilized in other similar cities for the concentration. This can be found use full to students,

academic consultants etc. for analyzing the role of depository participant and the consumer

behavior.

This report is prepared by marketing research carried out in Kanpur. This study will be

helpful for students to know in depth about the mutual fund industry and the various channels

through which a MF company operates. I had a very good market exposure while undergoing

this project because every person came forward with a different opinion and that was very

important to know the perception of the distributors. And being my first real exposure to the

corporate environment, the training period proved to be very educating and offered me a great

chance to learn the practical workings of the Mutual Fund industry.

USE OF THE PROJECT

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Due to work pressure, detailed interaction with the Relationship managers and distributors

was not possible.

CHAPTER-3

COMPANY PROFILE

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COMPANY PROFILE

The SHCIL is a result of Government of Indias initiative as a one stop solution provider in

the financial service sector. It is one of the Indias premier custodian and depository

participant. It was jointly promoted by IDBI, ICICI, IFCI, IIBI, UTI, LIC, and GIC and its

subsidiaries.

It provides derivatives clearing, PF fund accounting, SGL constituent account services,

distribution of mutual funds and other capital market instruments besides distribution of life

and non life insurance policies.

It is headed by luminaries from its promoter institutions who constitute its Board of Directors

and take policy decisions pertinent to the affairs of the corporation. A senior management

team that reports to the Managing Director and the CEO aids, assists and strategies business

lines for the Corporation.

The primary focus of the corporation was specific to set up custodial services of

international standards in India and in the process to manage the entire array of post trade

activities of Financial Institutions and Foreign Institutional Investors with dedicated client

relationship teams and state-of the-art reporting systems. The corporation quickly garnered

nearly 70% market share of the domestic custodial business and the financial figures shot up

impressively for the first decade of its existence.

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With sustained market leadership, the biggest investing body of the country in its client list,

SHCIL ensures that its technology support not only holds Enormous databases together but

also makes sense and service out of it too.

Vision of the Company:

To become one stop shop for all financial services. This vision of the company is slowly

being achieved with the foray of the company into new financial services and products into its

portfolio the latest to be the Insurance product, which would be soon distributed.

Mission of the Company:

To spread Quality Service through the innovative use of technology.

Objectives of the Company:

To retain the No. 1 position in the DP industry by being ahead of all other DP service

providers with the innovative use of technology.

To provide justified service to every rupee the client pays.

To ensure security and convenience of transaction to its clients at reasonable price.

To channel technology to make convenient products for financial markets that give

quantum benefits to investors, corporate houses and Brokers.

To reach 37 million Internet users in the years to come with ecommerce Projection

scaling USD 1.7 billion.

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To move with speed and ease, diversifying into new areas, considerably on others and

sharpening its focus and paradigms.

To increase its customer base, this at present is 7 lakh.

To evolve a new strategy to emerge as a broad based financial powerhouse in the

years to come.

To find ways to make information and reporting system more effective for the

institutional clients.

Basic Facts About SHCIL

SHCIL is Indias largest depository participant.

SHCIL has around 20% market share i.e. over 8 lakhs demat accounts.

SHCIL has approx, 50% market share of delivery- based transaction which amount to

1.33 crore transaction.

Basic Facts About The Internal Organisation Of The SHCIL

1. Short title and commencement

2. Definitions

3. Board of directors

4. Executive committee

5. Business rules

6. Participates

7. Safeguards to protect interest of clients and participants

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8. Securities

9. Accounts/transactions by book entry

10. Reconciliation, accounts and audit

CREDENTIALS

SHCIL began by offering custodial and post trading services, adding depository services and

other services to its portfolio over a period of time.

SHCIL has established itself in India as a one-stop solution provider in the Financial Services

domain.

SHCIL. Apart from being the countrys premier custodian and Depository participant,

SHCIL is also the largest professional clearing Member; backed by an immense capacity to

process volumes with precision. To give an idea of our capability, every year we process

around.

SHCIL also provides Derivatives clearing, PF fund accounting, SGL constituent accountservices, distribution of mutual funds and other capital market instruments, besides

distribution of life and non-life insurance policies.

Other offerings added to the bouquet are online net trading, loan against shares, Western

Union Money Transfer & E-stamping. In the pipeline are a host of services that will

complement the range of services offered by SHCIL.

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THEIR TECHNOLOGIES

Comprehensive business solutions adept in handling high volume time critical transactions

within a secured environment.

Zero error approach towards delivery of products and services

Single window view of business and up-to date information.

Oracle database currently of 1.2 Terabytes size (and growing) managed by competent

IT personnel with domain expertise.

Data mirroring using cluster technology and fibre optic connection as part of Disaster

Management Plan.

Network Security using Firewall, Proxy, Intrusion Detection System(IDS) and

Intrusion Prevention System (IPS)

Internet products with built in PKI features.

Dedicated communication channels with built-in redundancies in connectivity to

Client Institutions, Stock Exchanges, Clearing houses and Depositories.

ACCOLADES AND CERTIFICATION

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Citation and Medal from Smithsonian Institute, Washington D.C, U.S.A. for

"Visionary and Innovative use of Technology in Finance, Insurance and Real Estate".

First South Asian Corporate to receive this.

COMPANY

FINANCIAL

POSITION

Company have a zero-debt, financially sound company with healthy reserves.

Company have a consistent dividend-paying track record

BROKING

SHCIL in the capacity of Sub-broker has been providing Share Broking Services in

association with SHCIL SERVICES LTD. (SSL), the member Broker on BSE. Broking

Account can be opened from any of the SHCIL Branches. ONLINE trading facility may be

opted or OFFLINE services may be availed from the concerned branch.

CLEARING MEMBER

SHCIL's long-standing association with Clearing Members has enabled it to develop services

based on an understanding of their working and their requirement for timely and accurate

information. We accept deposits of base capital and Additional base capital requirements

stipulated by NSE for clearing members trading on its capital market segment.

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Computer Society of India Award for best IT usage in the Country.

Companys software processes have been assessed at SEI CMM Level 3.

Accepted industry leader and pioneer in Custodial Systems.


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Besides, our new products with a broker empanelment clause ensure a mutually beneficial tie-

up. Clearing members stand to earn a steady income from our product transactions and new

adds to their client-base, while we capitalize on their rapport with the market.

ADVANTAGES OF CM

For institutional & retail clearing members we have customized tariff for clearing members

benefiting

Brokers having very high average trade value

Brokers with big retail clientele

SPECIALS TARRIF FOR

CM Principal Accounts

NSCCL CM Accounts

Unified Settlement Pool Accounts on CDSL.

Companys Customer Care help lines give timely and accurate information to CMs. The

Interactive Voice Response (IVR) system at SHCIL gives round the clock information on

holdings & transactions, Pay in / Pay out details, overdue cum holding details, etc.

via telephone, fax or e-mail.

Updated Transaction Statements are available on the website FREE of any charge

whatsoever. Members have a choice of accessing their statements date-wise for the last

one month or settlement-wise for the same period. Current trading day transactions are

also made available , updated to the hour.

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Besides the transaction statements, the Delivery-Out report, which is an extremely

critical report for Clearing Members, is also made available on the website, updated to

the hour.

CUSTODIAL SERVICES FOR CM

Company deposits of Base Minimum Capital (Base Capital) and Additional Base Capital

as stipulated by NSE for clearing members to be able to trade on its capital market

segment.

The securities being deposited shall be subject to legal and beneficial ownership of:

a) TM clearing member / spouse in case of individuals

b) Any of the partners / their spouses in case of partnership

c) Any of the directors in case of corporate TM clearing member.

What qualifies as deposit?

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The following securities can be deposited :

Listed equityshares of approved companies subject to 15% margin

Equity shares of approved companies in demat form subject to 15% margin (Nifty

scrips) and 25% margin (30 other scrips pertaining to junior Nifty group)

Listed units of mutual funds subject to 15% margin

Unlisted units of mutual funds subject to 15% margin of the NAV of the units

prevalent on the last day of the preceding months.

Listed PSU bonds subject to 15% maargin.

Other GOI / Treasury Bills subject to 15% margin

Other debts securities admitted for trading on Wholesale debt market segment of

NSEsubject to 15% margin

Units under scheme 1964 of UTI to be valued at the lowest of the repurchase prices

prevalent in the preceding 12 months.

Deposits of Fixed Deposits Receipts (FDRs) issued by approved Banks. In case of

FDRs the members have to submit the following:-

Original FDR issued by any approved Bank and drawn on specified cities

A Letter from the Bank in a specified format.

A Letter from the Member in a specified format

SHCIL Charges up front

National Savings Certificate and Kisan Vikas Patra issued by Post office,

SGL Securities,

NSE members may also pledge dematerialized shares in favour of NSCCL for

security Base Capital and additional base capital requirements. The demat shares

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pledged by a member as additional base capital will be considered for the purpose of

gross exposure computation. In case of demat scrips, the following conditions apply:

The member has to open a separate beneficiary account for Base Capital and Additional

Base Capital

a) In the name of Partners / their spouse in case of Partnership Firms

b) In the name of Corporate / Directors of the Company in case of Corporate

clearing members.

c) In the name of Proprietor / spouse in case of Proprietary concerns

1. The securities to be pledged to be transferred to the account.

2. Pledge Instruction along with pledge deed in specified format to be given to SHCIL.

3. After pledge is created in favour of NSCCL, valuation is given to NSCCL by SHCIL

4. Closure of pledge takes place at the instruction of NSCCL Replacement / Addition of

securities also available

DERIVATIVES

SHCIL is a Custodian/Professional Clearing Member of derivative segment at the Bombay

Stock Exchange and at the Futures & Options Segment of the NSEIL respectively.

We have developed in-house Back Office systems and procedures to cater to the needs of

various entities in the segment. A dedicated team of professionals handle derivative

operations and assist its clients.

As a professional clearing member, SHCIL performs the following functions:

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Clearing - Computing obligations of all his TMs i.e. determining Positions to settle.

Settlement - Performing actual settlement.

Collateral Management - Collection of collateral (cash/cash equivalent and securities),

valuation on a regular basis (as per J. R. Varma recommendations) and setting up

exposure limits for TMs and Institutional clients.

Risk Management - Setting position limits based on upfront deposits/margins for

each TM and monitoring positions on a continuous basis

CUSTODIAL

Since its commencement in 1988 as the first dedicated Custodian in the country, SHCIL has

been providing Custodial Services of international standards to Domestic Mutual Funds,

Financial Institutions and Foreign Institutional Investors.

With almost 70% of the Institutional business in its fold, SHCIL has evolved over the times to

meet the changing requirements of dynamic markets and demanding clients.

A dedicated pool of trained and highly experienced professionals work literally round the

clock on state of the art computer systems, dedicated communication channels, well

connected to Client institutions, Stock Exchanges, Clearing houses, Depositories and leading

Institutional brokers.

In terms of collective man-years, SHCIL has the most experienced team in the Entire

Industry.

TRADE PROCESSING SERVICES

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SHCIL has specially trained personnel handling thousands of trade instructions involving

large values on sophisticated systems using digital signature on STP (Straight Through

Processing) systems, ensuring smooth trade confirmations to Stock Exchanges, reporting and

resolution of mismatches with Clients, etc.

DISTRIBUTION

Stock Holding Corporation of India limited is promoted by all Indian financial institutions

and insurance majors is a leading technology driven financial services company.

FUND INVESTMENT

Fund Invest is basket of financial products ranging from fixed income investments like FDs,

Bonds, Debentures and Capital Gain Bonds to variable income products like IPOs of equities

and Mutual Funds.

INSURANCE

SHCIL is a Corporate Agent of Insurance Regulatory Development Authority. SHCIL

facilitates Life Insurance cover to its esteemed clients through LIC of India.

INITIAL PUBLIC OFFERS

New IPO in India

New IPO is issued almost every day in the capital markets of India. Initial Public Offering

(IPO) in India means to offer shares by a company that was not previously listed. New IPO in

India is launched through different methods like book building method, fixed price method or

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a combination of both. New IPOs in India normally have a registrar and also lead managers.

Initial Public Offering (IPO) in India is defined the selling of the shares of a company, for the

first time, to the public in the country's capital markets. This is done by giving to the public

and shares, which are either owned by the promoters of the company or by issuing new

shares. IPO in India is done through different methods like fixed price method, book building

method, or a mixture of both. The method of book building has been introduced in the country

in 1999 and it helps the company to find out the demand and price of its shares. The company

that is issuing the Initial Public Offering (IPO) decides the number of shares that it will issue

and also fixes the price band of the shares.

During the company's Initial Public Offering (IPO) in India, an electronic book is opened for

at least five days. During this period of time, bidding takes place that means people who are

interested in buying the shares of the company make an offer within the fixed price band.

Once the book building is closed then the issuer as well as the book runner of the Initial

Public Offering (IPO) evaluate the offers and then determine a fixed price. The main

objectives of New Initial Public Offer in India are to use the proceeds from the issue to fund

the company's plans for the expansion of operations and to meet the expenses of the issue.

Major IPOs in India are

Reliance Power IPO

Wockhardt Hospital IPO

KNR Constructions Ltd. IPO

Manjushree Extrusions Ltd IPO

J Kumar Infraprojects Ltd. IPO

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Future Capital Holding Ltd IPO

Cords Cable IPO

An Initial Public Offer (IPO) is the selling of securities to the public in the primary market.

SHCIL is associated with all the leading BRLMs as a Sub Syndicate Member.

LENDING ADD SHARES

SHCIL arranges loan against securities including FD, insurance etc. It has tie-ups with

reputed banks that offer the most competitive interest rates in the market

GOI BONDS

Savings Bonds are issued by RBI on behalf of Government of India

E-STAMPING

Government of India, ministry of finance, department of economic affairs appointed SHCIL

to act as central record keeping agency (CRA). Central Record Keeping Agency is

responsible for user Registration, imprest Balance Administration and overall e-stamping

Application Operations and Maintenance. CRA will appoint ACCs who will issue

Certificates to the clients at their counters.

E-STAMPING is a computer based application and secured electronic way of stamping

documents. The prevailing system of physical stamp paper / franking is being replaced by E-

stamping system.

SHCIL is the only CRA appointed by the government of India Central Record Keeping

Agency is responsible for User Registration, imprest Balance Administration and overall E-

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stamping Application Operations and maintenance. CRA will appoint ACCs who will issue

certificates to the clients at their counters.

Before knowing about e-stamping one should have knowledge of stamping or stamp duty.

That what it is? Why it is paid and why e-stamping is evolved?

Stamp duty is a type of tax collected by the state government.

It must be paid in full and on time to the government. In case of delay in payment of

stamp duty, penalties are imposed.

Stamp duty is paid on various instruments and some instruments are agreements,

conveyances, exchange, gift, certificate of sale, deed of partition, power of attorney to sell

immovable property when given for consideration, deed of settlement and transfer at lease by

way of assignment, bill of exchange, bill of lading, debenture, letter of credit, policy of

insurance, proxy, receipt and transfer of shares etc.

Stamp papers are to be purchased in the name of one of the parties to the instruments /

document. It must be purchased in the name of one of the parties involved in the transaction

SHCIL is appointed as Central Record Keeping Agency (CRA) and associated with stamp

Duty collection and not valuation. For valuation of stamp duty you need to contact your legal

Advisor or appointed Govt. Officials concerned for the same.

E-stamping Certification and benefits:

E-stamping certificate can be generated within minutes.

E-stamp certificate generated is tamper proof Authenticity of the e-stamp certificate

can be checked through the enquiry module.

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E-stamp Certificate generated has unique Identification number (UIN). Specific

Denomination is not required. Easy accessibility and faster processing

Security

Cost savings

User friendly

Client can pay stamp duty amount through the following modes:

Cash

Cheque

Demand draft

Pay order

RTGS

NEFT

Account to account transfer.

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Why SHCIL ?

Why someone would choose SHCIL as a preferred service provider :-

Well integrated front and back office, paper and electronic systems. A focussed Client

Relation Team to manage your needs & queries. A single point contact for your

comfort.

In-house capability to address all IT needs in terms of software development,

maintenance, back office processing, database administration, network maintenance,

backups and disaster recovery.

Multilevel security is maintained in software, applications and guards to access to

various data, client and internal reports

Expertise in running processes utilising digital signatures.

Regular Audits internal and external, by SEBI, Depositories, Clients and compliance

to rules and regulations

Constant review and benchmarking of processes to ensure adherence to global best

practices

Insurance cover with international re-insurance.

Full Confidentiality of business operations.

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CAPITAL MARKETS

The capital market consists of primary market and secondary market segments. The primary

market deals with the issue of new instruments by the corporate sector such as equity shares,

preference shares and debentures. The public sector consisting of central and state

governments, various public sector industrial units (PSUs), statutory and other authorities

such as state electricity boards and port trust also issue bonds. The primary market in which

public issue of securities is made through a prospectus is a retail market and there is no

physical location. Direct mailing, advertisements and brokers reach the investors. Screen

based trading eliminates the need of trading floor.

The secondary market or stock exchange where existing securities are traded is an auction

arena. Since 1995, trading in securities is screen based. Screen based trading has also made an

appearance in India. The secondary markets consist of 23 stock exchanges including the NSE

and OTCE and Interconnected Stock Exchanges of India ltd. The secondary market provides a

trading place for the securities already issued to be bought and sold. It also provides liquidity

to the initial buyers in the primary market to re-offer the securities to any interested buyer at a

price, if mutually accepted. 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 in the stock exchange.

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Organized money market: Indian financial system consists of money market and capital

market. The money market has two components - the organized and the unorganized. The

organized market is dominated by commercial banks. The other major participants are the

Reserve Bank of India, Life Insurance Corporation, General Insurance Corporation, Unit

Trust of India, Securities Trading Corporation of India Ltd., Discount and Finance House of

India, other primary dealers, commercial banks and mutual funds. The core of the money

market is the inter-bank call money market whereby short-term money borrowing/lending is

effected to manage temporary liquidity mismatches. The Reserve Bank of India occupies a

strategic position of managing market liquidity through open market operations of

government securities, access to its accommodation, cost (interest rates), availability of credit

and other monetary management tools. Normally, monetary assets of short-term nature,

generally less than one year, are dealt in this market.

Un-organized money market: Despite rapid expansion of the organized money market

through a large network of banking institutions that have extended their reach even to the

rural areas, there is still an active unorganized market. It consists of indigenous bankers and

moneylenders. In the unorganized market, there is no clear demarcation between short-term

and long-term finance and even between the purposes of finance. The unorganized sector

continues to provide finance for trade as well as personal consumption. The inability of the

poor to meet the "creditworthiness" requirements of the banking sector make them take

recourse to the institution that still remain outside the regulatory framework of banking. But

this market is shrinking.

Markets exist to facilitate the purchase and sale of goods and services. The financial market

exists to facilitate sale and purchase of financial instruments and comprises of two major

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markets, namely the capital market and the money market. The distinction between capital

market and money market is that capital market mainly deals in medium and long-term

investments (maturity more than a year) while the money market deals in short term

investments (maturity upto a year).

Functions of the capital market

The major objectives of capital market are:

To mobilize resources for investments.

To facilitate buying and selling of securities.

To facilitate the process of efficient price discovery.

To facilitate settlement of transactions in accordance with the predetermined time

schedules.

Investment Instruments

Investment is a deployment of funds in one or more types of assets that will be held over a

period of time. Various forms of investment are available to an investor. They cover bank

deposits, term deposits, recurring deposits, company deposits, postal savings schemes,

deposits with non-bank financial intermediaries, Government and corporate bonds, life

insurance and provident funds, equity shares, mutual funds, tangible assets like gold, silver

and jewellery, real estate and work of arts, etc.

Capital market instruments can be broadly divided into two categories namely

1. Debt, Equity and Hybrid instruments.

2. Derivative Products like Futures, Options, Forward rate agreements and Swaps.

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Debt: Instruments that are issued by the issuers for borrowing monies from the investors with

a defined tenure and mutually agreed terms and conditions for payment of interest and

repayment of principal. Debt instruments are basically obligations undertaken by the issuer of

the instrument as regards certain future cash flows representing interest and principal, which

the issuer would pay to the legal owner of the instrument. Debt instruments are of various

types. The key terms that distinguish one debt instrument from another are as follows:

Issuer of the instrument

Face value of the instrument

Interest rate and payment terms

Repayment terms (and therefore maturity period / tenor)

Different kinds of money market instruments, which represent debt, are commercial papers

(CP), certificates of deposit (CD), treasury bills (T-Bills), Govt. of India dated securities

(GOISECs), etc.

Equity: Instruments that grant the investor a specified share of ownership of assets of a

company and right to proportionate part of any dividend declared. Shares issued by a

company represent the equity. The shares could generally be either ordinary shares or

preference shares.

Hybrids: Instruments that include features of both debt and equity, such as bonds with equity

warrants e.g. convertible debentures and bonds.

Derivatives: Derivative is defined as a contract or instrument, whose value is derived from

the underlying asset, as it has no independent value. Underlying asset can be securities,

commodities, bullion, currency, etc. The two derivative products traded on the Indian stock

exchanges are Futures and Options.

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Futures (Index and Stock): Futures are the standardised contracts in terms of quantity,

delivery time and place for settlement on a pre-determined date in future. It is a legally

binding agreement between a seller and a buyer, which requires the seller to deliver to the

buyer, a specified quantity of security at a specified time in the future, at a specified price.

Such contracts are traded on the exchanges.

Options (Index and Stock): These are deferred delivery contracts that give the buyer the

right, but not the obligation to buy or sell a specified security at a specified price on or before

a specified future date.

At present in India, both Futures and Options are cash settled.

Segments of capital market

The Capital Market consists of

A) Primary Market

B) Secondary Market

Primary Market: A market where the issuers access the prospective investors directly for

funds required by them either for expansion or for meeting the working capital needs. This

process is called disintermediation where the funds flow directly from investors to issuers.

Securities

Funds

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Company/issuer Investors


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The other alternative for issuers is to access the financial institutions and banks for funds.

This process is called intermediation where the money flows from investors to banks/

financial institutions and then to issuers.

Primary market comprises of a market for new issues of shares and debentures, where

investors apply directly to the issuer for allotment of shares/ debentures and pay application

money to the issuer. Primary market is one where issuers contact directly to the public at large

in search of capital and is distinguished from the secondary market, where investors buy/ sell

listed shares / debentures on the stock exchange from / to new / existing investors.

Primary market helps public limited companies as well as Government organizations to issue

their securities to the new / existing shareholders by making a public issue / rights issue.

Issuers increase capital by expanding their capital base. This enables them to finance their

growth plans or meet their working capital requirements, etc. After the public issue, the

securities of the issuer are listed on a stock exchange(s) provided it complies with

requirements prescribed by the stock exchange(s) in this regard. The securities, thereafter,

become marketable. The issuers generally get their securities listed on one or more than one

stock exchange. Listing of securities on more than one stock exchange enhances liquidity of

the securities and results in increased volume of trading.

The issuers are, thus, required to make adequate disclosures in the offer documents to enable

the investors to decide about the investment.

The companies declare dividends, interim as well as final, generally from the profits after the

tax. The dividend is declared on the face value or par value of a share, and not on its market

price.

Activities in the Primary Market

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i. Appointment of merchant bankers

ii. Pricing of securities being issued

iii. Communication/ Marketing of the issue

iv. Information on credit risk

v. Making public issues

vi. Collection of money

vii. Minimum subscription

viii. Listing on the stock exchange(s)

ix. Allotment of securities in demat / physical mode

x. Record keeping

Secondary Market: In the secondary market the investors buy / sell securities through

stock exchanges. Trading of securities on stock exchange results in exchange of money and

securities between the investors.

Secondary market provides liquidity to the securities on the exchange(s) and this activity

commences subsequent to the original issue. For example, having subscribed to the securities

of a company, if one wishes to sell the same, it can be done through the secondary market.

Similarly one can also buy the securities of a company from the secondary market.

A stock exchange is the single most important institution in the secondary market for

providing a platform to the investors for buying and selling of securities through its members.

In other words, the stock exchange is the place where already issued securities of companies

are bought and sold by investors. Thus, secondary market activity is different from the

primary market in which the issuers issue securities directly to the investors.

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Traditionally, a stock exchange has been an association of its members or stock brokers,

formed for the purpose of facilitating the buying and selling of securities by the public and

institutions at large and regulating its day to day operations. Of late however, stock exchanges

in India now operate with due recognition from Securities and Exchange Board of India

(SEBI) / the Government of India under the Securities Contracts (Regulation) Act, 1956.

The stock exchanges are either association of persons or are formed as companies. There are

24 recognized stock exchanges in India out of which one has not commenced its operations.

Out of the 23 remaining stock exchanges, currently only on four stock exchanges, the trading

volumes are recorded. Most of regional stock exchanges have formed subsidiary companies

and obtained membership of Bombay Stock Exchange, (BSE) or National Stock Exchange

(NSE) or both. Members of these stock exchanges are now working as sub-brokers of BSE /

NSE brokers.

Securities listed on the stock exchange(s) have the following advantages:

The stock exchange(s) provides a fair market place.

It enhances liquidity.

Their price is determined fairly.

There is continuous reporting of their prices.

Activities in the Secondary Market

1. Trading of securities

2. Risk management

3. Clearing and settlement of trades

4. Delivery of securities and funds

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AQs on Secondary Market

Disclaimer: These FAQs are not the interpretation of law but provide only a simplistic

explanation of terms / concepts related to Secondary market. All information has been

updated till February 28, 2009. For full particulars of laws governing the secondary market,

please refer to the Acts/Regulations/Guidelines/Circulars appearing under the Legal

Framework Section.

Some of the Questions for FAQs may be as follows:

1. Understanding Financial Markets

2. Understanding Role of SEBI in the secondary market

3. Who is a broker and sub-broker?

4. What is MAPIN?

5. What is margin trading facility?

6. What is securities lending and borrowing scheme?

Major entities involved in the capital market:

ENTITIES

SEBI (REGULATOR)

STOCK EXCHANGES

CLEARING CORPORATIONS (CC)/ CLEARING HOUSES (CH)

DEPOSITORIES AND DEPOSITORY PARTICIPANTS

CUSTODIANS

STOCK-BROKERS AND THEIR SUB-BROKERS

MUTUAL FUNDS

MERCHANT BANKERS

CREDIT RATING AGENCIES

FINANCIAL INSTITUTUIONS

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FOREIGN INSTITUTIONAL INVESTORS

NON-BANKING INSTITUTIONS

ISSUERS/ REGISTRAR AND TRANSFER AGENTS

INVESTORS

TRADING CLEARING AND SETTLEMENT

SEBI has since introduced T+2 rolling settlements from April 1, 2003. T+2 settlement cycle

means that the final settlement of transactions done on T, i.e., trade day by exchange of

monies and securities between the buyers and sellers respectively occurs on second business

day after the trade day excluding Saturdays, Sundays, bank holidays and exchange holidays.

THE DEPOSITORY SYSTEM

The Depositories Act defines a depository as a company formed and registered under the

Companies Act, 1956 and which has been granted a certificate of registration under sub-

section (1A) of section 12 of Securities and Exchange Board of India Act, 1992. The main

function of a depository is to dematerialize securities and enable their transactions in book-

entry form.

Depository is an organization where the securities of a share holder are kept in the electronic

form at the request of the shareholder through a medium of a depository participant (DP). The

principal function of a depository is to dematerialize securities and enable their transactions in

book form electronically.

To handle the securities in electronic as per the Depositories Act 1996, two depositories are

registered with SEBI. They are:

National Securities Depository Limited (NSDL)

Central Depository Services (India) Limited (CDSL).

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NATIONAL SECURITY DEPOSITORY LIMITED (NSDL)

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, UTI the largest Indian mutual fund and the National Stock

Exchange in India sponsored the setting up of NSDL and subscribed to the initial capital.

NSDL commenced operations on November 8, 1996. NSDL is a public limited company

incorporated under the companies act, 1956. NSDL had a paid up equity capital of Rs.10

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.4.2 crore in the year 2000. However, its network is above

Rs.100 crore as required by SEBI regulations.

Following organizations are share holders of NSDL as on march 31, 2001:

a) INDUSTRIAL DEVELOPMENT BANK OF INDIA

b) UNITED TRUST OF INDIA

c) NATIONAL STOCK EXCHANGE

d) STATE BANK OF INDIA

e) GLOBAL TRUST BANK

f) CITI BANK

g) STANDARD CHARTED BANK

h) HDFC BANK

i) HSBC

j) DEUTSCHE BANK

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k) DENA BANK

l) CANARA BANK

CENTRAL DEPOSITORY SECURITY LIMITED (CDSL)

Central depository services of India ltd were the second depository to be granted the

commencement certificate by SEBI on 8 February 1999, inaugurated on 15 July 1999. It is

promoted by the Bombay stock exchange, in association of bank of India.

Both NSDL and CDSL interface with investors through their service providers known as DP.

The depository is interconnected. It is possible to transfer shares from one depository to

another.

CDSL was promoted by The Stock Exchange, Mumbai (BSE) jointly with leading banks such

as State Bank of India, Bank of India, Bank of Baroda, HDFC Bank, Standard Chartered

Bank, and 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.

Services provided by Depositories

A depository in India cannot open a demat account of an investor and / or provide services to

such a person directly. For opening a demat account or availing the services offered by the

depository, a person is required to approach a Depository Participant (DP) who is an agent of

the depository, complete the account opening formalities as per the Depositories Act, SEBI

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regulations, depository byelaws. Thereafter, the investor can receive securities in the demat

account as well as tender the securities held by him / her in physical form for

dematerialization to the DP and hold the same in book-entry form in the account.

When an investor holds securities in physical form, his / her name is recorded as registered

owner in the books of the company. As per the laws currently in force in India, when the

securities are converted in electronic form by way of dematerialization, name of the

depository is registered in the books of the company as registered owner. However, the

investor continues to be the real owner of the securities and is entitled to receive all the

benefits such as dividend, interest, bonus shares etc. in respect of the said security and as such

is called as Beneficial Owner (BO) under the depository system.

Types of Depository Account

Type of depository account depends on the operations to be performed. There are three types

of demat accounts which can be opened with a depository participant:-

1. BENEFICIARY ACCOUNT

This is an account opened by investors to hold their securities in dematerialised form with a

depository and to carry out the transactions of sale and purchase of such securities in book

entry form through the depository system. A beneficiary account holder is legally entitled for

all rights and liabilities attached to the securities (i.e. equity shares, debentures, government

securities, etc.) held in that account. Therefore, the account is called beneficial owner

account". A beneficiary account can be in the name of an individual, corporate, Hindu

Undivided Family (HUF), minor, bank, financial institution, trust, etc. or the broker himself

for the purpose of his personal investments in demat form. The account is opened with a DP.

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2. CLEARING MEMBER ACCOUNT

The entities that are authorized to 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). CMs are identified in the system through their CM-BP-ID. All pay-in and

pay-out transactions are carried out through their accounts.

There are two types of clearing members:-

1. All members of a stock exchange popularly known as brokers, are clearing members;

2. Custodians who are permitted by the stock exchange to act as a clearing member.

3. INTERMEDIARY ACCOUNT

Any person choosing to act as approved intermediary for stock lending and borrowing needs

to open an intermediary account with any depository participants (DP) of his choice. An

intermediary account may be opened with the DP only after the intermediary has obtained

registration from the SEBI and with the prior approval of depositories. This account is meant

only to deposit the securities received from the lender and lend them to the borrower under

stock lending and borrowing scheme. The intermediary does not have an ownership

(beneficiary) held in such an account

DEMATERIALIZATION

One of the methods for preventing all the problems that occur with physical securities is

through dematerialisation (demat). India has adopted the demat route in which the book entry

is made electronically against securities that are cancelled. The share certificates are shredded

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(i.e., its paper form is destroyed) and a corresponding credit entry of the number of securities

(written on the certificates) is made in the account opened with the Depository Participant

(DP).

( Fig. Dematerialisation)

Once the shares are dematerialised, they lose their identification features in terms of share

certificate 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. For example, a person owning 100 shares in

ABC Ltd. In physical form will record his ownership as below:

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Company Name: ABC Ltd.

No. of Shares: 100

Distinctive Nos.: 932654701 to 932654800

Certificate No.: ABC001263

Folio No.: A658542

In NSDL depository system, the record of ownership will be shown as:

INE001A01013 ABC by demat 100

International Securities Identification Number

(ISIN)

Each of the securities dematerialized in the depository bears a distinctive ISIN an

identification number. International Securities Identification Number (ISIN) is a unique

identification number for each security issued in any of the International Standards

Organization (ISO) member countries in accordance with the ISIN Standard (ISO 6166).

ISIN is a 12-character long identification mark. It has three components - a pre-fix, a basic

number and a check digit. The pre-fix is a two-letter country code as stated under ISO 3166

(IN for India).

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The basic number comprises of nine alphanumeric characters (letter and/or digits). The check

digit at the end of the ISIN is computed according to the modulus 10 "Double-Add-Double".

It establishes that the ISIN is valid.

To illustrate, ISIN INE 475C 01 012 has the following break up:

IN - India

E - Company

Last digit - check digit

First four digits 475C - Company serial number;

01 - Equity (it can be mutual fund units, debt or Government securities);

01 - Issue number;

2 - Check digit.

The third digit (E in the above example) may be E, F, A, B or 9. Each one carries the

following meaning:

E - Company

F - Mutual fund unit

A - Central Government SecurityB - State Government Security

9 - Equity shares with rights which are different from equity shares bearing INE number.

Whenever dealing with ISIN number, it is important to pay special attention to the third digit.

PROCEDURE

Client/ Investor submit the DRF (Demat Request Form) and physical certificates to DP.

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DP checks whether the securities are available for demat. Client defaces the certificate by

stamping ' Surrendered for Dematerialization'. DP punches two holes on the name of the

company and draws two parallel lines across the face of the certificate.

2. DP enters the demat request in his system to be sent to NSDL.

2A. DP dispatches the physical certificates along with the DRF to the R&T Agent.

3. NSDL records the details of the electronic request in the system and forwards the request to

the R&T Agent.

4. R&T Agent, on receiving the physical documents and the electronic request, verifies and

checks them. Once the R&T Agent is satisfied, dematerialization of the concerned securities

is electronically confirmed to NSDL.

5. NSDL credits the dematerialized securities to the beneficiary account of the investor and

intimates the DP electronically. The DP issues a statement of transaction to the client.

Opening a New Demat Account

Documents required for opening a new demat account:-

1. Duly completed account opening form and passport size photo

2. A copy of PAN card as a proof of identity (mandatory)

3. Personalized / cancelled cheque / Copy of Bank Pass book.

4. Copy of passport / Voter ID / ration card as a proof of Address.

5. Sign of the Depository Participants- Investor Agreement

On submitting the complete set of documents the agent will complete the other formalities

with the depository and facilitates the opening of the account. Investors will be given a unique

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account number (BO-ID) which will serve as a reference number for all the further

transactions.

After that you must also collect Delivery Instruction (DI) slip from the DP. A Delivery

instruction Slip has to be filled and sent to the DP on every Delivery (sale of share) you make

Delivery Instruction Slip is an instruction the DP to debit your account and credit the brokers

account with the specific stock.

It is very important that the DI should reach the DP the very next day after the sale, failing

which the securities wont reach the broker and hence the exchange. This could result in

auction of security.

REMATERIALIZATION

Rematerialization is the process of converting securities, held in a demat account (i.e.

electronic form) to physical form. A BO intending to convert the securities into physical form

submits a remat request to the DP in a Rematerialisation Request Form (RRF). DP verifies the

information on the RRF and enters the details in the system to setup a request electronically.

The system

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Generates a unique serial number called as Rematerialisation Request Number (RRN), which

can be used for future reference.

PROCEDURE

Client will submit the request to the DP for rematerialization of holdings in the

account.

On receipt of the request of the form, the DP will verify that the form is duly filled in

and issue to the client, an acknowledgement slip signed and stamped.

The DP will verify the signature of the client as on the form with the specimen

available in its record.

If the signature are different the DP will ensure the identity of the client.

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The DP will intimate the client that the request cannot be entertained since the client

does not have enough balance.

1. If there is sufficient balance in the clients account, the DP will enter the request in the

DPM and the DPM will generate the rematerialization Request Number (RRN).

2. The RRN so generated is entered in the space provided for the purpose in the

Rematerialization Request Form

3. Details recorded for the RRN should be verified by a person other than the person who

entered the data, the request is then released to the DM by the DP.

4. The DM forward the request to the issuer / R & T agent electronically.

5. The DP will fill the authorization portion of the request form

6. The DP will then despatch the request form to the issuer / R&T agent.

7. While processing the request the issuer/R&T agent may report some objections

depending on the nature of the objections, the issuer / R&T may request or process it

partially seeking rectification for the remaining and send an objection memo to the

DP.

8. The issuer accepts the request for rematerialization prints and despatches the

certificates to the client and sends the electronic confirmation to the DM.

9. The DM downloads this information to the DPM and the status of the

rematerialization request is updated in the DPM.

10. The DP must inform the client about the charges in the clients account following the

acceptance of the request.

11. If the form is in order the DP will enter the request details in its DPM. While

enteringthe details if it is found that the clients account does not have enough

balance, the DP will not entertain the request.

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A rematerialization request may be rejected for reasons such as:

The details given in RRF do not match with the electronic intimation received

The RRF is incomplete

The documents are sent to wrong RTA/ Issuer

Necessary documents do not accompany the RRF

For all accepted remat requests, the Issuer / RTA takes the following particulars on record

based on RRF:

Name of the Holder(s)

Father's Name / Husband's Name of the first holder

Address

PAN

Tax Status

Age

Bank Account Number

Name of the Company

Quantity of securities rematerialised

Signature of all the Holders mentioned in the RRF

Whether the securities are under lock-in. If yes, then the period up to which such securities

are under lock-in and reasons for such lock-in

Existing Folio No., if any

If POA holder operates the BOs account, the true copy of the POA also will be taken on

record.

The Issuer / RTA records the name of the BO as the Registered Owner(s) of the

The details given in RRF do not match with the electronic intimation received

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The RRF is incomplete

The documents are sent to wrong RTA/ Issuer

Necessary documents do not accompany the RRF

For all accepted remat requests, the Issuer / RTA takes the following particulars on record

based on RRF:

Name of the Holder(s)

Father's Name / Husband's Name of the first holder

Address

PAN

Tax Status

Age

Bank Account Number

Name of the Company

Quantity of securities rematerialised

Signature of all the Holders mentioned in the RRF

Whether the securities are under lock-in. If yes, then the period up to which such securities

are under lock-in and reasons for such lock-in

Existing Folio No., if any

If POA holder operates the BOs account, the true copy of the POA also will be taken on

record.

Other documents, if any

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The Issuer / RTA records the name of the BO as the Registered Owner(s) of the

rematerialised securities. The Issuer / RTA prints the certificates in the name of Registered

Owner(s) and dispatches the same to the BO.

The Issuer / RTA informs all the stock exchanges, where the securities are listed, about the

new certificate numbers, distinctive numbers of the rematerialised securities (as per the

requirements of the various stock exchanges). Such a certificate should also be issued to

CDSL on a quarterly basis.

MARKET TRANSFER

One of the basic services provided by NSDL is to facilitate transfer of securities from one

account to another at the instruction of the account holder. In NSDL depository system both

transferor and transferee have to give instructions to its depository participants [DPs] for

delivering [transferring out] and receiving of securities. However, transferee can give

'Standing Instructions' [SI] to its DP for receiving in securities. If SI is not given, transferee

has to give separate instructions each time securities have to be received. Transfer of

securities from one account to another may be done for any of the following purposes:

Transfer due to a transaction done on a person to person basis is called 'off- market'

transaction.

3Transfer arising out of a transaction done on a stock exchange.

T3ransfer arising out of transmission and account closure

A beneficiary account can be debited only if the beneficial owner has given 'Delivery

Instructio3n' [DI] in the prescribed form. Separate forms have to be used for transferring

securities within NSDL and between depositories.

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Settlement of Off-Market Transactions:

Any trade3 that is cleared and settled without the participation of a 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.

PROCEDURE

Seller gives delivery instructions to his DP to move securities from his account to the

buyer's account.

Buyer automatically receives the credit of the securities into his account on the basis

of standing instruction for credits.

Buyer receives credit of securities into his account only if he gives receipt instructions,

if standing instructions have not been given.

DP needs to be extra careful in verifying the signature of the client if large quantities

of securities are being debited to the account.

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Funds move from buyer to seller outside the NSDL system.

SETTLEMENT OF MARKET TRANSACTION

Transfer of securities towards settlement of transactions done on a stock exchange is called

settlement of market transaction. This type of settlement is done by transferring securities

from a beneficiary account to a clearing member account.

A market trade is one that is settled through participation of a Clearing Corporation. In the

depository environment, the securities move through account transfer. Once the trade is

executed by the broker on the stock exchange, the seller gives a delivery instruction to his DP

to transfer securities to his broker's account.

The broker has to then complete the pay-in before the deadline prescribed by the stock

exchange. The broker removes securities from his account to CC/CH of the stock exchange

concerned, before the deadline given by the stock exchange.

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The CC/CH gives pay-out and securities are transferred to the buying broker's account. The

broker then gives delivery instructions to his DP to transfer securities to the buyer's account.

The movement of funds takes place outside the NSDL system.

PROCEDURE

Seller gives delivery instructions to his DP to move securities from his account to his

broker's account.

Securities are transferred from broker's account to CC on the basis of a delivery out

instruction. On pay-out, securities are moved from CC to buying broker's account.

Buying broker gives instructions and securities move to the buyer's account.The

following are important descriptions of a transaction done on a stock exchange. All

these descriptions have to be written in the 'DI' slip.

MARKET TYPE

Stock exchanges offer different market segments in which trades can be done. The

segmentation is done by the type of settlement or type of trade. Each of the segments is

denoted as 'market type' in NSDL depository system. The stock exchange which offers these

market types, generally, recognizes these settlements with a two character code. The DI slip

should contain the market type for which securities are being transferred to the clearing

member. The contract note/trade confirmation slip given by the broker/sub-broker will

indicate the market type

SETTLEMENT NUMBER

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Trading periods of each of the market segments is identified by a settlement number. Every

settlement number has a trade beginning day, trade-ending day, settlement pay-in day and

settlement pay-out day. Stock exchanges divide a period of one year [generally calendar year]

into several settlement periods and allocate settlement number for each settlement-period. All

these days collectively are called 'settlement calendar'. DPM system will give complete details

of settlement calendar for each stock exchange. The DI slip should contain the settlement

number for which the securities are being transferred to the clearing member.

CLEARING MEMBER

Every broker in a stock exchange offering settlement in dematerialised securities will have to

open a distinct account called 'clearing member account'. It is identified with a number called

'CM-BP-ID'. If a broker deals in more than one stock exchange, he will be allotted one CM-

BPID per stock exchange. The DI slip should contain the CM-BP-ID relevant to the stock

exchange in which the trade was done.

DELIVERY DEADLINE

Stock exchanges set a deadline time by which clearing member are expected to deliver

securities. Clearing member can deliver securities within the deadline time only if they have

received securities from their clients. In order to ensure that clients give securities in time to

the clearing member, SEBI has prescribed deadline time by which clients have to give

securities to clearing members. SEBI has advised DPs to instruct their clients to submit the

settlement instructions on T+1 (in physical form upto 4 p.m. and 6 p.m. in case of electronic

instructions) for pay-in of securities, viz.; instructions to transfer securities from Client

account to CM Pool account, Inter-Settlement Instructions, CM Pool to CM Pool account

transfers and Delivery-Out Instructions, etc.

INTER-SETTLEMENT TRANSFER

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In a clearing member account, the securities are always kept in a bucket of specific market

type and settlement number. The clearing member may have to move securities from one

bucket with a different market type-settlement number combination to another bucket from

where pay in is to be effected. To effect this movement a clearing member can give an

instruction to move Securities from one settlement to another settlement which is called 'inter-

settlement'.

CM POOL TO CM TRANSFER

.The CM may give instructions to its participant to debit its settlement account and credit the

settlement account of another CM in a prescribed format. The CM may give receipt

instructions to its participants for crediting its settlement account from settlement account of

another CM in the format laid down. Alternatively, a CM may give standing instruction to its

participant to credit its settlement account. The participant shall ensure that the instruction

form is complete and the signature of the CM is valid. The participant shall execute the

instructions of the CM to debit/credit the settlement account of the CM.

INTER-DEPOSITORY TRANSFER

Transfer of securities from an account in one depository to an account in another depository is

termed as an inter-depository transfer. This facility is quite similar to account transfers within

NSDL.

As per SEBI (Depositories and Participants) Regulations, 1996, both the depositories must

be inter-connected to enable inter-depository transfers.

It can be done only for securities that are available for dematerialisation on both the

depositories

The account in NSDL can be either a clearing account or a beneficiary account.

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For debiting the clearing account or the beneficiary account with NSDL, the form for "Inter-

depository delivery instruction" is required to be submitted by the clearing member/beneficial

owner to its DP.

For crediting the clearing account or the beneficiary account, the standing instruction given

for automatically crediting the account is applicable. In case the standing instructions are not

given, then the form for "Inter-Depository Receipt Instruction" is required to be submitted by

the clearing member/beneficial owner to its DP.

Inter Depository Transfer instructions for the day is exchanged online between the two

depositories.

The deadline time for DPs to verify & release Inter Depository Transfer delivery/ receipt

instructions is 6 p.m. on weekdays and 2.30 p.m. on Saturdays.

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TRANSMISSION

One of the lesser-known but widely experienced problems of dealing in securities is with

regard to their transmission. The Companies Act, 1956, distinguishes transmission of shares

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from transfer of shares. While transfer of shares relates to a voluntary act of the shareholder,

transmission is brought about by operation of law.

The word "transmission" means devolution of title to shares, for example, devolution by

death, succession, inheritance, bankruptcy, marriage, etc.

If the securities are held in physical form, the documents have to be sent to the company for

effecting transmission. If the deceased shareholder had holdings in several companies, to

effect transmission of securities, the relevant documents must be sent to each of the

companies, along with the securities. the relevant documents must be sent to each of the

companies, along with the securities. Survivors have to follow-up with each of the companies

in order to get the transmission effected before the book closure, if they wish to avail of the

benefits accruing through such shares. In the depository system, such problems are mitigated

as the securities are held as account balances in the electronic form. The process of

transmission through NSDL is simple as well as quicker because the successor to the title

interacts only with one entity i.e., his DP. Transactions can be for sole holding cases as well

as for joint holdings.

Transmission of Securities held singly in the Depository

The Client(s) may make a nomination of his/their account in favour of any person by filing

with the relevant Participant the form laid out in

A nomination, substitution shall be valid only if:-

a) It is submitted to the Participant by the rightful Client(s) or under his/their due

authority.

b) It is in prescribed form (Annexure JA)

c) It is duly signed by Client(s)

d) It is properly signed and witnessed

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e) Signature of the Client(s) tally with the specimen signature records

f) The details of the securities entered in the nomination forms match those in the

records of the Participant

g) The photograph of the Nominee is annexed to the nomination form

h) The Nominee has signed the nomination form and guardian in case of the nominee

being a minor

Upon the death of the sole Client or the death of all the Clients, as the case may be, the

nominee shall request the Participant in writing along with a certified true copy of the death

certificate (or a duplicate copy of the death certificate if original lost or misplaced) issued by

the competent authority to transmit the securities covered by the nomination to the account of

the Nominee, held with any Depository. If the Nominee does not have an account with the

Depository, the Nominee shall be required to open an account with any Depository

Transmission of Securities held singly in the Depository without

nomination.

The legal heir(s) or legal representative(s) of the deceased have to make a request, in the

prescribed form to the DP for transmitting the balances lying in the account of the deceased to

their account.

The following documents have to be submitted with the request for transmission:

1. A copy of the death certificate, duly notarised;

2. A copy of the succession certificate, duly notarised, or an order of a competent court,

if the deceased has not left a Will; or

3. A copy of the Probate or Letter of Administration duly notarised.

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Where the market value of the securities held in each of the accounts of the deceased on the

date of application-for transmission does not exceed Rs. One lakh, DP may admit the request

for transmission.

The following documents are sufficient:

1. Request for transmission in Annexure O;

2. Copy of the death certificate duly attested by a Notary Public or by a Gazetted Officer;

3. Letter of Indemnity made on appropriate non judicial stamp paper;

4. An Affidavit made on appropriate non judicial stamp paper; and

5. No Objection Certificate(s) from all the legal heir(s) who do not object to such

transmission.

6. As an alternate to No Objection Certificate from all legal heir(s) who do not object to

such transmission specified at 12.6.2.3 (v), a copy of Family Settlement Deed duly

attested by a Notary Public or by a Gazetted Officer provided that the Family

Settlement Deed clearly vest the securities in favour of the person seeking

transmission in his/her name and vesting of securities in his/her name is not contingent

upon any other onerous conditions in such Family Settlement Deed.

Before effecting the transmission of securities, the DP ensures the validity of the documents

submitted by the legal heir(s) or the legal representatives of the deceased. After effecting the

transmission, the DP closes the account of the deceased.

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Transmission of Securities held jointly in the Depository

In case of death of one of the Clients in a joint account, the surviving Client(s) shall request

the Participant to transmit the balances lying in the Client account to the account of the

surviving Client(s). The surviving Client(s) shall make an application to the Participant in the

form specified in Annexure O along with a copy of the death certificate duly notarized. The

surviving joint holder(s) will have to open a new account with the DP in their name(s). If the

surviving client(s) wish to open a new account with the same Participant, then the Participant

will open the new account in the name(s) of the surviving member(s), in the same order as in

the original account, on the basis of the existing documents already in the possession of the

Participant, provided that the said documents meet the prevailing requirements for opening an

account. In case of securities held jointly

The surviving holder(s) to have a separate account with any DP.

Ensure all surviving holder(s) sign the instruction form.

Ensure that instruction form is accompanied with a copy of notarised death

certificate.

Verify signature.

PLEDGE / HYPOTHENATION

As per section 12 of the Depositories Act, 1996, securities in demat mode can be pledged.

Regulation 58 of SEBI Regulation on depositories prescribes the manner in which a pledge is

to be created.

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When securities are to be pledged for advance / loan, two entities are involved in this

transaction viz. the pledgor and the pledgee. The entity-taking loan against securities is called

pledgor and the entity that gives the loan is called pledgee. Pledgee may be a financial

institution or any other entity providing advance / loan against securities. The ownership of

securities continues to remain with the pledgor but the pledgee has a lien on them.

For creating pledge in depository system, the pledgor as well as the pledgee should have

demat accounts. For the securities in demat form, the pledgor may be able to get higher loan

amounts, with reduced margins and lower rate of interest as compared to securities in physical

form.

Bankers, share brokers, investors and other entities dealing in securities make frequent use of

the pledge facility in the normal course of their business. CDSL system permits creation of

pledge against such securities held in demat mode.

Pre-requisites

The pledgor and the pledgee must have demat accounts in CDSL to create a pledge.

However the pledgor and the pledgee may hold accounts through same DP or through

two different DPs.

The pledgor and the pledgee may enter into a pledge agreement in the normal course

of business.

The pledgor and the pledgee account should not be tagged for closure.

Pledgor as well as pledgee accounts should be on CDSL only as inter depository

pledge is presently not permitted.

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PLEDGE

CDSL system allows a holder of securities in demat account, pledgor, to use his / her

dematerialized securities as collateral. A flow chart showing pledge process is given below.

STEPS FOR CREATION OF PLEDGE

The pledgor, desirous of pledging securities from his demat account in CDSL, submits

a Pledge Request Form (PRF) in duplicate to his / her DP.

The pledgee may countersign the PRF.

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On receipt of the PRF from the pledgor, the pledgor's DP verifies that the securities to

be pledged are unencumbered and there is a free balance, i.e., the securities are not

earmarked for settlement, or they are not already pledged or frozen.

The pledgor's DP creates a pledge request in CDSL system by entering the details of

the PRF in the front-end system. CDSL system allocates a unique Pledge Sequence

Number (PSN) to each pledge request setup.

CDSL system generates a confirmation letter for the pledgor on setup of a pledge

request.

The PSN generated by the system is noted on the PRF and a copy of the same is given

to the pledgor who will subsequently give it to the pledgee.

The pledgee submits the duly acknowledged copy of the PRF to his / her DP who can

accept / reject based on the instructions from pledgee.

CDSL system generates a confirmation letter for the pledgee on acceptance of a

pledge request.

On acceptance of pledge request by pledgees DP, the pledged quantity is blocked in

the pledgors account.

A pledge request setup can be cancelled by the pledgor before the same is accepted /

rejected by the pledgee.

UN-PLEDGE (Closure of the pledge)

CDSL system allows un-pledging i.e. release the pledged securities when the pledge

obligation is fulfilled or as agreed between the pledgor and the pledgee. CDSL system

provides two options to un-pledge the securities. IN the first option, the unpledged request can

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be set-up by pledgor and the same is approved by the pledgee. In the second option, pledgor

need not set-up the unpledged request, Pledgee will set-up the unpledged request unilaterally.

Flow chart showings unpledged process as per first option is given below.

STEPS FOR UNPLEDGE OF SECURITIES INITIATED BY PLEDGOR

For un-pledging the securities, the pledgor submits a request on Un-pledge Request

Form (URF) in duplicate to his / her DP. The pledgee may countersign the URF.

The pledgor's DP will set up an unpledge request based on the URF, in the CDSL

system. Other copy of the URF is given to the pledgee.

Pledgee submits the duly acknowledged copy of the URF to his / her DP who either

accepts or rejects the unpledge request.

On acceptance/ rejection of the unpledge request, the status is changed from 'Unpledge

Set-up' to 'Unpledge Accepted' or 'Unpledge Rejected', as the case may be.

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If the unpledge request is accepted, the pledged quantity of ISIN under this unpledge

request is transferred from 'Pledged Balance' to 'Free Balance' in the pledgor's BO

account. An Unpledge request can be setup for partial quantity also depending on the

amount of advance being returned by the pledgor. For example if pledge request is

setup for 500 shares and an advance of Rs. 10000is taken against these shares, then

based on part of the advance returned by the pledgor, proportionate quantity of the

pledged shares will be released by the pledgee.

An unpledge request setup can be cancelled by the pledgor before the same is accepted

/ rejected by the pledgee.

For unpledging the securities, the pledgee will submits a request on Unpledge Request

Form (URF).

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The pledgees DP will set up an unpledged request based on the URF, in the CDSL

system.

On acceptance/ rejection of the unpledged request, the status is changed from

'Unpledge Set-up' to 'Unpledge Accepted' or 'Unpledge Rejected', as the case may be.

If the unpledged request is accepted, the pledged quantity of ISIN under this

unpledged request is transferred from 'Pledged Balance' to 'Free Balance' in the

pledgor's BO account. As mentioned earlier the Unpledge request can be setup for

partial quantity also.

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PLEDGE INVOCATION / CONFISCATION

CDSL system allows pledge invocation (confiscation) by the pledgee in case of need,

whereby the securities are transferred from Pledgors account to Pledgees account.

STEPS FOR INVOCATION / CONFISCATION

The pledgee, through his DP, submits a request for invocation of the pledged

securities on an Invocation Request Form (IRF). Each IRF will be based on the PSN

and the quantity, which the pledgee seeks to invoke.

The pledge's DP sets up an invocation request for the pledge based on the IRF, and the

balance is transferred from pledger's account to pledge's account. Balance transfer

from pledgors account to pledges account takes place only if the pledge is setup

against securities, which are not under lock-in.

If the invocation request is for a part quantity, the pledgee's DP can once again set up

the invocation request for the balance quantity of the pledge, if required.

The pledgor's DP and pledge's DP will inform the pledgor and pledge about the status

accordingly. A flowchart showing process of pledge invocation is shown below.

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CHARGES OF DEPOSITORIES

The charges laid by depositories are at three levels.

Fee payable by Depositoriy participants.

Fee payable by issuers.

Comparative fee charged by Depositories Participants.

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Entry Fee

Each participant shall pay at the time of submitting its application to the depository, a non

refundable Entry Fee of Rs. 25000.

Charges Investors Traders

Account opening charges Nil Nil

Purchase Nil Nil

Sale

0.05 + depository

charges

0.03 + depository

charges

Custody charges Nil Nil

Dematerialization 3 3

Postage p demat 25 25

Re-mat 25 25

Postage per Re-mat 25 25

Creation / confirmation of creating

pledge

0.02 + depository

charges

0.02 + depository

charges

Creation / confirmation of closure of

pledge

0.02 + depository

charges

0.02 + depository

charges

Invocation of pledge 50 50

Late transaction charges (per txn) 10 10

Any where transaction (per txn) 50 50

Imprest 1000 1000

TARIFF FOR CORPORATION

AMC Rs. 300/-

First time imprest amount Rs. 3500/-

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In case of account opened in CDSL, an additional AMC of Rs.500 payable to CDSL

will be collected.

NSDL charges Rs. 8 for sale tax; CDSL charges 0.01% (min Rs 5------max. Rs 12) for

sale tax.

NSDL charges Rs. 25 for creation of Pledge, CDSL charges Rs. 12 for creation,

closure and invocation of pledge.

A settlement fee at the rate of Rs. 1 per instruction in respect of securities received from the

clearing corporation into the pool account of each clearing member maintained with

participation subject to a maximum of Rs. 1000 and a maximum of Rs. 5000 per quarter per

CM Account shall be charged to the participant.

A settlement fee at the rate of Rs. 5 per debit instruction for transfer of securities from the CM

account of clearing to the CM account of another clearing member shall be charged to the

participants of the delivering clearing member.

Provided further that no settlement fee shall be charged:

In respect of commercial papers and short term debt instruments such as certificate of

deposits, MIBOR linked papers etc.

Transfer necessitated by transmission on death of the client.

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Transfer of the accounts of Client from one participant to another as a consequence of

expulsion or suspension of such participant.

MINIMUM FEE

In case the total fee billed to the participants in a financial year is less than the minimum fee

of Rs. 100000 then the participants shall be charged the difference thereof.

SECURITY DEPOSIT

Every participant shall pay to the Depository Rs. 10 lakh by way of interest fee refundable

security deposit. However a clearing corporation or a clearing house of stock exchange will

be exempt from the payment of security deposit.

FEE PAYABLE BY ISSUERS

1. With the effect from the april 1 2009, an issuer of listed securities shall pay an annual

custody fee at the the rate of Rs. 8 per folio in depository, subject to minimum amount

as mentioned below plus taxes as applicable:

2. The above fee would be applicable on all securities i.e. equity, debt, unit of mutual

funds, pass through certificates, certificates of deposit, commercial paper, preference

shares etc., except government securities.

3. The fee will be based on the total ISIN position as on march 31, of the previous

financial year.

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Provided however that, in case the issued capital or ISIN positions increase during the

financial year due to issue of further shares, by way of public pffer, the annual custody fee

would be charged on a pro-rata basis, at the time of such issue.

The will be charged every year on a financial year basis and shall be payable by April 30 of

that financial year.

If an issuer fails to pay the fees mentioned under Annual Custody Fee by the due date, the

depository may charge interest @ 12% p.a. on the amount, from the due date of payment till

the payment is received by the Depository. Provided further that the depository may stop