NISM SERIES VI

BOOK SUMMARY
BY NISM TOP500

NISMTOP500 – SERIES VI- DEPOSITORY OPERATION

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I. Introduction To Indian Capital Market

Securities markets provide channels for allocation of savings to investments and thereby decouple
these two activities. As a result, the savers and investors are not constrained by their individual
abilities, but by the economy’s abilities to invest and save respectively, which inevitably enhances
savings and investment in the economy. A financial market consists of investors (buyers of
securities), borrowers (sellers of securities), intermediaries and regulatory bodies.
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Capital Market

The capital market has two interdependent and inseparable segments- Primary and Secondary Market.
The primary market is used by issuers for raising fresh capital from the investors by making initial
public offers or rights issues or offers for sale of equity or debt; on the other hand the secondary
market provides liquidity to these instruments, through trading and settlement on the stock exchanges.
An active secondary market promotes the growth of the primary market and capital formation.

The securities market transactions are subject to regulations under the four main legislations viz.

Securities and Exchange Board of India Act, 1992: The SEBI Act, 1992 vests SEBI with statutory
powers for, (a) protecting the interests of investors in securities market, (b) promoting the
development of the securities market, and (c) regulating the securities market. SEBI has full
autonomy and authority to regulate and develop an orderly securities market.

Securities Contracts (Regulation) Act, 1956: This Act provides for direct and indirect control of
virtually all aspects of securities trading and the running of stock exchanges and aims at preventing
undesirable transactions in securities.

Depositories Act, 1996: The Depositories Act, 1996 provides for the establishment of depositories in
securities market with the objective of ensuring free transferability of securities with speed, accuracy
and security by (a) making securities freely transferable subject to certain exceptions; (b)
dematerialization of the securities in the depository mode; and (c) providing for maintenance of
ownership records in a book entry form.

Companies Act, 2013: The Companies Act 2013 deals with issue, allotment and transfer of securities
and various aspects relating to company management. The Act provides for standard disclosures in
public issues of capital, particularly in the fields of company management and projects, information
about other listed companies under the same management, and management perception of risk factors.

The responsibility for regulating the securities market is shared by the Securities and Exchange
Board of India (SEBI), the Reserve Bank of India (RBI), the Department of Economic Affairs
(DEA) of the Ministry of Finance, Ministry of Corporate Affairs (MCA).
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II. Introduction To Depository

Need for a Depository system

The earlier settlement system on Indian stock exchanges was highly inefficient and risky. It was
characterized by an increased number of bad deliveries, mutilation of share certificates, slow transfer
of securities, theft, forgery, and other irregularities. The transfer of securities was done through
physical movement of securities which resulted in delays. Also, the system of transfer of ownership
was grossly inefficient as every transfer involved physical movement of paper securities to the issuer
for registration and endorsement of change in ownership. In most of the cases, this process of transfer
took more than the stipulated time in the Companies Act. All these added to costs and delays in
settlement, restricted liquidity and made investor grievance redress procedure quite time consuming
and in some cases even intractable. To obviate these problems, the Depositories Act, 1996 was
passed. It provided for the establishment of depositories in securities market with the objective of
ensuring free transferability of securities with speed, accuracy and security. A) Making securities of
public limited companies freely transferable, subject to certain exceptions B) Dematerialisation of the
securities for holding and transfer in the depository mode C) Providing maintenance of ownership
records in a book entry form.

Key Features of the Depository System in India

Multi-Depository System: The Depositories Act, 1996 provides for a multi-depository system. There
can be various entities providing depository services.

Dematerialisation: Dematerialisation of securities occurs when securities issued in physical form is

destroyed and an equivalent number of securities are credited into the security holder(s) beneficial
owner's account. The implementation of the system has to be secure and well governed.

Depository services through depository participants: The Depositories Act, 1996 provides that the
depositories provide their services to the security holder(s) through their agents called Depository
participants (DPs). The appointment of DPs is subject to the conditions prescribed under SEBI.

Fungibility: In the depository system, the securities in dematerialised form are not identified by
certificate numbers as in the physical environment. Thus all securities in the same class are identical
with each other and are interchangeable.

Registered Owner/ Beneficial Owner: In the depository system, the ownership of securities
dematerialised is vested in the security holder. All the rights, duties and liabilities underlying the
security belong to the beneficial owner.

Free Transferability of shares: Transfer of shares held in dematerialised form takes place freely
through an electronic book-entry system.
There are several institutions, which facilitate the smooth functioning of the depository system.
 Depositories
 Stock Exchanges,
 Clearing Corporations /Clearing Houses,
 Depository Participants (DPs),
 Issuers, and
 Registrars and Transfer Agents (RT&As)
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What is a Depository?

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 provide a facility for investors to hold and transfer
securities in dematerialised form and in book-entry form. The securities are transferred by debiting the
transferor’s depository account and crediting the transferee’s depository account.

Difference between Depository and Bank

Bank Depository
Holds funds in accounts Holds securities in accounts
Transfers funds between Accounts Transfers securities between accounts
Transfers securities without handling physical
Transfers funds without handling cash
securities
Safekeeping of Money Safekeeping of Securities
Either of the holders can sign instructions All joint holders to sign instructions
Minimum balance to be maintained No minimum balance required
Interest can be earned only by participating in the
Interest earned on the deposits
Stock Lending Scheme
Does not move balances in its own account
Balance deposits is used by the bank
without account holder’s authorization

Depositories Act, 1996

The Depositories Act, 1996, ushered in an era of efficient capital market infrastructure, improved
investor protection, reduced risks and increased transparency of transactions in the securities market.
It also immensely benefitted the issuer companies, in terms of reduced costs and the effort expended
in managing their shareholder populace. Only a company registered under the Companies Act 2013
and sponsored by the specified category of institutions can set up a depository in India. A depository
established under the Depositories Act can provide any service connected with recording of allotment
of securities or transfer of ownership of securities in the record of a depository.

A Depository Participant (DP) is described as an agent of the depository. They are the
intermediaries between the depository and the investors. The relationship between the DPs and the
depository is governed by an agreement made between the two under the Depositories Act.

Eligibility Criteria for a Depository

Depositories in India may be promoted by any of the institutions mentioned below.

 The promoters of a depository are also known as its sponsors. A depository company must
have a minimum net worth of Rs.100 crore.
 The sponsor(s) of the depository have to hold at least 51percent of the equity capital of the
depository company.
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 Participants of that depository, if any, can hold the balance of the equity capital. However, if a
stock exchange is a sponsor of any depository then it cannot hold more than 24 percent of the
paid up equity share capital of the depository.
 However, no single depository participant can hold, at any point of time, more than 5percent
of the equity capital of that depository.

As per the provisions of the SEBI Act, a depository can deal in securities only after getting a
certificate of registration from SEBI.

Records to maintained by the depository

Every depository is required by SEBI regulations to maintain the below mentioned records and
documents for a minimum period of five years.
 Records of securities dematerialised and rematerialised.
 The names of the transferor, transferee, and the dates of transfer of securities.
 A register and an index of beneficial owners.
 Details of the holdings of the securities of beneficial owners as at the end of each day.
 Records of instructions received and sent to, participants, issuers and agents and owners.
 Records of approval, notice, entry and cancellation of pledge or hypothecation.
 Details of securities declared to be eligible for dematerialisation in the depository.
 Such other records as may be specified by SEBI for carrying on the activities as a depository.

Functions of a Depository

Account Opening: An investor wishing to avail depository services must first open an account with a
depository participant registered with a depository.
Dematerialisation: Dematerialisation is the process of converting securities held in physical form
into holdings in book entry form.
Account Transfer: The depository gives effects to all transfers resulting from the settlement of trades
between various beneficial owners by recording entries in the accounts of such beneficial owners.
Transfer and Registration: Under a depository system, transfer of security occurs merely by passing
book entries in the records of the depositories, on the instructions of the beneficial owners.
Corporate Actions: A depository may handle corporate either by merely providing information to the
issuer about the persons entitled to receive the benefits or by itself taking the responsibility of
distribution of corporate benefits.
Pledge and Hypothecation: The securities held with the depository may be used as collateral to
secure loans and other credits by the clients. The securities pledged/hypothecated are transferred to a
segregated or collateral account through book entries.
Linkages to clearing system: Actual delivery of securities to the clearing system from the selling
brokers and delivery of securities from the clearing system to the buying broker is done by the
depository.
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III. Depository and its Business Partners

Depository Participant
Under the Depositories Act, 1996, a Depository Participant (DP) is described as an agent of the
depository. As per the provisions of these regulations, an entity can offer depository-related services
only after obtaining a certificate of registration from SEBI as a depository participant. These
regulations also define the eligibility criteria for registration with SEBI as a depository participant.

Business Restrictions
As per the SEBI (Depositories & Participants) Regulations, 1996 the aggregate value of the securities
of the beneficial owners, held in dematerialised form through a stockbroker DP cannot be more than
100 times the net worth of the stockbroker.

Application for becoming a DP

The application complete in all respects should be submitted to the depository in which membership is
sought for. The depository evaluates the application and if it finds that the applicant has the potential
to be admitted as a DP. Along with the application, the depository also submits its recommendations
regarding the applicant to SEBI. The applicant at this stage is required to pay SEBI application fees.
SEBI may require the applicant or the depository to furnish additional information or clarification,
appropriate for considering the application. If the application form is found incomplete, SEBI may
also reject the application after giving an opportunity to the applicant for addressing the objection(s).

A certificate of registration is valid unless it is suspended or cancelled by the Board. The

Securities and Exchange Board of India

The DP must provide a copy of the Rights and Obligations document to the client and keep an
acknowledgement of the same on record before acting as a Participant on his behalf.

Other Features

Separate Accounts: The DP should open a separate account in the name of each beneficial owner.
The securities of each BO should be segregated from the securities of other beneficial owners or from
the DP's own securities.

Client/Beneficial Owner Instructions: Securities should be transferred to or from a BO’s account

only on receipt of instructions from the beneficial owner.

Transaction Statements – SEBI has notified the requirement to issue a Consolidated Account
Statement (CAS) to enable a single consolidated view of all the investments of an investor in mutual
funds and securities held in demat form with the Depositories.
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Connectivity: The DP should maintain continuous electronic means of communication with the
depository. In case of failure of primary connectivity the DP should connect to the depository by
using fall back medium of connectivity.

Monitoring, Reviewing and Evaluating Internal Systems and Controls: The DP should have an
adequate mechanism for the purposes of reviewing, monitoring and evaluating its internal systems
and accounting controls.

Reconciliation: The DP should reconcile its records with its depository on a daily basis. The
depository system is designed to do this reconciliation automatically every day at the end of the day
(EOD).

Returns: The DP should submit periodic returns to SEBI and to every depository in which it is a
Participant in the format specified by SEBI or the Bye-Laws of the depository.

DP to Indemnify Depository: A DP has to indemnify the depository, its officers and employees for
all costs, fees, expenses, liabilities, taxes, actual losses and damages of any nature whatsoever
suffered or incurred by any of them.

Prohibition of Assignment: No DP can assign or delegate its functions as a depository participant to

any other person without prior approval of the depository in which it is a participant.

Insurance: DPs should take appropriate insurance cover to insure against the losses arising from any
possible business risk and system failure.

Records of Services: The DP should maintain records and documents for a minimum period of 5
years.

DP to Ensure Integrity and Back-up of Data: DPs who maintain electronic records should ensure
the integrity of the data processing systems. All necessary precautions should be taken to ensure that
the records are not lost, destroyed or tampered with.

The certificate of registration granted to a DP may be suspended on cancelled by SEBI on certain on

basis of some pre-specified regulations.

A DP may also choose to terminate its participation in the depository by giving a notice of not less
than 30 days. On receipt of such notice, the depository may cease to provide any service or act for the
DP. The depository should notify the DP, other participants, clients of the surrendering DP and SEBI
within seven days of this action.

Clearing Corporation

Clearing Corporation is an entity responsible for clearing and settlement of trades done by clearing
members on a recognized stock exchange. A Clearing Corporation of a stock exchange are admitted
to the depository system for clearing and settlement of securities traded on their respective stock
exchanges A Clearing Corporation of a stock exchange may be admitted as a user on the depository
after entering into an agreement with the depository as per the Bye-Laws of depository.
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Issuers and Registrar and Transfer Agents

The Depositories Act, 1996 gives option to investors to hold their securities either in physical form or
in book entry form with the 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 the depository. The
issuers who intend to offer demat facility will have to first establish connectivity with the depository
either directly or through a Registrar & Transfer Agent which in turn have connectivity with the
depositories. The following categories of securities are eligible for dematerialisation as per SEBI
(Depositories & Participants) Regulations, 1996:

 Shares, scripts, stocks, bonds, debentures, debenture stock or other marketable securities of a
like nature in or of any incorporated company or other body corporate;
 Units of mutual funds (MFs), units of InvITs, rights under collective investment schemes
(CISs) and venture capital funds (VCFs), commercial paper (CP), certificates of deposit (CD),
securitised debt, money market instruments and government securities, unlisted securities
shall also be similarly eligible for being held in dematerialised form in a depository.

Role of Issuer/ R&T Agent in Dematerialization of Securities

The Depository electronically intimates, on a daily basis, all dematerialisation requests to the
respective Issuer or its R&T Agent. After verification of this request, the Issuer or its R&TAgent
intimates the depository and authorizes an electronic credit for that security in favour of the Client.
The depository makes the credit entries in the account of the Client concerned. The request can also
be rejected on grounds of:
 The security certificates are stolen or;
 The security certificates are fake or;
 In the event of an order from a court or a competent statutory authority prohibiting the
transfer of such securities or;
 In case duplicate certificates have been issued in respect of the securities with the same
distinctive numbers.

The Issuer or its R&T Agent, after giving intimation as set out in the Bye-Laws, represents and
warrants to the depository, that such securities exist and are validly issued and it is entitled or has full
authority to transfer such securities with the Depository in the name of the Client.

A Client may withdraw its security balances with the Depository at any point of time by making an
application for rematerialisation to the Depository through its DP. This can be done by submitting a
Remat Request Form (RRF).

Role of Issuer/R&T Agent in Corporate Benefits

It is the function of the Issuer/R&T Agent to inform the depository about the corporate actions
relating to prescribing dates for book closures, record dates, dates for redemption or maturity of
security, dates of conversion of debentures, warrants, call money dates and such other action from
time to time and submit necessary approval documents for the corporate actions. 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 depository
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IV. Functions of Depository Participant-Account Opening

An investor wishing to avail depository services must first open accounts with a DP registered with a
depository. The process of opening a demat account is very similar to that of a bank account. An
investor has the option of opening an account with several DPs or opening several accounts with a
single DP. Each DP is free to frame its own fee structure.

Types of Accounts

Beneficiary Account: A beneficial owner’s account is an ownership account. The holder/(s) of

securities in this type of account owns the securities.

Clearing Member Account: This account is opened by a broker or by a clearing member for the
purpose of settlement of trades executed on a recognized stock exchange.

Beneficial Owner Account: This account is opened by investors to hold their securities in
dematerialised form with a depository for the transactions of sale/ purchase of securities in book entry
form through the depository system. A beneficiary account holder is entitled for all rights and
liabilities attached to the securities held in that account. Therefore, the account is called beneficial
owner account.

DPs are required to open separate accounts, for their own investments, thereby keeping the `beneficial
owner’ accounts separate. This is to ensure that there is no co-mingling of their assets with that of
their clients.

Documents for Verification (Account Opening)

Non-body Corporate / Individuals Investors:
 Verify Identity of the applicant
 Record necessary details on the KYC Application Form
 DP may either affix a stamp or print the IPV details on the KYC Application Form.
 Attachment of separate sheet to the KYC Application Form or affixing stickers on the KYC
Application Form for recording of IPV details will not be permitted.

For Corporate Investors:

 MOA, AOA and Certificate of Incorporation
 Board resolution authorizing opening of demat account
 Names of authorised signatories, designation along-with their specimen signatures and
photographs.
 Proof of address of the corporate.
 Copy of the balance sheets for the last 2 financial years
 Copy of latest share holding pattern Copy of the Board Resolution for investment in securities
market.

 A Demat account can have maximum three holders. Proof of identity is to be obtained for
all the holders.
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E-KYC
SEBI has already permitted use of e-KYC service launched by UIDAI. The Aadhaar e-KYC service
provides an instant, electronic, non-reputable proof of identity and proof of address along with date of
birth and gender (digitally signed and encrypted). In addition, it also provides the resident’s mobile
number and email address (if available) to the service provider, which helps to further streamline the
process of service delivery. E-KYC may be performed at the service center of Participant using
biometric authentication, as well as remotely using an OTP on a website or mobile connection.
Considering the benefits and convenience of e-KYC, Participants may consider using the e-KYC
services.

Operationalization of Central KYC Records

The Government of India vide their Notification dated November 26, 2015 authorized the Central
Registry of Securitization Asset Reconstruction and Security Interest of India (CERSAI), set up under
sub-section (1) of Section 20 of the Securitization and Reconstruction of Financial Assets and
Enforcement of Security Interest Act, 2002 (54 of 2002), to act as and to perform the functions of the
Central KYC Records Registry under the said rules, including receiving, storing, safeguarding and
retrieving the KYC records in digital form of a “client”, as defined in clause (ha) of sub-section (1) of
Section 2 of the Prevention of Money-Laundering Act, 2002. The Central Government have also
amended the Prevention of Money-laundering (Maintenance of Records) Rules, 2005 vide
Notification dated 7th July, 2015 for the purpose of establishment of Central KYC Registry. As per
Prevention of Money-laundering (Maintenance of Records) Amendment Rules, 2015, Rule 9 (1A),
every reporting entity shall within three days after the commencement of an account-based
relationship with a client, file the electronic copy of the client’s KYC records with the Central KYC
Registry.

Types of Application forms:

The forms prescribed by the Depository’s require the applicants to give the following details:
 Name of Account Holder
 Mailing and communication address
 Details of guardian incase account holder is a minor
 Foreign address and RBI approval details for NRI, FII or OCB accounts.
 Clearing Member details for a clearing account
 Details of Bank Account
 Details of Income Tax PAN

Linking of Demat Accounts of Individuals with their Aadhaar

In the Union Budget 2017-18, it was announced under ‘Other measures in the Financial Sector’ that
“Steps will be taken for linking of individual demat accounts with Aadhaar“. Accordingly, SEBI has
instructed depositories to advise their Participants to take necessary steps for linking of demat
accounts held by individual clients with their Aadhaar numbers to ensure effective implementation of
the budget announcement. Participants shall encourage all their existing individual clients to provide
their Aadhaar number to link with their demat account. Participants may send regular communications
to their clients for updating their Aadhaar number in the demat accounts. Further, NSDL has also
provided an online facility for demat account holders to update their Aadhaar number directly in their
demat accounts at NSDL, which will be authenticated directly with UIDAI.
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FATCA Compliance
‘The Inter-Governmental Agreement (IGA) with USA for implementation of FATCA entered into
force on 31st August 2015. Under the alternative procedure provided in Rule 114H(8) of the Income
Tax Rules, 1962, the financial institutions need to obtain self-certification and carry out due diligence
in respect of all individual and entity accounts opened from 1st July 2014 to 31 st August 2015. Such
self-certification and documentation was required to be obtained by the financial institutions by 31st
August 2016, otherwise they were required to close the accounts and report the same if found to be a
"reportable account" as per the prescribed due diligence procedure for pre-existing account.

Forms for Different types of investors

 Join Holders: A depository account may be opened and maintained in the names of more
than one person. All the joint-holders have to sign the application form and acknowledge
receipt of copy of the Rights and Obligations document. The supporting documents and
photograph should also be provided for all joint holders. In the event of the death of a joint
holder, the balance lying in the account can be transmitted, on request of the surviving
holders, to a new account to be opened by the surviving holders. The earlier account having
the deceased holder's name is closed after such transmission.

 HUF: The depository account of an HUF will be opened in the name of HUF entity as it
appears on the PAN card of the HUF entity. DPs should clearly designate the account in the
name of the HUF entity as such. Pan card details of both the HUF entity and Karta of the
HUF shall be obtained from the Beneficial Owner and bank account proof of HUF should be
obtained. The form for opening a HUF accounts is the same as the individual account.

 Companies: A company, being an artificial person, can open a demat account, provided its
memorandum authorizes it to make investment in the securities of other companies. A demat
account in the name of a company should be operated by the person(s) authorized by a
resolution passed by its board of directors.

 Minors: A minor may hold shares through his guardian. Accordingly, a minor may open a
depository account only through his guardian.

 Partnership Firms: Partnership firm cannot be a member of a company under the provisions
of Companies Act. Thus a depository account cannot be opened in the name of a partnership
firm
Client Account Number

On completion of the account opening procedure, the system then generates a client account number
which should be referenced by the client for all its transactions in the depository system. The system
also generates a report containing the details of client captured from the account opening form. The
DP should provide a copy of account opening confirmation report to the client for his reference and
verification about the correctness of details.
 An account with the NSDL will have 16 digit numbers with the first 8 digits indicating the
DP-ID starting with IN300100 and the last 8 digits giving the client id i.e. 10005678.
 In case of CDSL, the account number has two parts, i.e., 8-digit DP-ID (identification number
of Depository Participant) and 8-digit client account number.

 A demat account can also be operated by a Power of Attorney holder.

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Clearing Member Account

The entities which are authorised 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:
 All the members of a stock exchange are clearing members

 Custodians who have been permitted by the stock exchange to act as a clearing member.

Closure of Account
DP can close a depository account on receipt of an application in the prescribed format. The
application should be made by the account holder or by all the joint holders. An account can be closed
only when there is no balance in the account. 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.

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 sufficient notice to
the client before initiating closure of his account.

Consolidation of Accounts
Some clients could have opened multiple accounts to dematerialize their shares held in multiple
combination and sequence of names. However, they may not need so many accounts after they have
dematerialised 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.

Shifting of Clearing Account

A clearing member may transfer its clearing account from one DP to another DP. For this,
simultaneously applications have to be made for closure of account to the earlier DP and for opening
of new clearing member account to the new DP. All pay-out of securities, subsequent to closure of old
clearing account takes place in the new account.

Mass Shifting of Accounts

DPs may set up new centres as their business expands or to provide direct connectivity from different
geographical locations. However, there may be accounts from that location but the account may
already have been opened in another DP module machine. Depositories have provided a facility to
shift in mass.

Freezing of Accounts
Account freezing means suspending any further transaction from a depository account till the account
is unfrozen. ISIN12/specific number of securities in a demat account may be frozen in certain cases.
By freezing an account for debits only (preventing transfer of securities in / out of the account), the
client can receive securities in his account. An account can also be frozen for debits as well as credits
(preventing any movement of balances out of the account). No transaction can take place in such an
account until it is reactivated. The DP should immediately inform the client about change in status of
the account from 'active' to 'suspended' and vice versa.
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Change in Client Details

A client may change any of the following particulars in the depository system provided the depository
has provision for change in client details. All the changes have to be indicated in writing to the DP.
The changes may include:

 Change of name
 Change of Father’s / Husband’s name
 Change of Address
 Change of Nomination details
 Change of Bank Details
 Change of contact details
 Change of name in corporate accounts
 Change of name of a beneficial account holder
 Change of signature

V. Functions of Depository Participant-Transmission and Nomination

Transmission of Securities

The word `transmission’ means devolution of title to shares, for example, devolution by death, lunacy,
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 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 securities which are encumbered (i.e. pledged, earmarked, etc.) will not be transferred out of the
account and will remain in the deceased BO account till such time as the encumbrance is removed or
the obligation (in case of earmarking) is met.

Nomination for Securities

The Companies (Amendment) Act, 1999 has introduced provisions for nomination in respect of
shares, debentures, fixed deposits, etc. Under the provisions, a shareholder, a debenture- holder, a
bondholder or a deposit holder can nominate a person(s) (Maximum 3 nominees), in whom the shares
or debentures or bond or deposits would vest, in the event of original investor's death. The facility
can be availed of by any person whether resident Indian or a non-resident Indian investor.

Investors holding securities in dematerialised form have the option of nominating a person(s)
(Maximum 3 nominees), who would be entitled to receive securities outstanding in his/her name in
the event of their death. Nomination facility can be availed at the time of opening the depository
account itself or subsequently also. There is a separate prescribed form for nomination under
depository segment. Nomination can also be changed at will by resubmitting the nomination details in
the prescribed form.
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Transmission of Securities held singly in the Depository without nomination: For transmission of
Securities held singly in the Depository without nomination the legal heir(s) or legal representative(s)
of the deceased account holder 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.

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 DP 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 DP in the specified form given by the Depository, along with original or a copy of the death
certificate duly notarized / attested by a gazette officer.

Transmission of Securities held by Karta of Hindu Undivided Family (HUF) in the Depository:
Upon death of the Karta of a Hindu Undivided Family (HUF), the surviving member(s) of the HUF
may appoint the eldest surviving member of the HUF as the new Karta of the HUF. For change of
name of Karta in the account of HUF to the new Karta in place of the deceased Karta, the surviving
members through the new Karta shall make a joint application to the Depository Participant in the
format specified.

In case HUF goes into partition, the securities shall be divided amongst all the members in the manner
specified by the applicant. The surviving members shall furnish to the Participant the details of the
beneficial owner accounts of the individual members in order to have the securities distributed to their
respective accounts.

VI. Functions of Depository Participant-Dematerialisation

As already discussed earlier, dematerialisation 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 dematerialised, they lose their identification features in terms
of share certificate number, distinctive numbers and folio numbers.

ISIN: Securities dematerialised bear a distinctive ISIN. This 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). ISO 6166 was developed for use in an international
(cross-border) as well as domestic trades. ISIN is a 12-character long identification code. It has three
components – (1) a pre-fix, (2) a basic number and (3) a check digit. The pre-fix is a two-letter
country code as stated under ISO 3166 (IN for India). The basic number comprises nine alphanumeric
characters (letter and/or digits).
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What securities can be dematerialised?

 Shares, scrips, stocks, bonds, debentures, debenture stock or other marketable securities of
similar nature of any incorporated company or other body corporate, including underlying
shares of ADRs and GDRs.
 Units of mutual funds, rights under collective investment schemes and venture capital funds,
commercial paper, certificate of deposit, securitised debt, money market instruments,
government securities and unlisted securities.
Physical form of securities can be converted into book entry form in the depository system only if the
company which has issued the securities has entered into an agreement with the depositories to offer
demat facility.

Pre-requisites for Dematerialisation

 The registered holder of the securities should make the request.
 Securities to be dematerialised must be recognised by the depository, as eligible security. In
other words, only those securities who’s ISIN has been activated by the depository, can be
dematerialised in the depository system.
 The company/Issuer should have established connectivity with the depository. Only after such
connectivity is established, the securities of that company/Issuer are recognized to be
"available for dematerialisation" in the depository system.
 The holder of securities should have a beneficiary account in the same name as it appears on
the security certificates to be dematerialised.
 The request should be made in the prescribed dematerialisation request form.

Procedure for Dematerialisation

 DP provides dematerialisation request forms (DRF) to their clients

 The client completes the DRF in all respects and submits to the DP along with the security
certificates to be dematerialised.
 The DP checks the DRF for validity, completeness and correctness.
 If the DRF and the accompanying security certificates are not found in order, the DP should
return the DRF and certificates.
 If DRF and accompanying certificates are found in order, the DP should accept the DRF and
issue an acknowledgement to the client.
 The DP should enter the dematerialisation request in DP system after following makerchecker
concept. The DP system generates a request number (DRN), which should be mentioned on
DRF.
 DP should ensure that the certificates are defaced and mutilated before they are sent to the
Issuer / RTA
 The DP should forward the DRF and the relevant security certificates to the Issuer or its R&T
Agent for dematerialisation.
 The Issuer or its R&T Agent verifies the DRF and the accompanying certificates for validity,
completeness and correctness.
 If the Issuer or its R&T Agent finds the DRF to be in order, it informs the depository and
authorizes it to create the appropriate credit balance in the client's account.
 The DP, on receiving confirmation of credit entry in DP system informs the client through
monthly transaction statement.
 An R&T Agent is required to confirm/ reject a demat request within 15 days from the date of
receipt of physical shares.
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Rejection: A demat request can be rejected in the case of certain objections. The two depositories
may have different codes (as per SEBI guidelines, both depositories have adopted common rejection
reasons), we here have attempted to cover most of the objections which may lead to rejection of the
DRF request. The table provided in the booklet provided gives the reasons for rejection and the action
that DPs need to take in case of each objection.

Any dispute regarding the title of securities (in physical form) after they have been dematerialized and
credited to a client's account, has to be settled amongst the DPs, clients and Issuer or its R&T Agent.

Transposition cum Dematerialisation

The depositories have amended their Bye-Laws and procedure to enable investors to transpose names
of the joint holders along with the process of dematerialisation through their DPs. In case of
transposition-cum dematerialisation, the Client can get securities dematerialised 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.

Transmission cum Dematerialisation of Securities

In case of death of one or more of the joint holders, the surviving joint holder(s) can get the name(s)
of the deceased removed from the security certificate(s) and get them dematerialized by submitting
the security certificates along with the Transmission Form and the DRF to the Participant. The DP
should ensure that the demat account is in the name of the surviving holders only.

Rematerialisation

Rematerialisation is the reverse of dematerialisation. It refers to the process of issuing physical

securities in place of the securities held electronically in book-entry form with a depository. Under
this process, the depository account of a beneficial owner is debited for the securities sought to be
rematerialised and physical certificates for the equivalent number of securities is/are issued. The
beneficial owner holding securities with a depository has a right to get his electronic holding
converted into physical holding at any time. 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 Rematerialisation Request Form (RRF).

 Destatementization is the process, which enables BOs to convert their mutual fund units
represented by Statement of Account (SoA) in physical form to electronic form and hold the
same in their demat account with CDSL.

 Restatementization is a process by which the MF units held in electronic form are converted
into physical form i.e., Statement of Account (SoA) /certificates at the request of the
Beneficial Owners. In the case of Repurchase / Redemption, the payment is made to the BOs
by the AMC/RTA in lieu of MF units held expunged.
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VII. Functions of Depository Participant-Trading and Settlement

One of the most important and basic services provided by the depositories in India is to facilitate
transfer of securities from one account to another at the instruction of the account holder. In the
depository system both transferor and transferee have to give instructions to its DPs for delivering
(transferring out) and receiving of securities.

Settlement of Off-Market transactions

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.

Settlement of Market Transactions

A market trade is one that is settled through the participation of a Clearing Corporation/ Clearing
House (CC/CH). In the depository environment, the securities move through account transfer. Once
the trade is executed by the broker on the stock exchange, the seller either gives an on market delivery
instruction to his DP to transfer securities to his broker's account or on behalf of his broker gives
normal pay-in or early pay-in delivery instruction to his DP. In case of CDSL, the seller BO can
deliver the securities directly to the CC of the exchange (BO Level pay-in). The broker has to ensure
that the pay-in instruction [normal pay-in or early pay-in] is entered using the CM ID and / or ensure
that sufficient balance is there in his CM account / respective settlement number and market type
before the pay-in deadline prescribed by the stock exchange.

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. Brokers of stock exchanges that offer settlement through
depository are required to open a 'clearing member account'. The type and number of accounts opened
may vary across depositories. In addition to the brokers, custodians registered with SEBI and
approved by stock exchanges can open a clearing member account. These accounts are popularly
known as 'Broker settlement account' or ‘Broker pool account’. A client who has sold shares will
deliver securities into the CM account of the broker through whom securities were sold.

Important Terminologies

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. The contract note/trade confirmation
slip given by the broker/ sub-broker will indicate the settlement details.
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Settlement Number: Trading periods of each of the market segments is identified by a settlement
number. The DIS should contain the settlement number for which the securities are being transferred
to the clearing member account.

Clearing Member: Every broker in a stock exchange participating in settlement process through
depository is required to open clearing member account. These are identified with BO IDs / CM BP
IDs and called as 'CM accounts'.

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.

Pay-in: 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'.

Pay-out: 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'.

Inter-settlement Transfer: In a clearing member account, the securities are always kept in a bucket
of specific market type and settlement number. 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' transfer.

Automatic Delivery-out: These refer to instructions regarding delivery-out instructions for moving
securities from CM Pool Account to CM Delivery Account can be generated automatically by the
respective Clearing Corporations based on the net delivery obligations of its Clearing Members.

Early Pay-in: Early pay-in facility is used to avail margin exemptions and other applicable benefits
including Buy-back and Tender Offer transfers.

Normal Pay-in: Normal pay-in facility can be used by a CM [applicable only in case of BSE CMs,
set up of normal pay-in. Instructions from non-BSE CM accounts are not allowed] or the seller BO to
deliver securities to the CC / CH of the stock exchange by giving normal pay-in instruction to the DP.

Auto Pay-in: A facility is available to BSE-CMs on written request to CC / CH (i.e. ICCL/NSCCL).

By using this option the CM will not be required to give any pay-in instructions to his DP and the
securities will be automatically considered for pay-in.

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.

Procedure for Subscription and Redemption of Mutual Fund Units

Subscription (Purchase) of Mutual Fund units through Stock Exchange: Mutual Fund units
purchased by an investor through the CM are routed through the settlement cycle of the stock
exchange. A purchase order for MF units is entered on the stock exchange order entry platform by the
eligible CMs on behalf of their investors. After the order entry deadline, order file shall be sent to
AMC/RTA for validation. Subsequently, CM shall transfer the said MF units to the respective BO’s
demat account.
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Redemption (Repurchase) of Mutual Fund units through Stock Exchange: In case of Redemption
[i.e. Repurchase] of MF units, the Investor shall place an order through eligible Clearing Member
(CM) on Stock Exchange Order Entry platform. On successful order entry, Investor / BO shall
transfer the units for pay-in by submitting the DIS to his DP by mentioning the Settlement ID and
type along with the other relevant details. Mutual Fund units shall be debited from BO account and
credited to CH house account.

Repurchase / Redemption of Mutual Fund units through Depository Participant: BO can also
redeem or offer for repurchase the MF units that are available in electronic form in his demat account
directly through the DP without going through the stock exchange mechanism. Modification is not
allowed for Repurchase / Redemption.

VIII. Special Services – Pledge & Hypothecation

The creation of pledge and hypothecation against securities which are held in demat mode is
permitted under section 12 of the Depositories Act, 1996. Securities (free balances / lock-in balance)
held in a depository account can be pledged or hypothecated against a loan, credit, or such other
facility availed by the beneficial owner of such securities. For this purpose, both the parties to the
agreement, i.e., the pledgor and the pledgee must have a beneficial account with the same depository
as inter-depository pledge is presently not permitted. If the lender needs concurrence of the borrower
(pledgor) for appropriating securities to his account, the transaction is called hypothecation.

Procedure for Pledge/Hypothecation

The pledgor initiates the creation of pledge/hypothecation through its DP and the pledgee instructs its
DP to confirm the creation of the pledge. The pledge/hypothecation so created can either be closed on
repayment of loan or invoked if there is a default. 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.

Creation of Pledge/Hypothecation by Pledgor

A beneficial owner may contract a loan against the securities owned by him. He may borrow from a
bank or any other person. A pledge transaction needs an identification which may be an agreement
number. The borrower is called a pledgor and the lender is called a pledgee. There can be any number
of pledge/hypothecation transactions between the same set of pledgees and pledgors. Each of these
transactions has to be identified separately by a unique system generated number (“pledge sequence
number”) in the DP system and a separate set of instructions have to be given against each of these
transactions . The pledgor submits the request form containing all details like the details of securities
to be pledged, the agreement number, closure date of the pledge/hypothecation (this date is indicative
of the duration of pledge/hypothecation), pledgee's details, etc. The DP verifies the form for
completeness and validity and ensures that the securities to be pledged exist in the pledgor's account.
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Procedure for Confirmation of Creation of Pledge/Hypothecation by Pledgee

Once a pledge/hypothecation request has been created and verified, the pledgor submits the duly
stamped and signed PRF to the pledgee along with the letter generated confirming the pledge set-up.
The details of the pledge/hypothecation are also electronically communicated to DP system of
pledgee's DP for confirmation. The pledge/ hypothecation request is displayed at DP system of
pledgee's DP. Acceptance of the creation of pledge/ hypothecation appears in DP system of the
pledgor's DP and pledgee's DP as a status change.

Closure (Unpledge) of a Pledge/Hypothecation by Pledgor

The pledgor can request for un-pledging / closure of pledge/hypothecation after the performance of
the underlying agreement. The pledgor submits an instruction in the prescribed form to its DP to
initiate the un-pledge / closure of pledge/hypothecation. The DP, upon receiving such request, verifies
the form for its completeness and validity and, if not found in order, returns it to the pledgor for
rectification. In case of rejection by the pledgee, the securities continue to remain as pledged balances
in the pledgor's account. The details of the pledge/hypothecation un-pledge / closure request are
communicated electronically through depository system to the DP system of pledgee's DP for
confirmation.

Unilateral Closure (Unpledge) of Pledge

The facility for unilateral closure (Unpledge) of Pledge by the Pledgee is also provided by the
depositories. In this case, the pledgee submits an instruction in the prescribed form to its DP to initiate
unilateral closure of pledge/hypothecation. The process remains the same as mentioned under head
(section 8.2.3), Un-pledge/Closure of a Pledge/Hypothecation by Pledgor. However, no action
(confirmation / rejection) is required to be taken by the pledgor and/or pledgor's DP.

Invocation of Pledge by Pledgee

If the pledgor fails to discharge his obligations under the agreement of pledge or for any other reason,
the pledgee may invoke the pledge. He can then claim the beneficial ownership of the concerned
securities after taking the necessary steps in terms of the pledge agreement, Bye- Laws of the
depository and SEBI regulations. In such a case, the pledgee fills up the Invocation Request Form
(IRF) to his DP for invoking the pledge. The DP accepts it for processing and issues an
acknowledgement to the pledgee.

Invocation of Hypothecation
If the borrower fails to discharge his obligations under the agreement of hypothecation or for any
other reason, the lender may invoke the hypothecation. He can then claim the beneficial ownership of
the concerned securities after taking the necessary steps in terms of the hypothecation agreement,
Bye-Laws of the depository and SEBI regulations. In such a case, the lender submits a request in the
prescribed form to his DP for invoking the hypothecation.

Corporate Benefits for Pledged/Hypothecated Securities

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.
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It has been observed that some shareholders, primarily promoters, enter into non-disposal agreements/
non-disposal undertaking (NDU) for borrowing funds from various lenders. NDUs are typically
undertakings given by a shareholder not to transfer or otherwise alienate the securities and are in the
nature of negative lien given in favour of another party, usually a lender.

X. Special Services – Corporate Actions

Corporate actions are events, which affect the rights, obligations and/or interests of the beneficial
owners of the securities held in a depository. The most common examples are payment of interest,
dividend, bonus shares, rights, splits, merger, redemption, payment of call money, liquidation etc. For
securities held in demat mode, the depository facilitates the execution of corporate actions. Corporate
actions can be categorized into two types:

 Cash corporate actions involve distribution of monetary benefits, e.g., dividend and interest
etc.
 Non-cash corporate actions involve distribution of benefits other than cash such as bonus
issues, offer of shares on right basis, conversion of securities, etc.

 Corporate actions affect the holder of the securities. Thus, whenever any corporate action
takes place it is necessary to determine the eligible BOs as of a particular date that is entitled
to the corporate benefits. The issuer thus announces a cut-off date to determine the BOs of the
securities as of that date. This date is referred to as the `Record Date’

 In certain cases, issuer may setup a corporate action specifying book closure start date and
book closure end date. In such cases, the depository system generates holding report i.e. list
of BOs having holdings in the ISIN of the issuer as of end of the day of one day prior to book
closure start date.

Procedure for Corporate Actions

On the relevant cut-off date announced for the corporate action, the depository provides the details of
the holdings of the beneficial owners to the issuer or it’s R&T Agent. The details provided by the
depository include the particulars of tax-status, if any of the beneficial owner and his bank account
details. Securities balances lying in the accounts of the Clearing Members / Clearing Corporations /
Intermediaries will be eligible to receive corporate benefits.

Monetary Benefits: On the basis of the particulars of the holdings of beneficial owners received from
the depositories on the cut-off date, the Issuer / its R&T Agent distribute dividend, interest and other
monetary benefits directly to the beneficial owners.
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Non-Monetary Benefits: On the basis of the particulars of the holdings of beneficial owners received
from the depository as of the cut-off date, the Issuer/its R&T Agent informs the eligible beneficial
owners about the corporate action/benefit. In case, the benefits are in form of securities, the Issuer / its
R&T Agent gives an option to all shareholders (including shareholders holding shares in physical
form), to get securities allotted in electronic form or physical form. A person holding securities in
physical form may opt for receiving securities in dematerialised form and vice-versa.

 For Rights Issue, the Issuer on the basis of details of holdings received from the depository;
dispatch the application form for rights issue to the owners. The form requires the applicant to
state his option about whether he would like to receive the new securities in physical form or
dematerialised from.

 In case of events such as merger, amalgamation, capital reduction, sub-division etc.,

shares held in demat accounts under old ISIN will be automatically debited and proportionate
number of new shares will be credited in the new ISIN.

 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.

 Eligible investors in debt securities will receive interest from the Issuers / its R&T Agents. In
respect of government securities, however, the depository distributes the interest to eligible
clients, after RBI has credited interest amount to the depositories account.

X. Special Services– Public Issues And Tender Offer

The primary market provides the channel for raising funds from investors through sale of new
securities; the issuers of securities issue (create and sell) new securities in the primary market to raise
funds for investment and/or to discharge some obligation. The issue of securities in the primary
market can be made by a new company, a new company promoted by an existing company, an
existing public listed company, or an existing public unlisted company. They do so either through
public issues (initial public offer or follow on public offer) or private placement.

Public Issue Procedure

Allotment in public issues in respect of Equity is mandatory in demat form. To receive the securities
in electronic form, investor must open a demat account through any DP with any depository before
making an application. For this purpose, the application form should have provision for investors to
furnish their demat account number along with the following information:
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 Depository Name
 DP's Name
 DP-lD
 Beneficiary Account Number (BO ID)

The SEBI guidelines require that all public issues of the size of Rupees ten crores and above be
compulsorily made in demat form.

Process Flow of IPO through the depository

Tender Offer
The Clients (eligible shareholders) who wish to participate in the tender offers viz., buyback, takeover
and delisting offer of company will be required to mention the details as per the existing process
while submitting delivery instructions slip (DIS) or electronic instructions to the Participants.
Participant will continue to submit or upload the delivery instructions in NSDL system as per existing
process. Upon submission of the delivery instruction in respect of tender offer in eDPM system, if
sufficient balance is available in the demat account of the client, requisite quantity will be blocked in
the demat account of the client in favor of respective Clearing Corporation based on the market type
and settlement number of tender offer. Upon receipt of inter-depository instruction in respect of tender
offer where the target account in NSDL system is a Clearing Member Pool Account, the shares will
be automatically transferred to the Clearing Corporation.
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XI. Special Services – Debt Instruments & Government Securities

Debt Security is a written agreement to repay a loan, usually with interest, within a given time frame
is also referred to as a Debt Instrument. Depending on features like Issuer, tenure, interest rate, etc.,
debt instruments can be classified into different categories like bonds, debentures, CP, T-bills, etc.
The features associated with a debt instrument differentiate it from other instruments. These include
coupon/interest rate, redemption/maturity date secured or unsecured put/call option (if any).
Identification: Each debt security is given a unique identification in the depository system, which is
linked to the special features of the security, through an ISIN and a descriptor. Each instrument is
identified separately in the system through a unique code called ISIN.

Instrument Descriptor: The instrument descriptor in the depository system indicates:

 Name of the Issuer
 Coupon/Interest Rate
 Security name
 Redemption date
 Face Value

Addition of Debt Instrument to Depository System: An Issuer may offer demat facility for its debt
instruments by sending a request to the depositories detailing the type of instrument, along with a
Letter of Intent. On receipt of the request, a tripartite agreement is signed between the depository, the
Issuer and Registrar & Transfer Agent. Once admitted, these securities are made available for
dematerialisation by the depository.

Corporate Action: Interest payment for debt instruments is handled in the same way as corporate
benefits are handled for equity. Issuer will send interest warrant directly to the investor.

Instruments with call/put option: Exercising of call/put option only prep-ones the redemption date
of an instrument. If a company exercises a call option, the procedure followed is the same as followed
in normal redemption. On fulfilling the procedure prescribed, Issuer will send the redemption
proceeds to the investor directly.

Investors in Demat Debt Instruments: The depositories have no restriction on existing accounts
being used for demat of debt instruments. It depends upon the convenience of investors whether they
want to open a separate account for debt instruments. The procedure for dematerialisation of debt
instrument is same as that for equity shares.
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Certificate of Deposit (CD)

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 Rs. 1 lakh.

The procedure for dematerialisation of CD is same as that carried out for equity shares. The client will
submit a request to the DP, in the DRF, along with the original CD certificate/s to be dematerialised.
Before submission, the client/holder has to write on the reverse of the CDin the space provided for
endorsement followed by signature of authorised official of holder.

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.

Commercial Paper

An investor can subscribe to minimum of Rs. 5,00,000 or multiples thereof, as the face value of a
Commercial Paper in the depository system is taken as Rs. 5,00,000. For dematerialisation of CP, the
client has to submit the CP alongwith demat request form (which is available with DP) to the DP.
Only those commercial papers, which have been made available for dematerialisation by its Issuer,
can be dematerialised. Buyer and seller decide upon price and quantity of securities to be transacted.
The seller authorizes its DP through delivery instructions to debit his account and transfer the
securities into the account of Buyer who may have opened account with the same or any other DP.
For any buying or selling of demat debt instruments, the procedures involved for delivery or receipt of
debt instrument is the same as that involved for equity shares.

Government Securities

Government security means a security created and issued by the Central Government or a State
Government for the purpose of raising a public loan. 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 depositories in India have been given permission to maintain SGL accounts, of investors
through its DPs. Any client account opened with a DP may be used for dealing in government
securities. Thus, equity shares, mutual fund units and G-Secs can be dealt with through a
single account.

 Government securities, like other securities, may be held either in physical form or as
electronic entries in an SGL account.

 The depository acts as an R&T Agent and discharges RTA functions for G-Secs.
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 The depository’s G-Sec cell also rejects the dematerialisation requests in case RBI rejects the
transfer on account of signature mismatch or in case the signatories are not registered with
RBI.

 In such cases, the DP intimates the client of rejection by letter/fax along with the rejection
memo sent by the depository's G-Sec cell.

 Procedure for transfer of government securities within the depository is exactly similar to that
of transfer of equity shares.

 DP must ensure that changes in the beneficial owner's accounts, such as change in bank
details, change of address, etc., are updated well in advance of the due date of interest
payment and/or redemption payment due date. The depository should distribute the interest to
clients who have balances in government securities, on which interest payment is due, before
the EOD of the interest payment due date, after RBI has been made it available to the
depository.

XII. FOREIGN PORTFOLIO INVESTORS (FPI)

FPI regime offer a single route to various class of foreign investors viz., FIIs, Sub Accounts & QFIs
under portfolio investment scheme to converge into one class of foreign investor viz., Foreign
Portfolio Investor (FPI). DDPs will do the registration of FPI and will carry out the necessary due
diligence process and issue registration certificate to the FPI. No person shall buy, sell or otherwise
deal in securities as a foreign portfolio investor unless it has obtained a certificate granted by the
designated depository participant on behalf of the Board.

Categories of Foreign investors:

 Category I foreign portfolio investor: It includes Government and Government related

investors such as Central Banks, Governmental agencies, Sovereign Wealth Funds and
international or multilateral organizations or agencies

 Category II foreign portfolio investor: It includes appropriately regulated broad based

funds such as mutual funds, investment trusts, insurance/reinsurance companies;
appropriately regulated persons such as banks, asset management companies, investment
managers/ advisors, portfolio managers; broad based funds that are not appropriately
regulated but whose investment manager is appropriately regulated. However, the investment
manager of such a broad based fund should itself be registered as Category II foreign
portfolio investor.

 Category III foreign portfolio investor: It includes 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.
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 Each FPI shall engage a DDP before making investment in Indian securities market. At all
times the DDP and the Custodian of Securities (Custodian) of the FPI shall be the same entity.

XIII. Additional Services - Basic Services Demat Account (BSDA)

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.

Services offered by BSDA

 Transaction Statements
 Holding Statement
 Charged Physical Statements
 SMS Alert Facility
 Delivery Instruction Slip

Introduction to Redressal of complaints through (SCORES)

SEBI Complaints Redress System (SCORES) platform is a web based centralized system to capture
investor complaints against listed companies and registered intermediaries and is available 24x7. It
was introduced on June 8, 2011 and has been facilitating redressal of investor grievances in a speedy
manner. SEBI encourages investors to lodge complaints through electronic mode in SCORES.
However, complaints received from investors in physical form are also digitized by SEBI and
uploaded in SCORES. Thereafter, follow-up actions of the complaint are done in electronic form only
i.e. through SCORES. Investors can easily access, retrieve and preserve the complaints lodged by
them in electronic mode.

SEBI has received inputs from listed companies and intermediaries that investor grievances can be
resolved faster if the grievance been taken up directly with the entity at the first instance.
Accordingly, it appears to be prudent and time saving if the investors approach the concerned listed
company or registered intermediary first with all the requisite details to redress the complaints. In
case, the listed company or registered intermediary fails to redress the complaint to the investor’s
satisfaction, the investor may file a complaint in SCORES.
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Introduction to Transfer of Shares to Demat Account of IEPF Authority

In terms of Section 124 (6) of Companies Act, 2013 and the Rules notified thereunder, the shares in
respect of which dividend has not been paid or claimed for a period of seven consecutive years or
more, are required to be transferred by the company to the Investor Education and Protection Fund
Authority (IEPF). All companies are required to transfer such shares to IEPF, whether held in
dematerialized form or physical form, to the demat account of IEPF Authority by way of corporate
action. The company is required to furnish a statement of shares not transferred to the Investor
Education and Protection Fund (Form No. IEPF-3), which inter-alia requires the company to attach
order of court/tribunal/statutory authority specifying the date of such order.

PLEASE NOTE, THESE ARE SHORT IMPORTANT NOTES EXTRACTED FROM

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KNOWLEDGE.

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