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Depository ppt


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what is depositiory,its function,who can be depositior,depositiories operates in india currently , how to open DEMAT A/C ?

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Depository ppt

  2. 2. INTRODUCTION  What is Depository? An organization where the securities of an investor are held in electronic form at the request of the investor and which carries out the securities transactions by book entry through the medium of a depository participant.  What is a Depository System? A system whereby transfer of securities takes place by means of book entry on the ledgers of the Depository without physical movement of scripts.
  3. 3. FOLLOWING PROBLEMS RESULTED IN FORMATION OF DEPOSITORY  Before introduction of Depository system, the problems faced by investors and corporates in handling large volume of paper were as follows:  Bad deliveries  Fake certificates  Loss of certificates in transit  Mutilation of certificates  Delays in transfer  Long settlement cycles  Mismatch of signatures  Delay in refund and remission of dividend etc
  4. 4. HISTORY  The first depository was set up way back in 1947 in Germany.  In India it is a relatively new concept introduced in 1996 with the enactment of Depositories Act 1996  Their operations are carried out in accordance with regulations made by SEBI ,bye-laws and rules of Depositories Act and SEBI (Depositories and Participants) Regulations Act 1996
  5. 5. MEANING  The term Depository means a place where a deposit of money, securities, property etc is deposited for safekeeping under the terms of depository agreement  A depository is an organisation, which assists in the allotment and transfer of securities and securities lending.  The shares here are held in the form of electronic accounts i.e dematerialised form and the depository system revolves around the concept of paper-less or scrip-less trading.
  6. 6.  It holds the securities of the investors in the form of electronic book entries avoiding risks associated with paper  It is not mandatory and is left to the investor to decide  Depositories carry out its operations through various functionaries called business partners
  7. 7. LEGAL FRAMEWORK FOR A DEPOSITORY  A depository system is governed by the following acts  Securities & Exchange Board of India Act 1992  The SEBI(Depositories and Participants) Regulations, 1996  Bye –laws of depository  Business rules of depository  The Companies Act 1956
  8. 8. FEATURES OF DEPOSITORY SYSTEM  In the depository system, securities are held in depository accounts, which is more or less similar to holding funds in bank accounts.  Transfer of ownership of securities is done through simple account transfers.  This method does away with all the risks and hassles normally associated with paperwork.  Consequently, the cost of transacting in a depository environment is considerably lower as compared to transacting in certificates.
  9. 9. WHO CAN BE A DEPOSITORY: Depository Act, 1996 provides that - Depository means:  A company formed and registered under the companies Act, 1956, and  Which has got a Certificate of Registration from the SEBI.
  10. 10. MECHANISM OF DEPOSITORY SYSTEM  The Depositories Act envisages that each depository will have its agents to be known as ‘depository participants’ (DPs), who shall be a crucial link between the investors and the depository.  As per SEBI guidelines, financial institutions, banks, stock brokers etc, can become DPs after following the norms prescribed under SEBI(Depositories and Participants) Regulations, 1996 and other applicable conditions.
  11. 11. CONSTITUENTS OF DEPOSITORY SYSTEM There are basically four participant:  The Depository  The Depository Participant  The Issuing Company  The Investor
  12. 12. DEPOSITORIES IN INDIA  The depository model adopted in India provides for a competitive multi-depository system. There can be various entities providing depository services. Such system is known as Multi-Depository System.  At present two Depositories are registered with SEBI.  NSDL & CDSL
  13. 13. DEPOSITORIES IN INDIA  Presently there are two Depositories working in India:  National Securities Depository Limited (NSDL)  NSDL was formed and registered under the Companies’ Act 1956 during December 1995 and commenced operations during november1996.  NSDL was promoted by Industrial Development Bank of India (IDBI)-the largest development bank in India, Unit trust of India (UTI)-the largest mutual fund in India and National stock exchange (NSE)- the largest stock exchange in India.  Some of the prominent banks in the country also have a stake in NSDL.
  14. 14. CDSL  Central Depository Services (India) Limited (CSDL)  Central Depository services (India) limited which commenced operations during February 1999.  CSDL was promoted by Stock Exchange, Mumbai in association with Bank of Baroda, Bank of India, State Bank of India and HDFC Bank.
  15. 15. DP  DP : DP is an agent of the depository and functions as the interacting medium between the depository and the investor  He should be registered with the SEBI  Must possess requisite qualifications prescribed by the concerned depository of which he is a participant  He is responsible for maintaining the investors’ securities a/c with the depository and handles them as per the investors written instructions  He is linked to a broker who trades on behalf of investors
  16. 16.  To avail their services an account similar to a bank a/c has to be opened with the DP  As per SEBI Regulations , financial institutions, banks, custodians, stock brokers etc can become DP’s  However investors may choose DP’s of their choice and also deal with 1 or more DP;s at a time
  17. 17. INVESTORS [BENEFICIAL OWNER]  Individual  Partnership Firm  HUF  Company “Beneficial Owner” is a person in whose name a demat account is opened with Depository for the purpose of holding securities in the electronic form
  18. 18. RIGHTS AND OBLIGATIONS  The rights and obligations of depositories, depository participants, issuers and beneficial owners are spelt out clearly in the Depositories Act 1996.  As per the Act :  • Section 4: DP is an agent of the Depository: A DP is an agent of the depository, who provides various services of the depository to investors. The DP has to enter into an agreement with the depository to this effect. Any investor who would like to avail the services of a depository has to enter into an agreement with any DP of his choice. The DP will then make the depository services available to the investor.  • Section 7: Free Transferability : The securities held by an investor in the depository are freely transferable from one beneficial owner to another.
  19. 19.  Section 8: Option to hold securities in demat form : In the depository system, every investor subscribing to securities offered by an issuer has an option to receive the same in physical form or dematerialised form. If an investor opts for receiving the securities in dematerialised form, the issuer intimates the depository the details of allotment of security. On receipt of this information, the depository enters the name of the allottee as the beneficial owner of that security in its record.  • Section 9: Securities held in a depository are fungible : All securities held by the depository are in dematerialised and fungible form.  • Section 10: Registered Owner and Beneficial Owner : The depository is deemed to be the registered owner for the purpose of effecting transfer of ownership of security on behalf of a beneficial owner. But as a registered owner, it does not have any voting rights or any other rights in respect of those securities. The beneficial owner is entitled to all rights and benefits as well as subject to all liabilities in respect of his securities held in the depository.
  20. 20.  Section 14: Option to opt out of depository : A beneficial owner may opt out of a depository in respect of any security by requisite intimation to the depository.  • Section 16: Depository to indemnify losses : A depository shall indemnify a beneficial owner, any loss caused due to negligence of the depository or its participant.
  21. 21. ELIGIBILITY CRITERIA FOR A DEPOSITORY  Any of the following may promote a depository:  1. A public financial Institution as defined in section 4A of the Companies Act, 1956;  2. A bank included in the Second Schedule to the Reserve Bank of India Act, 1934;  3. A foreign bank operating in India with the approval of the Reserve Bank of India;  4. A recognised stock exchange;  5. An institution engaged in providing financial services where not less than 75% of the equity is held jointly or severally by these institutions;  6. A custodian of securities approved by Government of India, and  7. A foreign financial services institution approved by Government of India.
  22. 22.  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 51% of the equity capital of the depository company. Participants of that depository, if any, can hold the balance of the equity capital.  However, no single participant can hold, at any point of time, more than 5% of the equity capital. No foreign entity, individually or collectively either as a sponsor or as a DP, or as a sponsor and DP together, can hold more than 20% of the equity capital of the depository.
  23. 23. BENEFITS OF DEPOSITORY SYSYEM  No risks associated with physical certificates such as loss of share certificate, Fake securities, Etc.  No bad delivery.  Faster settlement cycles.  Low transaction cost for purchase and sale of securities compared to physical mode.  Increase liquidity of securities  Reduction of paper work  Allotment of IPO, Bonus, Rights shares etc. in electronic form  Wavier of stamp duty on transfer of securities  Intimation like change of address, bank mandate, nomination, request of transmission, required to be given only to Depository Participant (DP) Irrespective of the number of companies in which shares held.
  24. 24. DOCUMENTS REQUIRED FOR OPENING DEMAT ACCOUNT  Demat account opening form duly filled  Address proof  Photograph  Identity proof
  25. 25.  Opening of depository system: SEBI has made compulsory trading of shares of all the companies listed in stock exchanges in demat form w.e.f 2nd jan 2002  Hence if the investor wants to trade in respect of the companies which have established connectivity with NSDL & CSDL, he may have to open a beneficiary a/c
  26. 26.  Once a demat a/c is opened investor must sign an agreement with the DP and the investor will be allotted an account no. called as client identity  No minimum balance is required  The investor is provided with a transaction statement by his DP at regular intervals based on which the investor will know his security balances
  27. 27. DEMATERIALIZATION  Dematerialization is the process of conversion of shares or other securities held in physical form into electronic form.
  28. 28. DEMATERIALISATION  Introduced in India through the enactment of the Depositories Act, 1996  It is not mandatory  One may keep its holding partly in physical form and partly in Demat form  A select list of securities announced by SEBI can be delivered only in demat form in the stock exchanges connected to NSDL
  29. 29.  Open an account with DP  Fill up the Dematerialization Request Form and submit together with share certificate which is to be demat.  The DP upon receipt of the shares and the DRF, will issue an acknowledgement and will send an electronic request to the Company/Registrars and Transfer Agents of the Company through the Depository for confirmation of demat.  DP ,then issues an acknowledgement to the investor and afterwards follows the following procedure :  (a) Defaces the Share Certificates by putting a rubber stamp "Surrendered for Dematerialization“ and by punching two holes on the name of the company on the Share Certificate. DEMATERIALISATION PROCESS
  30. 30.  (b)Generates a Demat Request Number(DRN) through his Depository Participant Module (DPM) and fills the same in DRF at the appropriate place.  (c)Sends an electronic communication to Depository viz. NSDL or CDSL, as the case maybe, to the effect that so many shares of this company (Identified by ISIN (International Security Identification Number) have been received for dematerialization.  (d)Sends the DRF and Share Certificates to the company by courier. The role of DP comes to an end with this but he must send a reminder incase credit of shares is not received in demat account of investors within a month.  The depository electronically downloads the particulars of demat request, received from DP and sends to the electronic Registrar of the company so that these shares could be dematerialized.
  31. 31.  Separate folios should be created in computer in the names of NSDL and CDSL to which dematerialized shares will be transferred.  The particulars mentioned in DRF should be checked from Share Certificates. This is very much similar to scrutiny of Share Certificates and Transfer Deed in case of Transfer of shares. However, special attention should be given that the pattern of holding written on DRF is the same as the endorsement on Share Certificates.  Signatures or shareholders on DRF should be verified from the specimen signatures as per records of the company. All the joint holders should sign the DRF.  The ISIN should be mentioned in the DRF. This, to a certain extent, ensures that the security mentioned in the DRF is the one, which the investor intends to dematerialize.  The data of all demat requests received viz. DRN, DP-Id, Client-Id, Distinctive Nos. of Shares are entered in computer.  After completion of data entry, a checklist containing all the demat requests is generated which should be checked thoroughly to ensure that only those shares for which Share Certificates have been received are dematerialized.
  32. 32. PROCEDURE OF DEMAT- FOR AN INVESTOR  Fill DRF(Demat Request Form) available with DP  Deface the share certificate(s) one wants to dematerialise by writing across “Surrendered for Dematerialisation”  Submit the DRF and Share Certificates to DP  DP would forward them to the issuer/their Registrar & Transfer Agent  Investor’s depository a/c would be credited with the dematerialised securities
  33. 33. REMATERIALISATION  The process of getting the securities in an electronic form, converted back into the physical form is known as Rematerialisation. An investor can rematerialize his shares by filling in a Remat Request Form (RRF).
  34. 34. REMATERIALIZATION PROCESS  The client will submit a request to the DP for rematerialisation of holdings in its account.  On receipt of the request 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 records.  If the signatures are different the DP will ensure the identity of the client.  • If the form is in order the DP will enter the request details in its DPM (software provided by NSDL to the DP). While entering the details, if it is found that the clients account does not have enough balance, the DP will not entertain the request.  The DP will intimate the client that the request cannot be entertained since the client does not have sufficient balance.  If there is sufficient balance in the clients account, the DP will enter the request in the DPM and the DPM will generate a Rematerialisation Request Number (RRN).
  35. 35.  The RRN so generated is entered in the space provided for the purpose in the rematerialisation request form.  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.  The DM forwards the request to the Issuer/ R&T agent electronically.• The DP will fill the authorization portion of the request form.  While processing the request, the Issuer/ R&T agent may report some objections. Depending on the nature of objection, the Issuer/ R&T agent may reject the request or process it partially, seeking rectification for the remaining, and send an objection memo to the DP.  The Issuer/ R&T agent accepts the request for rematerialisation prints and dispatches the certificates to the client and sends electronic confirmation to the DM.  The DM downloads this information to the DPM and the status of the rematerialisation request is updated in the DPM.  The DP must inform the client about the changes in the client account following the acceptance of the request.
  36. 36. THANK U