Understanding Depository System
1.
What is a
Depository?
A depository is an organisation which holds securities
of investors in electronic form at the request of the investors through a
registered Depository Participant. It
also provides services related to transactions in securities.
2.
How is a
depository similar to a bank?
It can be compared with a bank, which holds the funds
for depositors. A Bank – Depository Analogy is given in the following table:
BANK-DEPOSITORY
– AN ANALOGY
BANK
|
DEPOSITORY
|
Holds funds in an account
|
Hold securities in an account
|
Transfers funds between
accounts on the instruction of the account holder
|
Transfers securities between
accounts on the instruction of the account holder
|
Facilitates transfer without
having to handle money
|
Facilitates transfer of
ownership without having to handle securities
|
Facilitates safekeeping of
money
|
Facilitates safekeeping of
securities
|
3.
How many
Depositories are registered with SEBI?
At present two Depositories viz. National Securities
Depository Limited (NSDL) and Central Depository Services (I) Limited (CDSL)
are registered with SEBI.
4.
Who is a
Depository Participant?
A Depository Participant (DP) is an agent of the
depository through which it interfaces with the investor. A DP can offer
depository services only after it gets proper registration from SEBI. Banking services can be availed through a
branch whereas depository services can be availed through a DP.
5.
What is the
minimum net worth required for a depository?
The minimum net worth stipulated by SEBI for a
depository is Rs.100 crore.
6. How many
Depository Participants are registered with SEBI?
As on 31/03/2006, total of
538 DPs are registered with SEBI. A list of DP’s and their addresses can be
downloaded from SEBI website.
7.
Is it compulsory for every investor to open a depository account to
trade in the capital market?
As per the available statistics at BSE and NSE, 99.9%
settlement takes place in demat mode only. Therefore, in view of the
convenience in settlement through demat mode, it is advisable to have a beneficiary
owner (BO) account to trade at the exchanges.
8. What are the benefits of availing depository services?
The benefits are enumerated below:-
·
A safe and convenient way to hold securities;
·
Immediate transfer of securities;
·
No stamp duty on transfer of securities;
·
Elimination of risks associated with physical certificates such as bad
delivery, fake securities, delays, thefts etc.;
·
Reduction in paperwork involved in transfer of securities;
·
Reduction in transaction cost;
·
No odd lot problem, even one share can be sold;
·
Nomination facility;
·
Change in address recorded with DP gets registered with all companies in
which investor holds securities electronically eliminating the need to
correspond with each of them separately;
·
Transmission of securities is done by DP eliminating correspondence with
companies;
·
Automatic credit into demat account of shares, arising out of
bonus/split/consolidation/merger etc.
· Holding
investments in equity and debt instruments in a single account.
Account
Opening
9.
How can
services of a depository be availed?
To avail the services of a depository an investor is
required to open an account with a depository participant of any depository.
10. How can one open an account?
First an investor has to
approach a DP and fill up an account opening form. The account opening form
must be supported by copies of any one of the approved documents to serve as
proof of identity (POI) and proof of address (POA) as specified by SEBI.
Besides, production of PAN card in original at the time of opening of account
has been made mandatory effective from April 01, 2006.
All applicants should carry
original documents for verification by an authorized official of the depository
participant, under his signature.
Further, the investor has to
sign an agreement with DP in a depository prescribed standard format, which
details rights and duties of investor and DP. DP should provide the investor
with a copy of the agreement and schedule of charges for their future
reference. The DP will open the account in the system and give an account
number, which is also called BO ID (Beneficiary Owner Identification number).
The DP may revise the charges
by giving 30 days notice in advance.
SEBI has rationalised the cost structure for dematerialisation by
removing account opening charges, transaction charges for credit of securities,
and custody charges vide circular dated January 28, 2005.
Further, SEBI has vide
circular dated November 09, 2005 advised that with effect from January 09, 2006,
no charges shall be levied by a depository on DP and consequently, by a DP on a
Beneficiary Owner (BO) when a BO transfers all the securities lying in his account
to another branch of the same DP or to another DP of the same depository or
another depository, provided the BO Account/s at transferee DP and at
transferor DP are one and the same, i.e. identical in all respects. In case the BO Account at transferor DP is a
joint account, the BO Account at transferee DP should also be a joint account
in the same sequence of ownership.
11. Why should an investor give his bank account details
at the time of account opening?
It is for the protection of investor’s interest. The
bank account number will be mentioned on the interest or dividend warrant, so
that such warrant cannot be encashed by any one else. Further, cash corporate benefits such as
dividend, interest will be credited to the investors account directly through
the ECS (Electronic Clearing Service) facility, wherever available, by the company.
12. Can an investor change the details of his bank
account?
Yes. Since in the depository system monetary benefits
on the security balances are paid as per the bank account details provided by
the investor at the time of account opening, the investor must ensure that any
subsequent change in bank account details is informed to the DP.
13. What should be done if the address of the investor
changes?
Investor should immediately inform his/her DP, who in
turn will update the records. This will obviate the need of informing different
companies.
14. Can multiple accounts be opened?
Yes. An investor can open more than one account in the
same name with the same DP and also with different DPs.
15. Does the investor have to keep any minimum balance of
securities in his/her accounts?
No.
16. Is it necessary to have account with the same DP as
broker has?
No. Depository / DP can be chosen by investor as per
convenience irrespective of the DP of the broker.
17. Can an investor open a single account for securities
owned in different ownership patterns such as securities owned individually and
securities owned jointly with others? No. The demat
account must be opened in the same ownership pattern in which the securities
are held in the physical form. e. g. if one share certificate is in the
individual name and another certificate is jointly with somebody, two different
accounts would have to be opened.
18. What is required to be done if one has physical
certificates with the same combination of names, but the sequence of names is
different i.e. some certificates with ‘A’ as first holder and ‘B’ as second
holder and other set of certificates with ‘B’ as first holder and ‘A’ as the
second holder?
In this case the investor may open only one account
with ‘A’ & ‘B’ as the account holders and lodge the security certificates
with different order of names for dematerialisation in the same account. An
additional form called "Transposition cum Demat" form will have to be
filled in. This would help you to effect change in the order of names as well
as dematerialise the securities.
19. Can an investor operate a joint account on
"either or survivor" basis just like a bank account?
No. The demat account cannot be operated on
"either or survivor" basis like the bank account.
20. Can someone else operate the account on behalf of the
BO on the basis of a power of attorney?
Yes. If the BO authorises any person to operate the
account by executing a power of attorney and submit it to the DP, that person
can operate the account on behalf of the BO.
21. Can addition or deletion of names of accountholders is
permitted after opening the account?
No. The names
of the account holders of a BO account cannot be changed. If any change has to be effected by addition
or deletion, a new account has to be opened in the desired holding pattern
(names) and then transfer the securities to the newly opened account. The old account may be closed.
22. Can an investor close his demat account with one DP
and transfer all securities to another account with another DP?
Yes. The investor can submit account closure request
to his DP in the prescribed form. The DP will transfer all the securities lying
in the account, as per the instruction, and close the demat account.
23. What would be the charges for account closure and
securities transfer due to account closing?
SEBI vide Circular No. MRD/DoP/Dep/Cir-22 /05 dated
November 09, 2005 advised that with effect from January 09, 2006, no charges
shall be levied by a depository on DP and consequently, by a DP on a
Beneficiary Owner (BO) when a BO transfers all the securities lying in his
account to another branch of the same DP or to another DP of the same
depository or another depository, provided the BO Account/s at transferee DP
and at transferor DP are one and the same, i.e. identical in all respects. In case the BO Account at transferor DP is a
joint account, the BO Account at transferee DP should also be a joint account
in the same sequence of ownership.
All other transfer of
securities consequent to closure of account, not fulfilling the above-stated
criteria, would be treated like any other transaction and charged as per the
schedule of charges agreed upon between the BO and the DP.
24. Whether investors can freeze or lock their accounts?
Investors can freeze or lock their accounts for any
given period of time, if so desired. Accounts can be frozen for debits
(preventing transfer of securities out of accounts) or for credits (preventing
any movements of hindrances into accounts) or for both.
Dematerialisation
25. What is dematerialisation?
Dematerialisation is the process by which physical
certificates of an investor are converted to an equivalent number of securities
in electronic form and credited into the investor's account with his/her DP.
26. How can one convert physical holding into electronic
holding i.e how can one dematerialise securities?
In order to dematerialise physical securities one has
to fill in a DRF (Demat Request Form) which is available with the DP and submit
the same along with physical certificates one wishes to dematerialise. Separate
DRF has to be filled for each ISIN Number. The complete process of
dematerialisation is outlined below:
- Surrender certificates for dematerialisation to your depository participant.
- Depository participant intimates Depository of the request through the system.
- Depository participant submits the certificates to the registrar of the Issuer Company.
Registrar confirms the
dematerialisation request from depository.
- After dematerialising the certificates, Registrar updates accounts and informs depository of the completion of dematerialisation.
- Depository updates its accounts and informs the depository participant.
- Depository participant updates the demat account of the investor.
27. What is an ISIN?
ISIN (International Securities Identification Number)
is a unique identification number for a security.
28. Can odd lot shares be dematerialised?
Yes, odd lot share certificates can also be
dematerialised.
29. Do dematerialised shares have distinctive numbers?
Dematerialised shares do not have any distinctive
numbers. These shares are fungible, which means that all the holdings of a
particular security will be identical and interchangeable.
30. Can electronic holdings be converted back into
Physical Certificates?
Yes. The process is called rematerialisation. If one
wishes to get back his securities in the physical form one has to fill in the
RRF (Remat Request Form) and request his DP for rematerialisation of the
balances in his securities account. The process of rematerialisation is
outlined below:
• One makes a request for rematerialisation.
• Depository participant intimates depository of
the request through the system.
• Depository confirms rematerialisation request
to the registrar.
• Registrar updates accounts and prints
certificates.
• Depository updates accounts and downloads
details to depository participant.
• Registrar dispatches certificates to investor.
Trading /
Settlement
31. What is the procedure for selling dematerialised
securities?
The procedure for buying and selling dematerialised
securities is similar to the procedure for buying and selling physical
securities. The difference lies in the
process of delivery (in case of sale) and receipt (in case of purchase) of
securities.
In
case of purchase:-
·
The broker will receive the securities in his account on the payout day
·
The broker will give instruction to its DP to debit his account and
credit investor's account
·
Investor will give ‘Receipt Instruction to DP for receiving credit by
filling appropriate form. However one can give standing instruction for credit
in to ones
account that will obviate the need of giving Receipt Instruction every time.
In case of sale:-
The investor will give delivery instruction to DP to
debit his account and credit the broker’s account. Such instruction should
reach the DP’s office at least 24 hours before the pay-in as other wise DP will
accept the instruction only at the investor’s risk.
32. What is 'Standing Instruction' given in the account
opening form?
In a bank account, credit to the account is given only
when a 'pay in' slip is submitted together with cash/cheque. Similarly, in a
depository account 'Receipt in' form has to be submitted to receive securities
in the account. However, for the convenience of investors, facility of
'standing instruction' is given. If you say 'Yes' for standing instruction, you
need not submit 'Receipt in' slip everytime you buy securities. If you are
particular that securities can be credited to your account only with your
consent, then do not say 'yes' [or tick ] to standing instruction in the
application form.
33. What is delivery instruction slip (DIS)? What
precautions do one need to observe with respect to Delivery Instruction Slips?
To give the delivery one has to fill a form called
Delivery Instruction Slip (DIS). DIS may be compared to cheque book of a bank
account. The following precautions are to be taken in respect of DIS:-
·
Ensure and insist with DP to issue DIS book.
·
Ensure that DIS numbers are pre-printed and DP takes acknowledgment for
the DIS booklet issued to investor.
·
Ensure that your account number [client id] is pre-stamped.
·
If the account is a joint account, all the joint holders have to sign
the instruction slips. Instruction cannot be executed if all joint holders have
not signed.
·
Avoid using loose slips
·
Do not leave signed blank DIS with anyone viz., broker/sub-broker.
·
Keep the DIS book under lock and key when not in use.
·
If only one entry is made in the DIS book, strike out remaining space to
prevent misuse by any one.
·
Investor should personally fill in target account -id and all details in
the DIS.
34. Is it possible to give delivery instructions to the DP
over Internet and if yes, how?
Yes. Both NSDL and CDSL have launched this facility
for delivering instructions to your DP over Internet, called SPEED-e and EASI
respectively. The facility can be used by all registered users after paying the
applicable charges.
Corporate
Benefits
35. Is it possible to get securities allotted in public
offering directly in the electronic form?
Yes, it is possible to get securities allotted to in
Public Offerings directly in the electronic form. In the public issue
application form there is a provision to indicate the manner in which an
investor wants the securities allotted. He has to mention the BO ID and the
name and ID of the DP on the application form. Any allotment made will be
credited into the BO account.
36. How are cash corporate benefit such as dividend /
interest received?
The concerned company obtains the details of
beneficiary holders and their holdings as on the date of the book closure /
record date from Depositories. The payment to the investors will be made by the
company through the ECS (Electronic Clearing Service) facility, wherever available. Thus the
dividend / interest will be credited to your bank account directly. Where ECS
facility is not available dividend / interest will be given by issuing warrants
on which your bank account details are printed. The bank account details will
be those which you would have mentioned in your account opening form or changed
thereafter.
37. How would one receive non-cash corporate benefit such
as bonus etc.?
The concerned company obtains the details of
beneficiary holders and their holdings as on the date of the book closure /
record date from depositories. The
entitlement will be credited by the company directly into the BO account.
38. Who should be contacted in case of discrepancies in
corporate benefits?
In case of discrepancies in corporate benefits, one
can approach the company / its R&T Agent.
Pledging
39. Can one pledge dematerialised securities?
Yes. In fact, pledging dematerialised securities is
easier and more advantageous as compared to pledging physical securities.
40. What should one do to pledge electronic securities?
The procedure to pledge electronic securities is as
follows:
·
Both investor (pledgor) as well as the lender (pledgee) must have
depository accounts with the same
depository;
·
Investor has to initiate the pledge by submitting to DP the details of
the securities to be pledged in a standard format ;
·
The pledgee has to confirm the request through his/her DP;
·
Once this is done, securities are pledged.
·
All financial transactions between the pledgor and the pledgee are
handled as per usual practice outside the depository system.
41. How can one close the pledge after repayment of loan?
After one has repaid the loan, one can request for a
closure of pledge by instructing the DP in a prescribed format. The pledgee on
receiving the repayment will instruct his DP accordingly for the closure of the
pledge.
42. Can one change the securities offered in a pledge?
Yes, if the pledgee [lender] agrees, one may change
the securities offered in a pledge.
43. Who would receive the corporate benefits on the
pledged securities?
The securities pledged are only blocked in the account
of pledgor in favour of the pledgee. The pledgor would continue to receive all
the corporate benefits.
Transaction
Statement
44. How does one know that the DP has updated the account
after each transaction?
The DP gives a Transaction Statement periodically,
which will detail current balances and various transactions made through the
depository account. If so desired, DP may provide the Transaction Statement at
intervals shorter than the stipulated ones, probably at a cost.
45. At what frequency will the investor receive his
Transaction Statement from his DP?
DPs have to provide transaction statements to their
clients once in a month, if there are transactions and once in a quarter, if
there are no transactions.
Moreover, DPs can provide transaction statement in
electronic form under digital signature subject to their entering into a
legally enforceable arrangement with the BOs to this effect.
46. What is to be done if there are any discrepancies in
transaction statement?
In case of any discrepancy in the transaction
statement, one can contact his/her DP. If the discrepancy cannot be resolved at
the DP level, one should approach the Depository.
47. Whom should one contact in case of any investor complaint
/ problem / query?
In case of any investor complaint / problem / query one may first contact his DP. If DP is
unable to solve the complaint / problem / query one should approach concerned
depository. If one is not satisfied one may approach SEBI. One may also
approach SEBI directly.
Lending and
borrowing of demat securities
48. What is Lending and Borrowing of Securities?
If any person required to deliver a security in the
market does not readily have that security, he can borrow the same from another
person who is willing to lend as per the Securities Lending and Borrowing
Scheme.
49. Can lending and borrowing be done directly between two
persons?
No. Lending and borrowing has to be done through an
'Approved Intermediary' registered with SEBI. The approved intermediary would
borrow the securities for further lending to borrowers. Lenders of the
securities and borrowers of the securities enter into separate agreements with
the approved intermediary for lending and borrowing the securities. Lending and borrowing is effected through the
depository system.
50. Can I lend the securities lying in my account?
Yes. You can lend your securities through Approved
Intermediaries registered with SEBI.
51. How would I lend my demat securities?
You may enter into an agreement with the approved
intermediary to be a lender under this scheme. After that, you may lend
securities any time by submitting lending instruction to your DP.
52. How would I get back the securities lent by me?
Intermediary may return the securities at any time or
at the end of the agreed period of lending.
Intermediary has to repay the securities together with any benefits
received during the period of the loan.
53. How would I receive the corporate benefits which would
accrue on these securities during the period of lending?
The benefits will be given to the
Intermediary/borrower. However, whenever the securities are being returned /
recalled. Intermediary/borrower will return the securities together with
benefits received.
Nomination
54. Who can nominate?
Nomination can be made only by individuals holding
beneficiary accounts either singly or jointly.
Non-individuals including society, trust, body corporate, karta of Hindu
Undivided Family, holder of power of attorney cannot nominate.
55. Who can be a nominee?
Only an individual can be a nominee. A nominee shall
not be a society, trust, body corporate, partnership firm, Karta of Hindu
Undivided Family or a power of attorney holder.
Transmission
of demat securities
56. What is transmission of demat securities?
Transmission is the process by which securities of a
deceased account holder are transferred to the account of his legal heirs /
nominee. Process of transmission in case of dematerialised holdings is more
convenient as the transmission formalities for all securities held in a demat
account can be completed by submitting documents to the DP, whereas in case of
physical securities the legal heirs/nominee/surviving joint holder has to
independently correspond with each company in which securities are held.
57. In the event of death of the sole holder, how the
successors should claim the securities lying in the demat account?
The claimant should submit to the concerned DP an
application Transmission Request Form (TRF) along with the following supporting
documents
1. In case of death of sole holder where the sole
holder has appointed a nominee
Notarised copy of the death certificate
2. In case of death of the sole holder, where
the sole holder has not appointed a nominee
Notarised copy of the death certificate
Any one of the below mentioned documents -
Succession certificate
Copy of probated will
Letter of Administration
The DP, after ensuring that the application is
genuine, will transfer securities to the account of the claimant.
The major advantage in case of dematerialised
holdings is that the transmission formalities for all securities held with a DP
can be completed by interaction with the DP alone, unlike in the case of
physical share certificates, where the claimant will have to interact with each
Issuing company or its Registrar separately.