A PROJECT REPORT

on

“DEPOSITORY SYSTEM”

in the subject Financial Services

Submitted to
University of Mumbai
For IInd semester of M.Com.

BY

HEENA PARVEEN B. SHAIKH

Roll No. 49

under the guidance of

Prof. SUNIL GUJARAN

2013 – 2014
 A PROJECT REPORT

on

“DEPOSITORY SYSTEM”

in the subject Financial Services

Submitted to
University of Mumbai
For IInd semester of M.Com.

BY

HEENA PARVEEN B. SHAIKH

Roll No. 49

under the guidance of

Prof. SUNIL GUJARAN

2013 – 2014
 CERTIFICATE

This is to certify that the project entitled “DEPOSITORY SYSTEM” submitted by

Miss. Heena Parveen B. Shaikh Roll No. 49 student of M.Com. Banking & Finance
(University of Mumbai) (IInd Semester) examination has not been submitted for any
other examination and does not form a part of any other course undergone by the
candidate. It is further certified that he has completed all required phases of the project.
This project is original to the best of our knowledge and has been accepted for Internal
Assessment.

Internal Examiner External Examiner

Co-ordinator Principal

College seal
 DECLARATION BY THE STUDENT

I, Miss. Heena Parveen B. Shaikh student of M.Com. (Semester – IInd) Banking &

Finance, Roll No. 49 hereby declare that the project for the Subject Financial Services

titled, “Depository System” submitted by me to University of Mumbai, examination

during the academic year 2013-2014, is based on actual work carried by me under the

guidance and supervision of Prof. Sunil Gujaran.

I further state that this work is original and not submitted anywhere else for any
examination.

Heena Parveen B. Shaikh

Signature of student
 ACKNOWLEDGEMENT

At the beginning, I would like to thank GOD for his shower of blessing. The desire of

completing this project was given by my guide Prof. Sunil Gujaran. I am very much

thankful to him for the guidance, support and for sparing her / his precious time from a

busy schedule.

I would fail in my duty if I don’t thank my parents who are pillars of my life. Finally I

would express my gratitude to all those who directly and indirectly helped me in

completing this project.

Heena Parveen B. Shaikh

EXECUTIVE SUMMARY:
 LIST OF TABLES

TABLE NO. PARTICULARS PAGE NO.

1 Duration of Holding and Trading in Securities (In Years) 56

2 Modes of Trading Used by Investor. 57

3 Different Areas of Investment in Securities Market. 58

4 Factors Important for a Trading Company to Enhance The 58

Loyalty of Its Customers.
5 Time Duration in Which Depository Participant Contacts its 59
Customers

6 Reasonability of Service Charges of DEMAT A/C 60

7.1 KMO and Bartlett's Test 61

7.2 Correlation Matrix for V1to V6 Variables 62

7.3 Inverse of Correlation Matrix for V1to V6 Variables 63

7.4 Communalities Table 63

7.5 Total Variance Table 63

7.6 Rotated Component Matrix 65

7.7 Factors Influencing Different Functions and Services that an 65

Investor Should be Aware of While Trading Through the
DEMAT Account

8 Personal Details 66
Introduction:
Depository system essentially aims at eliminating the voluminous and cumbersome paper
work involved in the scrip-based system and offers scope for ‘paperless’ trading through
state-of-the-art technology. It is an institution which maintains an electronic record of
ownership or securities. The storage and handling of certificates is hence immediately
eliminated which generates a reduction in costs like back office cost for handling,
transporting and storing certificates.
Depositary participant is an institution akin to bank for securities. When an investor
hands over securities to a depository participant, investor’s account is credited. The
investor’s depository system account will show their holdings. His account is updated for
his transactions of sale and purchase but without physical movement of scripts or transfer
deeds. In depository system, share certificates belonging to the investors are
dematerialised (demats). Dematerialisation or “Demat” is a process whereby investors’
securities like shares, debentures etc., are converted into electronic data and stored in
computers by a Depository. Securities registered in investor’s name are surrendered to
depository participant (DP) and these are sent to the respective companies who will
cancel them after “Dematerialization” and credit investor’s depository account with the
DP. The securities on Dematerialization appear as balances in one’s depository account.
These balances are transferable like physical shares. If at a later date, investors wish to
have these “demat” securities converted back into paper certificates, the Depository does
this and their names are entered in the records of depository as beneficial owners. The
beneficial ownership will be with investor but legal ownership will be with the
depository. Consequently, benefits like interest, dividend, and rights: bonus and voting
rights will be with investors. Since depository is to get securities transferred in its name,
the depository name will be registered in the ownership register maintained by the
company. Thus, instead of name of several owners, the name of depository figures in the
register of company.
Since transfer will be affected only in depository, register of company need not be
updated on every transactions of sale or purchase of company’s share. It alleviates the
hardships currently faced by the investors and it also offers option for converting the
shares from electronic to physical or paper form through a process of rematerialisation
(remat). Depository system is, indeed, time tested and long prevalent in many advance
countries and has been playing a significant role in stock markets around the world.
The depository system comprises of:
1) Depository
2) Depository Participants (DPs)
3) Companies/issuer
4) Investors
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.
Research Methodology:
Although India adopted multi-depository system model to provide competitive and
healthy depository system for surpass services to Investors. There is a chance to various
entities to enter into Depository system but only two organizations National Securities
Depository Ltd (NSDL) and Central Depository Services Ltd (CDSL) are providing
depository services presently.
The data has been collected from the following sources:-
1. Primary data
2. Secondary data
Primary data:
In this study the questionnaire method have been used to collect primary data.
Secondary data:
Secondary data is collected from the website of NSDL (www.nsdl.co.in) and CDSL
(www.cdsl.ac.in), website of Indian central depository system (CDS), published reports
of NSDL and Govt. of India, Depository Act-1996, SEBI Act-1992, and Capital Market
Services, published books and printed material on financial services or Intermediaries.
Objectives of the Study:
At Present the Indian stock exchanges are following screen based trading and electronic
settlement system. But investors scattered at various distant places from trading and
settlement place. So there are some problems arising in the settlement and transfer
system. Thus, there is a need to evaluate the effectiveness of Indian Depository system.
The Main objectives of the study are:
1) To evaluate the performance of the Depository system in India with reference to
NSDL.
2) To study the Organizational frame work, Operational policies, Problems and
Prospects and financial performance of NSDL.
3) To present legislative measures of dematerialization and to understand the present
status of dematerialization in India.
4) To analyze services rendered and quality among the DPs and opinions of
investors with regard to the functioning of NSDL.
5) To identify the Investors expectations from the DP companies and to exhibit the
Investor’s perceptions on the services offered by the DP companies .
6) To make appropriate and relevant recommendations to the management of the
organization under study.
Constituents of Depository System:
1. Depository:
Depository functions like a securities bank, where the dematerialized physical securities
are traded and held in custody. This facilitates faster risk free and low cost settlement.
Depository is much like a bank and performs many activities that are similar to a bank
depository:
 Enables surrender and withdrawal of securities to and from the depository through
the process of ‘demat’ and ‘remat’,
 maintains investors’ holdings in electronic form,
 Effects settlement of securities traded in depository mode on the stock exchanges,
 carries out settlement of trades not done on the stock exchanges (off market
trades).
In India a depository has to be promoted as a corporate body under Companies Act, 1956.
It is also to be registered as a depository with SEBI. It starts operations after obtaining a
certificate of commencement of business from SEBI. It has to develop automatic data
processing systems to protect against unauthorised access. A network to link up with
depository participants, issuers and issuer’s agent has to be created.
Depository, operating in India, shall have a net worth of rupees one hundred crore and
instruments for which depository mode is open need not be a security as defined in the
Securities Contract (Regulations) Act 1956. The depository, holding securities, shall
maintain ownership records in the name of each participant. Despite the fact that legal
ownership is with depository, it does not have any voting right against the securities held
by it. Rights are intact with investors.

There are two depositories in India at present i.e.

1. NSDL: National Securities Depository limited
2. CDSL: Central Depository Services (India) Limited
ii) Depository Participants (DP):
A DP is investors’ representative in the depository system and as per the SEBI
guidelines, financial institutions/banks/custodians/stock brokers etc. can become DPs
provided they meet the necessary requirements prescribed by SEBI. DP is also an agent
of depository which functions as a link between the depository and the beneficial owner
of the securities. DP has to get itself registered as such under the SEBI Act. The
relationship between the depository and the DP will be of a principal and agent and their
relation will be governed by the bye-laws of the depository and the agreement between
them. Application for registration as DP is to be submitted to a depository with which it
wants to be associated. The registration granted is valid for five years and can be
renewed. As depository holding the securities shall maintain ownership records in the
name of each DP, DP in return as an agent of depository, shall maintain ownership
records of every beneficial owner (investor) in book entry form.
A DP is the first point of contact with the investor and serves as a link between the
investor and the company through depository in dematerialisation of shares and other
electronic transactions. A company is not allowed to entertain a demat request from
investors directly and investors have to necessarily initiate the process through a DP.
Eligibility criteria for depository participants:
The following entities are eligible for becoming depository participant in accordance with
Regulation 19 of the SEBI (Depositories and Participants) Regulations, 1996.
 A public financial institution as defined in Section 4A of the Companies Act,
1056.
 A bank included in the second schedule of the Reserve Bank of India Act, 1934.
 A foreign bank, operating in India with the approval of Reserve Bank of India.
 A state financial corporation established under the provisions of section 3 of the
State Financial Corporations Act, 1951.
 An institution engaged in providing financial services, promoted by any of the
four institutions mentioned above.
 A custodian of securities, who has been granted a certificate of registration by
SEBI under Section 12(1A) of the SEBI Act, 1992.
 A clearing corporation or a clearing house of a stock exchange.
 A stockbroker having a minimum net worth of rupees TWO CRORES. The
aggregate value of the portfolio of securities, of the BOs, held in dematerialized
form in a depository through him, shall not exceed 100 times of the net worth of
the stockbroker. (Not applicable for DPs whose net worth is Rs. ten crores). In
 case the stockbroker seeks to act as a participant in more than one depository, he
shall comply with the net worth criteria separately with each such depository.
 A non-banking finance company, having a net worth of not less than rupees fifty
lakhs provided that such company shall act as a participant only on behalf of itself
and not on behalf of any other person. Provided further that a non-banking finance
company may act as a participant on behalf of any other entity, if it has a net
worth of Rs. fifty crores in addition to the net worth specified by any other
authority.
 A registrar to an issue or share transfer agent who has a minimum net worth of
 Rupees ten crores and who has been granted a certificate of registration by SEBI.
Characteristics of depository participant:
 Acts as an Agent of Depository
 Directly deal with customer
 Functions like Securities Bank
 Account opening
 Facilitates dematerialization
 Instant transfer on pay – out
 Credits to investor in IPO, rights, bonus
 Settles trades in electronic segment
iii) ISSUER / Companies:
The issuer is the co. which issues the securities. It maintains a register for recording the
names of the registered owners of securities and the depositories. The issuer sends a list
of shareholders who opt for the depository system. And only that co.’s can issue the
securities which are registered under stock exchanges
iv) BENEFICIAL OWNER/ INVESTOR:
Beneficial owner is a person whose name is recorded as such with a depository. It means
a person who is engaged in buying and selling of securities issued by the companies and
is registered his/ her securities with the depository in the form of book entry. And he/ she
has all the rights and liabilities associated with the securities
Facilities offered by depository system:
 1) Dematerialization: It is a process of conversion of physical share – certificate
into electronic – form. So, when a shareholder uses the dematerialization facility,
company take back the shares, through depository – system and equal numbers of
shares are credited in his account in e-form.
2) Rematerialization: Rematerialization is the exact reverse of Dematerialization. It
refers to the process of issuing physical securities in place of the securities held
electronically in book-entry form with a depository.
Other Services:
a) Pledging Dematerialized Shares: Dematerialized shares could be pledged; in
fact, this is more advantageous as compared to pledging share certificates. After
loan is repaid one can request for a closure of pledge by instructing one’s DP
through a standard format. The pledgee on receiving the repayment as well as the
request for closure of pledge will instruct his DP accordingly. Even the locked-in
securities can be pledged. The pledger continues to remain the beneficiary holder
of those securities even after the securities are pledged.
b) Initial Public Offerings: Credits for public offers can be directly received into
demat account. In the public issue application form of depository eligible
companies, there will be a provision to indicate the manner in which securities
should be allotted to the applicant. One is to mention one’s client account number
and the name and identification number of DP. All allotment due to investor will
be credited into required account.
c) Receipt of Cash/non-cash Benefits: When any corporate event such as rights or
bonus or dividend is announced for a particular security, depository will give the
details of all the clients having electronic holdings in that security as of the record
date to the registrar. The registrar will then calculate the corporate benefits due to
all the shareholders. The disbursement of cash benefits such as dividend/ interest
will be done directly by the registrar. In case of non-cash benefits, depository will
directly credit the securities entitlements in the depository accounts of all those
clients who have opted for electronic allotment based on the information provided
by the registrar.
 d) Stock Lending and Borrowing: Through the depository account securities in the
demat form can be easily lent/ borrowed. Securities can be lent or borrowed in
electronic form through an approved intermediary, who has opened a special
‘intermediary’ account with a DP. Instructions are to be given to DP through a
standard format (which is available with DP) to deposit securities with the
intermediary. Similarly to borrow securities from the intermediary, one has to
instruct DP through a standard format (which is available with your DP).
e) Transmission of Securities: Transmission of securities due to death, lunacy,
bankruptcy, insolvency or by any other lawful means other than transfer is also
possible in the depository system. In the case of transmission, the claimant will
have to fill in a transmission request form, (which is available with the DP)
supported by valid documents.
f) Freezing Account with DP: If at any time as a security measure one wishes that
no transaction should be effected in one’s account, one may advise one’s DP
accordingly. DP will ensure that account of such investor is totally frozen until
further instructions from him.
Benefits of Depository System:
1) This system will eliminate paper work as the book entry system does not need
physical movement of certificates for transfer process.
2) The risk of bad deliveries, fraud and misplaced, mutilated and lost share
certificates will not exist.
3) The electronic media will shorten settlement time and hence the investor can save
time and increase the velocity of security movement.
4) Investors will be able to change portfolio more frequently.
5) The capital market will be more transparent as the trading, clearing and settlement
mechanism have to be highly automated and interlinked with the depository
among them.
6) The market will be highly automated and efficient due to the usage of computing
and telecommunication technology for the back office activities for all the capital
market players.
DEMATERIALISATION PROCESS:

Depository
NSDL participant

REGISTRAR INVESTOR

1. Appointing DP:
Any investor who intends to transact through depository system has to engage one
depository participant (DP). He can approach a DP of his choice and open an account
with him just like one opens an account with a bank. Investor gets an identification
number called Client ID (just as one gets ones bank account number) which serves as a
reference point for all his transactions with D.P.
Every investor before getting his holding dematerialised has to enter into an agreement
with the depository through a participant. This step is necessary whether investor already
has securities or securities are yet to be issued in a fresh issue. The investor contracts
only with that depository which accepts his security in ‘depository mode’ since it is not
necessary that all eligible securities must be in depository mode and with all the
depositories. The decision on whether or not to hold securities within the depository
mode and if in depository mode, with which depository or participants, would be entirely
with the investor.
2. Request for ‘Demat’:
After any agreement is entered for getting securities dematerialised and his account is
opened, the investor makes an application to depository participants in form called
‘Dematerialisation Request Form’ (DRF) to be provided by the DP and hands over his
share certificates duly cancelled by writing’ surrendered for dematerialisation’ to them
for demat. The DP will accept certificates registered only in investor’s name.
The request for dematerialisation with the depository participants is sent to the depository
through depository network with which DP is connected.
Simultaneously DP submits the securities certificates to the issuer company or it’s
Registrar of transfer.
3. Approach the Company or Registrar of Transfer
The depository will electronically intimate the issuer or its ‘Registrar and transfer agent’
of the dematerialisation request. The issuer or the ‘Registrar and transfer
Agent’ has to verify the validity of the security certificates as well as the fact that the
DRF has been made by the person recorded as a member in its Register of Members. If
the issuer or its Registrar is satisfied, it dematerialises the scrip and updates its record.
4. Confirmation of Demat
The Registrar to transfer or the concerned company when satisfied with the case of demat
has to inform the depository of the completion of dematerialisation authorising an
electronic credit for that security in favour of the investor.
5. Crediting the Client’s Account
DP credits investor’s account with the number of shares so dematerialised and thereafter
investor hold the securities in electronic form. If there is rejection of demat request then
such credit is not given. After crediting the account, the client is sending the necessary
information in form of a statement like we get bank statement after bank transactions.
Demat Account:
Demat account is a safe and convenient means of holding securities just like a bank
account is for funds. Today, practically 99.9% settlement (of shares) takes place on demat
mode only. Thus, it is advisable to have a Beneficiary Owner (BO) account to trade at the
exchanges.
Benefits Of Demat Account:
 A safe and convenient way of holding securities (equity and debt instruments
both).
 Transactions involving physical securities are costlier than those involving
dematerialised securities (just like the transactions through a bank teller are
costlier than ATM transactions). Therefore, charges applicable to an investor are
lesser for each transaction.
 Securities can be transferred at an instruction immediately.
 Increased liquidity, as securities can be sold at any time during the trading hours
(between 9:55 AM to 3:30 PM on all working days), and payment can be received
in a very short period of time.
 No stamp duty charges.
 Risks like forgery, thefts, bad delivery, delays in transfer etc., associated with
physical certificates, are eliminated.
 Pledging of securities in a short period of time.
 Reduced paper work and transaction cost.
 Odd-lot shares can also be traded (can be even 1 share).
 Nomination facility available.
 Any change in address or bank account details can be electronically intimated to
all companies in which investor holds any securities, without having to inform
each of them separately.
 Securities are transferred by the DP itself, so no need to correspond with the
companies.
 Shares arising out of bonus, split, consolidation, merger etc. are automatically
credited into the demat account of the investor.
  Shares allotted in public issues are directly credited into demat account of the
applicants in quick time.
Opening a Demat Account:
To start dealing in securities in electronic form, one needs to open a demat account with a
DP of his choice. An investor already having shares in physical form should ensure that
he gets the account opened in the same set of names as appearing on the share certificate;
otherwise a new account can be opened in any desired pattern by the investor.

Opening a Demat Account Documents to be attached

Getting started
1. Choose a DP
2. Fill up an account opening form
provided by DP, and sign an
agreement with DP in a standard
format prescribed by the depository.
3. DP provides the investor with a
copy of the agreement and schedule
of charges for his future reference.
4. DP opens the account and provides
the investor with a unique account
number, also known as Beneficiary
Owner Identification Number (BO
ID).
1. Passport size photographs
2. Proof of residence (POR) - Any one
of Photo Ration Card with DOB /
Photo Driving License with DOB /
Passport copy / Electricity bill /
Telephone bill
3. Proof of identity (POI) - Any one of
Passport copy / Photo Driving
License with DOB / Voters ID Card
/ PAN Card / Photo Ration Card
with DOB
4. PAN card

Note:
 The agreement required to be signed by the investor details the rights and duties
of the investor and DP.
 DP may revise the charges by giving a 30 days prior notice. SEBI has rationalized
the cost structure for isation by removing account opening charges, transaction
charges for credit of securities and custody charges, effective from January 28,
2005.
Re materialisation process:

Rematerialisation is a process of converting electronic holdings of investor back into

share certificates in paper form. The process of rematerialisation is also carried out
through DP and the process has to be completed within a period of 30 days. Thus,
once security is dematerialised it is not necessary that investor is to continue in
depository mode for all times to come. He can switch over to remat whereby he gets
back physical possession of security scripts. The client of DP has to submit a request
for remat. This request is forwarded for necessary action to depository. The
depository confirms the rematerialisation request to the Registrar and Transfer
Agents. The Registrar updates the accounts and prints the desired certificate. The
depository is informed by Registrar and certificate is sent to the investor. The
depository updates its records and communicates to DP to incorporate necessary
changes in the account of the client.
National Securities Depository Limited:
In a span of about nine years, investors have switched over to electronic [demat]
settlement and National Securities Depository Limited (NSDL) stands at the centre of this
change. In order to provide quality service to the users of depository, NSDL launched a
certification programme in depository operations in May 1999. This certification is
conducted using NCFM infrastructure created by NSE and is called "NSDL - Depository
Operations Module". The programme is aimed at certifying whether an individual has
adequate knowledge of depository operations, to be able to service investors. Depository
Participants are required to appoint at least one person who has qualified in the
certification programme at each of their service centres. This handbook is meant to help
the candidates in their preparation for the certification programme.
National Securities Depository Limited is the first depository to be set-up in India. It was
incorporated on December 12, 1995. The Industrial Development Bank of India (IDBI) -
the largest development bank in India, Unit Trust of India (UTI) - the largest Indian
mutual fund and the National Stock Exchange (NSE) - the largest stock exchange in
India, sponsored the setting up of NSDL and subscribed to the initial capital. NSDL
commenced operations on November 8, 1996.
Ownership
NSDL is a public limited company incorporated under the Companies Act, 1956. NSDL
had a paidup equity capital of Rs. 105 crore. The paid up capital has been reduced to Rs.
80 crore since NSDL has bought back its shares of the face value of Rs. 25 crore in the
year 2000. However, its net worth is above the Rs. 100 crore, as required by SEBI
regulations.
The following organisations are shareholders of NSDL as on March 31, 2005.
1. Industrial Development Bank of India
2. Administrator of the Specified Undertaking of the Unit Trust of India - DRF
3. National Stock Exchange
4. State Bank of India
5. Oriental Bank of Commerce
6. Citibank N.A.
7. Standard Chartered Bank
 8. HDFC Bank Limited
9. The Hongkong and Shanghai Banking Corporation Limited
10. Deutsche Bank A.G.
11. Dena Bank
12. Canara Bank
Management of NSDL:
NSDL is a public limited company managed by a professional Board of Directors. The
day-today operations are conducted by the Chairman & Managing Director (CMD). To
assist the CMD in his functions, the Board appoints an Executive Committee (EC) of not
more than 15 members. The eligibility criteria and period of nomination, etc. are
governed by the Bye-Laws of NSDL in this regard.
Bye-Laws of NSDL:
Bye-Laws of National Securities Depository Limited have been framed under powers
conferred under section 26 of the Depositories Act, 1996 and approved by Securities and
Exchange Board of India. The Bye-Laws contain fourteen chapters and pertain to the
areas listed below:
1. Short title and commencement
2. Definitions
3. Board of Directors
4. Executive Committee
5. Business Rules
6. Participants
7. Safeguards to protect interest of clients and participants.
8. Securities
9. Accounts/transactions by book entry
10. Reconciliation, accounts and audit
11. Disciplinary action
12. Appeals
13. Conciliation
ArbitrationAmendments to NSDL Bye-Laws require the approval of the Board of
Directors of NSDL and SEBI.
Business Rules of NSDL
Amendments to NSDL Business Rules require the approval of NSDL Executive
Committee andfiling of the same with SEBI at least a day before the effective date for the
amendments.
Functions:
 NSDL performs the following functions through depository participants:
 Enables the surrender and withdrawal of securities to and from the depository
(dematerialisation and rematerialisation).
 Maintains investor holdings in the electronic form.
 Effects settlement of securities traded on the exchanges.
 Carries out settlement of trades not done on the stock exchange (off-market
trades).
 Transfer of securities.
 Pledging/hypothecation of dematerialised securities.
 Electronic credit in public offerings of companies or corporate actions.
 Receipt of non-cash corporate benefits like bonus rights, etc. in electronic form.
 Stock Lending and Borrowing.
Services Offered by NSDL:
NSDL offers a host of services to the investors through its network of DPs:
 Maintenance of beneficiary holdings through DPs
 Dematerialisation
 Off-market Trades
 Settlement in dematerialised securities
 Receipt of allotment in the dematerialised form
 Distribution of corporate benefits
 Rematerialisation
 Pledging and hypothecation facilities
 Freezing/locking of investor's account
 Stock lending and borrowing facilities
Fee Structure of NSDL
NSDL charges the DPs and not the investors directly. These charges are fixed. The DPs
in turn, are free to charge their clients, i.e., the investors for their services. Thus, there is a
two tier fee structure.
Inspection, Accounting and Internal Audit
NSDL obtains audited financial reports from all its DPs once every year. NSDL also
carries out periodic visits to the offices of its constituents - R&T agents, DPs and clearing
corporations – to review the operating procedures, systems maintenance and compliance
with the Bye-Laws, Business Rules and SEBI Regulations.
Additionally, DPs are required to submit to NSDL, internal audit reports every quarter.
Internal audit has to be conducted by a chartered accountant or a company secretary in
practice.
The Board of Directors appoints a Disciplinary Action Committee (DAC) to deal with
any matter relating to DPs clients, Issuers and R&T agents. The DAC is empowered to
suspend or expel a DP, declare a security as ineligible on the NSDL system, freeze a DP
account and conduct inspection or call for records and issue notices.
If a DP is aggrieved by the action of the DAC, it has the right to appeal to the EC against
the action of the DAC. This has to be done within 30 days of the action by DAC. The EC
has to hear the appeal within two months from the date of filing the appeal. The EC has
the power to stay the operation of the orders passed by the DAC. The information on all
such actions has to be furnished to SEBI.
Settlement of Disputes:
All disputes, differences and claims arising out of any dealings on the NSDL, irrespective
of whether NSDL is a party to it or not, have to be settled under the Arbitration and
Conciliation Act 1996.
Technology and Connectivity in NSDL

System View of NSDL Depository System:

Account holders (investors) open account with the DPs. The account details, entered in a
computer system maintained by Depository Participants called DPM, are electronically
conveyed to the central system of NSDL called DM. Companies who have agreed to
offer demat facility to their shareholders use a computer system called DPM (SHR) to
connect to the NSDL central system. DPM (SHR) may be installed by the company itself
or through its R&T Agent. This system is used to electronically receive demat requests,
confirm such requests or to receive beneficial owner data (Benpos) from the depository.
Stock exchanges receive pay-in (receiving securities against sales made by brokers) or to
payout (giving securities to brokers against their purchases) using a computer system
connected to NSDL called DPM (CC).
All the computer systems installed by DPs (DPM-DP), companies (DPM-SHRs), and
stock exchanges (DPM-CC) are connected to NSDL central system (DM) through V-
SAT (very small aperture terminal) or leased lines. These are collectively called Business
Partner Systems. Any transaction conducted by any computer system in the NSDL
depository system which is targetted to reach any other computer system first gets
recorded in DM and then will reach the target. No two business partners' systems can
communicate to each other without passing through the DM.
Maintenance of Accounts at the Central System:
The NSDL central system known as DM maintains accounts of all account holders in the
depository system. All the transactions entered at any point in the computer system
connected to it are first effected in the central system and subsequently at these
computers. Thus, the central system of NSDL has the records of all details of every
transaction conducted in the depository system.
Distributed Database:
Each of the computer systems connected to NSDL system has its own database relating to
its clients. This helps in giving prompt and accurate service to the clients. However each
of the databases is reconciled with the data at the central system everyday in order to
ensure that the data in the distributed database tallies with the central database.
Common Software:
NSDL develops software required by depository participants, companies, R&T Agents
and clearing corporations for conducting depository operations. Thus, the computer
systems used by all the entities will have common software given by NSDL. However,
depending on the business potential, branch networks and any other specific features,
DPs may develop software of their own for co-ordination, communication and control
and provide service to their clients. Such exclusive software is called "back office
software". DPM system given by NSDL gives "export and import" facility to take out the
transaction details to be used by back office software and to feed in transaction details
generated from the back office software.
Connectivity:
The computer system used by DPs, companies, R&T Agents and stock exchanges may be
connected to NSDL central system through V-SAT network or leased line network.
NSDL uses NSE's V-SAT network for the connectivity purposes. Thus, V-SATs used by
NSE brokers can connect to NSDL if the software supplied by NSDL is used. V-SAT
uses satellites for communication purposes. Some business partners may connect using
leased lines provided by MTNL/ BSNL. V-SAT or leased line connections are called
primary connectivity. If primary connectivity fails for any reason, BPs must have the
ability to connect through other means. Such other means are PSTN lines, ISDN lines,
POP lines(normal telephone lines) through which they can dial in to the NSDL system
and conduct their transactions.
NSDL Facts & Figures:
As on May 31, 2011
Number of certificates eliminated (Approx.) 962.49 crore

Number of companies in which more than 75% shares are

3090
dematted

Average number of accounts opened per day since November

3679
1996

82% of all pincodes in the

Presence of demat account holders in the country
country
Central Depositary Securities Limited:
A Depository facilitates holding of securities in the electronic form and enables securities
transactions to be processed by book entry by a Depository Participant (DP), who as an
agent of the depository, offers depository services to investors. According to SEBI
guidelines, financial institutions, banks, custodians, stockbrokers, etc. are eligible to act
as DPs. The investor who is known as beneficial owner (BO) has to open a demat
account through any DP for dematerialisation of his holdings and transferring securities.
The balances in the investors account recorded and maintained with CDSL can be
obtained through the DP. The DP is required to provide the investor, at regular intervals,
a statement of account which gives the details of the securities holdings and transactions.
The depository system has effectively eliminated paper-based certificates which were
prone to be fake, forged, counterfeit resulting in bad deliveries. CDSL offers an efficient
and instantaneous transfer of securities.
CDSL was promoted by Bombay Stock Exchange Limited (BSE) jointly with leading
banks such as State Bank of India, Bank of India, Bank of Baroda, HDFC Bank, Standard
Chartered Bank, Union Bank of India and Centurion Bank.
CDSL was set up with the objective of providing convenient, dependable and secure
depository services at affordable cost to all market participants. Some of the important
milestones of CDSL system are:
CDSL received the certificate of commencement of business from SEBI in February,
1999
 Honourable Union Finance Minister, Shri Yashwant Sinha flagged off the
operations of CDSL on july 15,1999.
 Settlement of trades in the demat mode through BOI Shareholding Limited, the
clearing house of BSE, started in july 1999.
 All leading stock exchanges like the National Stock Exchange, Calcutta Stock
Exchange, Delhi stock Exchange, The Stock Exchange, Ahmedabad, etc have
established connectivity with CDSL.
 As at the end of Dec 2007, over 5000 issuers have admitted their securities
(equities, bonds, debentures, commercial papers), units of mutual funds,
certificate of deposits etc. into the CDSL system.
Shareholders of CDSL:
CDSL was promoted by Bombay Stock Exchange Limited (BSE) in association with
Bank of India, Bank of Baroda, State Bank of India and HDFC Bank. BSE has been
involved with this venture right from the inception and has contributed overwhelmingly
to the fruition of the project. The initial capital of the company is Rs.104.50 crores. The
list of shareholders with effect from 11th December, 2008 is as under.
A professional Board of Directors with vast and varied experience in capital markets and
banking is at the helm of affairs at CDSL.

Board of Directors
Mr. S S Thakur Chairman

Mr. V V Raut Managing Director and Chief Executive Officer

Mr. P S Reddy Executive Director

Mr. M. R. Mayya Independent Director

Mr. Madhu Kannan Sponsor Director – Bombay Stock Exchange Limited

Mr. L. P. Aggarwal Sponsor Director – Bombay Stock Exchange Limited

Mr. Prakash R. Kacholia Sponsor Director – Bombay Stock Exchange Limited

Mr. Anjan Barua Sponsor Director - State Bank of India

Mr. A. D. M. Chavali Sponsor Director - Bank of Baroda

Mr. A. R. Kuppuswamy Sponsor Director - Bank of India

Management Team

Mr. V V Raut Managing Director and Chief Executive Officer

Mr. P S Reddy Executive Director

Mr. Pramod Deshpande Chief Technology Officer

Mr. Cyrus Khambata Sr.Vice President.

 Business Development(Currently on deputation to CDSL Ventures
Ltd. as CEO with effect from 7-12-2006)

Mr. Jitendra Chad Vice President.

Information Technology

Ms. Nayana Ovalekar Vice President.

Audit, Inspection & Compliance

Mr. Bharat Sheth Vice President.

Accounts & Administration

Mr. Sunil Alvares Vice President.

Business Development

Mr. Ramkumar K. Vice President.

Operations

Mr. Jignesh Gandhi Vice President.

New Projects

Mr. Satish Budhakar Vice President.

Legal & Company Secretary

FEE STRUCTURE OF CDSL

CDSL fees structure to its depository participants is as follows:

SR.NO. Details of Charges CDSL

1 Account Opening Charges NIL

2 Account Maintenance Charges NIL for individuals

Rs.500/- p.a. to Corporates

3 Transaction Charges Rs.6/- **

Market & Off-Market

4 Transaction Charges Clearing Flat charge of Rs.500/- per month on CM accounts

Member Accounts for pay-in and pay-outs received from CH

5 Custody Charges NIL

6 Demat Charges NIL

7 Remat Charges Rs.10/- per 100 securities or part quantity or

 Rs. 10/- per cert. whichever is higher.

8 Pledge/Hypothecation Charges Pledge acceptance - Rs.12/- per request.

Unpledge acceptance - Rs.12/- per request.
Pledge Invocation Acceptance -Nil

9 Internet Facility 'easi' Rs.20,000/- one time for registration

10 Internet Facility 'easiest' Rs.30,000/- one time for registration Rs.1,150/-p.a.

for renewal of digital signature

Monthly charges for DPs or its branches w.e.f. 1st May, 2006
For Main DPs: Rs.3,000/- per month or the amount of the actual bill for a given month
whichever is higher.
For DP-Branches: Rs.2,000/- per month or the amount of the actual bill for a given
month whichever is higher.
Fees for Clearing Members
CDSL collects only Rs. 500/ - per month from its DPs for a CM except for CM Investors
Securities Account.
The following tariff structure will be effective from Wednesday, April 01, 2009.

Monthly Transaction bill amount Rate per

(@Rs.6/-per transaction) Debit Transaction
(in Rs.) (in Rs.)

More than Rs.15 lakhs 4.75

More than Rs.4 lakhs and upto Rs.15 lakhs 5.00

More than Rs.1 lakh and upto Rs.4 lakhs 5.50

Upto Rs.1 lakh 6.00