Depository Services in India: NSDL and CDSL | Procedures of Depositary, Clearing House & Clearing member.
Depositories primary function is to hold securities either in certificated or un-certificated (dematerialized) form.
The primary function of this depository is to hold securities either in certificated or un-certificated (dematerialized) form, and it helps enable the book-entry transfer of securities in electronic format for trading in securities. CDSL’s & NSDL’s primary focus is to provide safe, useful, reliable and secure depository services.
A Depository Participant (DP) offers depository services to investors.
According to SEBI-issued regulations, financial institutions, banks,
custodians, and stockbrokers are eligible to act as DPs. The DP is a CDSL or
NSDL-authorized agent who serves as a link between the account holder or
Beneficial Owner (BO), the issuing company, CDSL, the BO's broker and the Stock
Exchange
Investors using depository services of the depository is known
as the Beneficial Owner (BO), and they have to maintain a demat account to access
the functions of the CDSL as well as NSDL, including the facilities of
dematerialization and transferring of securities.
NSDL
National
Securities Depository Limited (NSDL)
is an Indian central securities depository based
in Mumbai. It
was established on 8 November 1996 as the first
electronic securities depository in India with national coverage. It was
established based on a suggestion by a national institution responsible for
the economic
development of India.
Promoter of NSDL
Industrial Development Bank of India
Limited (IDBI) is the
largest promoter of NSDL, besides NSE, UTI, Axis
Bank, State Bank of India, Oriental Bank of Commerce, Citibank, Standard Chartered Bank, HDFC Bank, HSBC Bank, Deutsche
Bank, Dena
Bank, Canara
Bank.
CDSL
Central Depository Services (India) Ltd (CDSL),
founded in February 1999, is the second
Indian central securities depository based in Mumbai.
Its main function is the holding securities either in certificated or uncertificated (dematerialized) form, to enable book entry transfer of
securities.
Promoter of CDSL
State Bank of India, Bank of India, Bank of Baroda, HDFC Bank, Standard Chartered Bank, Axis Bank and Union Bank of India.
Benefits of holding demat securities in CDSL & NSDL:
·
As the share certificates are in an electronic format, the
investor is safe from the risk of theft, loss or damage to the physical share
certificates.
·
The investor need not be skeptical about the genuineness of the
securities purchased as the securities in the depository cannot be returned
under objection for any reason, and it also eliminates the risk of bad
delivery.
·
The securities are immediately transferred to the investor’s
account as soon as the payment is transferred to the company’s account. There
is no need for the investor to wait for the registration process from the
company or its Registrar.
·
The stock exchanges follow the method of T+2 rolling settlement
cycle, i.e. settlement of trades is done on the 2nd working day from the trade.
This action is possible because dematerialized securities have paved the way
for liquidity and swift transfer of securities.
·
No stamp duty is applicable for investors when transferring
securities in dematerialized format.
·
Companies can directly credit their investors account in case of
bonus issue or rights issue of shares.
·
Any update or changes in the personal information or
transmission of the BO can be directly updated with the depositories. A single
standing instruction to the CDSL or NSDL would help the investor update their
details with all companies in which they have a vested interest.
·
The CDSL & NSDL, also sends the investor a statement that
consolidates the position of all their holdings. This would enable investors to
make informed decisions about their financial strategy.
CLEARING HOUSE or
CLEARING MEMBERS (CM)
Clearing Members (CMs) are members of the Clearing
Houses/Clearing Corporations who facilitate settlement of trades done on stock
exchanges.
While beneficial owners may have their demat
accounts with any one of the depositories, it is mandatory on the part of CM to
have a demat account with both the depositories in terms of SEBI press
release ref. no. PR 153/99 dated July9, 1999.
A CM's main activity is to facilitate pay-in/pay-out
of securities to/from Clearing House/Clearing Corporations either on their own
behalf or on behalf of their clients. The securities which are due for delivery
can be delivered directly from client's account or through CM's account to the
Clearing House/Clearing Corporation's Account. Similarly, pay-out of securities
can be delivered directly to client's account on the basis of information given
to Clearing House by the CM or through CM's A/c.
Transactions through easiest:
Through CDSL’s internet based facility easiest- a CM can submit transactions
on the Internet "anytime-anywhere" in an efficient and convenient
manner, all in a state-of-the-art secure environment. A CM can also obtain
regular reports from CDSL through easiest which
enables close monitoring of settlements.
With a view to make it more convenient for CMs to
handle their settlements efficiently, CDSL has introduced a facility called
"CM upload through easiest".
A CM who registers for this facility and has created the Power of Attorney link
on the basis of Power of Attorney received from his client (which is registered
with the client’s DP) can also upload intra-depository debit transactions for
all his clients ( who have registered POA in its favour) across various DPs in
CDSL using easiest. This will obviate the need
to submit multiple DISs to multiple DPs of its clients.
Benefits for CLEARING MEMBERS (CM)
1.
CM can efficiently manage the settlements of his clients from his office,
without requiring to visit the DP's office.
2.
CM ( holding valid Power of Attorney) can make Early pay-in, Normal pay-in or
transaction of securities directly from the client’s a/c to the CH/CC or the
CMs Settlement account. A CM can do pay-in of securities on T day itself and
obtain release of margins latest by T+1 morning, thus, resulting in substantial
savings for the CM.
3.
In case of Normal pay-in from the client’s account, available balance is picked
up at the time of pay-in, thus reducing losses due to any shortages.
4.
CMs can avoid paperwork to execute DIS for each for each instruction as they
will be digitally signed. If CMs use the facility of POA link, they can avoid
signing of DISs on behalf of their clients by uploading instructions through
easiest.
A CDSL CM DP can derive the following benefits:
1.
Continuous monitoring of the deliveries received for pay-in or from pay-out,
their movement and easy reconciliation of trade settlements.
2.
Reduction in cost of operations.
3.
Offering one stop services to clients in respect of trading and depository
services leading to increase in business and enabling effective monitoring of
client a/c position to insulate from failure in settlement.
Depository
Participant (DP)
A Depository
Participant (DP) in India is described as an Agent (law) /
Stock Broker 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.
In a strictly legal sense, a DP is an entity who is registered as such
with SEBI under
the sub section 1A of Section 12 of the SEBI Act. As per the provisions of this
Act, a DP can offer depository-related services only after obtaining a
certificate of registration from SEBI. As of 2012, there were 288 DPs of NSDL and 563 DPs
of CDSL registered with
SEBI.
SEBI (D&P) Regulations, 1996 prescribe a minimum net worth of Rs. 50 lakh for stockbrokers, R&T agents and non-banking finance companies (NBFC), for granting them a certificate of registration to act as DPs. If a stockbroker seeks to act as a
DP in more than one depository, he should comply with the specified net worth
criterion separately for each such depository. No minimum net worth criterion
has been prescribed for other categories of DPs; however, depositories can fix
a higher net worth criterion for their DPs.
Client / Investor open Demat account through Depository Participant (DP)
In case of Corporate clients, additional attachments required are
- true copy of the resolution for Demat a/c opening along with signatories to
operate the account and true copy of the Memorandum and Articles of Association
is to be attached.
