lime ppt 7 dep&cus

8/3/2019 Lime Ppt 7 Dep&Cus

1/19

Depositories & Custodians


2/19

The Depository Systemy Technology has changed the face of the Indian Stock

Markets in the post reforms era.

y Competition among the stock exchanges, increase in thenumber of players, and changes in the trading systemshave led to a large increase in the volume of activity. Thetraditional settlement systems proved inadequate due tooperational inefficiencies.

y Hence, there has emerged a need to replace the traditional

system by a modern system called the Depository System.y A Depository is an organization which holds securities of

an investor in an electronic form and facilitates transferson the settlement date.


3/19

The Depository System (continued)y Section 2(e) of The Depositories Act, 1996 defines a

Depository as a company formed under the Companies Act, 1956, and which has been granted a certificate ofregistration U/s 12(1) A, of SEBI Act, 1992.

yThe depository system revolves around the concept ofpaperless trading since the securities in a depository areheld not in physical form but in electronic numbers form.These demat accounts of customers containing theirsecurities are similar to their bank accounts holding their

cash balances.y An effective and fully developed depository system is

essential for maintaining and enhancing market efficiency,which is one of the core characteristics of a mature capitalmarket.


4/19

Need For Setting up A Depository In India

y The need for setting up a depository in India wasrealized in the early 1990 s due to various reasonsoutlined below

1) Large scale irregularities in the securities scam of1992 (Harshad Mehta Scam) exposed thedeficiencies in the prevailing settlement systems.

2) A lot of time was consumed in the allotment andtransfer of shares, in the public and rights issues,impeding the healthy growth of the capitalmarket.

3) With the opening up of the economy and thespread of the equity cult, there was a big spurt in

the volume of transactions.


5/19

Need For depository In India (continued)

4) Mounting Fiscal Deficit made the Governmentrealize that foreign investments were essential forthe growth of the economy and that was restricteddue to non availability of depositories.

5) There were various problems associated withdealing in physical shares such as theft, forgeryand defective deliveries.

6) Share transfer delays, especially due to signaturedifferences and,

7) Tedious paperwork in connection with sharetransactions added to the cost of transactions.


6/19

Establishment Of The Depository In India

y To overcome these problems, GOI enacted in 1996the Depositories Act to commence depositoryservices.

y Depository System can be in two forms Dematerialized holding or Immobilized holding.In dematerialization , paper securities are totallyeliminated after due verification by converting

them into electronic numerical holdings. Inimmobilization, initial paper securities arepreserved in safe vaults by the custodians andfurther movement of papers are frozen.


7/19

Services Offered By Depositoriesy The Depository System provides a wide range of service

such as

1) Primary market services by acting as a link between theissuers and the prospective shareholders.

2) Secondary market services by acting as a link between theinvestors and the clearing house of the exchange tofacilitate the settlement of transactions through bookkeeping entries.

3) Ancillary services by providing services such as collecting

interest and dividends, reporting corporate informationand crediting bonus, rights , splits etc.

These services lead to a reduction in both time and cost which ultimately benefits the investors, issuers,intermediaries and the nation as a whole.


8/19

Benefits Of A Depository Systemy The Depository System offers the following benefits 1) It enables immediate allotment, transfer and registration of

securities, thereby increasing the liquidity of stocks.2) It eliminates all problems related the holding of shares in

physical form such as theft, damage and defective deliveries.

3) There is saving in various costs such as brokerage, stampduty, postage etc.4) Pledging of shares and portfolio shuffling becomes

convenient.5) The inconvenience of dealing in market lots only is

eliminated and one can buy or sell even a single share.6) Loans against demat shares are cheaper than loans againstphysical shares.

7) Lastly, the system helps in integrating our capital marketswith the global capital markets.


9/19

Move To The Depository System In India

y The move on to a depository system in India was initiatedby SHCIL ( Stock Holding Corporation Of India Ltd ) inJuly 1992, when it prepared a concept paper on NationalClearance & Depository System

y Thereafter GOI constituted a technical committee underthe chairmanship of Mr. R, Chandrasekaran, ManagingDirector, SHCIL, which submitted its report in 1993.

y Subsequently, SEBI constituted a 7 member committee todiscuss various structural and operational issues of theDepository System.

y GOI passed the Depositories Ordinance which paved theway for setting up the depositories in the country.


10/19

The Depository Processy There are 4 parties in demat transaction

1) The Customer or Investor,2) The Depository participant,

3) The Depository, and

4) Registrar & Share Transfer Agent.

Step 1 Investor opens a demat account with one of the DP sStep 2 Investor submits his existing holdings in the

physical form, if any, for dematerialization through the DPto the Registrar & Share Transfer Agent who cancels the

physical shares and credits the electronic holdings to thedemat account.

Step 3 Rematerialization Investor has a choice to hold theshares in physical or demat form as per his wish. A physicalshare, once dematerialized , can be rematerialized again.


11/19

The Depository Process (continued)Step 4 Dividend and other corporate actions A

company or its Registrar & Share Transfer Agentshall advise the depositories of all the corporateactions and the respective record dates. The

depository then electronically provides a list of theholdings of the clients as on the record date. Thecompany then gives effect to all the corporateactions.

Step 5 Closing of a demat account A demataccount will be closed only after all the securitiesheld in the account are disposed off or transferredto another account with the same DP or another

DP.


12/19

The National Securities Depository Ltd

(NSDL)y Setting up of the National Securities Depository Ltd. was a major step in

the rapid modernization of the Indian capital markets. NSDL waspromoted by IDBI, UTI, NSE and SBI and was registered on June 7, 1996with SEBI and commenced operations in November, 1996. NSDL is apublic limited company under the Companies Act, 1956 with a paid upcapital of RS.1050 Million.

y NSDL interacts with clearing members through the DP s and performs awide range of securities related functions such as

1) Maintenance of individual investors beneficial accounts in an

electronic form,2) Dematerialization / Rematerialization of securities,

3) Account transfer for settlement of trades in electronic form,

4) Allotment in demat form in case of IPO s,

5) Distribution of non cash corporate actions,


13/19

The NSDL ( continued )

6) Facility for freezing or locking of Investors accounts, and

7) Facility for pledging a part or whole of the holdings.

NSDLs computer system handles nearly 10 million

transactions everyday on an online basis. It has three typesof databases a central database of NSDL itself, those of245 DP s as well as those of 6679 companies. It also has theability to monitor all that is happening in the computers ofthe DP s.

NSDL has also undertaken a pilot project to dematerializeNSC, IVP, KVP etc at select post offices. It also manages acountrywide Tax Information Network for the GOI.


14/19

Central Depository Services Ltd. (CDSL)y CDSL is the second depository set up by the BSE and co

sponsored by SBI, BOI, BOB and HDFC Bank. BSE has 45%stake and the banks have 55%. CDSL commencedoperations on 22-3-99. In the same year, 5 stock exchanges

established connectivity with CDSL for offering trade indemat securities and 765 companies signed up with CDSLto get their securities dematerialized.

y CDSL has 372 DP s in 124 cities across 269 locationscovering 320 cities, with a net worth of RS.1040 Million.

y CDSL plans to offer facilities like inter depository transfersand linking of accounts through cell phones.

y CDSL has been the preferred platform for the Governmentof India for its public sector disinvestment operations..


15/19

Custodiansy Custodians provide custodial services which are

quite different from the depository services. Acustodian is an intermediary who keeps the scripsof the clients in custody or is the keeper of theaccounts of his clients.

y A Custodian is not only a safe keeper of thesecurities and a Trustee of the same but alsoprovides ancillary services such as physical transferof securities, collecting interest and dividends, and

conforming to transfer regulations.y Custodians act as complements to depositories and

are required. The volume of transaction by fundmanagers is so large that custodial services areimminent.


16/19

Custodial Servicesy Custodians are clearing members but not trading

members. In India, SHCIL and SBI Share HoldingCorporation are the two most prominent Custodianscatering to the requirements of LIC, UTI and other

financial institutions. SHCIL is leading the pack with amarket share of over 70%. The custodians usually providecustodial services to the Institutional Investors.

y A custodian must be registered with SEBI. SEBIRegulations provide eligibility criteria and code of conductto be followed by a custodian. A custodian is required toparticipate in the clearing and settlement process.

y As on 31- 3- 2004, there were 11 duly registered custodians.


17/19

Stock Holding Corporation Of India Ltd

(SHCIL)y The SHCIL, promoted by 7 all India financial institutions

IDBI, IFCI, ICICI, IRBI, UTI, LIC, GIC and its subsidiaries,was incorporated on 1986. It commenced operations in1988.

y SHCIL was established to provide well developed and fullyautomated infrastructural facilities for trading, clearance,settlement and depository services for securities andmonetary instruments. The objectives of SHCIL are to

provide services which include market operations,corporate actions, safe keeping, custodial management,registration, transfer and reporting.

y Support services include funds transfer and data

information feeds.


18/19

SHCIL ( continued )y SHCIL handles market operations for UTI, LIC,

GIC etc and provides custodial services to them aswell as other financial institutions and mutualfunds. It acts as a scrutiny agent for Morgan

Stanley Bank for India Magnum Fund. It holdsmore than 100000 Cr worth of securities and has a very sophisticated operating system. It is thelargest custodian with market share in excess of70%, for domestic custodial business.

y SCHIL is a participating member of theInternational Society for SecuritiesAdministration (ISSA), a specialized agency forpromoting the exchange of ideas among global

security administrators.


19/19

YOU

lime ppt 7 dep&cus

Documents