teji

8/6/2019 teji

http://slidepdf.com/reader/full/teji 1/7

Joining NSDL as Depository Participant

NSDL depository reaches its services to investors through market intermediaries called

Depository Participants (DP), who as per SEBI regulations could be organisations involved in

the business of providing financial services like banks, brokers, custodians, financial institutions,

etc. This system of using the existing distribution channel helps NSDL to reach to a wide crosssection of investors spread across a large geographical area.

The admission of DPs involves a detailed evaluation by NSDL and a further evaluation andapprovalbySEBI.

Realising the potential in this market, all the custodians in India and a number of banks, financial

institution and major brokers have already joined NSDL as DPs and they are providing servicesin a number of cities. Many more organisations are in various stages of establishing connectivity

with nsdl.

cdsl:intermediaries

CDSL's demat services are extended through its agents called Depository Participants (DP). The

DP is the link between the investor and CDSL. An investor who opens a demat account with aDP can utilise the services offered by CDSL. While the DP processes the instructions of the

investor , the account and records thereof is maintained with CDSL. A DP is thus a "servicecentre" for the investor.

CDSL's system is based on centralised database architecture with on-line connectivity with DPs.

Because of this centralised architecture, the cost for setting up a DP outfit under CDSL system is

significantly lower. Similarly, the recurring costs to be incurred by a CDSL-DP in terms of maintaining back-ups and the related data storage are minimal. This enables a CDSL-DP to offer depository services to investors at an attractive price and at the same time achieve break-even

faster at much lower volumes. The centralised architecture also allows CDSL-DP to makeavailable to the investors a to-the-minute status of their account and transactions.

CDSL-DPs can also set up branches with direct electronic connectivity with CDSL.

BRANCH DP

The centralised database architecture of CDSL allows Depository Participants (DPs) to set up

branches which can get directly connected with CDSL and provide on-line services to BOs. Each branch will be functioning as an independent DP This facility gains importance in the presentmarket trend of reduced settlement periods which had started with T+5 day settlement and has

now been reduced to T+2. It is expected that this would be reduced still further in the near future.

Besides enabling the DPs to give on line and updated services to their clients and avoiding delays

associated with the movement of documents to the main DP, the facility also has a built in risk management mechanism. This is handled in two ways:

8/6/2019 teji


The main DP is permitted to allow or disallow any functionality to the branch based on his

internal risk management requirements.

The main DP can request for specified reports for it's branches.

In case of disaster at the branch the operations can be shifted to the main DP.

A branch of a DP will be recognized as a branch permitted for carrying out DP operations only if

it fulfills the following criteria:

The branches of the DP must install the requisitehardware / software as prescribed by CDSL. Theminimum configuration for DP front-end systems is given in the hardware section.

The branch premises must be owned / leased or l icensed to the main DP who has received thecertificate of registration as a DP from SEBI.

The branch of the DP must have the communication network registered in the name of the main DP or

leased or licensed to the main DP who has received the certificate of registration as a DP from SEBI.

The branch of the DP must have at least one staff member who is on the payroll of the main DP.

The branch of the DP must display the name of the main DP prominently.

The branches of the DP must have the requisite trained personnel to handle the DP operations.

The branches of the DP must have adequate provisions for safety and security of the documentspertaining to the beneficial owners.

The main DP undertakes to fulfill all rights and obligations as enumerated under CDSL bye-laws on

behalf of all its branches. The main DP is required to submit the enclosed covering letter ( Annexure-A) with the relevantdocuments as mentioned therein, in order to set up a branch. The Branch DP-Master Creation( Annexure-B) duly completed should be forwarded to us alongwith the covering letter.

The branch can get connected to CDSL using VSAT or leased lineconnectivity. The total cost for setting up a branch DP will be as under:

Hardware (indicative Cost) : Rs.2,00,000/- to Rs.5,00,000/-

Software : Rs. 8,000/-

VSAT usage : Rs.1,20,000/-

Leased Line: Rs. 2,88,000/- to Rs.3, 45,000/-

8/6/2019 teji


Clearing Members (CMs

Clearing Members (CMs) are the members of the Clearing Houses/Clearing Corporations whofacilitate settlement of trades done on stock exchanges. They could be a broker or custodian

registered with SEBI as such is an important intermediary in the capital market and an essentiallink in the depository system. The various categories of CMs are:

Trading Members

Custodians

Subsidiary companies formed by regional stock exchanges to facilitate their members to trade

on BSE/NSE.

While beneficial owners may have their demat accounts on any of both the depositories it is

mandatory on the part of CM to have a demat CM account with both the depositories in terms of SEBI press release ref. no. PR 153/99 dated July9,1999.

CM's main activity is to facilitate pay-in/pay-out of securities to/from Stock Exchanges/Clearing

House/Clearing Corporations either on their own behalf or on behalf of their clients. Thesecurities which are due for delivery can be delivered directly from client's account (depending

on whether exchange provides this facility) or through CMs to the Stock Exchanges/ClearingHouse/Clearing Corporations 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 CMs or to CMsA/c.

Compulsory settlement of trades in demat, introduction of 'T+2' rolling settlement, higher

volume of securities traded daily requires monitoring of CMs demat account on continuous basis.In order to facilitate smooth functioning for CMs CDSL has introduced a special Depository

Participant Type i.e. CM DP. Members of the Stock Exchange, Mumbai and Calcutta Stock Exchange who have participated in the equity of CDSL can register as CM DP at concessionalrate of deposit.

A CDSL CM DP can derive the following benefits:

He can continuously monitor the deliveries received for pay-in or from pay-out, their movement and subsequent reconciliation of trade settlements very easily.

Can subsequently reduce cost of his operations for himself as well as for his clients.

8/6/2019 teji


By offering one stop services to clients both in respect of trading and depository services, not

only he increases his business but can effectively monitor client a/c position and insulate fromfailure in settlement.

PROCEDURE

SETTLEMENT OF TRADES AT BSE

For Settlement of securities for BSE trades a CM has to open following accounts with any DP of CDSL.

1. CM Principal Account (Pay-in Account)

2. CM Unified Settlement Account (Pay-out Account)

3. Clearing Member Investors Securities Account (CISA)

Pay-in

Procedure for BSE Pay-in is as follows

Arrange for transfer of securities from Client Account to CM Principal Account before thescheduled pay-in time.

Alternatively Pay-in can be done from client account directly through On Market Instruction.

If a CM has opted for Auto Pay-in the securities available in the CM Principal A/C would be

considered for Pay-in. A member need not give any inter settlement/delivery out instruction.

If a CM has not opted for Auto Pay-in the securities have to be transferred from CM PrincipalA/c through On Market Instruction.

At the scheduled pay-in time the securities transferred through Auto Pay-in/On Market

Instructions from CM Principal A/c/ On market Instruction from Client A/c would beearmarked for Pay-in.

Auto Pay-in

In order to avail Auto Pay-in facility a CM has to provide instruction to the CH in format

specified by the CH. Members who have opted for Auto Pay-in need not give On MarketInstructions from CM Principal A/c for any settlement.

Early Pay-in

The procedure for early pay-in is as follows

The BO and/or the CM who wishes to do early pay-in, shall fill in the Early Pay-in Instruction

slip and deliver the same to his DP.The securities for early pay-in can be delivered from the CM Clearing a/c, CM Principal a/cand the BO a/c only.

It is mandatory for CMs/BOs to mention settlement number in the Early Pay-in Instruction

Slip. Thus through Early Pay-in Facility CMs can perform Settlement wise pay-in.

The BO or the CM can do early pay-in from the day of trading upto one day prior to the pay-inday.

8/6/2019 teji


As of now, the early-in facility is permitted for A/c Period/weekly and Rolling type of settlements only. In case the early pay-in facility is used for other type of settlements, the benefits of early pay-in will not be made available to the CM's. However the securities

delivered to the designated early pay-in a/c will be picked up by the CH/CC for pay-in.

The securities already delivered as early pay-in would be first utilised for satisfying the net

obligations of the CM and thereafter the pay-in of securities would be carried out. For example:

Illustration - Settlement at BSE -

Eg 1 :

a) Net obligation of CM is 3000 shares.

b) Early pay-in is done for 1000 shares.

In this case, 1000 shares will be first utilised from the early pay-in a/c and the balance pay-in

will have to be done as per the normal procedure based on the confirmation given by theBO's/CM's. The excess shares will returned to the CM USA a/c at the time of pay-out.

Eg 2 :

a) Net obligation of CM is 3000 shares.

b) Early pay-in is done for 4000 shares.

In this case, all 4000 shares will be utilised from the early pay-in a/c alongwith the shares for

which BO confirmation was given. The excess shares will returned to the CM USA a/c at thetime of pay-out.

Pay-out

The Pay-out of a settlement would be received in the CM Unified Settlement Account on the day

of pay-out. Members also have an option to obtain the pay-out of securities directly in the clientaccount. As per the provisions of SEBI Circular Number SMDRP/Policy/Cir-05/2001 dated 1st

February,2001 pay-out can be obtained in the client account by using the Pay-out Break upfacility provided by the Exchange. If a CM has not provided any pay-out breakup, all such

securities would be transferred to CM Unified Settlement Account.

SETTLEMENT OF TRADES AT NSE AND OTHER EXCHANGES

For Settlement of securities for NSE/CSE/ASE & DSE trades a CM has to open following

accounts per exchange with any DP of CDSL.

1. CM Clearing Account

2. Clearing Member Investors Securities Account (CISA)

The CM Clearing A/c would be used for pay-in and pay-out purpose.

Pay-in

Pay-in procedure for NSE/CSE/ASE & DSE is as follows:

Arrange for transfer of securities to CM Clearing Account before the scheduled pay-in time.

8/6/2019 teji


At the pay-in time the securities available in the CM Clearing Account would be consideredfor pay-in.

There is no need to provide any instruction from CM Clearing Account, the securities would be auto picked up for pay-in.

Early Pay-in

The procedure for early pay-in is as follows

The BO and/or the CM who wishes to do early pay-in, shall fill in the Early Pay-in Instruction

slip and deliver the same to his DP.

The securities for early pay-in can be delivered from the CM Clearing a/c, CM Principal a/cand the BO a/c only.

It is mandatory for CMs/BOs to mention settlement number in the Early Pay-in Instruction

Slip. Thus through Early Pay-in Facility CMs can perform Settlement wise pay-in.

The BO or the CM can do early pay-in from the day of trading upto one day prior to the pay-inday.

As of now, the early-in facility is permitted for A/c Period/weekly and Rolling type of

settlements only. In case the early pay-in facility is used for other type of settlements, the benefits of early pay-in will not be made available to the CM's. However the securities

delivered to the designated early pay-in a/c will be picked up by the CH/CC for pay-in.

The securities already delivered as early pay-in would be first utilised for satisfying the netobligations of the CM and thereafter the pay-in of securities would be carried out. For example

:

Illustration - Settlement at NSE

Eg 1 :

a) Net obligation of CM is 3000 shares

b) Early pay-in is done for 1000 shares

c) CM Clg Member a/c has 3000 shares

In this case, 1000 shares will be first utilised from the early pay-in a/c and only 2000 shares will be picked up from CM Clearing a/c.

Eg 2 :

a) Net obligation of CM is 3000 shares

b) Early pay-in is done for 4000 shares

In this case 4000 shares will be first utilised from the early pay-in a/c and the excess 1000 shareswill be returned to the CM in pay-out. The balance in the CM Clearing a/c, if any, will not beutilised for pay-in.

Pay-out

The Pay-out of a settlement would be received in the CM Clearing A/c on the day of pay-out.Members also have an option to obtain the pay-out of securities directly in the client account. As

8/6/2019 teji


per the provisions of SEBI Circular Number SMDRP/Policy/Cir-05/2001 dated 1st

February,2001 pay-out can be obtained in the client account by using the Pay-out Break upfacility provided by the Exchange. If a CM has not provided any pay-out breakup, all such

securities would be transferred to CM Clearing Account.

CLEAR ING MEMBER INVESTOR SECUR ITIES ACCOUNT (CISA)

As per SEBI Circular Number SEBI/MRD/Policy/AT/Cir-19/2004 dated 21st April, 2004 the pay-out securities credited to the CM Pool Accounts, should be transferred to the BO account

within 1 working day after the pay-out day. The pay-out securities lying in the CM Pool accountsfor more than above-mentioned period would attract a penal charge of 0.06% per week on the

value of the securities. Such securities will not be allowed to be used for pay-in, pledge andlending.

In case of BSE Settlement, the CMs of BSE effect the pay-in and pay-out from 2 separateaccounts (i.e CM Principal Account for pay-in and CM Unified Settlement (Pool) Account for

pay-out). In case of other exchanges, the pay-in and pay-out takes place through the CM A/c.However the securities are not held settlementwise in these accounts. Thus, in order to ensure

that the CMs do not use the securities received in pay-out for pay-in/pledge/lending after thespecified period, a separate account known as the "CM Investors' Securities A/c" (CISA) is to be

opened by the CMs for this purpose. The DPs should open this A/c, on the strength of the A/copening form and Agreement submitted by the CMs for opening of CM Unified Settlement A/c

or CM A/c.

CDSL will identify the pay-out securities not transferred out of the CM Pool account for thespecified period on FIFO (First-in First-Out) basis. At the end of the specified period, such

securities would automatically be transferred from the CM Pool A/c or CM Clearing Member A/c to the CISA account opened for this purpose.

The CMs will not be permitted to do a pay-in to the CH/CC from the CISA A/c. Moreover the balances in CM CISA A/c will not be permitted for pledge and lending.

teji

Documents