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ACKNOWLEDGEMENT

I would like to express my appreciation and gratitude to various people who have shared their valuable

time and made possible this project, through their direct indirect cooperation.

My honorable madam MS. POOJA M. KOHLI (EXECUTIVE DIRECTOR (OOFTG) and MR .

KUBER KANSAL AND ATUL CHIKERSAL (PROJECT INCHARGE), MS. AARTI ANAND

(PROJECT GUIDE) for allowing me to work on this project and provide necessary help.

I thank my respected faculties, dear friend & colleagues, who help me in every possible ways , support me

and encouraged me to explore new dimensions.

MUNISHA PRASHAR

MBA

ROLL NO: 10905464



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TO WHOMSOEVER IT MAY CONCERN

This is to certify that the project report titled ³DEPOSITORY AND COMPARISION

OF DP¶s IN LUDHIANA´ carried out by MS.MUNISHA PRASHAR has been accomplished

under my guidance & supervision as a duly registered MBA student of the LOVELY

PROFESSIONAL UNIVERSITY. This project is being submitted by him in the partial fulfillment

of the requirements for the award of the Master of Business Administration from LOVELY

PROFESSIONAL UNIVERSITY, PHAGWARA.

Her project work represents her original work and is worthy of consideration for the award of the

degree of Master of Business Administration.

___________________________________

(Name & Signature of the Faculty Advisor)

Title: DEPOSITORY

Date: ______________________________





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6. CDSL

y PROMOTERS OF CDSL

y COMMENCEMENT OF BUSINESS

y PROMOTED OF CDSL

y SERVICES AND CHRGES BY CDSL

55

55

56

57-58

7. RESERCH MEYHODOLOGY

y DATA COLLECTION AND SAMPLING

60-63

8. DATA ANALYSIS AND INTERPRETATION 64-82

9. OBSERVATIONS 83

10. ANALYSIS 84

11. CONLUSION 85

12. LIMITATION 86

13. REFERENCES 87

14. QUESTIONARE 88-92



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INTRODUCTIONOF STOCK EXCHANGES



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INTRODUCTION OF STOCK EXCHANGE:

Stock Exchanges are an organized marketplace, either corporation or mutual organisation, where

members of the organisation gather to trade company stocks or other securities. The members

may act either as agents for their customers, or as principals for their own accounts.

Stock exchanges also facilitate for the issue and redemption of securities and other financial

instruments including the payment of income and dividends. The record keeping is central but

trade is linked to such physical place because modern markets are computerized. The trade on an

exchange is only by members and stock broker do have a seat on the exchange.

STOCK EXCHANGEGES IN INDIA:

One of the oldest stock markets in Asia, the Indian Stock Markets has a 200 years old

history. There are 22 stock exchanges in India regulated by SEBI.

Two leading stock exchanges in India are:

Bombay Stock Exchange (BSE)

National Stock Exchange (NSE).

Both account for about 80 per cent of the equity volume traded in India. The NSE and BSE areequal in size in terms of daily traded volume. NSE has around 1500 shares listed with a total

market capitalization of around Rs 9, 21,500 crore.

The BSE has over 6000 stocks listed and has a market capitalization of around Rs 9, 68,000 crore.

Stocks are traded on both the exchanges and hence the investor could buy them on either exchange. Both exchanges have a different settlement cycle, which allows investors to shift their

positions on the bourses.

The primary index of BSE is BSE Sensex comprising 30 stocks. NSE has the S&P NSE 50 Index

(Nifty) which consists of fifty stocks.

Both the exchanges have switched over from the open outcry trading system to a fully automatedcomputerized mode of trading known as BOLT (BSE on Line Trading) and NEAT (National

Exchange Automated Trading) System.

The markets are closed on Saturdays and Sundays.



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FEATURES OF STOCK EXCHANGE

y It is the place where listed securities are bought and sold.

y It is an association of persons known as members.

y Trading of securities is allowed under rules and regulations of stock exchange.

y Membership is must for transacting business.

y Investors and Speculators who wants to buy and sell securities do through brokers.

FUNCTIONS OF STOCK EXCHANGE:

y It provides place for sale and purchase of securities i.e.Shares, Bonds and Debentures etc.

y It provides linkage between the savings of household sector and investment incorporate sector or economy.

y It provides market quotations for shares, debentures and bonds and serves role of barometer, not only of the state of health of Individual companies, but also of the economy

as a whole.y Increase market value of shares.

y Ensures funds and capital to flow into profitable securities.

y Platform of investors to trade globally.



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LUDHIANA STOCK

EXCHANGE



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LUDHIANA STOCK EXCHANGE:

Ludhiana Stock Exchange is one of the leading Regional Stock Exchange and has been in theforefront of other Stock Exchange in every sphere, whether it is formation of subsidiary for

providing the platform of trading to investors, for brokers etc.

Sh. S.P. Oswal and Sh. B.M. Munjal leading Industrialists to fulfill a vital need of having a stock exchange in this region established Ludhiana Stock Exchange (LSE) in 1981. Since its inception Ludhiana

Stock Exchange Association (LSEA) has grown phenomenally switched from manual trading toscreen based training on 18

thNovember 1996.

LSE has played an important role in generating for the companies in the states of Punjab, Haryana,

Himachal Pradesh and J&K. The Exchange has 295 members out of which 162 are registered with

National Stock Exchange as Sub-brokers and 121 with Bombay Stock Exchange as sub-brokers

through our subsidiary.

LUDHIANA STOCK EXCHAGE ASSOCIATION LIMITED:

Ludhiana stock exchange was established first as Ludhiana Stock Exchange

Association Limited (LSE) was established in the year 1981. By 1999-2000, the exchange had a

total of 284 brokers, out of which 79 were corporate brokers. Among 285 brokers, it was further

classified as 212 proprietor brokers and 79 are corporate broker. Then, there was only 23 sub-

brokers registered.

LUDHIANA STOCK EXCHANGE SECURITIES LIMITED:

LSE Securities Ltd., was incorporated in 7th January, 2000 with a view to revive the capital

market in the region and for taking full advantage of the emerging opportunities being provided

by expansion of bigger stock exchanges like NSE and BSE. The company since its inception has

marched forward rapidly and has maintained consistent growth record.



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WHY LSESL FORMED:

LSE SECURITIES LIMITED (LSESL) is a subsidiary of the Ludhiana Stock Exchange Limited

under the policy formulated by the Securities and Exchange Board of India (SEBI) for the Revival

of Small Stock Exchanges.T

he policy enunciated by the SEBI permits a stock exchange to float asubsidiary, which can take up membership of larger stock exchanges, such as the National Stock

Exchange of India Ltd. (NSE), and Bombay Stock Exchange Ltd. (BSE).

Thus LSESL is the sub broker of NSE and BSE. And it has both depositories CDSL and NSDL.

MILESTONES OF LUDHIANA STOCKEXCHANGE:

y LSE became the first in India to start LSE Securities Ltd., a 100% owned subsidiary of theexchange. The LSE Securities got the ticket as sub-broker of the NSE.

y In 1998, the exchange also got permission to start derivative trading.

y For the settlement of dematerialised securities, the Ludhiana Stock Exchange has also been

linked up with National Securities Depository Ltd. (NSDL) and Central Securities Depository

Limited.



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MANAGEMENT OF LUDIANA STOCK EXCHANGE:

There are 13 Board of Directors in LSE. Out of which 1 is Executive Director, 6 shareholder

directors, 3 trading member directors, 3 public interest directors : Name of directors Category

SH. PADAM PRAKASH KANS AL CHAIRMAN (SHAREHOLDER DIRECTOR)

SH. JOGINDER KUMAR VICE CHAIRMAN ( SHAREHOLDER DIRECTOR)

SH. ASHOK KUMAR SHAREHOLDER DIRECTOR

SH. S ATISH NAGPAL SHAREHOLDER DIRECTOR

SH. VARUN CHH ABRA SHAREHOLDER DIRECTOR

SH. RAVINDER NATH SETHI SHAREHOLDER DIRECTOR

SH. ASHWINI KUMAR PUBLIC INTEREST DIRECTOR

SH. RAJ SINGH REGISTRAR OF COMPANIES( PUBLIC INTEREST

DIRECTOR)



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VED PRAKASH GAUR PUBLIC INTEREST DIRECTOR

S ANJAY ANAND TRADING MEMBER DIRECTOR

SH. T.S TH APPAR TRADING MEMBER DIRECTOR

SH. SUNIL GUPTA TRADING MEMBER DIRECTOR

MS. POOJA M.KOHLI EXECUTIVE DIRECTOR (OOFTG)



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MANAGEMENT OF LSE SECURITIES LIMITED:

There are 13 members in LSESL.

SH. ANURAG ARORA CHAIRMAN

SH. VISH AL GOOMBER VICE CHAIRMAN

SH. JATINDER GARG MEMBER DIRECTOR

SH. MANJIT SINGH S ARNA MEMBER DIRECTOR

SH. LALIT KISHORE MEMBER DIRECTOR

SH. SUSHEEL BH AKOO PUBLIC REPRESENTATIVE DIRECTOR

SH. VIJAY K . BANS AL PUBLIC REPRESENTIVE DITERCTOR

SH. PREM KUMAR PUBLIC REPESENTATIVE DIRECTOR

SH. ANIL KUMAR ANGRISH PUBLIC REPRESENTATIVE DIRECTOR

SH. PAW AN K . GARG PUBLIC REPRESENTATIVE DIRECTOR

MS. POOJA M KOHLI LSE REPRESENTATIVE DIRECTOR



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MS. S ARABJIT KAUR LSE REPRESENTATIVE DIRECTOR

SH.RAJESH KUMAR SH ARMA C.E.O CUM DIRECTOR

LUDHIANA STOCK EXCHANGE:

There are 10 departments in LSE. Their names are given as:

N AME DESIGNATION

MS. SILVI MAI NI MEMBERSHIP DEPARTMENT

MS. GEETA GOEL PERSONNEL DEPARTMENT

MS. S ARABJIT KAUR SECRETARAIL DEPARTMENT (ICD)

MR.SUDESH KUMAR LISTING DEPARTMENT

MR.NAVRAJ SINGH TECHNICAL AND MAINTAINENCE DEPARTMENT

MR. ATUL CHIKERS AL TRANING AND EDUCATION DEPARTMENT

MR. KUBER KANS AL FINANCIAL DEPARTMENT (ICD)

MR. KUBER KANS AL ACCOUNTS DEPARTMENT

MR. PRASH ANT S ALUJA LEGAL DEPARMENT



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DEPARMENTS OF LSE SECURITIES LIMITED:

There are 9 departments in LSESL. These are:

NAME DESIGNATION

SH.RAJESH K . SH ARMA C.E.O CUM DIRECTOR

SH. RAJINDER PAL SINGH MARGIN DEPARTMENT

MS.SONIA MAKKAR CLIENT REGISTRATION DEPARTMENT

SH. RAM JI

SH. RAVINDER S AINI

ACCOUNTS( 1)

ACCOUNTS (2)

SH. MADHUR GUPTA I.T DEPARMENT

MRS. PARAMJIT KAUR SURVILLENCE DEPARMENT

MS. POOJA SH ARMA PERSONNEL DEPARMENT

SH. VIPIN GOYAL CLEARING DEPARTMENT

SH.VINAY MAH AJAN DEPOSITORY DEPARTMENT





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5) FOR INTERNAL NETTING OF TRADE:

y If shortages arise out of Internal netting of trades then local auction will be done and incase shares are not bought in auction then, internal closing will be done at highest price of

the share from trading day till auction day or closing price of the share on the Auction day plus 10% whichever is higher in case of shortage of obligations.



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DEPOSITORY



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OBJECTIVE OF THE STUDY:

1) My prime objective behind this project is to understand the working of depository

system.

2) As research in the comparison of DP¶s of four DP¶s of Ludhiana has been done in

order to understand the Demat services provided by them.

RATIONALE OF THE STUDY:

1. Since depository system has brought a revolution in the Indian

capital market so it is beneficial for me to understand it¶s working and benefits.

2. Through the comparison of different DP¶s I come to know what

the factors that increase their costumers satisfaction which is again beneficial to

understand because in this competitive world every company is costumer oriented

and they want to satisfy their companies

DEPOSITORY

IMMOBILISATION (PAPER BASE SETTLEMENT)

y Immobilization of securities is done by storing or lodging the physical securitycertificates with an organization that acts as a custodian - a securities depository.

All subsequent transactions in such immobilized securities take place through book entries.

y The actual owners have the right to withdraw the physical securities from thecustodial agent whenever required by them. In the case of IPO, a jumbo certificate

is issued in the name of the beneficiary owners based on which the depository givescredit to the account of beneficiary owners.

DISADVANTAGES OF PAPER BASE SETTLEMT:

y Lot of paper work.

y Bad and delayed deliveries

y Transfer of shares in favor of the purchaser by the company.



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y The system of transfer of ownership was grossly inefficient as every transfer involves

physical movement of paper securities. Change of ownership being evidenced by anendorsement on the security certificate.

y Theft, forgery, mutilation of certificates and other irregularities.

y The issuer has the right to refuse the transfer of a security.

All this added to costs and delays in settlement, restricted liquidity and made investor

grievance redressal time consuming.

DEPOSITARY (DEMATELISATION OF SECURITIES):

y A depository or dematerialization of securities is an organization which holds securitiesof investors in electronic form at the request of the investors through a registered

Depository Participant. It also provides services related to transactions in securities.

Dematerialization of securities occurs when securities issued in physical form isdestroyed and an equivalent number of securities are credited into the beneficiaryowner's account. Thus in a depository system, the investors stand to gain by way of

efficient settlements, lower costs and lower risks of theft or forgery, etc.

y In India ,Depository Act defines a depository to mean ³a company formed and registeredunder Companies Act,1956 and which has been granted a certificate of registration under

sub section(IA) of section 12 of Securities and Exchange Board of India Act,1992´.

ADVANTAGES OF DEPOSITARY SYSTEM:

y Transfer of securities with speed, accuracy and security.

y Dematerialising of securities through depository.

y Transfer ownership of securities electronically by book entry without making thesecurities move from person to person.

y The Act has made the securities of all public limited companies freely transferrable.

y Shortens the settlement system.



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CONSTITUENTS OF DEPOSITORY SYSTEM

There are essentially four players in the depository system:-

1. The Depository Participant

2. The Beneficial Owner/Investor

3. The issuer 4. The Depository

DEPOSITORY PARTICIPANT: There are 390 Depository Participants (DP) are registered

with SEBI at present in India.

y A Depository Participant (DP) is an agent of the depository through which it interfaces

with the investor and provides depository services. The relationship between the DPsand the depository is governed by an agreement made between both under the

Depositories Act.

y In a strictly legal sense, a DP is an entity who is registered as such with SEBI under the provisions of the SEBI Act 1996. As per the provisions of this Act, a DP can offer depository-related services only after obtaining a certificate of registration from SEBI.

For example:

y Custodians

y Clearing corporations or clearing houses

y Public financial institutions.

y Scheduled commercial banks.y Foreign banks operating in India with the approval of the Reserve Bank of India.

y NBFCs and Registrar to an Issue or Share Transfer Agent complying with therequirements prescribed by SEBI can be registered as DP.

IMPORTANT LEGAL COMPLIANCES ARE:

y According to SEBI (D&P) Regulations, 1996 prescribe a minimum net worth of Rs.50lakh for stockbrokers, R&T agents and non-banking finance companies.

y No minimum net worth criterion has been prescribed for other categories of DPs.



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y 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.

DEPOITORY SYSTEM IN INDIA:

The depository model adopted in India provides for a competitive multi depository system.

There can be various entities providing depository services. This model adopted in India

provides only for dematerialization of securities. Two depositories, viz., NSDL and CDSL,

have come up to provide instantaneous electronic transfer of securities.

The other depository is Central Depository Services. (CDS) It is still in the process of linking

with stock exchanges. It has registered 20 DPs and signed with 40 companies. It had got its

certificate of commencement from SEBI on February 8, 1999.

In order to facilitate transfers between investors having accounts in the two existing

depositories in the country the Securities and Exchange Board of India has asked all stock

exchanges to link up with the depositories.

WHY ONLY TWO DEPOSITORIES IN INDIA:

There are only two depositories in India because to become a depository minimum 100 crore

net worth is required.

ELIGIBILITY CRITERIA FOR A DEPOSITORY:

Any of the following are eligible for a depository :-

A Public Financial Institution as defined in section 4A of the companies Act 1956.

A Bank included in the second schedule to the Reserve Bank of India Act 1934.

A Foreign Bank operating in India with the approval of the Reserve Bank of India. A Recognized Stock Exchange.

An institution engaged in providing financial services where not less than 75% of

the equity is held jointly.

A Custodian of securities approved by Government of India.

A Foreign Financial Services Institution approved by Government of India.



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INDIAN INVESTORS PROBLEMS:

The Indian investors have also been facing the following problems:

Inordinate delay in receiving securities after transfer by the companies.

Return of share certificates as bad deliveries on account of forged signature of transferor

or take certificates.

Delay in receipt of Securities after allotment by the companies.

The inadequate infrastructure in banking and postal segments to

handle large volume of application and articles.

In this scenario, it was felt that the setting up of a depository and in formation of scrip less trading and settlement is imperative for smooth and efficient functioning of the

market. Thus the Government of India promulgated the Depository Act 1995. However

both the houses of parliament passed the Depository Act in 1999.

DEPOSITORIES ACT, 1996:

The act was published in The Gazette of India (no. 51) dated August 12, 1996. This act extends

to the whole of India. It shall be deemed to have come into force on the 20th daySeptember,1995.

ACCORDING TO THIS ACT:

Board means the Securities and Exchange Board of India established under section 3 of the

Securities and Exchange Board of India Act, 1992.

Bye-laws means bye-laws made by a depository under section 26

Depository means a company formed and registered under the Companies Act, 1956 andwhich has been granted a certificate of registration under sub-section (1A) of section 12 of the

Securities and Exchange Board of India Act, 1992.

y Beneficial owner means a person whose name is recorded as with depositories NSDL andCDSL



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y Issuer means any person making an issue of securities.

y Record includes the records maintained in the form of books or stored in a computer or insuch other form as may be determined by regulations.

y Security means such security as may be specified by the Board«..

y Service means any service connected with recording of allotment of securities or transfer of ownership of securities in the record of a depository.

REQUIREMENTS:

y No depository shall act as a depository unless it obtains a certificate of commencement of business from the Board and this certificate granted under sub-section (1) Depository Act,

1996.

y The Board shall not grant it certificate under sub-section (1) unless it is satisfied that thedepository has adequate systems and safeguards to prevent manipulation of records and

transactions.

y Also no certificate shall be refused under this section unless the depository concerned has been given a reasonable opportunity of being heard.

RIGHTS AND OBLIGATIONS GIVEN BY DEPOSITARY ACT, 1996:

OBLIGATIONS:

1) Agreement between depository, depository participant and investor:

y A depository shall enter into an agreement with one or more under sub-section shall be

in such form as may be specified by the bye-laws.

y Any investor through a participant, may enter into an agreement, in such formas may be specified by the bye-laws, with any depository for availing its services.

2) Surrender of certificate of security:

y Any investor who has entered into an agreement under section 5 shall surrender thecertificate of security, for which he seeks to avail the services of a depository, to the

issuer in such manner as may be specified by the regulations.

y The issuer on receipt of certificate of security under sub- section (1) shall cancel thecertificate of security and substitute in its records the name of the depository as

registered owner in respect of that security and inform the depository accordingly.

y A depository shall on receipt of information under sub-section (2), enter the name of the person referred to in sub-section (1) in its records, as the beneficial owner.

3) Registration of transfer of securities with depository.



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y Every depository shall on receipt of intimation from a participant register the transfer of security in the name of the transferee.

y If a beneficial owner or a transferee of any security seeks to have custody of suchsecurity, the depository shall inform the issuer accordingly.

4) Options to receive security certificate or hold securities with depository:

y Every person subscribing to securities offered by an issuer shall have the option either to receive the security certificates or hold securities with a depository.

RIGHTS:

1) Rights of depositories and beneficial owner:

y A depository is always deemed to be the registered owner for the purposes of effectingtransfer of ownership of security on behalf of a beneficial owner but the depository as a

registered owner shall not have any voting rights or any other rights in respect of securitiesheld by it.

y The beneficial owner shall be entitled to all the rights and benefits and be subjected to allthe liabilities in respect of his securities held by a depository

y Every depository shall maintain a register and an index of beneficial owners in the manner provided in sections 150, 151 and 152 of the Companies Act, 1956.

2) Furnishing of information and records by depository and issuer:

y Every depository shall furnish to the issuer information about the transfer of securitiesin the name of beneficial owners at such intervals and in such manner as may bespecified by the bye-laws.

y Every issuer shall make available to the depository copies of the relevant records in

respect of securities held by such depository.

4) Option to opt out in respect of any security:

y If a beneficial owner seeks to opt out of a depository in respect of any security he shallinform the depository accordingly

y The depository shall on receipt of intimation under sub- section (1) make appropriateentries in its records and shall inform the issuer.



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y Every issuer shall within thirty days of the receipt of intimation from the depository andon fulfillment of such conditions and on payment of such fees as may be specified bythe regulations issue the certificate of securities to the beneficial owner or the

transferee as the case may be.

ENQUIRY AND INSPECTION:

1) Power of Board to call for information and enquiry:

y Call upon any issuer, depository, participant or beneficial owner to furnish in writinginformation relating to the securities held in a depository.

y Authorize any person to make an enquiry or inspection in relation to the affairs of theissuer, beneficial owner, depository or participant who shall submit a report of suchenquiry or inspection to it within the specified period.

y Every director, manager, partner, secretary, officer or employee of the depository or

issuer or the participant or beneficial owner shall on demand produce before the personmaking the enquiry or inspection all information or such records and other documentsin his custody having a bearing on the subject matter of such enquiry or inspection.

2) Power of Board to give directions in certain cases:

y In the interest of investors or orderly development of securities market or to prevent the

affairs of any depository or participant it may give directions to protect the interest of investors.

PENALITIES:

1)Penalty for failure to furnish information, return, etc:

y To furnish any information, document, books, returns or report to the

y Board fails to furnish the same within the time specified he shall be liable to a penaltyof one lakh rupees.

y to file any return or furnish any information, books or other documents within the timespecified in the regulations or bye-laws, fails to file return or furnish the same within

the time specified he shall be liable to a penalty of one lakh rupees for each day duringwhich such failure continues or one crore rupees, whichever is less

y To maintain books of account or records, fails to maintain the same, he shall be liable toa penalty of one lakh rupees for each day during which such failure continues or one

crore rupees, whichever is less.

2) Penalty for failure to redress investors' grievances:



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y If any depository or participant or any issuer or its agent or any person, who isregistered as an intermediary under the provisions of section 12 of the Securities and

Exchange Board of India Act, 1992, after having been called upon by the Board inwriting to redress the grievances of the investors within the time specified by the Board

such depository or participant or issuer or its agents or intermediary shall be liable to a penalty of one lakh rupees for each day during which such failure continues or one


3) Penalty for delay in dematerialisation or issue of certificate of securities:

y If any issuer or its agent or any person who is registered as an intermediary under the provisions of section 12 of the Securities and Exchange Board of India Act, 1992 (15 of 1992), fails to dematerialize or issue the certificate of securities on opting out of a

depository by the investors, within the time specified under this Act or regulations or bye-laws made there under and also in delaying the process of dematerialisation or

issue the certificate of securities such issuer or its agent or intermediary shall be liableto a penalty of one lakh rupees for each day during which such failure continues or one


4) Penalty for contravention where no separate penalty has been provided:

y Whoever fails to comply with any provision of this Act, the rules or the regulations or bye-laws made or directions issued by the Board there under for which no separate

penalty has been provided, shall be liable to a penalty which may extend to one crorerupees.

y Without prejudice to any award of penalty by the adjudicating officer under this Act, if

any person contravenes or attempts to contravene or abets the contravention of the provisions of this Act or of any rules or regulations or bye-laws made there under, he

shall be punishable with imprisonment for a term which may extend to ten years, or with fine, which may extend to twenty-five crore rupees, or with both.

y If any person fails to pay the penalty imposed by the adjudicating officer or fails tocomply with any of his directions or orders, he shall be punishable with imprisonment

for a term which shall not be less than one month but which may extend to ten years, or with fine, which may extend to twenty-five crore rupees or with both.

Appeals:

y No appeal shall be admitted if it is preferred after the expiry of the period prescribedtherefore provided that an appeal may be admitted after the expiry of the period prescribed there for if the appellant satisfies the Central Government that he had

sufficient cause for not preferring the appeal within the prescribed period.



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Appeal to Securities Appellate Tribunal:

y Every appeal under sub-section (1) shall be filed within a period of forty- five daysfrom the date on which a copy of the order made by the Board is received by the person

referred to in sub-section (1) and it shall be in such form and be accompanied by such

y fees as may be prescribed Provided that the Securities Appellate Tribunal may entertain

an appeal after the expiry of forty-five days if it is satisfied that there was sufficientcause for not filing it within that period.

y On receipt of an appeal under sub-section (1), the Securities Appellate Tribunal may,after giving the parties to the appeal an opportunity of being heard, pass such orders

thereon as it thinks fit, confirming, modifying or setting aside the order appealedagainst.



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WORKING OF DEPOSITARY SYATEM

DEMATERILISATION:

Demat refers to a dematerialised account. As if we want to open an account with a bank if weto save our money, make cheque payments etc, in the same way need to open a demat account

if you want to buy or sell stocks. So it is just like a bank account where actual money isreplaced by shares.We have to approach the DPs (remember, they are like bank branches), to

open your demat account. In dematiralisation shares are all held electronically in account and practically all trades have to be settled in dematerialised form.

Although the market regulator, the Securities and Exchange Board of India (SEBI), has

allowed trades of upto 500 shares to be settled in physical form, nobody wants physical sharesany more. So a demat account is a must for trading and investing.

Securities that can be dematerialized:

According to the SEBI (Depositories and Participants) Regulations, 1996 the following

securities are eligible for holding in dematerialized form:

Shares, scrips, stocks, bonds, debentures, debenture stock or other marketablesecurities of similar nature of any incorporated company or other body corporate,

including underlying shares of ADRs and GDRs. Units of mutual funds, rights under collective investment schemes and venture capital

funds, commercial paper, certificate of deposit, securitized debt, money marketinstruments, government securities, national saving certificates, kisan vikas patra and

unlisted securities.

BENEFITS OF DEPOSITORY SYSYEM

y No risks associated with physical certificates such as loss of share certificate, Fake

securities, Etc.

y No bad delivery.

y Faster settlement cycles.

y Low transaction cost for purchase and sale of securities compared to physical mode.

y Increase liquidity of securities

y Reduction of paper work

y Allotment of IPO, Bonus, Rights shares etc. in electronic form



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y Wavier of stamp duty on transfer of securities

y Intimation like change of address, bank mandate, nomination, request of transmission,

required to be given only to Depository Participant (DP) Irrespective of the number of

companies in which shares held.

FACILITIES OFFERED BY DEPOSITORY SYSTEM:

y Dematerialisation

y Rematerialisation

y Electronic settlement of trades in stock exchanges connected to depositories.

y Pledging/hypothecation of dematerialized securities.

y Electronic credit of securities allotted in public, rights, bonus issue.

y Nomination facility.

y Freezing of De-mat accounts, so that the debits from the dematerialization are not

permitted.

y Services related to change of address, nomination, mandate, transmission, etc.

y Other services viz.holding debt instruments in the same demat account.

y Availing stock lending/borrowing facility, etc.

SAFETY FEATURES OF DEPOSITORY SYSTEM:

To ensure safety to the investors the following measures exist-

y Strict norms for becoming depository participant- Net worth criteria, SEBI approval

etc. is mandatory.

y DP cannot effect ant debit or credit in the demat account of the investor without the

valid authorization of the investor.

y Regulation reconciliation between DP and the depositories.

y Periodic inspection by Depositories of the office of the DP and Registrar.



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y All investors have a right to receive their statements of accounts periodically from the

DP.

y In the depository system, the depository holds the investor accounts on trust. Therefore

if the DP goes bankrupt the creditors of the DP will have no access to the holdings in

the name of the clients of the DP.

y Compulsory internal audit of operations of DP by practicing company secretary of the

chartered accountant every quarter.

y Various procedures for backup and safe keeping of data at all the levels.

DEMAT ACCOUNT:

A beneficiary account is an account opened by the investor or a broker with a DP of his

choice, to hold shares in dematerialized form and undertake scrip less trading. SEBI has made

compulsory trading of shares of all the companies listed in Stock Exchange in demat facility

should be provided to investors from 2 January 2002. Hence, if the investor wants to trade in

respect of the companies, which have established connectivity with NSDL & CDSL, he may

have to open a beneficiary account.

DEMAT ACCOUNT IS NECESSARY:

The investor must open a demat account with a Depository Participant. Opening a demat

account with a DP is similar to opening an account with bank. The selection of DP is to be

done by the investor based on fee payable, proximity, service levels, etc.

DOCUMENT REQUIRED:

For demat account opening the following documents are required to be given-

y Demat account opening form duly filled.

y Address proof.

y Photograph

y Identity proof



33

OTHER FORMALITIES REQIRED:

Once a demat account is opened, the investor must sign an agreement with the DP. The

investor will be allotted an account no. known as client identity. The client identity number

along with the DP identity number forms a unique combination. Both these numbers should be

quoted in all the future dealing with Depositories /DP /R TA /Company. However in case of

CDSL there is no DP identity and the 16-digit Client identity itself is a unique number. The

investor must collect forms like dematerialization request form (DRF), Delivery instruction

slips etc.

MINIMUM BALANCE REQUIRED:

There is no minimum balance required to be maintained in a Demat account and an investor

can even maintain nil balance.

Also depository does not charge any fee for opening account. These are only DP¶s that charge

fees for the services they offered to clients.

CERTAIN POINTS TO BE CONSIDERED WHILE OPENING DEMAT ACCOUNT:

y Demat account cannot be opened in the name of the partnership firms, as a partnership firm

is not a legal entity. However, a demat account can be opened in the name of the partners.

y Demat account cannot be opened in the name of the HUF. It has to be opened in the name

of the Karta of the HUF.

y In the case of a minor, the depository account should be opened in the name of the minor

and the guardian¶s name should be mentioned. The guardian will sign as signatory on

behalf of the minor.



34

y Investor can open any number of DP accounts with any number of DP¶s. However,

investor has to incur cost for each of such account

y .Investor must open different Demat accounts for shares held in different combination of

names. Alternatively investor can submit the certificate for Demat along with transposition

form

y The investor should inform his DP of any change in his address, bank account, nomination,

etc. immediately upon change thereof.

STOCK EXCHANGES CONNECTED TO THE DEPOSITORIES FOR DEMAT

TRADING:

At present the following 10 stock exchanges are connected to the Depositories-

y National Stock Exchange

y The Stock Exchange Mumbai

y Calcutta Stock Exchange

y Delhi Stock Exchange

y Ludhiana Stock Exchange

y Bang lore Stock Exchange

y Over the counter stock exchange of India

y Madras Stock Exchange

y Inter connected Stock Exchange

y Ahmedabad Stock Exchange.



35

PROCESS OF DEMATERIALISATION:

The following steps may be followed for getting physical securities converted intoDemat form. The following steps are followed for dematerilastion:

Client/Investor submits the DRF (Demat Request Form) and physical certificates (to bedematted) to the DP.

DP checks whether the securities are available for demat. Client defaces the certificate by stamping.

³Surrendered for Dematerialisation´:

DP punches two holes on the name of the company and draws two parallel lines across the

face of the certificate.T

his ensures that shares are not lost in transit or misused till credit isreceived by beneficiary owner in his demat account. The DP upon receipt of the shares and the

DRF will issue the client an acknowledgement and will send an electronic request to theCompany.

DP enters the demat request in his system to be sent to NSDL.

DP dispatches the physical certificates along with the DRF to the R&T agent.

NSDL records the details of the electronic request in the system and forwards the

request to the R&T Agent.

R&T Agent, on receiving the physical documents and the electronic request, verify andcheck them. Once the R&T Agent is satisfied, dematerialization of the concerned

securities is electronically confirmed to NSDL.

NSDL credits the dematerialised securities to the beneficiary account of the investor and intimates the DP electronically.

The DP issues a statement of transaction to the client.



36

DEMATERIALSATION PROCESS:

The process followed the following steps:





38

REMATERILASTION:

Securities can be changed from demat form to physical form.

STEPS FOR REMATERILISATION:

y For this one has to submit a Rematerialisation Request Form (RRF) through the

concerned DP in the same manner as Dematerialisation.

y The Depository Participant will forward the request to the Depository after verifying thatthe client has the necessary securities in balance.

y The Depository in turn will intimate the Registrar and Transfer Agents of the Company

who will print and dispatch the share certificates for the number of shares are materialisedand the beneficiary account will be debited by the Depository and credited with the

Company.

y It is not necessary that one gets the shares of the same folio number.

y The Registrars and Transfer Agents will print new certificates with a new range of certificate numbers. The investor will be allotted a new folio number; however if one isalready having an existing folio number, he may be allotted the same.



39

REMATALISATION PROCESS:



40

TRADING AND SETTLEMENT OF DEMATTED SHARES:

Meaning of transfer of shares:

One of the most important functions of the depositories is to provide the facility of transfer of shares. It basically means transfer of ownership from the seller to the buyer at the instructionof the account holder. Both the buyer (transferee) and the seller (transferor) have to give

instructions to their respective depository participants regarding the transfer of ownership. Atransferee is allowed to give Standing Instructions (SI) to the DP regarding the credit. But a

beneficiary account can be debited only if the beneficiary owner has given the DeliveryInstructions (DI) in the prescribed form.

Types of transfer:

Off-market trade

O n market trade

Off- market trade:

Any trade carried out without the participation of the clearing corporation is called off-market

trade, i.e. trades cleared and settled without the intervention of NSCCL. Generally, bulk deals between institutions, trades between private parties, transfer of securities between a client and

a sub-broker are off-market trades.

On market trade:

Any trade which is settled through the clearing corporation. All the trades done in a regular manner on the exchange are a part of market trade. Even the negotiated trades done with the

intervention of the clearing corporation are a part and parcel of market trades.

PROCESS OF SETTLEMETS OF OFF MARKET TRADE AND ON MARKET

TRADE:

Settlement of Off±market Trades:

y Seller gives delivery instructions to his DP to move securities from his account to the buyer¶s account.

y Buyer automatically receives the credit of the securities into his account on the basis of standing instruction for credits.

y Buyer receives credit of securities into his account only if he gives receipt instructions, if

standing instructions have not been given.

y DP needs to be extra careful in verifying the signature of the client if large quantities of securities are being debited to the accouts.

y Funds move from buyer to seller outside the NSDL system.



41

In case of Off-market trades, all the funds related settlements are made outside the system of depository and NSCCL. Only the transfer of securities is done through the NSDL channel.

Therefore, NSCCL is not responsible for the timely payment of funds.

OFF MARKET TRADES:

Settlement of Market Trades:

Market trades include all the trades done through the NSE system. Even the trades done

through negotiation, wherein the buyers and sellers fix a deal on their own but want that thesecurities should move through the NSDL system, and the clearing and settlement through the

NSCCL will also be a part of market trades.

y Seller gives delivery out instructions to his DP to move securities from his account to

his broker¶s account.y Securities are transferred from broker¶s account to CC on the basis of a delivery out

instruction.

y On the pay-out day securities are moved from CC to buying broker¶s account.

y Buying broker gives instructions and securities move to the buyer¶s account.



42

TRANSACTION CYCLE:

A transaction cycle depicts the steps followed by a client in order to execute a trade wherein a

buy order matches with a sell order. One of the greatest achievements of the current system issettlement of trades within three working days, i.e. T+2 rolling settlement which has replaced

account period settlement, which used to take at least a week to define the obligations. Rollingsettlement has now been introduced for all securities.

T+2 Rolling Settlement:

T he following steps are followed in completing a transaction cycle:

y The above cycle is initiated by a client who wants to either buy or sell securities. In thatcase, he has to make a decision regarding the same.

y He then selects a broker and instructs him to place buy/sell order on an exchange.

y The order is converted to a trade as soon as it finds a matching sell/buy order.

y The trades are netted to determine the obligations of the trading members to deliver securities/funds as per settlement schedule.



43

y Buyer/seller delivers funds/securities and receives securities/funds and acquiresownership of the securities.

SETTLEMENT AGENCIES:

The NSCCL, along with other agencies like clearing members, custodians, clearing banks anddepositories settles trades executed on the exchange. The roles of each of the entities are

explained below.

National Securities Clearing Corporation Limited (NSCCL):

The NSCCL, a wholly owned subsidiary of NSE, was incorporated in August 1995. NSCCL commenced clearing operations in April 1996. Through NSCCL, we have been able

to up-grade the clearing and settlement procedures in the Indian Stock Market and have brought Indian financial markets in line with international markets.

PURPOSE OF NSCCL:

y To bring and sustain confidence in clearing and settlement of securities.

y To promote and maintain, short and consistent settlement cycles.

y To provide counter-party risk guarantee.

TASKS PERFORMED BY NSCCL:

y Clears all trades;

y Determines obligations of members;

y Arranges for pay-in of funds and securities;

y Arranges for pay-out of funds and securities;

y Assumes the counter-party risk of each member and guarantees financial settlement.

y It also undertakes settlement of transactions on other stock exchanges

SETTLEMENT PROCESS:There are basically three tasks that are performed in the process of buying and selling of

securities. They are:

y Trading

y Clearing

y Settlement



44

The following steps are followed in the settlement of a trade: Settlement means that the trade

will be completed and NSCCL acts as a counter party and takes an obligation for the same. Ithas created a faith in the investors that all the trades would be settled without any fraud.

1 ) DETERMINATION OF OBLIGATIONS:

Obligations are determined by NSCCL for the traders and acts as a central counter-party(CCP) to the members. It determines the obligations of the members as what they ought to

give and receive on the due date.

2) PAY-IN OF FUNDS AND SECURITIES:

The members, after knowing their obligations, make available the funds and securities to NSCCL. The members of depository having obligation to pay-in the securities and get an

instruction from the NSCCL to pass the required entry for the transfer of securities to them.For the members having an obligation to pay-in funds, NSCCL gives an instruction to the

clearing banks for the same.

3) PAY-OUT OF FUNDS AND SECURITIES:

After processing the shortages of funds and securities and arranging for the movement of thesame, NSCCL sends out electronic instructions to the clearing banks/ depositories to pass the

required entries for the same.

4) RISK MANAGEMENT:

Since there is a time lag between execution of trade and its settlement, there are chances of default. To minimize the risk of defaults, NSCCL has framed a comprehensive risk

management and surveillance system. Under this, the organization keeps a check throughvarious systems (on-line and off-line monitoring) and in case of default panelizes the

respective trader for the same.

PLEDGING:

Pledge is the delivery of shares by the pledger to the pledgee in such a way that when the debt

wiil paid securities will be get back by plegder. Thus there is no transfer of ownership takes place it just creates rights of procession only. Pledging dematerialized securities is easier and

more advantageous as compared to pledging physical securities. In contrast, Hypothecation

neither the possession nor the title but only the right to sell an asset or property passes on to

the creditor or lender (called a grantee).

The procedure as follows



45

y Both borrower (pledger) as well as the lender (pledgee) must have depository account.

y The pledger must initiate the pledge by submitting to his DP the details of the securities

to be pledged in a standard format.

y The pledge should confirm the request through his DP.

Once this is done the securities are pledged. All financial transactions between the pledger and

the pledgee are handled outside the depository system.

PROCEDURE FOR THE CLOSURE OF PLEDGE:

After the borrower has repaid the loan, the borrower can request for a closure of pledge by

instructing his DP in a prescribed format. The lender on receiving the repayment will instruct

his DP confirmed the closure of the pledge

NOMINATION:

y Shares held in physical as well as electronic form can be nominated. Nomination can

be made only by individuals holding beneficiary accounts on their own behalf either

singly or jointly. On individuals, society, trust, body corporate ,partnership firm, Karta

or Hindu undivided Family, holder of power of attorney cannot nominate.

y Nomination is permitted for accounts with joint holder, but in case of death of any of

the joint holder, the securities will be transmitted to the surviving holder(s) only in the

event of death of all the joint holders, the securities will be transmitted to the nominee.

y A minor cannot nominate either directly or through its guardian.. In such a case, the

guardian will sign on behalf of the nominee and in addition to the name and

photograph of the nominee, the name, address and the photograph of the guardian must

be given. Separate nomination cannot be made for each security. Nomination can be

made Demat account wise and not security wise.

PROCEDURE:

y The investor must fill in and submit to his DP the nomination form. The account

holder, Nominee and two witnesses must sign this form and the name; address and

photograph of the nominee must be submitted.



46

y The nomination can be changed anytime by the account holder by filling up the revised

nomination form and submitting it to the DP. The account holder, Nominee and two

witnesses must sign this form and the name; address and photograph of the nominee

must be submitted. In case of joint holders, all joint holders must sign.



47

DEPOSITORIES IN INDIA

(NSDL AND CDSL)



48

NATIONAL SECURITY DEPOSITORY LIMITED:

Although India had a vibrant capital market which is more than a century old, the paper-based

settlement of trades caused substantial problems like bad delivery and delayed transfer of titletill recently. The enactment of Depositories Act in August 1996 paved the way for

establishment of NSDL, the first depository in India. Using innovative and flexible technology

systems, NSDL works to support the investors and brokers in the capital market of the country.

NSDL aims at ensuring the safety and soundness of Indian marketplaces by developing

settlement solutions that increase efficiency, minimize risk and reduce costs. At NSDL, we

play a quiet but central role in developing products and services that will continue to nurture

the growing needs of the financial services industry.

COMMENCEMENT OF THE BUSINESS BY CDSL:

National Securities Depository Limited is the first depository to be set-up in India. It was

incorporated on December 12, 1995. NSDL commenced operations on November 8, 1996.

PROMOTERS OF NSDL:

NSDL is promoted by

y Industrial Development Bank of India Limited (IDBI) the largest development bank of

India)

y Unit Trust of India (UTI) the largest mutual fund in India

y National Stock Exchange of India Limited (NSE) - the largest stock exchange in India.

Other Shareholder

y Axis Bank Limited

y State Bank of India

y Oriental Bank of Commerce

y Citibank

y Standard Chartered Bank

y HDFC Bank Limited

y The Hongkong and Shanghai Banking Corporation Limited



49

y Dena Bank

y Canara Bank

y Union Bank of India

NET WORTH OF NSDL:

y NSDL is a public limited company incorporated under the Companies Act, 1956.

y paidup equity capital of Rs. 105 crore. Total net worth required to become a DP is 100

crore as per SEBI guidelines.

y 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.

MANAGEMENT OF NSDL:

NSDL is a public limited company which by the professional Board of Directors. Mr. Gagan

Rai is the managing director and C.E.O of the NSDL. The management is composed of 12

Board of directors. The Board of Directors of National Securities Depository Limited,

constituted accordance with the provisions of the Articles of Association of the Company may

organize, maintain, control, manage, regulate and facilitate the operations of the Depositary

act, 1996. The Board of Directors shall have the authority to issue directives from time to time

to the Executive Committee or such other Committees or Managing Director or any other

person or persons to whom any powers have been delegated by the Board of Directors, and

such directives shall be binding on the Executive Committee, Committees, Managing Director,

such other person/ persons.

Subject to the prior approval of the Securities and Exchange Board of India, the Board of

Directors may amend, add or repeal any of the provisions of the Bye Laws framed by it.

EXECUTIVE COMMITTEE OF NSDL:

An Executive Committee shall be appointed by the Board of Directors for the purpose of

managing the day to day affairs of the Depository. The Executive Committee shall consist of not more than fifteen members.

The Executive Committee appointed by the Board of Directors shall consist of:-

y the Managing Director of the Depository;

y not more than five persons nominated on the behalf of Board of Directors .



50

y Not more than five individual persons of eminence in the field of finance, accounting,

law or any other discipline or amongst the investors as may be nominated by the Boardof Directors

y Four persons nominated in that behalf by the Board of Directors as µOther Nominees¶.

POWERS OF THE EXECUTIVE COMMITTEE:

y The Executive Committee may exercise such of the powers that may be delegated by theBoard of Directors in accordance with the provisions of Bye Law 3.1.2.

y The Executive Committee may from time to time, constitute sub-committees consisting of two or more of its members which shall report to it on such matters as it may deem fit. Theconstitution, quorum, and responsibilities of such sub-committees will be determined by

the Executive Committee.

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 andExchange 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



51

14. Arbitration

MILESTONES OF NDSL:

y NSDL has 1.02 crore investors accounts while its biggest rival CDSL had only 67.20 lakh

accounts.

y In October 2003, CDSL introduced T+2 rolling settlement systems.

CHARGES BY NSDL:

y NSDL provides depository services to investors and clearing members through market

intermediaries called Depository Participants (DPs). NSDL does not charge the investors

and clearing members directly.

y It charges fees DPs, who are free to have their own charge structure for their clients. NSDL

charges to DPs are uniform for all DPs. Some charges are payable by Issuers also.

y Each Participant shall pay at the time of submitting its application to the Depository, a non-refundable Entry Fee of Rs. 25,000.

y A settlement fee at the rate of Rs.4.50 per debit instruction in a Client's account shall becharged to the Participant of the Client.

y Every Participant shall pay to the Depository Rs.10 lakh by way of interest free refundable

security deposit. However, a Clearing Corporation or a Clearing House of a Stock

Exchange will be exempt from payment of security deposit.

CDSL charged different from different DP¶s. LSESL from clients including NSDL

charges.

ACCOUNT OPENING CHARRGES NILL

ADVANCE DEPOSIT NILL



52

A.M.C CHARGES Rs. 250 for individual account HUF A/C andRs. 750 for corporate A/C

DEMAT CHARGES Rs. 2 per certificate

REMAT CHARGES Rs. 20 per instruction

TARNSACTION CHARGES Rs. 13 per debit transaction

PLEDGE CREATION Rs.50 per instruction

PLEADGE CREATION

CONFORMATION

NILL

PLEDGE CLOSURE Rs.25 Instruction

CONFORMATION NILL

PLEADGE INVOCATION Rs. 25

FAILED INSTRUCTION CHARGES NILL

COURIER CHARGES Rs. 30 for demat and remat



53

SERVICES GIVEN BY NSDL:

To avail of the various services offered by NSDL an investor/ a broker/ an approved

intermediary (for lending & borrowing) has to open a NSDL depository account with any of itsDPs.

Depository accounts are of three types:

Beneficiary account: An investor who wants to hold securities in dematerialised(demat) form and receive or deliver securities by inter-account transfers must have a

depository account called beneficiary account with a DP of his choice.

Clearing member account: Member brokers of those stock exchanges which haveestablished electronic connectivity with NSDL need to open a clearing member

account, with a DP of his choice, to clear and settle trades in the demat form. Thisaccount is popularly known as Settlement account or "Pool account".

Intermediary account: Any person choosing to act as an approved 'intermediary' for

stock lending and borrowing needs to open an intermediary account with any DP of hischoice. An intermediary account may be opened with the DP only after the

intermediary has obtained registration from the Securities & Exchange Board of Indiaand with the prior approval of NSDL.

VARIOUS SERVICES OFFERED BY NSDL WITH RELATION TO THESE

ACCOUNTS:

y Enables the surrender and withdrawal of securities to and from the depository

(dematerialisation and rematerialisation).

y Maintains investor holdings in the electronic form.

y Effects settlement of securities traded on the exchanges.

y Carries out settlement of trades not done on the stock exchange (off-market trades).

y Transfer of securities.

y Pledging/hypothecation of dematerialised securities.

y Electronic credit in public offerings of companies or corporate actions.



54

y Receipt of non-cash corporate benefits like bonus rights, etc. in electronic form.

y Stock Lending and Borrowing.

y Services Offered by NSDL

y NSDL offers a host of services to the investors through its network of DPs:

y Maintenance of beneficiary holdings through DPs

y Dematerialisation

y Settlement in dematerialised securities

y Receipt of allotment in the dematerialised form

y Distribution of corporate benefits

y Rematerialisation

y Pledging and hypothecation facilities

y Freezing/locking of investor's account

y Stock lending and borrowing facilities



55

CENTRAL DEPOSITARY SERVICES LIMITED:

Depository facilitates holding of securities in the electronic form and enables securitiestransactions to be processed by book entry by a Depository Participant (DP), who as an agent f

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. CDSL offers an efficient and

instantaneous transfer of securities.

COMMENCEMENT OF BUSINESS:

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.

CDSL is now headquartered in BSE-owned Phiroze Jeejeebhoy Towers in Mumbai

CDSL was set up with the objective of providing convenient, dependable and secure

depository services at affordable cost to all market participants.

PROMOTERS OF CDSL:

CDSL was promoted by:

y Bombay Stock Exchange Limited (BSE)

y State Bank of India

y Bank of India

y Bank of Baroday HDFC Bank

y Standard Chartered Bank

y Union Bank of India



56

MILESTONES OF CDSL:

y CDSL adds 63,000 new demat accounts in 15 days.

y 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.

y As at the end of Dec 2007, over 5000 issuers have admitted their securities (equities,

bonds, debentures, and commercial papers), units of mutual funds, certificate of deposits

etc. into the CDSL system.

y BSE wants to acquire CDSL and use a portion of the Rs1,700 crore reserves that the bourse has to push the depository into new businesses such as insurance and pension funds.

But CDSL wants to remain independent.

SERVICES:

WIDE DP NETWORK:

CDSL has a wide network of DPs, operating from over 6000 sites, across the country, offering

convenience for an investor to select a DP based on his location.

On-line DP Services:

The DPs are directly connected to CDSL thereby providing on-line and efficient depositoryservice to investors

Competitive Fees Structure:

CDSL has kept its tariffs very competitive to provide affordable depository services toinvestors

Internet Access:

A DP, which registers itself with CDSL for Internet access, can in turn provide demat accountholders with access to their account on the Internet.



57

On-line Information to Users:

CDSL's system is built on a centralised database architecture and thus enables DPs to provide

on-line depository services with the latest status of the investor's account.

Convenient to DPs:

The entire database of investors is stored centrally at CDSL. If there is any system-related

issues at DPs end, the investor is not affected, as the entire data is available at CDSL.

Contingency Arrangements:

CDSL has made provisions for contingency terminals, which enables a DP to update

transactions, in case of any system related problems at the DP's office.

Meeting User's Requirements:

Continuous updation of procedures and processes in tune with evolving market practices is

another hallmark of CDSL's services.

Audit and Inspection:

CDSL conducts regular audit of its DPs to ensure compliance of operational and regulatory

requirement

Helpdesk::

DPs and investors can obtain clarifications and guidance from CDSL's prompt and courteous

helpline facility.

Unique BO Account Number:

Every BO in CDSL is allotted a unique account number, which prevents any erroneous entry

or transfer of securities. If the transferor's account number is wrongly entered, the transaction

will not go through the CDSL system, unless corrected.

Insurance Cover:

CDSL has an insurance cover in the unlikely event of loss to a BO due to the negligence of CDSL or its DPs.



58

CDSL CHARGES FROM CDSL:

ACCOUNT OPENING CHARRGES NILL

ADVANCE DEPOSIT NILL

A.M.C CHARGES NILL for individual account HUF A/C andRs. 500 for corporate A/C

DEMAT CHARGES NILL

REMAT CHARGES Rs. 10 per securities or Rs. 10% whichever is

high.

TARNSACTION CHARGES Rs. 5.5 per debit transaction

PLEDGE CREATION Rs.12per instruction

PLEADGE CREATION

CONFORMATION

NILL

PLEDGE CLOSURE Rs.12Instruction

CONFORMATION NILL



59

RESERCH

ETHODOLOGY



60

RESEARCH METHODOLOGY

Research Methodology refers to search of knowledge .one can also define researchmethodology as a scientific and systematic search for required information on a specific topic.

The word research methodology comes from the word ³advance learnerµs dictionary meaning

of research as a careful investigation or inquiry especially through research for new facts and a

systematized effort to gain new knowledge. The present study was undertaken to perform a

comparison of various DP's in Ludhiana and the customer's perception about their working. This

chapter gives the research design, data collection methods, sampling techniques, field work

carried out, analysis & interpretation, limitations inherent in the project and finally coverage of

the research work.

RESEARCH DESIGN

Research design is the pattern of outline we use to follow in the research. The research design used in

this project is DESCRIPTIVE RESEARCH.

DATA COLLECTION METHOD

Both primary and secondary sources have been used to collect data.

NATURE OF THE DATA:

SECONDARY DATA:

1) The secondary data already available, which is collected through published data,

those are available on the internet and newspapers. Some of the data has also been

collected from website of LSESL.

2) Primary data means data collected by personal interviews with managers and Head of

the Department (depository) and investors depending upon availability of time & other

sources.



61

3) Following four DP¶s in Ludhiana were chosen in order to collect accurate data to

compare the depository participants in Ludhiana.

LSESL

CITI BANK

HDFC BANK

SBI BANK

4) A survey was conducted to understand the costumer perception about the above

four depository participants.

5) The questionnaire contains both open- ended and close - ended questions.

6) Various supplementary questions were also asked to gain maximum information

from the respondents.

SAMPLING PLAN:

Sampling is an effective step in collection of primary has a great influence on the

quality of results. The sampling plan includes the population, sample size and samplingdesign.

POPULATION:

The questionnaire was collected from investors in Ludhiana. Here I put more emphasis on

LSESL investors, also collect information from the employees of LSESL because my

objective to find the costumer¶s perception about the services of LSESL.

SAMPLE SIZE:

The sample size consists of 60 investors.

SAMPLING DESIGN:



62

Sampling here used is CONVENIENCE SAMPLING.

ADVANTAGES OF THE ABOVE METHOD:

Sample size is readily available.

Also sample size is less.



63

DATA ANALYSIS AND

INTERPRETATION



64

DATA ANALYSIS AND INTERPRETATION:

For data analysis, raw data was summarized into a master table and from this table the

resulthave been carried out.

The questions, which have alternate choices, were analyzed by taking percentages. To interpret percentage method was used. Percentages, rating scale were used to the questions on which there

were specific answers In case of explanatory questions, the general suggestions were alsosummarized to interpret.

COMPARISION ON THE BASIS OF CHARGES:

1) CHARGES: The client has to pay certain fees to the DP for the services, which areexplained, are as under. These are the following charges that I have described above:

These are:

y Account opening chargesy Advance deposity Demat chargesy Remat chargesy Account maintenance charges

a) Account opening charges: In order to open an account, client has to pay some initial fees,

which varies from DP to DP. The following DP¶s don't charge for opening of an account.

LSE

SECURITIES

Ltd.

HDFC BANK CITI BANK SBI BANK

NIL NIL NIL NIL



65

ADVANCE DEPOSIT:

LSE

SECURITIES

Ltd.


NILL NILL NILL N ILL

c) DEMAT CHARGES:

Demat charges: These are the charges which the client has to pay for conversion of physical securities into electronic from. These are charged per certificate and include

courier charges.

LSE

SECURITIES

Ltd.


Rs. 2 per

certificate

Rs. 3 per

certificate.

Rs.35 perrequest

Rs. 50 per

demat request

Rs. 2 per

certificate and

Rs. 35 perrequest

d) REMAT CHARGES: These are the charges which the client has to pay for reconversion

from electronic form to physical form.

LSE

SECURITIES

Ltd.


Rs. 20 per

certificate

Rs. 10 per

certificate

Rs. 50 pr remat

request

Rs. 25 per

request



66

e) TRANSACTION CHARGES :(off market) (buy/sell)

A DP collects these charges when a transaction happens. Both side's seller and buyer have to pay

these charges to DP's as mentioned.

f) ACCOUNT MAINTAINENCE CHARGES:

Every depository takes a certain amount from client under the head of annual maintenance

charges.

g) PLEDGE CHARGES:

LSE

SECURITIES

Ltd.


Rs. 6.25 for sub

brokers and

Rs. 10 for

clients

Nill for buy Rs.

20 per

transaction

charges

Nill Nill for buying..

and Rs. 30 Per

transaction

LSE

SECURITIES

Ltd.


Rs. 250 forindividual

Rs. 750 for

corporate

Nill for sub

broker

Rs 500 perannum Rs 250 perannum Rs. 400 perannum

LSE

SECURITIESLtd.


Rs. 50 both for

creation and

clousure

Rs. 25 for

creation and

clousure

Nill for creation

and .02 % for

clousure.

Nill for

creation. Rs. for

conformation+

35courier

charges and

Rs.35for

clousure.



67

2) WORKING ENVIRONMENT:

y A depository can work in both ways: online and offline. In online

system the entire system of depository participant is connected with its

depository through satellite, which fastens the work i.e. it leads to opening

of an account and settlement of transaction within minutes.y The execution of transfers take minimum of three days, some DP's are like

LSESL, etc are connect online, rest that are working as a back office

system, are planning to cope online system very soon.

y In banking, the back office includes a heavyweight IT processing system

that handles position keeping, clearance, and settlement.

y Back offices may be somewhere other than the headquarters of a company. Much of the time they are in areas and countries with cheaper rent and lower labor costs. Back

office functions can be outsourced to consultants and contractors in any country.

Working in online environment has following advantages: -

Account opening: - Account opening can be done on the very same day while in

back office environment may take 1 or 2 days.

Execution of transfer: -

y Direct connection with the depository permits settlement of account on

the very same day; while in offline environment it takes minimum of 3

daysy As we went to the various DP's we observe various type of behavior in

various DP's. As they behave, as they work in their department its make

us feel easy to do our work. LSE working environment is very friendly.



68

HYPOTHESIS :( from secondary research)

H0 From the study I made hypothesis that costumers chose DP on basis of services

provided by it.

HI Services have not any impact on choice of particular DP.

PRIMARY RESEARCH:

1) INVESTMENT IN THE CAPITAL MARKET:

Respondents

60

Yes45

No

15



69

Out of 60 respondents, 45 said that they invest in the capital market and 15 said they are not

aware about. It means people have quiet awareness about investment in the capital market.

b) PURPOSE BEHIND INVESTING IN THE CAPITAL MARKET?

Long term gains Short term

gains

regular All

12 8 15 35



70

Out of 60 people, most of the people said that they invest in the capital market for gaining long

term, short term, and regular income.

3) WHERE DP ACCOUNT???

LSESL CITI BANK SBI HDFC

30 10 10 5



71

Mostly people have their Demat accounts in LSESL.

4) TIME TAKEN BY DEPOSITRY PATICIPANT TO OPEN ACCOUNT:

I DAY 30 (LSESL)

2DAY 20( HDFC)

3DAY 10( CITI , SBI)



72

5) SATIFACTION WITH CHARGES BY DP:

Excessive sufficient insufficient Cant say

35 10 6 8



73

6) Charges those investors feel high.

Charges Respondents

Demat 10

AMC 38

Pledge 7

Transaction 5



74

7) Reason for choosing the particular DP: These are the following reasons

which investors chose for opening a Demat account in a particular depository.

Reason No. of respondentsMinimum processing Time 15

Minimum Service Charges 10

Proximity to the place 5

Any other Reason 25



75

8) why account demat account:

Security Immediate transfer Elimination of bad

delivery

More liquidity

25 16 9 10



76

9) old or new depository participant:

LSESL HDFC CITI SBI

35 8 10 7



77



78

OBSERVATIONS:

1) From study I have found that 90% people invest in the capital market but they have not

sufficient knowledge about the capital market.T

hey choose a particular DP not on the basis of location or processing times but the advice given to them by brokers and client professional.

2) People of Ludhiana said that they invest in the capital market for earning money.

3) 80% people said that they feel that charges charged by DP¶s are very high. But it does not

affect their decision because almost every DP¶s charged almost same amount of fees.

People preferred dematerilised shares because of security .Out of 60 people 25 votes were

regarding security ,16 immediate transfer, 9 for elimination of bad deliveries and 10 for

liquidity.

4) Almost 75% people were satisfied by services given to them by LSESL and they said that

they will open new account with the same DP LSESL.

5) Mostly people feel that it takes time by their DP¶s to open DEMAT account and sometimes

settlements. The reason because all the bank work through BACK OFFICE SYSTEM and

LSESL takes less time to open less because of the online system.

6) They want to invest through the LSESL because LSESL itself is a subsidiary company of

LSE which is the leading regional stock exchange.

LSESL trainees are satisfied with their educational programs.



79

ANALYSIS:

From the observations I have analyzed that investors satisfaction are highly effected by the

services provided by the DP¶s.

This satisfaction increased loyalty towards the firm. So there is positive relationship between

these variables.

According to the rating scales costumers rated high the dematlisation and efficient deliveries

also increase their satisfaction.

Good quality of educational also increases the faith of the students ultimately they may turn

into the investors. ( LSESL)



80

CONCLUSION:

1. It was concluded from the study that with the introduction of depositories in India in 1996 has

totally transformed the Indian market from a dull and slow market to speedy and

computerized market.

2. With the introduction of demat facility the investors, brokers are not finding any problem in

sale and purchase of shares. This has given chance investors to trade globally.

3. With T+2 rolling system settlement of trades has been speeded up.

4. Both the depositories are working in India very efficiently. But for their own benefits DP¶s

charges much more from costumers.

LIMITATIONS:

1. Whole area is not

covered in this project so only 60 respondents are representative for complete area itsnot ideal data.

2. The study is limitedto the different schemes available under the Demat account selected.

3. The lack of

information sources for the analysis part is also a limitation of this study.

4. Less awareness about

this system in public is very critical block in this study.

5. In this system vastfinancial terms are comes in this system but peoples are not introduce with it so

peoples are only limited knowledge about this system and not get sufficient profit fromthis system.



81

SUGGESTION:

On the basis of the survey it has been confronted with different difficulties, which

are faced by investors, and in this regard our suggestions are:

1. It is being recommended that the DP's should increase the manpower so that the

quality of services should be improved.

2. All the DP's should have a uniform charge structure.

3. Some of the DP's are charging very high rates and they should reduce their

charges so that more number of consumers can be attracted.

4. The time taken for confirmation in trades is very long and it should be reduced.

5. The DP's should provide the facility to check the accounts on Internet.

6. The DP's should send the statement of holdings to their clients in time.

7. DP's should create more awareness among the investors through advertising

campaigns.

8. DP's should try to open their branches in every city so that volumes should

increase.

9. The DP's are lacking in management area so effective management in overall

depository section can help the DP's in improving their quality of service.

10. The overall trend says that all are having problem with the high charge structure of

the DP's and that should be reduced so that small investors could not find any

hesitation in opening an account with the DP's.



82

REFRENCES:

1. http://www.appuonline.com/appu/investment/about.html

2. www.articleclick.com/.../History-of-Stock-Exchanges/920345

3. http://www.indianmba.com/Faculty_Column/FC316/fc316.html

4. www.nsdl.co.in/

5. www.cdslindia.com

6. www.sebi.gov.in/dpcdsl.pdf

7. www www.lse.co.In

8. .sebi.gov.in/acts/act03a.html

9. http://www.lse.co.in/LSESL/Home.aspx

10. en.wikipedia.org/wiki/Depository_participant

11. cbse.nic.in/fmm-12/FMM%20II_Chapter%208.pdf

12. niftyprediction.blogspot.com/.../compare-demat-account-charges.htmL

13. www.cdslindia.com/.../Demat%20CDSL%20Way%20-%20IX%20-

%20Transmission.pdf

14. www.surfindia.com/finance/ludhiana-stock-exchange.html

15. http://www.lse.co.in/LSESL/Download/RISK_MNGT.pdf



83

QUESTIONNAIRE- 1

I am Munisha persuing M.B.A from Lovely Professional University, Phagwara. To

fulfill the objective of my research I have prepare this questionnaire to know your viewabout DEMAT of DP¶s in Ludhiana.

1) Do you invest in capital market? (Yes\No)

2) If, Yes, for how long, you are transacting on stock exchange?

(a) Less than one year (b) More than one year

(c) More than two year (d) More than three year

3)What is the purpose of your transaction on stock exchange?

(a) Marking short terms gains (b) Making long term gains

(c) Regular income (d) All

4) Do you have any DEMAT account? (Yes\No) if No, do you want to

open?

If yes, Name the DP with whom you have your DP account?

(a) LSE securities (b) Citi bank c) HDFC bank d) SBI bank

5) How much money you have to spend initially to open your DEMAT account?

(a) Between Rs. 100 Rs. 200 (b) Between Rs. 200 Rs. 300

(c) Between Rs. 300 Rs. 400 d) Above 400

6) How many days you have to spend initially to open your DEMAT accounts?

(a) 1 day (b) 2 days (c) 3 days d) 4 days

7)What are your views about the amount charged by your DP?

(a) Excessive (b) sufficient (c) insufficient d) cannot say



84

8) Had your decision regarding opening a DEMAT account was influenced by

amount charged by various DP's? (Yes/No)

9) On an average, how much time in your DP takes to credit the security inelectronic form to your account?

(a) l weak (b) 2-3 week (c) 3-4 week d) 4-5 week

10) Do you think that DEMAT system is beneficial to you? (YES\NO)

if yes then, what are the benefits?

-----------------------------------------------------------------------------------

If No what are the areas where your DP is lacking?

(a) Late services provided (b) More Amount charges

(c) More Time taken (d) Bad delivery

11) How would you rate the depository service provided to you by your DP?

(a) Highly satisfied (b) Satisfied (c) Indifferent

(d) Dissatisfied (e) highly dissat isfied

12) Give your views regarding the following statement:

Strongly agree \ Agree \ Neutral \ Disagree \ strongly Disagree

Depository System overcomes the problems associated with physical shares

Account.

Depository system helps in immediate transfer of shares.



85

Depository system has eliminated the chances of bad delivery.

Dealing through Depository is costlier than physical shares.

What are the difficulties faced by you while dealing in depository mode?

------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------

-------------------------------------------------------------------------------------

12) If giving an opportunity, where would you like to open a new DEMAT account?

(a) LSESL (b) CITI Bank (c) HDFC bank d) SBI BANK



86

QUESTIONNAIRE-2

1) Name you DP?

------------------------------------------------------------------------------------------

2) Give your DP ID?

-------------------------------------------------------------------------------------------

3)When you started the demat facility?

4) How many Demat accounts you are holding?

-------------------------------------------------------------------------------------------

5)With which depository you are concerned?

(a) NSDL (b) CDSL (c) Both

5)What are your timings for client dealing for demat?

6) In which time period the process of dematerialisation is completed?

(a) 10-15 days (b) 15-20 days (c) 20 days & above

5) Are you providing demat a/c status on internet?

(a)Yes (b) No.

6) At what time interval, you are providing demat a/c holding statement to your

clients?

Weekly

Fortnightly

Monthly



87

Quarterly

7)What are the documents that are required to open a demat a/c?

8) Which mode you use to advertise yourself?

Advertisement

Newspaper

Magazines

Pamphlets

Seminars

9)What type of charges you are charging for demat a/c?

Custody Charges

Annual maintenance charges

Pledge charges

All

11)What type of services you have?

Online

Back OfficeBoth

Thanks for your co-operation.

,

Signature



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