Depository Services in India: NSDL and CDSL | Procedures of Depositary, Clearing House & Clearing member.

Depositories primary function is to hold securities either in certificated or un-certificated (dematerialized) form. 

The primary function of this depository is to hold securities either in certificated or un-certificated (dematerialized) form, and it helps enable the book-entry transfer of securities in electronic format for trading in securities. CDSL’s & NSDL’s primary focus is to provide safe, useful, reliable and secure depository services. 

A Depository Participant (DP) offers depository services to investors. According to SEBI-issued regulations, financial institutions, banks, custodians, and stockbrokers are eligible to act as DPs. The DP is a CDSL or NSDL-authorized agent who serves as a link between the account holder or Beneficial Owner (BO), the issuing company, CDSL, the BO's broker and the Stock Exchange

Investors using depository services of the depository is known as the Beneficial Owner (BO), and they have to maintain a demat account to access the functions of the CDSL as well as NSDL, including the facilities of dematerialization and transferring of securities.

NSDL

National Securities Depository Limited (NSDL) is an Indian central securities depository based in Mumbai. It was established on 8 November 1996 as the first electronic securities depository in India with national coverage. It was established based on a suggestion by a national institution responsible for the economic development of India.

Promoter of NSDL

Industrial Development Bank of India Limited (IDBI) is the largest promoter of NSDL, besides NSE, UTI, Axis Bank, State Bank of India, Oriental Bank of Commerce, Citibank, Standard Chartered Bank, HDFC Bank, HSBC Bank, Deutsche Bank, Dena Bank, Canara Bank.

NSDL total DP's List up to Date:

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CDSL

Central Depository Services (India) Ltd (CDSL), founded in February 1999, is the second Indian central securities depository based in Mumbai. Its main function is the holding securities either in certificated or uncertificated (dematerialized) form, to enable book entry transfer of securities.

Promoter of CDSL

State Bank of India, Bank of India, Bank of Baroda, HDFC Bank, Standard Chartered Bank, Axis Bank and Union Bank of India.

CDSL total DP's List up to Date:

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Benefits of holding demat securities in CDSL & NSDL:

·         As the share certificates are in an electronic format, the investor is safe from the risk of theft, loss or damage to the physical share certificates.

·         The investor need not be skeptical about the genuineness of the securities purchased as the securities in the depository cannot be returned under objection for any reason, and it also eliminates the risk of bad delivery.

·         The securities are immediately transferred to the investor’s account as soon as the payment is transferred to the company’s account. There is no need for the investor to wait for the registration process from the company or its Registrar.

·         The stock exchanges follow the method of T+2 rolling settlement cycle, i.e. settlement of trades is done on the 2nd working day from the trade. This action is possible because dematerialized securities have paved the way for liquidity and swift transfer of securities.

·         No stamp duty is applicable for investors when transferring securities in dematerialized format.

·         Companies can directly credit their investors account in case of bonus issue or rights issue of shares.

·         Any update or changes in the personal information or transmission of the BO can be directly updated with the depositories. A single standing instruction to the CDSL or NSDL would help the investor update their details with all companies in which they have a vested interest.

·         The CDSL & NSDL, also sends the investor a statement that consolidates the position of all their holdings. This would enable investors to make informed decisions about their financial strategy.

CLEARING HOUSE or CLEARING MEMBERS (CM)

Clearing Members (CMs) are members of the Clearing Houses/Clearing Corporations who facilitate settlement of trades done on stock exchanges.

While beneficial owners may have their demat accounts with any one of the depositories, it is mandatory on the part of CM to have a demat account with both the depositories in terms of SEBI press release ref. no. PR 153/99 dated July9, 1999.

                                                   

A CM's main activity is to facilitate pay-in/pay-out of securities to/from Clearing House/Clearing Corporations either on their own behalf or on behalf of their clients. The securities which are due for delivery can be delivered directly from client's account or through CM's account to the Clearing House/Clearing Corporation's Account. Similarly, pay-out of securities can be delivered directly to client's account on the basis of information given to Clearing House by the CM or through CM's A/c.

Transactions through easiest:

Through CDSL’s internet based facility easiest- a CM can submit transactions on the Internet "anytime-anywhere" in an efficient and convenient manner, all in a state-of-the-art secure environment. A CM can also obtain regular reports from CDSL through easiest which enables close monitoring of settlements.

With a view to make it more convenient for CMs to handle their settlements efficiently, CDSL has introduced a facility called "CM upload through easiest". A CM who registers for this facility and has created the Power of Attorney link on the basis of Power of Attorney received from his client (which is registered with the client’s DP) can also upload intra-depository debit transactions for all his clients ( who have registered POA in its favour) across various DPs in CDSL using easiest. This will obviate the need to submit multiple DISs to multiple DPs of its clients.

Benefits for CLEARING MEMBERS (CM)

1. CM can efficiently manage the settlements of his clients from his office, without requiring to visit the DP's office.

2. CM ( holding valid Power of Attorney) can make Early pay-in, Normal pay-in or transaction of securities directly from the client’s a/c to the CH/CC or the CMs Settlement account. A CM can do pay-in of securities on T day itself and obtain release of margins latest by T+1 morning, thus, resulting in substantial savings for the CM.

3. In case of Normal pay-in from the client’s account, available balance is picked up at the time of pay-in, thus reducing losses due to any shortages.

4. CMs can avoid paperwork to execute DIS for each for each instruction as they will be digitally signed. If CMs use the facility of POA link, they can avoid signing of DISs on behalf of their clients by uploading instructions through easiest.

A CDSL CM DP can derive the following benefits:

1. Continuous monitoring of the deliveries received for pay-in or from pay-out, their movement and easy reconciliation of trade settlements.

2. Reduction in cost of operations.

3. Offering one stop services to clients in respect of trading and depository services leading to increase in business and enabling effective monitoring of client a/c position to insulate from failure in settlement.

Depository Participant (DP)

A Depository Participant (DP) in India is described as an Agent (law) / Stock Broker of the depository. They are the intermediaries between the depository and the investors. The relationship between the DPs and the depository is governed by an agreement made between the two under the Depositories Act. In a strictly legal sense, a DP is an entity who is registered as such with SEBI under the sub section 1A of Section 12 of the SEBI Act. As per the provisions of this Act, a DP can offer depository-related services only after obtaining a certificate of registration from SEBI. As of 2012, there were 288 DPs of NSDL and 563 DPs of CDSL registered with SEBI.

SEBI (D&P) Regulations, 1996 prescribe a minimum net worth of Rs. 50 lakh for stockbrokers, R&T agents and non-banking finance companies (NBFC), for granting them a certificate of registration to act as DPs. If a stockbroker seeks to act as a DP in more than one depository, he should comply with the specified net worth criterion separately for each such depository. No minimum net worth criterion has been prescribed for other categories of DPs; however, depositories can fix a higher net worth criterion for their DPs.

Client / Investor open Demat account through Depository Participant (DP)

Generally 2 types of DP or Stock broker are existing in India-

1) Full service broker & 2) Discount broker....

A demat account is opened on the same lines as that of a Bank Account. Prescribed Account opening forms are available with the DP, needs to be filled in. Standard Agreements are to be signed by the Client and the DP, which details the rights and obligations of both parties. Along with the form the client requires to attach Photographs of Account holder, Attested copies of proof of residence and proof of identity needs to be submitted along with the account opening form.

In case of Corporate clients, additional attachments required are - true copy of the resolution for Demat a/c opening along with signatories to operate the account and true copy of the Memorandum and Articles of Association is to be attached.