This system came in to force
with effect from September
What Is Scrip Based System?
Scrip based system of securities
transactions involves enormous paper
work involving certificates and transfer
Simply, securities are held in physical
Feature of scrip based system:
1. There is physical movement of
securities certificates along with
2. Registration with the company.
Problems with scrip based
1. Time consuming (processing time by co.)
2. Bad deliveries due to signature difference
3. Mistakes in completion of transfer deeds
4. Tearing and mutilation of certificates
5. Fake certificates
6. Cost of transfer : stamp duty
7. Postal delays and charges etc.
What is depository system
A system in which securities of an
investor are held by depository on
behalf, and at the request, of an
investor in an Electronic Form.
This system is also know as Scrip Less
Features of Depository system
In the depository system, securities are held in
depository accounts, which is more or less similar to
holding funds in bank accounts.
Transfer of ownership of securities is done through
simple account transfers.
This method does away with all the risks and hassles
normally associated with paperwork.
Consequently, the cost of transacting in a depository
environment is considerably lower as compared to
transacting in certificates.
Whole system of Depository
Constituents of depository
There are basically four participant:
The Depository Participant
The Issuing Company
Who is depository?
Depository facilitates holding of
securities in the electronic form and
enables securities transactions to be
processed by book entry by a
Depository Participant (DP), who as an
agent of the depository, offers
depository services to investors
Features of depository system
1. In the depository system, the apex body is the
2. A depository can be compared with a bank
3. Depository services through depository
5. Registered Owner/ Beneficial Owner (two types
Who can be a depository:
Depository Act, 1996 provides that -
A company formed and registered under the
companies Act, 1956, and
Which has got a Certificate of Registration
from the SEBI.
Depositories in India
The depository model adopted in India
provides for a competitive multi-depository
system. There can be various entities
providing depository services. Such system
is known as Multi-Depository System.
At present two Depositories are registered
NSDL is the first and largest depository in India,
and established in August 1996
It has 267 depository Participants (as on 13.12.08)
Trade World, a Wing, 4th &5th Floors
Kamala Mills Compound
Mumbai 400013 website: nsdl.co.in
PROMOTERS OF NSDL
1. Industrial Development Bank of India
2. Unit Trust of India
3. National Stock Exchange of India Limited
SHAREHOLDERS OF NSDL
State Bank of India
Oriental Bank of Commerce
Standard Chartered Bank
HDFC Bank Limited
The Hongkong and Shanghai Banking Corporation
Union Bank of India
SERVICES (INDIA) LIMITED
This is the second depository in India.
This was formed and registered in 1999.
It has 455 DPs as on 4.08.08
Phiroz Jeejeebhoy Towers
16th Floor, Dalal Street
Mumbai website: www.cdslindia.com
PROMOTERS OF CDSL
Bombay Stock Exchange Limited
Bank of India,
Bank of Baroda,
State Bank of India and
SHAREHOLDERS OF CDSL
Standard Chartered Bank
Centurion Bank of Punjab Ltd
Union Bank of India
Bank of Maharashtra
Jammu and Kashmir Bank Limited
The Calcutta Stock Exchange Association
A Bank-Depository Analogy
1.Holds funds in an account 1.Holds securities in an
on behalf of a customer account on behalf of an
2.Transfer funds between 2.Transfer securities between
accounts on the instruction accounts on the instruction
of the account holder. of the account holder.
3.Physical handling of funds 3.Physical handling of
is avoided. securities is avoided.
4.Provides safe custody of 4.Provides safe custody of
Who Is Depository Participant:
A Depository Participant (DP) is an agent of
the depository through which it interfaces
with an investor.
A DP can offer depository services only after
it gets proper registration from SEBI.
A DP is just like a Branch of a Bank.
Who can be Depository
In terms of the Depositories Act, 1996, SEBI
(Depositories & Participants) Regulations,1996, only the
following entities are eligible to become a Depository
Banks, including approved foreign bank
A clearing corporation or a clearing house of a stock exchange
A non-banking finance company,
A registrar to an issue or share transfer agent
Types of ownership
In the depository system, the ownership of securities
dematerialized is bifurcated in to:
Who is registered owner
The registered owner is that person whose
name is registered in the register of members
of the company (issuer)
For the securities dematerialized, NSDL/CDSL
is the Registered Owner in the books of the
But Registered Owner does not enjoy any
right and liability attached with the security.
Who is the Beneficial owner
Beneficial owner is that person who
enjoys all rights, duties, and liabilities
attached with the security.
It means voting right, dividend right,
bonus share right , right share right etc
are all exercised by the Beneficial
Benefits of depository system/holding
securities in dematerialized form
Depository system provides benefits to:
The investors, and
Benefits to investors:
1. The transactions in electronic mode eliminated the risk and
problems of delays.
2. The risk of bad deliveries is totally eliminated
3. There is no requisite of filling up the transfer deeds, payment of
transfer stamp duty and a lot of other paper work at the end of
4. It totally eliminates the risk associated with fraudulent
interception of certificates in postages or transits..
5. Transfer of ownership of securities is immediate in case of
6. The investment, automatically, becomes more liquid.
7. The problem of odd lot is also eliminated, as the
depository mode does not have any concept of market lot.
8. Holding investments in equity and debt in a single
9. Change in address recorded with DP gets registered with
all companies in which investor holds securities
electronically eliminating the need to correspond with each
of them separately.
10. Transmission of securities is done by DP eliminating
correspondence with companies.
11. Nomination facility.
Benefits to the issuing company:
1. The company saves a lot of paper work which
otherwise is required in the physical mode.
2. The company saves a postal cost for the dispatch
of right shares, bonus shares or share certificates
after affecting the transfer.
3. By offering depository services to its
shareholders, a company may send a positive
sign to its shareholders about its concern for their
4. Depository services adds liquidity to the security
thus fund raising capacity of the company.
How can services of Depository
availed by an investor?
1. In order to avail of depository facilities, an investor has to open
a beneficiary account with a depository participant of his
choice.This is similar to opening a bank account to use the
Just as one can hold funds in a bank account and transfer funds
across accounts without actually handling cash;one can hold
securities in a depository account and transfer securities across
depository accounts without actually handling share certificates.
The account holder is called 'beneficial owner'
in a depository system and the account is
known as 'beneficiary account'.
Features of Beneficiary
Features of Beneficiary Account
No minimum balance is required to be retained in a
An investor can close a beneficiary account with
one DP and open an account with another DP.
To dematerialise existing physical holdings, the
beneficiary account must be opened in the same
ownership pattern in which the securities are held
in the physical form e.g:
If one certificate is in individual name and another
certificate is jointly held by X & Y, two different
accounts should be opened
Procedure of Opening An
Investor will choose a DP for the purposes of
opening beneficiary account. The choice of the
investor may be based on convenience, comfort,
services offered, cost or any other reason.
The investor will obtain the relevant account
opening form from the chosen DP.
For the purpose of verification, investor has to
submit the following documents along with the
prescribed account opening form.
1. Proof of Identity(POI) (voter card, pan
card, driving license etc.)
2. Proof of Address (POA) (ration card,
ank pass book copy voter id card etc.)
3. Passport-size photograph
Copy of PAN card
The DP will also provide a copy of the
Some other aspects:
The demat account cannot be operated on "either or
survivor" basis like the bank account. In case of the joint
account for the beneficial owners, all the joint holders have
to sign the account opening form.
The investor will submit to his DP the duly filled in account
opening form & DP-client agreement along with the
On successful opening of the account, the DP will
1. Client Id - an eight digit number to be used along with DP
Id for any future transactions.
2. Delivery Instruction slip book.
Some other aspects
More than one demat account can be opened in
the similar / identical name and order with the
same DP or different DPs.
A periodical statement of holdings and
transactions is provided by DP. This can also be
asked for from the DP
What is dematerialisation?
Dematerialisation is the process by which physical
certificates of securities of an investor are
converted to an equivalent number of securities in
electronic form and credited into the investor’s
account with his/her DP.
It is to be noted that an investor can hold shares in
physical form but for the purpose of trading in stock
exchanges shares should be in electronic form.
Process of dematerialisation
An investor intending to dematerialise its securities needs to
have an account with a DP.
The client (registered owner) will submit a request to the DP in the
Dematerialisation Request Form for dematerialisation, along with
the certificates of securities to be dematerialised. Before submission,
the client has to deface the certificates by writing
"SURRENDERED FOR DEMATERIALISATION".
The DP will verify that the form is duly filled in and the number
of certificates, number of securities and the security type
(equity, debenture etc.) are as given in the DRF. If the form and
security count is in order, the DP will issue an acknowledgement
slip duly signed and stamped, to the client.
After intimating NSDL electronically, the DP sends the securities to
the concerned Issuer/ R&T agent. NSDL in turn informs the Issuer/
R&T agent electronically, using NSDL Depository system, about the
request for dematerialisation. If the Issuer/ R&T agent finds the
certificates in order, it registers NSDL as the holder of the securities
(the investor will be the beneficial owner) and communicates to
NSDL the confirmation of request electronically. On receiving such
confirmation, NSDL credits the securities in the depository account
of the investor with the DP.
This procedure takes 15to 30 days.
Rematerialisation is the process by which a client can get
his electronic holdings converted into physical certificates.
A client can rematerialise his dematerialised holdings at
any point of time.
The rematerialisation process is completed within 30 days.
The securities sent for rematerialisation cannot be traded.
Procedure of rematerialisation
The client has to submit the rematerialisation request to the DP with
whom he has an account.
The DP enters the request in its system which blocks the client's
holdings to that extent automatically.
The DP releases the request to NSDL and sends the request form to
the Issuer/ R&T agent.
The Issuer/ R&T agent then prints the certificates, dispatches the
same to the client and simultaneously electronically confirms the
acceptance of the request to NSDL.
Thereafter, the client’s blocked balance are debited.
CS Ajay Khandelwal