Demat

6.1 Indian Financial System

This is a system where there are savers and borrowers. Eg Banks, MF , FI, Insurance companies

Money Market -Short Term Maturity of the instrument will be less than 1 year. Eg FD less than 1 year. T-
Bills, call and notice money

Capital Market : Maturity period more than 1 year. Eg FD more than 1 year Shares and Bonds

Capital Market: Two markets--- Demat

1.Primary Market

2.Secondary Market

Whenever companies need money..they take from two places:

1.Banks as loans
2.From Public through shares'
CapitalMarket is market in which companies sell their shares to
raise money from the public

Share is the part of the companies capital.

Capital Market-two types

1.Primary Market: When the company issues the share
to the public directly.( Car purchased from the dealer)
IPO-Initial Public Offer-Shares offered for first time
FPO-Follow up Public offer (next time)
Offer for Sale-Existing share holders get additional shares

2.Secondary Market: When the company shares are

traded from one buyer to the other.(second hand car)
What is a Depository?
Depository is a :
a. It is a company which is registered under the Companies Act, 1956.
b. Reg certificate by SEBI under sub section IA under Sec12.

Function of a depository
Company which can hold shares/securities in electronic form
Two Acts are there:
1.Companies Act 1956
2.Depository Act 1996

Two depositories-NSDL and CDSL

NSDL-National Securities Depository Limited-Sponsored-NSE (National
Stock Exchange)
CDSL-Central Depository Services Ltd-Sponsored by BSE (Bombay Stock
Exchange)

Depository Participant (DP): Agent of the depository…Opening of

accounts, doing transfers etc etc
Zerodha, Sharekhan, Axis Direct and Axis Securities
DP-Agent is given a code : DP id
Fungibility: There is no specific no or identification that it belongs to
someone. Replaceable. Demat shares are fungible
Eg cash is fungible as it does not have any linkage with the person
holding it.
Land is not fungible as it bears the name of the holder. If the land
owner wants to transfer he has to register it in another person’s name.

Registered Owner/Beneficiary Owner Concept

Before Demat days, Physical form-There was only one owner of the
shares in the books of the company.
Eg Chetan with certificate no 1234 is holding 100 shares of Tata
Motors-In the books of Tata motors.
Only one owner of share-Chetan

After Dematerialization: Two owners as per the books of the company-

Tata Motors
Registered owner-Where the shares are held ( Depository-NSDL)
Beneficial Owner-The actual owner/purchased the share -Chetan
Stock Exchange: The market where shares are traded.
In India we have two major share/stock markets
NSE-National Stock Exchange
BSE-Bombay Stock Exchange
Two charges in Demat A/c
1.AMC-Annual Maintenance charge-This is charged every year for
holding shares in electronic form. The depository participant.
2.Trading Charges/Brokerage: Every time you buy or sell a share a
small percentage is charged. Eg 0.80% of the transaction amount

Mode of operation: who can operate the account

SB A/c Ravi + Suraj ( E/S)
Chq to be signed …who can sign???
Any one-It can be Ravi or it can be Suraj
Demat A/c Ravi + Suraj
DIS to be signed …who can sign???
Both have to sign as there is no option of E/S in demat a/c

Clearing Corporation/Clearing House

It is an organization which helps in settlement of share transaction
between the buyer and the seller.

Buyer (Aman) Seller (Chetan)

Agree on no of shares-100 Tata motors
Price per share-Rs500 per share
Total Amt=100*500=50,000
Electronically shares moves from Chetan’s demat ac( HDFC) to Aman’s
Demat a/c (Axis Bank)….Clearing House
Money should move from Aman’s SB a/c to Chetan’s SB a/c..Banks

In SB a/c whenever you want to trf money out of the a/c -A/c holders
sign required
In SB a/c whenever there is money getting credited in SB a/c -No
customer sign req or acknowledgement required.

But in Demat whenever there is a credit or Debit in the a/c-Customers

sign or acknowledgment is required.

To avoid the regular permission for credit of shares….the DP takes a

one time instruction form the customer called standing instruction.

RTA-Registrar and Transfer Agent

An agency hired by the Company (Issuer) which is issuing shares or has
existing shareholder to do all the reconciliation work regarding the
shares on behalf of the company.
Tata Motors is issuing shares
Shares holder information-Name, Address, no of shares held etc
Hiring an RTA is not mandatory. It is the choice of the company.
Egs of RTA
CAMS-Computer Age Management System
Karvy Consultants
NSDL(Depository)
Agreement -Depository Act, SEBI Reg Act
Axis Securities (DP)
Agreement-a/c opening form
Preeti ( Investor)
DEPOSITORY-NSDL & CDSL

1.Networth of 100 cr
2.Promoters hold 51% of shares
3.Sponsor should be there
Depository:1.Certificate of incorporation for ROC( Reg of companies)
2.Certificate of reg from SEBI
Process
SEBI Certificate of Registration
Within 1 year.
Certificate of commencement of business

Agreement between
Issuer( Company) + Depository

I want to transfer 100 shares from my ICICI Demat a/c to Sauravi Axis
Demat A/c.How do I do it?
How was it done during the physical share certificate days?
DIS-Delivery Instruction Slip :Demat cheque book
Or Internet
What are the benefits of holding shares for an investor of equity
shares?
Ans Corporate Actions are benefits which are provided to share
holders:
1.Dividend: Share of profit of the company which is shared amount the
share holder. Dividend is not compulsory and it is paid as money
2.Bonus Shares: Additional shares given to the existing share holder.

How is the depository helping in the corporate action?

1. Depository provides information about the share holders to the
company.
Infosys wants to pay Rs100 per share as dividend to each share
holders.
Infosys needs information on how many share holders?
This information is given by depository NSDL.
HDFC bank chq for Rs 10000 given to You to deposit in Axis Bank.
How will you get the money?

Axis Bank Clearing House(RBI) HDFC Bank

HDFC Chq Image of the chq Fund from HDFC

Axis Demat CC/CH HDFC Demat

Transfer shares
CC-Clearing Corp CH-Clearing House

To form a DP
1.Certificate of registration -SEBI
2.10 Categories can become DP-Banks, FI, Brokers, RTA,
Custodian, NBFC
3.Agreement between DP and Depository -Bye Laws

Rights and Obligation of a DP:

1.Agreement with the BO-Bye laws of depository, copy of the
agreement to be given to the BO.
Functions of a depository participant(Axis Securities)
1.Agreement with the Beneficial Owner
2.Seperate account for BO and the DP
Surya -Demat a/c
Axis Securities -Separate A/c
Axis securities cannot buy shares for its personal investment using
Surya a/c

3.The BO permission is required for debit and credit of shares in

the demat a/c.
Usually the DP will take a one-time standing instruction from the
BO for credit of shares in the demat a/c.

In SB a/c only debit transactions require permission from the

account holder but in demat a/c both Dr and Cr of shares requires
permission of a/c holder.
 Indemnity: Make good the loss.
Compensate the loss.

DP makes any mistake …because of which the depository has

some financial loss..the DP will have to compensate the loss.

RTA-Registrar and Transfer Agent

It is a company hired by the issuer (The company which issues
shares) to manage the share operations on behalf of the issuer.
Hiring an RTA is not mandatory

Tripartite Contract (Three parties in the contract)

1.Depository
2.Issuer (Company issuing share)
3.RTA

Depository

Issuer RTA

Two Types of Demat A/c

Beneficial Owner A/c Clearing Member A/c

Beneficial Owner A/c
1.Any ind or entity which want to buy and trade in shares.
2.HUF- NSDL who opens the a/c-Karta, CDSL-HUF entity itself.
3.Ownership a/c
4.All corporate benefits are applicable -Dividends, bonus

Clearing Member, A/c

1.Opened only by Broker or Clearing Member
2.This a/c is used only for transfer of shares.
3.One cannot hold shares in this account. It is only a transit ac
4.No corporate benefits allowed in this account.
5.The balance in the clearing member a/c should be zero.

Swati (Seller)--- Broker Zerodha --CC ---Broker Axis Direct-- Preeti-Buyer

BO A/c Clearing Member a/c CM A/c BO A/c

Margin: One can buy shares more than the amount in the a/c
Account Opening Process
1.KYC-Pan is mandatory, Address proof, Photo
2.OSV-Original Seen and Verified + Self Attestation by customer(Sign by
customer).
3.IPV-In Person Verification (The bankers should meet the customer in
person)

FEMA: Foreign Exchange Management Act

It tells how much of foreign currency can be taken outside India by any
individual or entity.

Account Opening for company

1.Id proof-Pan card
2.Adress Proof-GST, Telephone
3.Certificate of Incorporation
4.Memorandum of Association
5.Articles of Association
6.Board Resolution
7.KYC of the authorized signatories
Client(BO)- DP Agreement
1.As per SEBI and Depository guidelines.
2.Charges to be mentioned -AMC, Brokerage charge
3.Copy of the agreement to be given to the client
4.Client Master List-NSDL to be given to the customer

What is the account number called in Demat?

Ans :Client ID

In NSDL there are two parts for the customer a/c no:
First Part is called as DP id
Second part is Client ID
What is DP-Id?
And: Id given by NSDL to a Depository Participant.
Axis Bank-IN300484…8 digits including IN
What is client id?
Ans: This is the unique no assigned to each client or customer.
It is the account number. Eg 11223344….8 Digits

Customer will quote DP ID and Client Id

Two owners of the shares as per the books of the company