Executive Summary

DEMAT: Is it 100% safe for an investor.
Executive Summary
The term "market" can have many different meanings. One usage of the
term denotes the primary market and the secondary market. These two
markets distinguish between the market where securities are created and
the market where they are traded among investors. Their function is key
in understanding how securities are traded.
The primary market is where securities are created. It's in this market
that firms sell (float) new stocks and bonds to the public for the first
time.
Secondary market is where most trading occurs, the secondary market is

the one in which securities are traded after having been initially offered
in the primary market. It is basically a market in which an investor
purchases an asset from another investor, rather than an issuing
corporation. This includes the NYSE, NASDAQ and all major
exchanges around the world.
The defining characteristic of the secondary market is that investors

trade among themselves. For example, if you go to buy Microsoft stock,
you are dealing only with another investor who owns shares in
Microsoft. Microsoft (the company) is in no way involved with the
transaction.
However there was an improvement in the mechanism of trading

whereby it was seen that there was a shift from the traditional method of
physical trading to the updated version of online trading. This gave birth
to the system of DEMATERIALISATION (Demat). With the age of
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computers and the Depository Trust Company, securities no longer need

to be in certificate form. They can be registered and transferred
electronically.
Dematerialisation is nothing but the process by which physical

certificates of an investor are converted to an equivalent number of
securities in electronic form and credited in the investor's account with
his (DP) Depository Party. Only those certificates that are already
registered in your name and are in the list of securities are admitted for
Dematerialisation at NSDL/ CDSL.
Investors readily accepted and are still continuing with this system as
trading in Demat segment completely eliminates the risk of bad
deliveries. In case of transfer of electronic shares, one saves around
0.5% in stamp duty.
Demat shares are supposed to obviate all the problems of physical

trading. The biggest attraction of trading in Demat shares is that the
shares an investor buys comes with a clean title and immediately after
the settlement on the relevant stock exchange. Buying shares in the
Demat form always guarantees the investor a good title as soon as the
settlement is over and hence it is a preferred mode of trading today and
will be so in the future also.
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Background of the research
Online brokering global scenario:
Online brokerage has grown substantially since the introduction of

Internet and now account for 40%-50% of retail trade. This change has
come in because individual investors want to increase control over their
finances and do not want someone else to manage the money.
Online trading has become very popular in last couple of years because
of convenience of ease and use. Numerous companies have gone on-line
to meet their customer’s demands enabling them to trade when they
want and how they want to.
Online trade, which now accounts for 40%-50% of all retail trade, is
forecasted to increase to 70% by 2006. At present online brokers hold
$574billion in assets but this figure is expected to grow to $4 trillion by
end of 2006. The market has become saturated and very competitive. As
the number of players increase, it becomes very difficult to differentiate.
The volatility in US equity, market in 1999 and September 11 World

Trade Center attack has hurt the online brokerage trading volumes.
Established E-brokerage firms have created bearer to entry that makes it
difficult for new player to enter into the market.
Indian e-broking scenario
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The Indian stock broking business has gone through a sea of changes.
From that of a business dominated by few individual players to
institutional members, as did trading open outcry and hidden deeds to
screen best and transparency.
India enters the cyber trading era to equal the current market trends
taking into consideration the need to facilitate inflow of funds in the
capital market. The trading system will enable all categories of
investors, resident and non-resident Indian, to trade online.
Online brokerage in India is still in its early days. Though the trade
through online broking is very miniscule compare to total trading, the
signs are that it will grow to 30%-35% in next few years.
Effect on off-line Business

With the emergence of e-broking, which offers many benefits like, level
playing filled to all investors, comfort of the house, simplicity, low
brokerage and value added services it could be possible for some of the
offline trade to shift to online trade.
The proportion of online broking business compare to off line broking

is miniscule about less than 1%. The offline player would not be
affected unless the figure reaches a minimum of 8-10%.
Online trade has not started to eat the volumes of, off line business till
now. But at he same time it has created new set of clients for e.g., NRI’s
who were not very active in the market due to lack of transparency and
information, have moved to use this facility. Housewives are another
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new category. Net savvy student’s and retired persons are the next
expected category.
But a question is still there, those who get value added services from
broker will continue to stay offline and those that are like any other
normal retail investors, will have no hesitation to shift to online trading.
The fact is that over a few years we would see more non-professionals
getting to access to the market. E-broking has eaten the share of offline
broking business especially into the sub-broking where the same
investors went to get whatever services was provided.
Depository services-beginning of the era of stocks at click

Today it is a practical reality that one can arrange delivery of securities
(shares) sold anytime, anywhere to anyone by a ‘click’ of the mouse
and it is possible to trade in securities and settlement of the accounts
from the convenience of a sitting room or via a laptop. The depository is
responsible to deliver and receive securities trade at the stock exchange,
which are the business partners of the depository. It dose not deal with
financial aspect of the settlement of the trade.
Dematerialisation of securities (shares) was the commencement of the

era of stocks. The beginning was made in 1996, with legislation of the
depository act 1996 and SEBI regulations 1996.
Concept of depositories
A depository means a place where anything is deposited. It can be
anything and can include securities, physical goods, cash and or money
or valuables. We have safe deposit vaults where we deposit our
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valuables for safe custody but under our control. This is also a form of
depository.
Internationally, there are two systems to hold securities.

 The first is to hold securities in a physical form. The ownership can be
transferred by any means, including the electronic media. This is also
known as ‘immobilization of securities’. This system is followed where
the physical volume of securities is low, for example bullion.
 The second system is to retain the details of the security holding in an
account in an electronic format, which is similar to maintaining a bank
account. This is known as ‘Dematerialisation of securities’. This system
is followed where the volume of securities is substantial.
With the growth of the Indian capital market in the decade and the
increasing trading activity in the stock market, the volume of paper
being exchanged has increased exponentially and will continue to
increase. This was one of the primary reasons for India opting for the
‘Dematerialisation’ depository route.
Statement of problem:
Online trading and Demat are the two emerging concepts in stock
market. It involves personal factors, technical factors, business factors
and economic factors. The interplay of these factors on stock market
requires a deep study about the pattern process and procedures and
performance. This study is intended to identify the various concepts
about Demat and the online trading and its way of functioning.
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Scope of the Study

The study encompasses only the major Secondary market that have a
substantial share in the share market. The scope of the study is limited
to the performance of the industry for the limited period.
Need for the study

 Physical trading has been given up by many stock exchange
around the world and till India is catching up.
 Transparency has become an important issue with the regular
series of scams over the years
 At this junction, Indian investors are able to avail the facilities
of Depository participants, Depositories, along with brokerage.
 So how far this system is working in India and the investors
experience with these new system of trading.
Objectives of the Study

The awareness level of various concepts of Demat & online trading.
 Most preferred Demat & online trading.
 To study various plans of any company.
 To study the cost of online trading.
 To know the market leaders in the segment.
 To offer suggestions based on findings
Research Design
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Throughout the study an attempt has been made to arrive at the

conclusions with help of economic reasoning, experience derived from
secondary markets from the lessons of the economic history. The assets,
which the corporation has inherited, have deep roots and justify full
discussion in its historical perspective.
Sources of data
Database can be classified into two categories, which are:
Primary data: The procedure followed in the collection of primary
data is from the interview method i.e., personal interview with the
managers.
Secondary data: The secondary data collected from different websites,

journals, company reports and the available literature on the subject.
OPERATIONAL DEFINITION OF THE STUDY
SECONDARY MARKET: Secondary market is the one in which

securities are traded after having been initially offered in the primary
market. It is basically a market in which an investor purchases an asset
from another investor, rather than an issuing corporation.
STOCK EXCHANGE: It is an association, organization or body of

individuals whether incorporated or not, established for the purpose of
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assisting, regulating and controlling business in buying, selling and

dealing in securities.
CLEARING HOUSE (CH): Clearing House is entities setup by Stock

exchanges to ensure that process of settlement takes place smoothly.
Generally Stock Exchange will set aside some capital to start the CH.
ROLLING SETTLEMENT CYCLE: Rolling settlement cycle starts

and ends on the same day and the settlement takes place on T+2, which
is 2 business days from the date of the same day from the date of the
transaction.
INITIAL PUBLIC OFFERING – IPO: The first sale of stock by a

private company to the public. IPOs are often smaller, younger
companies seeking capital to expand their business. IPOs can be a risky
investment, for the individual investor it is tough to predict what the
stock will do on its initial day of trading. It is also known as going
public.
FLOAT: It indicates that portion of a new issue which has not yet been
procured by the public. The term also depicts the amount of funds that
are in the process of collection and represented by cheques possessed by
one bank drawn on other local or out of town banks. It also signifies the
value of cheques covered by the Federal Reserve but which are not
collected by the Federal Reserve from the bank on which the cheques
were drawn.
MARGINAL TRADING: It suggests buying of security or commodity

by a person from the funds borrowed for part of the purchase price
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rather than the entire price. Such a person does not pay for the entire
transaction from his own funds but borrows money for part of the
purchase price.
DEMATERIALISATION: Dematerialisation is the process by which

physical certificates of an investor are converted to an equivalent
number of securities in electronic form and credited to the investor’s
depository account with his Depository Party (DP).
DEPOSITORY: A depository account is similar to a bank account. It

gives a summary of an investor’s holding of securities in the companies
in the Indian stock exchange and records transaction details of securities
bought and sold during the period. The information of securities holding
is maintained in the electronic form.
SCRIP: It denotes any temporary document entitling its holder or

bearer to receive stock or a fractional share of stock in a corporation,
cash, or some other article of value upon demand, or at some specified
future date.
DEPOSITORY PARTICIPANT: A Depository Participant (DP) is an

agent appointed by the Depository and is authorized to offer depository
services to all investors. An investor cannot directly open a demat
account with the depository. An investor has to open his account
through a DP only. The DP in turn opens the account with the
Depository. The DP in turn takes up the responsibility of maintaining
the account and updating them as per the instructions given by the
investor from time to time. The DP generates and provides the holdings
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statement from time to time as required by the investor. Thus, the DP is

basically the interface between the investor and the Depository.
LIMITATIONS OF THE STUDY

 The information provided by the managers may not be the actual
figures; it may be a virtual data in the sense conclusions based on
the real data vary from the virtual data.
 The study is conducted in the short period of time, and hence the
results vary from time to time.
 The study covers only a particular geographical region, and hence

the conclusions cannot be considered as a whole outcome of the
industry.
Overview of chapter scheme
The study has been divided into five chapters.
Chapter one: It contains the introduction to the study and the

background of the study is described in detail.
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Chapter two: It contains the objectives of the study, scope of the study,
the definition of the operational terms, tools for data collection, and
limitations of the study and the overview of the report.
Chapter three: It gives an overall profile of the industry and its

developments and the profile of the organization.
Chapter four: It contains analysis and interpretation of the study.
Chapter five: It includes summary of findings, and conclusions. It also

contains the suggestions and recommendations of the researcher.
Indian Stock Market Overview

The two primary exchanges in India are the Bombay Stock Exchange
(BSE) and the National Stock Exchange of India Ltd (NSE). In addition,
there are 24 Regional Stock Exchanges. However, the BSE and NSE
have emerged as the two leading exchanges and account for about 80
percent of the equity volume traded in India.
The NSE and BSE are almost equal in size in terms of daily traded
volume. The average daily turnover at the exchange has increased from
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Rs 851 crore in 1997-98 to Rs 5,273 crores in 2002- 2003 and further to

6000 crores. NSE has around 1900 shares listed with a total market
capitalization of around Rs 10,00,500 crore. The BSE has over 8000
stocks listed and has a market capitalization of around Rs 10,68,000
crore.
Most of the key stocks are traded on both the exchanges and hence a
investor can buy these stocks from either of the two exchange. Both the
exchange has same settlement cycle, which does not allow investors to
shift their positions. The primary index of BSE is BSE Sensex
comprising 30 stocks.
The BSE Sensex is the older and more widely followed index. Both
these indices are calculated on the basis of market capitalization and
contain the heavily traded shares from key sectors. The timing of
trading hours starts from 9.55 am to 3.30 pm. The markets are closed on
Saturdays and Sundays.
The key regulator governing Stock Exchanges, Brokers, Depositories

participants, Mutual Funds, FIIs and other participants in Indian
secondary and primary market is the Securities and Exchange Board
Of India (SEBI) Ltd.
India ranked top 10 countries in term of the market capitalization of its

stock market. If you decide to operate through an exchange, you have to
avail the services of a SECURITIES AND EXCHANGE BOARD OF
INDIA registered broker/sub-broker. You have to enter into a broker-
client agreement and file a client registration form. Since the contract
note is a legally enforceable document, you should insist on receiving it.
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You have the obligation to deliver the shares in case of sale or pay the
money in case of purchase within the time prescribed. If you have opted
for transaction in physical mode, in case of bad delivery of securities by
you, you have the responsibility to rectify them or replace them with
good ones.
To affect a transfer in the physical mode the securities should be sent to

the company along with a valid, duly executed and stamped transfer
deed duly signed by or on behalf of the transferor (seller) and transferee
(buyer). It is essential to send by registered post with acknowledgement
due and watch out for the receipt of the acknowledgement card.
If the confirmation of receipt is not received within a reasonable period,

the postal authorities should be immediately approached for
confirmation. Sometimes, for our own convenience, we may choose not
to transfer the securities immediately. This may facilitate easy and
quick selling of the securities. In that case care should be taken to see
that the transfer deed remains valid. However, in order to avail the
corporate benefits like the dividends, bonus or rights from the company,
it is essential to get the securities transferred in our name.
On receipt of our request for transfer, the company proceeds to transfer

the securities as per provisions of the law. In case they cannot affect the
transfer, the company returns back the securities giving details of the
grounds under which the transfer could not be affected. This is known
as Company Objection.
In case we are unable to get the errors rectified or get them replaced, we
may have to recourse to the seller and his broker through the stock
exchange to get back our money. Sometimes securities in physical form
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may be lost or misplaced then we must immediately request the

company to record a stop transfer of the securities and simultaneously
apply for issue of duplicate securities.
For transactions in Demat mode we are requested to refer to the

trading/settlement in depositories section. Whom to approach for
Grievance Redressal? There will be occasions when there are
grievances against the company in which we are stake-holders.
Given below are types of grievances for which we could approach

SEBI:
 Issue related i.e. non-receipt of refund order/allotment advice,

cancelled stock invests.
 Non-receipt of dividend.
 Shares related i.e. non-receipt of share certificates.
 Debenture related i.e. non-receipt of deb. certificates, non-receipt
of interest warrant.
 Non-receipt of letter of offer for rights and interest on delayed
payment of refund orders.
 Complaints related to collective investment schemes.
 Complaints related to Mutual Funds Mutual Funds Dept., SEBI
 Complaints related to Dematerialisation or DPs, Depositories and
Custodian Cell.
Apart from taking up grievances against companies of the types

mentioned above through SEBI the following types of grievances
could be taken up with other authorities/agencies as given below:
With the Stock Exchange: At the investor Information Centre of all

the recognised Stock Exchanges:
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 Complaints related to securities traded/listed with the exchanges.

 Regarding the trades effected in the exchange against the
companies.
 Complaints regarding the trades effected in the exchange against

the members of the exchange.
With the Department Of Company Affairs/ concerned Registrar of

Companies (ROC)
 Complaints against unlisted companies.

 Complaints regarding non-receipt of annual report, AGM Notice.
 Fixed deposit in manufacturing companies.
With the Reserve Bank of India:
Fixed deposits in banks and NBFCs.
With the concerned company/ROC:
Forfeiture of shares.
Moreover two other avenues always available to the investors
to seek redressal of their complaints. They areas follows:
 Complaints with Consumers’ Disputes Redressal
 Suit in the court of Law.
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EVOLUTION OF ON-LINE TRADING
The history of e-trading began in 1983, when a doctor in Michigan

placed the first online trade using E TRADE technology. What began
with a single click over 16 years ago has now taken the world by storm.
The concept was visualized by one Bill Porter, a physicist and inventor
with more than a dozen patents to his credit, who provided online
quotes and trading services to Fidelity, Charles Schwab, and Quick &
Reilly.
This led Bill to wonder why, as an individual investor, he had to pay a

broker hundreds of dollars for stock transactions. With incredible
foresight, he saw the solution at hand: Someday, everyone would own
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computers and invest through them with unprecedented efficiency and

control.
And today his dream has become a reality. e trading has become a way
of investing in the developed world and is soon catching on in
developing countries too.
There are three basic things needed for e-trading, a bank account, a
Demat account and a brokerage account. The steps in e-trading replicate
the real life situation and are fairly simple to follow. Once these three
accounts are opened, the money and shares are transferred to your bank
and Demat account automatically, electronically and without any paper
work.
The first step is of course to open an account. One can open multiple
accounts with himself or herself as the first name in the account. Then it
is necessary to determine the type of account that you want and how
you want to pay for the trades you make. Accounts can be Individual,
Joint, Sole Proprietorship, Corporate, or Partnership etc.
The form filling requires simple personal details like full legal name,
Citizenship status, Residency status, employer's name and address, your
passport\PAN number, Date of birth, etc.
One can download the forms or request for them by post or even request
for a representative of the firm to come over to help you with the form.
Post-submitting, you are allotted a USER ID and PASSWORD while
giving details for registration.
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Then an Account Reference Number is generated and displayed to you.

These three things are unique to an individual and ensure security of
transactions. The acceptance of the application is communicated by
email.
The Online Trading is a discount trading service appropriate for

individuals who require fast execution, lowest commissions and have
the expertise to make their own trading decisions without the direction
of a full service broker. It gives you an opportunity to leverage your
independence to execute, receive automatic fills, monitor, and manage
your account on your time. With online order-entry system the investor
can transmit his/her orders via the Internet (electronically), directly to
the Pit or to the Exchange floor in real time (in as little as 2.5 seconds).
In order to start trading online it is important that you deposit money in

your bank account before placing a buy order. In order to place a sell
order you must have shares in your DEMAT Account. In order to place
a buy order you need to fund your account.
You can do this by depositing money in your bank account or else you
can sell some shares existing in your Demat account and use the
proceeds of sale to fund your purchase transaction. The amount of
money required before placing a buy order would depend on the value
of order and the type of e-invest account you have enrolled for -
whether cash or margin.
In a Margin account one can use a line of credit to buy marginable

securities or for overdraft protection. Such an account is opened after
taking into consideration Annual income, Net worth, description of your
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investment objectives, as it involves lending a line of credit. In a cash

account, the amount of securities bought has to be backed by the cash in
the account.
Then comes placing the order. For this you enter your Trading password
and go to trade. From the Trading tab, select Enter Order under the
Stocks heading. Select a transaction type: Buy, Sell. At 'Number of
Shares', type the number of shares that you want to buy. At 'Stock
Symbol or Name(s)', type the stock symbol.
If you don't know the symbol, click 'Find Symbol', type the company
name, click 'Search' and click the symbol that you want from the list.
For a market order, select 'Market'. Otherwise, select 'Limit', 'Stop' or
'Stop Limit' and enter the price.
'Market Order': you just ask the broker to buy or sell your stocks at the
best price available. 'Limit Order': you tell the broker to trade only when
the stock hits a certain price or better. 'Stop Order': you tell the broker to
sell your shares if the stock drops below a certain price.
Select either 'Good for Day' or 'Good Until Canceled'. If you want to
place an 'All-or-None' order, click 'All or None'. Type your trading
password and click 'Preview Order'. If you want to change your order,
click 'Cancel' and make your changes.
To see if your order has been executed and filled as you expect, check
your account balance. The 'Account Balances' page shows your account
equity (the value of your account) and your buying power.
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If an order to buy or sell stock hasn't been executed yet, you might be
able to change or cancel the order. Orders that you have placed but for
which you haven't yet received execution reports appear when you click
'View Open Orders' under the 'Stocks' heading of the 'Trading' tab.
To change a stock order from the 'Trading' tab, select 'View Open
Orders', make sure you're currently in the correct account, the click
'Change' beside the order you want to change.
Enter your change or changes - you can change the quantity, price, and
term. For a new price, select the appropriate option button and then
enter the price (unless you're changing it to a market order).
You cannot change the stock symbol or the transaction type (Buy, Sell,
Sell Short, or Buy to Cover). Enter your trading password and click
'Preview Change Order'. Or, if you want to cancel your changes, click
'Do Not Change'.
The account opening charge, commission rates and the minimum limit
of transaction vary from site to site. Other charges can include Annual
Services Charges, Custody charges, D-Mat account charges etc.
So sitting at home one can take an investment decision at ease after

having researched and read up fully about the stock. With the advent of
online trading, it would seem that the markets are just a click away.
However, do remember that currently in India the handful of online

trading offers are mere order routing systems. But it will not be long
enough before the entire system goes online.
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REASONS FOR ONLINE TRADING IN INDIA:

Each investor has one or other reasons to go for online trading instead
of offline trading. They are as follows:
 They are independent. They fell they have control over their
account, can make their own decisions and don’t have to give
reasons for their actions.
 They have a reason to participate in the stock market and learn
about it.
 They find it interesting, cheap, easy, fast and convenience.
 A lot of information is online so they can keep up-to-date with
what is happening in the trading world.
 They are sure and overconfident.
 They have access to numerous tools to invest and can create their
own portfolio.
 They feel that trading through net can hide from others.
REASONS FOR THE EMERGENCE OF ONLINE

TRADING IN INDIA:
The reasons for providing online trading facility to investors by the
Indian companies are various. They are as follows:
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 Online trading has a very good future in India as it is not

exploited properly so far.
 Consistent increase in the number of users of interest.
 Consistent increase in the number of personal computer users.
 Part of diversification.
 Less investment in technology and other areas compared to the
returns.
 More awareness in investors about the stock market.
RECENT DEVELOPMENTS:
The bumpy Bull Run in the stock markets has triggered a slowdown in
the opening of new account by the depository participants (DPs). Faced
with the sudden dip in the number of new account being opened the
DPs are devising ways to attracts customers.
On offer is Interactive Voice Response (IVR) for the latest update on

Demat accounts and services through the Internet.
Analysts said there was booms in Demat account opening as retail

customers were riding high on the loans extended to pick up initial
public offers. Most of these Demat accounts are now dormant.
Several DPs are planning to launch Interactive Voice Response (IVR)

units and Demat services on the Net, Through these IVR units , investor
will be able to know the current value of their portfolio, current
holdings, transaction list, etc.
Some DPs are providing Demat services on the Net to enable customer
to access their account and get the holding and transaction statement on
a daily basis. For eg: HDFC Bank.
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With Online trading an investor can:

 Enter orders through internet.
 Review your account balances and transaction activity.
 Obtain stock quotes in real time.
 Access company profiles and research.
 Receive the most competitive and current commission schedule.
 Direct Floor Access-Submit trades directly to the pit in real time.
 Institutional Quality Order Entry.
 Market-to-Market Dynamic Account Updates.
 Reduced Commissions - Up to 80% discounted commission rates.
Table 1: Showing usage of Online trading system continent wise.
Continent Percentage
N.America 25%
Asia Pacific 21%
W.Europe 44%
Rest of the world 10%
N.America
Usage of online trading syste m contine nt w ise
Asia Pacif ic
W.Europe
10% 25% Rest of the
w orld
44% 21%
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Source: Primary data
Table 2: Showing ranking of major benefits of online

trading system
Benefit Single bank multi-bank
IIT 4 1
TS 1 2
CS 6 3
BS/A 2 4
STP 3 5
QR/A 5 6
Ranking of major benefits multi-bank

Single bank
12
10
8
Ranks 6
4
2
0
IIT TS CS BS/A STP QR/A
Benefits
Source: Secondary data
IIT: Improved Information Transparency.
TS: Time Saving
CS: Cost Saving
BS/A: Better Security/Audit
STP: Straight Through Processing
QR/A: Quality of Research /Analytics
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Table 3: Showing products traded online
Product Percentage
Swaps and options 8%
Bonds 15%
Commercial paper 12%
Shares 65%
Products traded online Sw aps and

options
8%
15% Bonds
Commercial
12% paper
65%
Shares
Physical Trading
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Indian investor community has undergone sea changes in the past few
years. India now has a very large investor population and ever
increasing volumes of trades. However, this continuous growth in
activities has also increased problems associated with stock trading.
Most of these problems arise due to the intrinsic nature of paper based
trading and settlement, like theft or loss of share certificates. This
system requires handling of huge volumes of paper leading to increased
costs and inefficiencies. Risk exposure of the investor also increases
due to this trading in paper.
The risks involved are a follows:
 Delay in transfer of shares.

 Possibility of forgery on various documents leading to bad
deliveries, legal disputes etc.
 Possibility of theft of share certificates.
 Prevalence of fake certificates in the market.
 Mutilation or loss of share certificates in transit.
The physical form of holding and trading in securities also acts as a

bottleneck for broking community in capital market operations.
The introduction of NSE and BOLT has increased the reach of capital
market manifolds. The increase in number of investors participating in
the capital market has increased the possibility of being hit by a bad
delivery. The cost and time spent by the brokers for rectification of these
bad deliveries tends to be higher with the geographical spread of the
clients. The increase in trade volumes lead to exponential rise in the back
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office operations thus limiting the growth potential of the broking

members.
The inconvenience faced by investors (in areas that are far flung and
away from the main metros) in settlement of trade also limits the
opportunity for such investors, especially in participating in auction
trading. This has made the investors as well as broker wary of Indian
capital market. In this scenario Dematerialised trading is certainly a
welcome move.
Trading can be at minimum number in capital market. Split of shares

made more investors to join the investment scenario.
Dematerialised Trading
28
Dematerialisation or "Demat" is a process whereby the investors

securities like shares, debentures etc, are converted into electronic data
and stored in computers by a Depository. Securities registered in the
investors name are surrendered to depository participant (DP) and these
are sent to the respective companies who will cancel them after
"Dematerialisation" and credit investors depository account with the
DP.
The securities on Dematerialisation appear as balances in investors

depository account. These balances are transferable like physical shares.
If at a later date, the investor wishes to have these “Demat" securities
converted back into paper certificates, the Depository helps them to do
this.
Depository functions like a securities bank, where the Dematerialised

physical securities are traded and held in custody. This facilitates faster,
risk free and low cost settlement. Depository is much like a bank and
performs many activities that are similar to a bank. Following table
compares the two:
Bank Depository
Holds funds in accounts Holds securities in account
Transfers funds between accounts Transfers securities between

accounts
Transfers without handling money Transfers without handling

securities
29
Safekeeping of money Safekeeping of securities
National Securities Depository Limited (NSDL)
At present there are two depositories in India, National Securities

Depository Limited (NSDL) and Central Depository Services (CDS).
NSDL is the first Indian depository; it was inaugurated in November

1996. NSDL was set up with an initial capital of US$28mn, promoted
by Industrial Development Bank of India (IDBI), Unit Trust of India
(UTI) and National Stock Exchange of India Ltd. (NSEIL). Later, State
Bank of India (SBI) also became a shareholder.
NSDL has since its inception built a network of its business partners
and 10 stock exchanges are now trading in securities in the Demat form.
Chart 1: Showing NSDL and its Interface
Investor
Depository
Participant
R&T Clearing House

NSDL
30
NSDL carries out its activities through various functionaries called

business partners who include Depository Participants (DPs), Issuing
corporates and their Registrars and Transfer Agents, Clearing
corporations/ Clearing Houses etc. NSDL is electronically linked to each
of these business partners via a satellite link through Very Small Aperture
Terminals (VSATs). The investor interacts with the depository through a
depository participant of NSDL. A DP can be a bank, financial
institution, a custodian or a broker.
Table 4 : Showing statistics of NSDL as on Aug’2004
Companies available for demat 4,464

Companies signed for demat 4,510
Debt instruments admitted for demat 4,767
Commercial papers admitted for demat 619
Depository participants of NSDL 213
Depository participants' service centre 1,718
locations
Active clients accounts (in thousands) 3,798
Demat custody (Qty. in crores) 6170
Demat custody (Value in Rs crores) 478,845
31
Statistics of NSDL as on Aug'04 1

2
3
4
5
6
7
8
9
Central Depository Services (CDS)
The other depository is Central Depository Services (CDS). It is still in

the process of linking with the stock exchanges. It has registered around
20 DPs and has signed up with 40 companies. It had received a certificate
of commencement of business from SEBI on February 8, 1999.
These depositories have appointed different Depository Participants (DP)

for them. An investor can open an account with any of the Depositories’
Participant (DP). But transfers arising out of trades on the stock
exchanges can take place only amongst account-holders with NSDL's
DPs. This is because only NSDL is linked to the stock exchanges (nine of
them including the main ones-NSE and BSE).
Once connected to both the depositories the stock exchanges have also to
ensure that inter-depository transfers take place smoothly. It also involves
the two depositories connecting with each other. The NSDL and CDS
have signed an agreement for inter-depository connectivity.
32
Benefits Of Demat
Transacting the depository way has several advantages over the

traditional system of transacting using share certificates. Some of the
benefits are:
• Trading in Demat segment completely eliminates the risk of bad

deliveries, which in turn eliminates all cost and wastage of time
• Associated with follow up for rectification. This reduction in risk

associated with bad delivery has lead to reduction in brokerage to the
extent of 0.5% by quite a few brokerage firms. In case of transfer of
electronic shares, you save 0.5% in stamp duty.
• The investor can also avoid the cost of courier/ notarization/ the
need for further follow-up with your broker for shares returned for
company objection
• In case the certificates are lost in transit or when the share

certificates become mutilated or misplaced, to obtain duplicate
certificates, the investor may have to spend at least Rs 500 for
indemnity bond, newspaper advertisement etc, which can be completely
eliminated in the Demat form
33
• The investor can also receive his/her bonuses and rights into their
depository account as a direct credit, thus eliminating risk of loss in
transit.
• The investor can also expect a lower interest charge for loans taken
against Demat shares as compared to the interest for loan against
physical shares. This could result in a saving of about 0.25% to 1.5%.
Some banks have already announced this.
 The exclusive demat segments follow rolling settlement

cycle of T+3 i.e. the settlement of trades will be on the 3 rd working day
from the trade day. This will enable faster turnover of stock and more
liquidity with the investor.
 Reduction in handling of huge volumes of paper
 Periodic status reports to investors on their holdings and
transactions, leading to better controls.
• RBI has increased the limit of loans against Dematerialised

securities as collateral to Rs 2mn per borrower as against Rs1mn per
borrower in case of loans against physical securities.
• RBI has also reduced the minimum margin to 25% for loans
against Dematerialised securities as against 50% for loans against
physical securities.
 Demat functions not only in capital market, it also does in money

market.
34
Savings
Trading in dematerialised shares results in substantial savings for the

investors. Following tables and graphs gives an idea about these savings.
Table 5: Showing savings for a person who buys shares for long
term investment. (On a purchase of Rs10000)
Physical Depository (demat) Savings

Item
(Rs) (RS) (Rs)
Brokerage 100 75 25
*Stamp Duty 50 - 50
Postal Charges 30 - 30
Company Objection 35 - 35
(courier etc.)
Settlement charges 10 5 5
Custody (5 years) 50 30 20
275 110
Total 165
35
* Stamp duty of 0.5%.
Savings (Rs)
Long term inves tm ent
Demat (Rs)
Physical (Rs)
100%
90%
80%
70%
60%
Savin g s
50%
40%
30%
20%
10%
0%
Brokerage Stamp Postal Company Settlement Custody
Duty Charges Objection charges (5 years)
(courier
etc.)
Item s
Analysis: In physical trading an investor incurs 50% charges more than

he/she does in demat. Due to trading in demat an investor saves upto
10% in brokerage, 50% in stamp duty, postal charges and company
objection like courier etc. Investor can save upto 25% in settlement
charges and 20% in custody of 5 years.
Inference: As compared to physical trading, an investor saves a lot in

demat on account of brokerage, settlement charges and custody and
does not incur any cost in stamp duty, postal charges and courier.
36
Table 6: Showing savings for an investor who sells

dematerialised shares (For a sale of Rs10000).
Physical Depository Savings

Item
(Rs) (demat) (Rs) (Rs)
Brokerage 75 50 25
Company Objection 35 - 35
(courier, etc.)
120 55
Total 65
Selling of dem aterialised shares
Brokerage
80
70 Company Objection
60 (courier, etc.)
50 Settlement charges
Savings 40
30
20
10
0
Physical Demat (Rs) Savings
(Rs) (Rs)
Form of shares
37
Analysis: Many brokers offer reduced brokerage for selling of

dematerialised securities since they will not have the fear of bad
delivery. Saves upto 35% in company objection, 20% in brokerage
charges and 5% in settlement charges when trading is done through
demat rather than doing physical trading.
Inference: Selling of dematerialised shares is more profitable than

physical selling of shares.
38
Table 7: Showing savings for a trader who buys and sell

very often.(For a trader who turns over his portfolio of
Rs10000 ten times in a year).
Item Physical (Rs) Depository (demat) Savings (Rs)

(Rs)
Brokerage 1000 500 500
Custody (5 years) 125 25 100
1125 575
Total 650
Frequent buying & selling of shares Savings (Rs)

Demat (Rs)
Physical (Rs)
100%
90%
80%
70%
60%
Savings 50%
40%
30%
20%
10%
0%
Brokerage Settlement Custody (5
charges years)
Item s
39
Analysis: For those who sell and buy shares frequently, they save upto
20% in brokerage and settlement charges and upto 40% in custody for 5
years if trading is done through demat and not physically.
Inference: For frequent traders in the stock market demat is a better
option.
40
Bank Accounts
How to open a bank account with a DP?
Opening a depository account is as simple as opening a bank account.
To open an account the investor has to:
• Fill up the account opening form, which is available with the DP.
• Sign the DP-client agreement, which defines the rights and duties
of the DP and the person wishing to open the account.
• Receive your client account number (client ID).
• This client ID along with investors DP ID gives them a unique
identification in the depository system.
There is no restriction on the number of depository accounts a person

can open. However, if the existing physical shares are in joint names,
investor has to open the account in the same order of names before they
submit their share certificates for demat. A sole holder of the share
certificates cannot add more names as joint holders at the time of
dematerializing his/her share certificates.
However, if the investor wants to transfer the ownership from his

individual name to a joint name, he should first open an account as the
sole holder (account A) and dematerialise the share certificates. He
should then open another depository account (account B) in which he is
the first holder and the other person is the second holder and make an
off market transfer of the shares from the account A to account B. The
investor will incur a charge on this transaction.
A client can choose to open more than one account with same DP. In
addition to this, he has a choice of opening accounts with more than one
DP. There is no compulsion for the client to open his account with the
41
same DP as that of his broker. Even if he has an account with another

DP, he can carry out normal business with his broker. There is no loss
in operational efficiency.
How to choose a DP?
Following are the few aspects that you should consider before choosing
a DP:
Branch-level service: Most DPs offer depository services from their

main branch as well as through other branches and franchisees. Higher
the number of branches your DP has greater will be the geographical
convenience you will have. Before opening an account with a DP you
should also check whether the DP is offering all the services through its
branches.
DPs mandate a time limit for submission of debit instructions before

settlement pay-in time. It should be checked whether the time limit
applies equally to all the branches (or franchisees) of the DP or whether
it varies.
Backup facilities: Having an adequate backup system is extremely

necessary for a DP. In case of a system failure all the data could be lost
if backup facilities are not present. Although depositories too have the
data with them but a strong system with the DP ensures no risks and
hassles. So before opening an account get details from your DP about
its computer system's technical specifications and backup facilities.
Safe procedures: Your securities account can get debited only if you
submit to your DP a duly filled and signed 'delivery instruction' form
(separate for market trades and off-market transfers) that authorizes the
42
DP to debit your account. This form will be executed only when the
investor has sold shares. But the investor could have worries that some
one else can forge your signature on such a form, which your DP will
not be able to detect, and their account will get debited .To get rid of
these worries investor should check that delivery instruction form book
that they get from their DP must be serial-numbered with numbers
unique to their account and recorded in the DP's system.
There is an additional safety feature available with the DPs. Investor

can freeze their account on the debit side if they do not want to sell the
shares from their account, this will ensure that no debit is done in their
account. When they want to sell their shares they can execute the same
form to unlock their account.
Customer Service: DPs should have adequate customer service

facilities. At some time or other the investor will need some information
on their account. DP should be able to provide quick service, so it
should be checked whether the DP has a dedicated customer service
department.
OPENING OF DEPOSITORY ACCOUNT

An investor is required to open a depository account with a depository
participant, if he / she wish to buy or sell securities listed in demat form
43
in the Indian stock exchanges. At present, the following groups of

investor are permitted to open a depository account:
 Individuals
 Non- Resident India
 Foreign nationals of Indians origin, except those from
Pakistan, Nepal and Bangladesh.
 Corporate
 Clearing Members ( CM )
 Foreign Institutional Investors ( FIIs)
 Mutual Funds ( MFs ).
SEBI, on 28 January 2000, also permitted foreign corporation and

individuals to invest in the Indian market, albeit with some restrictions.
It has, however, yet to issue the guidelines for opening depository
accounts for this group of investors.
PROCEDURE OF OPENING A DEPOSITORY

ACCOUNT
Chart 2: Showing procedure of opening a demat account

Investor
44
 Select a Depository Participant

 Complete Depository Account
Opening Form
Investor
 Prepare Required Documents,
Detailed
 Submit DAOF , with documents to
DP
Investor  Sign Agreement with DP
 Open Depository Account
 Generate Client ID ( account ) number

Depository
Participant
 Transmit details to depository
 Acknowledge Client ID
 Client ID Activated
Depository  Communicates to investor
Participant
 Client ID number
 Guidelines for availing depository
services
Depository
Depository
Participant
45
Dematerialisation and Rematerialisation
How to Dematerialise Your Shares?
To dematerialise the share certificates the investor has to:
 Fill up a dematerialisation request form, which is available with the

DP;
 Submit their share certificates along with the form; (write
"surrendered for demat" on the face of the certificate before
submitting it for demat)
 Receive credit for the dematerialised shares into their account in 15
days.
Dematerialised shares do not have any distinctive or certificate

numbers. These shares are fungible - which means that 100 shares of a
security are the same as any other 100 shares of that security.
Shares held in street name (market deliveries) cannot be dematerialised.

Odd lot share certificates can also be dematerialised. No transfer deed is
required for dematerializing certificates, the certificates have to be
accompanied by a demat request form (DRF) which can be obtained
from DPs. It is compulsory to mention the ISIN number of the company
while filling up the Demat Request form.
This, to a certain extent, ensures that the security mentioned in the

Demat Request Form is the same as the one the investor intends to
dematerialise. According to the Depositories Act, 1996, an investor has
the option to hold shares either in physical or in dematerialised form.
An investor can hold part of his holdings in demat form and part of his
holdings in the form of share certificates for the same security. An
46
investor can dematerialise shares that are pledged with a bank, which is
a DP as well.
How to Rematerialise Your Shares?
During a rematerialisation process, the request goes from the DP to the

R&T agent via NSDL. The R&T Agent, after processing the request,
will print and dispatch the share certificate directly to the investor. No
transfer duty will be charged when they rematerialise their shares. They
have the option of rematerializing their total holdings or part of it.
Trading
Trading in dematerialised securities is quite similar to trading in

physical securities. The major difference is that at the time of
47
settlement, instead of delivery/ receipt of securities in the physical form,

it is done through account transfer. An investor cannot trade in
dematerialised securities through his DP.
Trading at the stock exchanges can be done only through a registered

trading member (broker) of the stock exchange irrespective of whether
the securities are held in physical or dematerialised form. DPs role will
only be to facilitate settlement of trade in the dematerialised form, by
transferring securities from and to the account of the investor, for
selling and buying respectively. Trading in dematerialised securities is
presently available at NSE, BSE, CSE, DSE, BgSE, LSE, MSE, ISE
and OTCEI.
Any investor, who buys securities from any of the stock exchanges
where dematerialised securities are available, may receive his delivery
in the dematerialised form as dematerialised shares can be delivered in
the physical segment at the option of the seller. Therefore those
investors who buy securities from these exchanges should necessarily
open a depository account to take delivery of these shares.
Squaring off
In the exclusive demat segment, the trades can be squared off within the
same day as this segment follows a rolling settlement cycle. In the
physical segment the trades can be squared off within the trading period
48
specified for that stock exchange. This is presently five working days,
between Wednesday to Tuesday at NSE, Monday to Friday at BSE and
Thursday to Wednesday at CSE
If an investor squares off his position within the trading period, he does
not need to open a depository account. Depository account is required
for taking delivery or giving delivery of dematerialised securities in
case an investor buys or sells respectively. In case the investor squares
off his trade and does not have to take or give delivery of dematerialised
securities, the depository account is not used. As in the physical
segment, an investor can go long or short in the demat segment also.
How to access a scrip?
At NSE, the AE and BE segments can be accessed by selecting the scrip

the investor wants to trade in and typing AE or BE in place of EQ.
At the BSE, all scrips have a scrip code. For going to the Demat
segment, add 500000 to the scrip code. For eg If the scrip code of RIL
is 325 in the physical segment, the scrip code to be typed for going
to Demat segment is 500325.
Selling and Buying Of Shares
Selling dematerialised shares in stock exchanges is similar to the

procedure for selling physical shares. Instead of delivering physical
shares to the broker, the investor instruct their DP to debit their account
with the number of shares sold by them and credit their broker's clearing
account
49
The investor can sell shares in any of the stock exchanges linked to a
depository through a broker of their choice. On the pay-in day, the
broker gives instruction to his DP for delivery of the shares to clearing
corporation of the relevant stock exchange. The broker receives
payment from the clearing corporation. The investor receives payment
from their broker for the sale in the same manner they would receive
payment for a sale in the physical mode.
The procedure for buying dematerialised shares in stock exchanges is

similar to the procedure for buying physical shares. When the investor
wants to purchase shares in electronic form, they have to instruct their
broker to purchase the dematerialised shares from the stock exchanges
linked to a depository.
The investor has to ensure that their broker gives a matching instruction
to his DP to transfer the shares purchased on their behalf into their
depository account. The investor should also ensure that their broker
transfers the shares purchased from his/her clearing account to their
depository account, before the book closure. This is really important
because shares that remain in the clearing account of the broker on the
book closure/ record date will not be eligible for corporate benefits.
Charges
NSDL does not charge the investor directly but charges its DPs, who
are free to charge their clients. NSDL charges its DPs under the
following heads:
Transaction Fees: Market Trade - sale - nil; purchase - 5 basis points

(i.e. 0.05% of the value of net receipts to a clearing members account)
50
Off Market Trade: sale - nil; purchase - 10 basis points (ie 0.1% of
value of securities)
Custody Fees: 3.5 basis points p.a.(ie 0.035% p.a. of average value of
securities)
Rematerialisation: Rs. 10/- per certificate
One time payment scheme: NSDL has announced a new scheme under
which, if a company makes a one-time payment of 5 basis points
(0.05%) of the average market capitalization during the preceding 26
weeks, then NSDL will not charge any custody fees to the DPs for
shares of that company. Future issues by such companies would require
a payment of 5 basis points on the new share capital created. The
valuation for new shares will be done at the issue price. Companies
would not be required to pay any additional amount, if they make a
bonus issue.
Receipt of Cash/ Non-Cash and Corporate benefits
When any corporate event such as rights or bonus or dividend is

announced for a particular security, depository will give the details of
all the clients having electronic holdings in that security as of the record
date to the registrar.
The disbursement of cash benefits such as dividend/ interest will be

done directly by the registrar. In case of non-cash benefits, depository
will directly credit the securities entitlements in the depository accounts
51
of all those clients who have opted for electronic allotment based on the
information provided by the registrar.
If an investor has holdings in physical form, he can receive the bonus/

rights issue against this in the dematerialised form. In case of fractional
part, as in the physical segment, it would be paid in cash and the
remaining whole part would be credited to the investors account.
NSDL provides details of the beneficial owner as on (the record date) to

the Issuer Company / register so as to enable the company the benefits
arising out of these holdings. Shareholders are given the option by the
issuer, of receiving their securities entitlements (like bonus or rights) in
the form of physical certificates or in the form of dematerialised
holdings. If the investor choose to receive securities in the
dematerialised form, he gets a direct credit to his account through
NSDL, thereby avoiding the risk of loss of certificates in transit..
Lending, borrowing and transmission of securities
How to Lend Securities?
The investor has to instruct their DP through a standard format (which

is available with your DP) to deposit their securities with the
intermediary. If the intermediary accepts the deposit of securities, the
securities will be moved from their account into the intermediary's
account. If they wish to recall the securities lent, then they can make a
request through a standard format available with their DP.
How to Borrow Securities?
52
The investor has to instruct their DP through a standard format (which

is available with your DP) to borrow securities from the intermediary. If
the intermediary accepts the request, the securities will be moved from
the intermediary's account to their account. If they wish to return the
securities borrowed, then they can make a request through a standard
format available with the DP.
Transmission of Securities:
Transmission of securities due to death, lunacy, bankruptcy, insolvency

or by any other lawful means other than transfer is also possible in the
depository system. In the case of transmission, the claimant will have to
fill in a transmission request form. The DP, after ensuring that the
application is genuine, will transfer securities to the account of the
claimant. For this, the claimant must have a depository account.
The major advantage in transmission of dematerialised holdings is that

the transmission formalities for all securities held with a DP can be
completed in one go, unlike in the case of share certificates, where the
claimant will have to interact with each issuing company or its R&T
Agent.
In case where the deceased was one of the joint holders in the Client
account, the surviving client(s) shall be the person(s) recognized by
depository as having title to the securities held in that joint Client
account. In case where the deceased was a sole holder of the Client
account, his legal heir(s) or the legal representative(s) will be the
person(s) recognized by depository as having title to the securities held
in that sole Client account.
53
Security
National Security and Depository Limited claims to have undertaken

sufficient security measures. These measures are:
 A DP can be operational only after registration by SEBI, which is

based on the recommendation from NSDL and SEBI’s own
independent evaluation.
 Every day, there is a system driven mandatory reconciliation

between the DP and NSDL.
 There are periodic inspections into the activities of both DP and

R&T agent by NSDL. This also includes records based on which
the debit/ credit are affected.
54
 The data interchange between NSDL and its business partners is

protected by standard protection measures such as encryption. This
is a SEBI requirement.
 There are no direct communication links between two business

partners and all communications between two business partners are
routed through NSDL
 All investors have a right to receive their statement of accounts

periodically from the DP.
 Every month NSDL forwards statement of accounts to a random

sample of investors as a counter check.
 In the depository, the depository holds the investor holdings 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. These investors can then either dematerialise their holdings or
transfer them to a different account held with another DP.
 Investor grievance: All grievances of the investors are to be

resolved by the concerned DP. If they fail to do so the investor has
the right to approach NSDL.
 Insurance Cover: NSDL has taken a comprehensive insurance

policy to protect the interest of the investors in cases of failure of
the DP to resolve a genuine loss. The details of the policy is as
under:
 Upper limit per claim : Rs200mn

 Number of claims allowed : unlimited
 Minimum value of the claim : Rs150,000
55
 To cover claims valued less than Rs150,000 NSDL has an investor

protection fund in place.
Besides all these safety measures efforts have been done to make this
electronic system foolproof.
Demat Shares: Are They 100% Safe
When an investor buys physical shares from the stock market, they can
never be certain of the validity of the title of shares. There were many
reasons- the sellers' signature did not match, or the certificates were
fake, forged or stolen, and so on.
Demat shares are supposed to obviate these problems. Buying shares in

the demat form always guarantees the investor a good title as soon as
the settlement is over. The biggest attraction of trading in demat shares
is that the shares an investor buys comes with a clean title and
immediately after the settlement on the relevant stock exchange.
Rule 100 of market regulator SEBI determines whether the shares

delivered in a settlement, are good or not. Under rule 100, the shares
that have been transferred any number of times can still be withdrawn
by the company, if a transfer is found to be invalid for any reason.
56
Suppose an investor <A> sells physical shares to investor <B> and

investor <B> gets them dematerialised. Later <B> sells the shares in the
stock exchange and investor <C> buys them. Meanwhile <A> discovers
that his share certificates were stolen and fraudulently sold by someone
else. He gets a court order restraining the company from further
transferring the shares and attaching them (currently in possession of
C). This is known as 'stop transfer'. So <C> who has bought
dematerialised shares is now struck with the shares. He cannot sell these
shares since they would be frozen in his account
Safety of the system has given boost to secondary market operations.

Volume increased and number of securities increased by reducing the
face value. In demat shares, pre-demat problems about the validity of a
share do not affect the interest of the buyers after dematerialisation.
Shares go through a verification process at the registrars' before they are
dematerialised.
Therefore the responsibility lies with the registrar. The registrar must
find a remedy if the original transfer of shares, before their
dematerialisation comes under doubt. But there is a catch. The company
and its registrars are not responsible if the reasons for original transfer
being invalid were not available at the time of dematerialisation.
Matters have to be dealt with, on a case to case basis. Which means that
even demat buyer may find that his shares have been frozen in his
demat account. This kind of case has to be contested in court by the
parties involved.
This issue is not directly addressed in ‘The Depositories Act, 1996’.

SEBI’s regulations on depositories and depository participants also do
not mention the issue. Matters get more complex if an investor has
57
traded further in shares of the same company in his demat account.

Demat shares are fungible and don’t have distinctive numbers. It is not
easy to track the sale or trade of shares after they are dematerialised.
One of the major worries in case of dematerializing the physical

holdings is the taxman. Through depositories or DPs Income Tax
department can easily track down your holdings in capital market. This
could be a reason for worry to the people as it is not possible at all as
the settlement process is streamlined.
Findings
 After the introduction of dematerialisation the stock market has

become more transparent and it attracts more investors day by day.
 If the volume increases continuously, DPs will be in a position to

decrease the charges for opening and maintenance of demat a/c.
 It is observed that banks normally levy a lower service charge

compared to other depository participants.
 There are some other banks which charges less services charges
for demat services than other securities companies.
 When the numbers of users are more on line, the speed of the
transaction is affected.
58
 Since the rolling settlement is one day, people who are

speculating without having full amount of money or shares with their
DP, tend to face higher degree of risk.
 Some securities have not yet started with the Interactive Voice
Response (IVR) units and demat on net.
 Even though online trading provides privacy to the clients, trends

available from the trading room will not help most of the online traders.
 Investors dealing online must possess good knowledge for

analyzing the information passed on by the companies through net.
 Online service depends highly on technology.
59
Conclusion
Notwithstanding many problems, Indian stock market has emerged as a

significant financial intermediary, assisting efficient resource allocation,
providing strong support to Indian economy and help investors to
realize the benefits of stock market investing. The growing importance
of the Indian stock market place may be noted in terms of increased
mobilization of funds and growing number of investors account.
Indian stock market industry has remained centered around a limited

product range. This has happened due to the tendency to avoid risk,
inability to understand future market development and changes in
investor preference.
The absence of product diversification and a confused market situation

has been made more by the absence of an innovative marketing
network. Online is considered as one of the innovative network. The
product range offered by stock broking firms needs to be redesigned to
cater the changes in the short term, medium term and long term savings
and investment markets.
60
Management is considered to be a key for the operational efficiency of

any business venture. This factor becomes even more crucial for service
ventures such as stock broking business venture.
Stock market industry must undertake a well designed and

comprehensive program of investor education especially aimed at
investors in rural and semi-urban areas. However this has been mostly
neglected in India. In India most of the broking business comes from
the small investors and efforts are concentrated on serving them
efficiently ,and this would help them in being a good intermediary for
providing various financial services due to it’s reach to the last mile.
SEBI has been playing a significant role in the regulation of stock

market. SEBI’s steps like dematerialising, and trading through net etc.
has increased the transparency of the trading than before.
In the global market place no industry can afford to be struck by inertia.

But it is management which is crucial to the success of any business
operation.
61
Suggestions
1. Since more and more companies are planning to enter into online
trading, quality of service should be continuously updated.
2. Companies have to offer Interactive Voice Response (IVR) facility

to their clients, as it will help clients to know the current value of their
portfolio, current holding, transaction list etc.
3. Clients will be more happy if they can access demat account

reports through net.
4. Online professional assistance will be helpful to investors. It will

increase the customer base in online trading because it will be helpful to
those who are not much aware of the market trends.
5. Since the number of customers are increasing, online facilities

should be always updated or else the speed of the system will be
affected.
6. It is very important to know as to how many clients the existing

infrastructure can cater to effectively. It is no use trying to rope in
20,000 investors when the ability of the infrastructure is only for 10,000
investors. This will create much more trouble to the bandwidth and the
62
whole system works very slowly by which one may end up with 20,000
dissatisfied investors rather than 10,000 happy investors.
7. It is important to maintain a very good relationship with the

partners-banks, depositories. It is important to have good relation with
the channel participants and the sub brokers. There should be
responsibility and accountability.
8. As the whole set up is getting sophisticated, and one is moving

from offline to online, the war and the differentiated factor could be
technology. One has to constantly innovate and offer better products.
9. One should see where they stand in the whole value chain. One
should carve a niche for themselves. It could be in providing the lowest
charges or could have the technology as edge or full service brokerage.
One should not try to be all in one or constantly move up and down the
value chain.
10. Target the new hidden customers, for whom the net can bring out
convenience and comfort like NRI, women, young executives,
professionals etc.
11. Try to work in the existing constraints rather than wasting time on
things, which are beyond the control and common to all the connectivity
etc.
12. Apart from providing the basic content free, if extra services like
prices alerts can be provided then one must not hesitate to charge the
people using the services. They must not fear to charge for the services
63
if they think they are worth being charged, as the facility is not
elsewhere.
13. Develop a brand name for the services, which is quickly secure and
reliable.
14. It is very important to educate and train the customer on the use
and limitation of the services. This helps them to have a realistic
expectation of the use. It also reduces the number of complaints like
difficulty of accessing the account and best execution issues.
15. Control the cost of unnecessary, unproductive activities, which do

not in any way add value to the services.
16. Total abolition of physical formatting of securities.
64
Sources of information:
 Internet:
o www.bse.com
o www.nse.com
o www.sebi.com
o www.nsdl.co.in/
o www.birlamartin.com
o www.timesbankindia.com
o www.hll.com
 Books: I.M.Panday, Financial Management,

Prasannachandra, Financial Management
E.Gordon & K.Natarajan, Financial Markets and Services
 News papers: Financial Express

Economic Times
Business line
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DEMAT: Is it 100% safe for an investor.

Secondary market is where most trading occurs, the secondary market is

The defining characteristic of the secondary market is that investors

However there was an improvement in the mechanism of trading

computers and the Depository Trust Company, securities no longer need

Dematerialisation is nothing but the process by which physical

Demat shares are supposed to obviate all the problems of physical

Background of the research

Online brokering global scenario:

Online brokerage has grown substantially since the introduction of

The volatility in US equity, market in 1999 and September 11 World

Indian e-broking scenario

Effect on off-line Business

The proportion of online broking business compare to off line broking

Depository services-beginning of the era of stocks at click

Dematerialisation of securities (shares) was the commencement of the

Internationally, there are two systems to hold securities.

Scope of the Study

Need for the study

Objectives of the Study

Throughout the study an attempt has been made to arrive at the

Secondary data: The secondary data collected from different websites,

OPERATIONAL DEFINITION OF THE STUDY

SECONDARY MARKET: Secondary market is the one in which

STOCK EXCHANGE: It is an association, organization or body of

assisting, regulating and controlling business in buying, selling and

CLEARING HOUSE (CH): Clearing House is entities setup by Stock

ROLLING SETTLEMENT CYCLE: Rolling settlement cycle starts

INITIAL PUBLIC OFFERING – IPO: The first sale of stock by a

MARGINAL TRADING: It suggests buying of security or commodity

DEMATERIALISATION: Dematerialisation is the process by which

DEPOSITORY: A depository account is similar to a bank account. It

SCRIP: It denotes any temporary document entitling its holder or

DEPOSITORY PARTICIPANT: A Depository Participant (DP) is an

statement from time to time as required by the investor. Thus, the DP is

LIMITATIONS OF THE STUDY

 The study covers only a particular geographical region, and hence

Overview of chapter scheme

The study has been divided into five chapters.

Chapter one: It contains the introduction to the study and the

Chapter three: It gives an overall profile of the industry and its

Chapter four: It contains analysis and interpretation of the study.

Chapter five: It includes summary of findings, and conclusions. It also

Indian Stock Market Overview

Rs 851 crore in 1997-98 to Rs 5,273 crores in 2002- 2003 and further to

The key regulator governing Stock Exchanges, Brokers, Depositories

India ranked top 10 countries in term of the market capitalization of its

To affect a transfer in the physical mode the securities should be sent to

If the confirmation of receipt is not received within a reasonable period,

On receipt of our request for transfer, the company proceeds to transfer

may be lost or misplaced then we must immediately request the

For transactions in Demat mode we are requested to refer to the

Given below are types of grievances for which we could approach

 Issue related i.e. non-receipt of refund order/allotment advice,

Apart from taking up grievances against companies of the types

With the Stock Exchange: At the investor Information Centre of all

 Complaints related to securities traded/listed with the exchanges.

 Complaints regarding the trades effected in the exchange against