Concept of depository:

 Carrying of cash against paying by account.

 Carrying a physical security against delivery in e-mode.
Requirement to deal in secondary capital
market:

 Bank Account – A Commercial Bank.

 Demat Account – A Depository Participant.

 Trading Account – A Registered Broker/Sub-

broker.
Payment and settlement of money:
Delivery and settlement in securities:
Trading Account:

 Trading limits;
 Record of buy sell transactions in securities;
 A broker maintains a consolidated account with the SE.
 Delivery and settlements in securities:

Pay out Pay out of

of Cash Securities
Investor Stock Investor
Broker Exchang Broker
(B) (S)
Pay in of e Pay in of
Securites Cash
Depository:

 A Depository facilitates holding of securities in the

electronic form and enables securities transactions to be
processed by book entry.
Dematerialisation:

Dematerialisation is a process by which physical certificates

(of shares / debentures / other securities) are converted
into electronic balances. A Beneficial owner (BO) has to
submit the request for dematerialisation by submitting the
Demat request form (DRF) duly completed along with the
concerned physical certificates, to his/her DP.
Services of a depository:

 Dematerialisation;

 Account statements;

 Processing of delivery and receipt instructions;

 Pledge and nomination facilities;

 Rematerialisation.
Depositories in India:

 The Depositories Act 1996.

 National Securities Depository Limited (NSDL),

 Central Depository Services India Limited (CDSL).
Issues in a physical mode:

 Delayed or time taking settlements;

 Bad deliveries.

 Forgery.
Issues to the holder (investor):

 Risk of loss while holding due to theft;

 Damage due to moisture or mutilation;

 Forgery and tempering;

Similarities: Bank and Depository:

Bank Account: Depository Account:

 Holds funds in an account;  Holds securities in an account;

  Transfer securities between

Transfers funds between
accounts on the instructions of accounts on the instruction of the
the account holder; account holder;

 Facilitates transfer of ownership

 Facilities transfer without having
to handle paper money; without having to handle paper
securities;

 Facilitates safe keeping of  Facilitates safe keeping of

money.
securities.
Physical v/s Dematerialised stock:

Physical security: Demat security:

 Held in the paper form by the owner;  Held in electronic form by the DP;

 Have individual distinct numbers;  Don’t have distinct numbers;

 One physical share can be distinguished from  Demat shares are fungible as they cannot be
another by virtue of the number assigned to it; distinguished from one another;

 In order to transfer shares in the physical form, an  In order to transfer shares in the Demat form, a
application has to be given to the company along delivery instruction slip is to be given to the DP
with the share certificate and the transfer endorsed who will carry out the entries in the accounts of
on the certificate by the company; the investors;

 A defaced or mutilated share certificate needs to  There is no question of defacement of Demat

be replaced;
shares;

 Chances of bad delivery are high in case of  Chances of bad delivery are almost non-existent
physical shares.
in case of Demat shares.
Securities & Exchange Board of India (SEBI)

– Role and Functions.

Stock Exchanges operating in India

 BSE - 1875.
 NSE – 1992
 OTCEI – 1990
 ICSE – 1998
 14 Regional Stock Exchanges.
Components of Securities Market:

 Corporates, Mutual funds, Registrars, Merchant bankers,

Bankers to the issue, Underwriters, Depositories, DP’s,
Rating agencies, etc.

 Stock exchanges, Brokers, Sub-brokers, Depositories,

Clearing corporation, Clearing bankers, Investment
advisors etc.

 Retail investors, Institutional investors, etc.

Regulation of the Indian’s Capital Market:

 The Department of Economic Affairs;

 The Department of Company Affairs;

 Reserve Bank of India;

 Securities and Exchange Board of India.

Main legislations governing Capital Market:

 The SEBI Act, 1992.

 The Companies Act, 1956, 2013.
 The Securities Contracts (Regulation) Act, 1956.
 Depositories Act, 1996.
SEBI Act, 1992
 Protection of investor interests;

 Development of the securities market;

 Regulation of the securities market;

 Other matter connected or incidental to securities market.

The Companies Act, 1956
 Issue, allotment and transfer of securities;

 Disclosures;

 Matters concerning underwriting, rights, bonus and

payment of interest and dividend.
The Securities Contracts (Regulation) Act, 1956

 Regulation of Securites trading;

 Management of stock exchanges.

The Depositories Act, 1996

 Establishment of Depositories;

 Regulation of electronic maintenance and transfer of

ownership in Demat securities.
Prior to 1990 security scam:

 Capital Issues (Control) Act, (CCI) 1947 – repealed in

1992 with the introduction of SEBI Act.
SEBI:
 Established in year 1988.

 Ordinance passed on 30 January 1992 giving wide

ranging powers to SEBI.

 SEBI Act 1992 gets approval on 4 April 1992.

Role of Regulators in the Securities Market:

 Regulatory Role.

 Developmental Role.

 Investor Protection Role.

Role of SEBI in Capital Market:

 Protecting the interests of investors in securities.

 Promoting the development of the securities market.

 Regulating securities market.

A snapshot of SEBI website:
Functions of SEBI:

 Regulating the business in stock exchanges and other entities operating

there.

 Registration and regulation of working of brokers, sub-brokers, share

transfer agents, bankers to the issue, underwriters, portfolio managers,
investment advisors etc.

 Registering and regulating of working of depositories, DP’s, FII’s etc.

 Prohibiting of fraudulent and unfair trade practices.

 Promoting of investor education and trading of securities in the market.

Functions of SEBI:

 Prohibiting of insider trading in securities.

 Promoting and regulating self regulatory entities.

 Regulating substantial acquisition of shares and take-over of companies.

 Calling for information from, undertaking inspection, conducting inquiries

and audit of the stock exchanges, mutual funds, other persons or entities
associated with the securities market intermediaries.

 Calling for information and record from any bank or any other authority or
board or corporation in respect of any transaction in securities with may be
under investigation or inquiry by the SEBI
Unfair trade practices:

 Insider trading: earning profits on the basis of price sensitive inside information obtained illegally
from inside sources of a company.

 Front running: illegal practice of a stock broker executing orders

on a security for its own account while taking advantage of advance knowledge of pending orders from
its customers.

 Kerb trading: trading after official trading hours of market.

 Price Rigging: an illegal action meant to artificially inflate prices in an attempt to recognize higher
profits at the expense of the ordinary investors.

 Mis-selling: a deliberate, reckless, or negligent sale of products or services in circumstances where the
contract is either misrepresented, or the product or service is unsuitable for the customer's needs.

 False disclosures by issuers.

Powers of SEBI:
 Ask any intermediary or market participant for information.

 Inspect books of depository participants, issuers or beneficiary owners.

 Suspend or cancel a certificate of registration granted to a depository participant or issuer.

 Suspend or cancel the registration of a banker to the issue or request RBI to inspect the
books of such intermediary.

 Suspend or cancel the registration of custodians, FII’s, merchant banker, portfolio

manager, registrar, share transfer agent or a broker.

 Investigate affairs of mutual funds, their trustees and asset management companies.

 Investigate an acquirer, a seller, or a merchant banker for violating takeover rules.