Anda di halaman 1dari 16

Procedure of closure of demat account An investor can close a demat account by giving an application in prescribed form.

In case there is any balance in the demat account sought to be closed, the following steps are necessary1. Rematerialisation of all securities standing to the credit of the demat account at the time of making the application for the closure. 2. Transferring the balance to the credit of another demat account , with the same participant or with a different participant. Dematerialization Dematerialization is the process of conversion of shares or other securities held in physical form into electronic form. Whom to approach The investor must approach hid DP for Dematerialization The shares that an investor can dematerialize The investor can demat the shares of any company that has established connectivity with NSDL or CDSL Steps involved in dematerialization

1. Investor must submit request form and share certificate to DP. 2. DP will check whether security is available for Demat. Investor must deface the share certificate by stamping surrendered for dematerialization and DP will punch two holes on the name of the company and will draw two parallel lines certificate. 3. DP enters the Demat request in their system to be sent to the depository. DP dispatches the physical certificates along with the DRF to the RTA/ Company. 4. Depository records the details of the system and forwards the request to Registrar and transfer agent or issuer i.e. the company whose dematerialized. shares are sought to be across the face of the

5. RTA Company on receiving the physical documents verifies request and check them. Once the RTA/Company finds that shares are in order, dematerialization of the concerned securities is electronically confirmed to the depository 6. Depository credits the dematerialized securities to the beneficiary account of the investor and intimates the DP electronically. The DP issues a statement of transaction to the client. Advantages of the Depository System The advantages of dematerialization of securities are as follows:

Share certificates, on dematerialization, are cancelled and the same will not be sent back to the investor. The shares, represented by dematerialized

share certificates are fungible and, therefore, certificate numbers and distinctive numbers are cancelled and become non-operative.

It enables processing of share trading and transfers electronically without involving share certificates and transfer deeds, thus eliminating the paper work involved in scrip-based trading and share transfer system.

Transfer of dematerialized securities is immediate and unlike in the case of physical transfer where the change of ownership has to be informed to the company in order to be registered as such, in case of transfer in dematerialized form, beneficial ownership will be transferred as soon as the shares are transferred from one account to another.

The investor is also relieved of problems like bad delivery, fake certificates, shares under litigation, signature difference of transferor and the like.

There is no need to fill a transfer form for transfer of shares and affix share transfer stamps.

There is saving in time and cost on account of elimination of posting of certificates.

The threat of loss of certificates or fraudulent interception of certificates in transit that causes anxiety to the investors, are eliminated. Disadvantages/Problems of the Depository System

Some disadvantages were about the depository system were known beforehand. But since the advantages outweighed the shortcomings of dematerialisation, the depository system was given the go-ahead.

Lack of control: Trading in securities may become uncontrolled in case of dematerialized securities. Need for greater supervision: It is incumbent upon the capital market regulator to keep a close watch on the trading in dematerialized securities and see to it that trading does not act as a detriment to investors. The role of key market players in case of dematerialized securities, such as stock brokers, needs to be supervised as they have the capability of manipulating the market.

Complexity of the system: Multiple regulatory frameworks have to be confirmed to, including the Depositories Act, Regulations and the various Bye Laws of various depositories. Additionally, agreements are entered at various levels in the process of dematerialization. These may cause anxiety to the investor desirous of simplicity in terms of transactions in dematerialized securities. Besides the above mentioned disadvantages, some other problems with the system have been discovered subsequently. With new regulations people are finding more and more loopholes in the system. Some examples of the malpractices and fraudulent activities that take place are:

Current regulations prohibit multiple bids or applications by a single person. But investors open multiple demat accounts and make multiple applications to subscribe to IPOs in the hope of getting allotment of shares.

Some listed companies had obtained duplicate shares after the originals were pledged with banks and then sold the duplicates in the secondary market to make a profit.

Promoters of some companies dematerialised shares in excess of the companys issued capital.

Certain investors pledged shares with banks and got the same shares reissued as duplicates.

There is an undue delay in the settlement of complaints by investors against depository participants. This is because there is no single body that is in chargeof ensuring full compliance by these companies.

Depositories
Depository is an organization where the securities of the shareholders are held in electronic form at the request of the shareholder through the medium of a

Depository Participant. In the following article we are going to learn more about depository and depository participant. Definition of Depository: Depository means a company formed and registered under the companies act, 1956 and it has been granted a certificate of registration under section 12(1A) of SEBI Act, 1992. Two Depositories are regulated in India: 1. National Securities Depository limited (NSDL) 2. The Central Depository Services (India) Limited (CDS) Functions of Depository: 1. Services to investors 2. Services to Participants in the capital market such as clearing members, stock exchanges , investment institution, banks and issuing corporate 3. Account opening 4. Dematerialization 5. Rematerialization 6. Settlement of trades 7. Advanced facilities like pledging, distribution of non- cash corporate actions, distribution of securities to allot tees in case of public issues etc. Benefits of Depository System: 1. This system will eliminate paper work as the book entry system does not need physical movement of certificates for transfer process. 2. The risk of bad deliveries, fraud and misplaced, mutilated and lost share certificates will not exist. 3. The electronic media will shorten settlement time and hence the investor can save time and increase the velocity ofsecurity movement. 4. Investors will be able to change portfolio more frequently. 5. The capital market will be more transparent as the trading, clearing and settlement mechanism have to be highly automated and interlinked with the depository among themselves. 6. The market will be highly automated and efficient due to the usage of computing and telecommunication technology for the back office activities for all the capital market players. Difference between Depository and Custodian : Function It a part from keeping the It function is merely safe

Position

ACT

shares in e-form , manages the shares on behalf of investor It is a institution or can be called as an organization itself. There is a separate Act i.e. Depositories Act 1956, a part from SEBI (depositories and participant ) Reg . 1996

keeping of shares. It handle Huge paper work. It is an in term diary.

There is no separate Act and it is regulated by SEBI (Custodian of Securities) Reg. 1996

Models of Depository : 1. Dematerialization: It is a process of conversion of physical share certificate into electronic form . So, when a shareholder uses the dematerialization facility, company take back the shares, through depository system and equal number of shares are credited in his account in e-form. 2. Immobilisation : It is a process of storing of physical share certificates, with depository for safe custody. In this model the original share certificates, can be withdrawn, as it is lodged in depository method. Meaning of Depository Participant and its characteristics: Depository Participant (DP): is the representative or agent of the investor in the depository system providing the link between the Company and investor through the Depository Characteristics of depository participant: 1. Acts as an Agent of Depository 2. Directly deal with customer 3. Functions like Securities Bank 4. Account opening 5. Facilitates dematerialization 6. Instant transfer on pay out 7. Credits to investor in IPO, rights, bonus 8. Settles trades in electronic segment Difference between dematerialization and remateriaisation :

Difference Definition

Conversion

Sequence

Dematerialisation Re materialisation It is a process of conversion It is a process of conversion of physical shares of electronic shares into certificates into electronic physical shares. When a form. So, under beneficial owner opt out dematerialization facility, of a depository, he will company take back the inform about it, to the shares, through depository company, through system and equal number of depository. The company shares are credited in will issue fresh share account in e-form. certificate to the beneficial owner, within 30 days from the date of request. In this, physical share In this, e- records are certificates converted into e- converted into physical records. shares certificate. Firstly shares are Firstly shares are dematerialize, so it is dematerialize then it is primary and principal rematerialize, so it is secondary and supporting In this process it requires In this process it requires Dematerialization Request Rematerialisation Request Form form (RRF)

se of form

Rights and Obligations of Depositories and its constituents : 1. Every depository has to enter into an agreement with the issuer in respect of securities to become eligible to held the securities in demat form. 2. Every depository is to maintain the following records and documents : (a) Records of securities dematerialised and rematerialised (b) Names of the transferor, transferee, and the dates of transfer of securities (c) A register and an index of beneficial owners (d) Details of holding of the securities of the beneficial owners as at the end of every day. (e) Records of instruction received from and sent to participants, issuers agents and beneficial owners,

3. Details and the maintenance of records and documents should be intimated to Board. 4. All the records and documents should be preserved for minimum 5 years.

Rematerialisation Rematerialisation is conversion of electronic holdings into physical certificate form.

Steps involved for Rematerialisation The investor must fill up a remat form (RRF) and give it to the DP. The DP will forward the request depository after verifying that the shareholder has necessary balances. Depository in turn will intimate the RTA/Company will print the certificate and dispatch the same to the investor.

Electronic settlement of the Trades Procedure for selling dematerialization securities in the stock exchanges is similar to the procedure for selling physical securities Instead of delivering physical securities to the broker, the investor must instruct his/her DP to debit his/her demat account with the number of securities sold by him/her and credit brokers clearing account.

DIFFERENCE BETWEEN BANK AND DEPOSITORY

BANK Allocates account number. Holds funds in accounts Minimum balance required. Functions through branches.

DEPOSITORY Issues account statement & pass book. Allocates client ID number. Holds securities in accounts. Normally no minimum balance required. Functions participants. Issues account statement i.e. through depository

statement of holding and statement Charges charges. commission/ service of transactions. Depository Participant charges: o Account closing fee o Demat and Remat fee o Transaction fee (buy, sell, off market) Provides interest to the account holders. o Custody charges In future, through stock lending, it will be possible to earn income on Depository Account. opening and

Dematerialization Process
Physical Securities Electronic Form.

Pre-requisites: Demat Account with any DP of the Depository. ISIN for the securities available with the Depository. Investor should be registered holder for the securities in the books of the company.

Rematerialization
Rematerialization or remat is a compiler optimization which saves time by recomputing a value instead of loading it from memory. It is typically tightly integrated with register allocation, where it is used as an alternative to spilling registers to memory. It was conceived by Preston Briggs, Keith D. Cooper, and Linda Torczon in 1992.Rematerialization works by keeping track of the expression used to compute each variable, using the concept of available expressions. Sometimes the variables used to compute a value are modified, and so can no longer be used to rematerialize that value. The expression is then said to no longer be available. Other criteria must also be fulfilled, for example a maximum complexity on the expression used to rematerialize the value; it would do no good to rematerialize a value using a complex computation that takes more time than a load. Usally the expression must also have no effects.

Rematerialization process
Electronic Form Physical Securities

Initial public offers


An initial public stock offering (IPO) referred to simply as an "offering" or "flotation," is when a company (called the issuer) issues common stock or shares to the public for the first time. They are often issued by smaller, younger companies seeking capital to expand, but can also be done by large privately-owned companies looking to become publicly traded. In an IPO the issuer may obtain the assistance of an underwriting firm, which helps it determine what type of security to issue (common or preferred), best offering price and time to bring it to market. An IPO can be a risky investment. For the individual investor, it is tough to predict what the stock or shares will do on its initial day of trading and in the near future since there is often little historical data with which to analyze the company. Also, most IPOs are of companies going through a transitory growth period, and they are therefore subject to additional uncertainty regarding their future value.

The first sale of stock by a private company to the public. IPOs are often issued by smaller, younger companies seeking the capital to expand, but can also be done by large privately owned companies looking to become publicly traded. In an IPO, the issuer obtains the assistance of an underwriting firm, which helps it determine what type of security to issue (common or preferred), the best offering price and the time to bring it to market.Also referred to as a "public offering". 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 and in the near future because there is often little historical data with which to analyze the company. Also, most IPOs are of companies going through a transitory growth period, which are subject to additional uncertainty regarding their future values.

Initial public offers process

Trading & settlements


Transfer of securities in/ out of the Demat A/c can arise in the following instances: For execution of Off Market Transactions. For settling On Market Transactions. For Inter depository transactions.

Off Market Transactions


Transaction done on person to person basis without going through stock exchange mechanism. Pre-requisites: Transfer of securities from one BO A/c to another BO A/c. Both A/cs are with same Depository though with different DPs. Neither buyers A/c nor sellers A/c is with clearing house/clearing corporation.

Off market transaction process

On Market Transaction
Trades done by investors through stock exchange mechanism and settled using same stock exchange mechanism. seller as well as buyer account is with CH/CC

Inter Depository Transactions.


SEBI (Depository and participants) Regulations, 1996 requires depositories to be inter connected. Securities available for dematerialization on both depositories. Debit/ credit instructions have to given on inter-depository delivery or receipts forms to the DPs of seller and the buyer.

These instructions are exchanged online for each day between the depositories