FREQUENTLY ASKED
QUESTIONS
ON
DEMATERIALISATION
Disclaimer:
These FAQs are not the interpretation of law but provide only a simplistic
explanation of terms / concepts related to the depository system. All
information has been updated till September 30, 2008. For full particulars of
laws governing the depository system, please refer to the
Acts/Regulations/Guidelines/Circulars appearing under the Legal Framework
Section.
Understanding Depository
System
1. What is a Depository?
A depository is an organisation which holds securities (like
shares, debentures, bonds, government securities, mutual fund units etc.) of investors in
electronic form at the request of the investors through a registered Depository
Participant. It also provides services
related to transactions in securities.
2. How
is a depository similar to a bank?
It
can be compared with a bank, which holds the funds for depositors. A Bank – Depository
analogy is given in the following table:
BANK-DEPOSITORY
– AN ANALOGY
|
BANK |
DEPOSITORY |
|
Holds funds in an account |
Holds securities in an
account |
|
Transfers funds
between accounts on the instruction of the account holder |
Transfers securities
between accounts on the instruction of the BO account holder |
|
Facilitates
transfer without having to handle money |
Facilitates transfer of
ownership without having to handle securities |
|
Facilitates safekeeping of
money |
Facilitates safekeeping of
securities |
3. How many Depositories are registered with SEBI?
At present two
Depositories viz. National Securities Depository Limited (NSDL)
and Central Depository Services (India) Limited (CDSL) are registered with
SEBI.
4. Who is a Depository Participant?
A Depository
Participant (DP) is an agent of the depository through which it interfaces with
the investor and provides depository services.
Public financial institutions, scheduled
commercial banks, foreign banks operating in India with the approval of the Reserve Bank of
India, state financial corporations, custodians,
stock-brokers, clearing corporations /clearing houses, NBFCs and Registrar to
an Issue or Share Transfer Agent complying with the requirements prescribed by
SEBI can be registered as DP. Banking services
can be availed through a branch whereas depository services can be availed
through a DP.
5. What is the
minimum networth required for a depository?
The minimum networth
stipulated by SEBI for a depository is Rs.100 crore.
6. How many Depository
Participants are registered with SEBI?
As on September 30, 2008, a total of 711 DPs (266 NSDL, 445 CDSL) are
registered with SEBI.
7. Is it compulsory
for every investor to open a beneficial owner (BO) account to trade in the
capital market?
As
per the available statistics at BSE and NSE, 99.9% transactions take place in
dematerialised mode only. Therefore, in view of the convenience of trading in dematerialised
mode, it is advisable to have a beneficial owner (BO) account for trading at
the exchanges.
However to facilitate
trading by small investors (Maximum 500 shares, irrespective of their value) in
physical mode the stock exchanges provide an additional trading window, which
gives one time facility for small investors to sell physical shares which are
in compulsory demat list. The buyer of these shares has to demat such shares
before further selling.
8. What
are the benefits of availing depository services?
The benefits are
enumerated below:-
A
safe and convenient way to hold securities;
Immediate
transfer of securities;
No
stamp duty on transfer of securities;
Elimination of
risks associated with physical certificates such as bad delivery, fake securities,
delays, thefts etc.
Reduction
in paperwork involved in transfer of securities;
Reduction
in transaction cost;
No
odd lot problem, even one share can be traded;
Nomination
facility;
Change in address
recorded with DP gets registered with all companies in which investor holds
securities electronically eliminating the need to correspond with each of them
separately;
Transmission of
securities is done by DP eliminating correspondence with companies;
Automatic credit
into demat account of shares, arising out of bonus/split/consolidation/merger
etc.
Holding
investments in equity and debt instruments in a single account.
Account Opening
9. How can services of a depository be availed?
To
avail the services of a depository an investor is required to open a Beneficial
Owner (BO) account with a Depository Participant (DP) of any depository.
10. How can one open an account?
First an investor has to approach a DP and fill up an account opening form.
The account opening form must be supported by copies of any one of the approved
documents which serve as proof of identity (POI) and proof of address (POA) as
specified by SEBI. Apart from these PAN card has to be shown in original at the
time of account opening from April 01, 2006.
All applicants should carry original documents for
verification by an authorized official of the DP, under his signature.
Investor has to sign an
agreement with DP in a depository prescribed standard format, which gives details
of rights and duties of investor and DP. DP should provide the investor with a
copy of the agreement and schedule of charges for their future reference. The
DP will open the account in the system and give a unique account number, which is also called BO ID (Beneficial
Owner Identification number) and used for all future transactions.
11. What
are all charges an investor has to pay for opening and maintenance of a BO
account?
SEBI has rationalised the
cost structure for dematerialisation by removing account opening charges,
transaction charges (for credit or buy transactions of
securities), custody charges and account closing charges. Custody charges are
now paid by the issuer companies. Broadly, investors are
required to pay the charges towards:-
The DP may revise the charges by giving 30
days notice in advance.
Further,
SEBI has also advised the DPs to submit to their Depository their tariff/charge
structure every year latest by 30th April and changes made
therein, along with the date of effect to enable the investors to have a
comparative analysis of the tariff/charge structure of various DP’s. The
information received by the depositories is put up on their websites.
12. Why should an investor give his bank account details
at the time of BO account opening?
Bank account details are
necessary for the protection of interest of investors. When any cash or non cash
corporate benefits such as rights or bonus or dividend is announced for a
particular scrip, depositories provide to the concerned issuer /it’s RTA, the details
of the investors, their electronic holdings as on record / book closure date
for reckoning the entitlement of corporate benefit.
The
disbursement of cash benefits such as dividend is credited directly by the
Issuer/it’s RTA to the beneficiary owner through the ECS (Electronic Clearing
Service wherever available) facility or by issuing warrants on which bank
account details are printed for places where ECS facility is not available. The bank account
number is mentioned on the dividend and warrant to avoid any fraudulent misuse. The bank account details will be those which are
mentioned in account opening form or modified details that had been intimated
subsequently by the investor to the DP.
13. Can an investor change the details of his bank
account?
Yes. However, the investor must inform the DP
regarding change in the bank account and corresponding change in MICR / IFSC code
while updating their bank account details with DP. In the depository system monetary benefits on the
security balances are paid as per the bank account details provided by the
investor at the time of account opening. The investor must
ensure that any subsequent changes in bank account details are informed to the
DP.
15.14. What should be done if the address of the investor
changes?
Investor should immediately
inform his DP along with necessary documents, who in turn will update the records.
This will obviate the need of
informing different companies.
14.15. What would be the charges for account closure and
securities transfer due to account closing?
SEBI has advised that from January 09, 2006, no charges shall be levied by
a depository on DP and consequently, by a DP on a BO, when a BO transfers all
the securities lying in his account to another branch of the same DP or to
another DP of the same depository or another depository, provided the BO
Account/s at transferee DP and at transferor DP are identical in all respects. In
case the BO Account at transferor DP is a joint account, the BO account at
transferee DP should also be a joint account in the same sequence of ownership.
All other transfer of securities consequent to closure of account, not
fulfilling the above-stated criteria, would be treated like any other
transaction and charged as per the schedule of charges agreed upon between the
BO and the DP.
16. Can multiple accounts be opened?
Yes. An investor
can open more than one account in the same name with the same DP and also with
different DPs. For all the accounts, investor has to strictly comply with KYC norms
including Proof of Identity, Proof of Address requirements as stipulated by
SEBI and also provide PAN number. The investor has to show the original PAN card
at the time of opening of demat account.
17. Does the investor have to keep any minimum balance of
securities in his account?
No.
18.
Is it necessary to
have account with the same DP as broker has?
No. Depository / DP can be chosen by investor
as per convenience irrespective of the DP of the broker.
19.
Can an investor
open a single account for securities owned in different ownership patterns such
as securities owned individually and securities owned jointly with others?
No.
The Demat account must be opened in the same ownership pattern in which the securities are held in the
physical form. e. g. if one share certificate is in the individual name and
another certificate is jointly with somebody, two different accounts would have
to be opened.
20. What is required to be done if one has physical
certificates with the same combination of names, but the sequence of names is
different i.e. some certificates with ‘A’ as first holder and ‘B’ as second
holder and other set of certificates with ‘B’ as first holder and ‘A’ as the
second holder?
In
this case the investor may open only one account with ‘A’ & ‘B’ as the
account holders and lodge the security certificates with different order of
names for dematerialisation in the same account. An additional form called
"Transposition cum Demat" form will have to be filled in. This would
help you to effect change in the order of names as well as dematerialise the
securities.
21. Can an investor operate a joint account on
"either or survivor" basis just like a bank account?
No. The demat
account cannot be operated on "either or survivor" basis like the
bank account.
22. Can someone else operate the account on behalf of the
BO on the basis of a power of attorney?
Yes. If the BO
authorises any person to operate the account by executing a power of attorney
and submit it to the DP, that person can operate the account on behalf of the
BO.
23. Can addition or deletion of names of accountholders is
permitted after opening the account?
No. The names of the account holders of a BO
account cannot be changed. If any change
has to be effected by addition or deletion, a new account has to be opened in
the desired holding pattern (names) and then transfer the securities to the
newly opened account. The old account may be closed.
24. Can an investor close his demat account with one DP
and transfer all securities to another account with another DP?
Yes.
The investor can submit account closure request to his DP in the prescribed
form. The DP will transfer all the securities lying in the account, as per the
instruction, and close the demat account.
25. What if there are any
discrepancies in the statement of holdings?
In
case of any discrepancy in the statement of holdings, investor can contact his
DP and in
case of discrepancies in corporate benefits, one can approach the company / its
Registrar and Transfer Agent. If the discrepancy is not
resolved, the investor may approach concerned Depository (NSDL or CDSL).
26. Whether investor can freeze his account(s)?
Investor can
freeze his account
and/or ISIN and/or specific number of securities under an ISIN for any
given period of time as per applicable Regulations of SEBI and Bye Laws of the
respective depository.
Dematerialisation
27. What is 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 into the BO’s
account with his DP.
28.
How can one
convert physical holding into electronic holding i.e. how can one dematerialise
securities?
In order to
dematerialise physical securities one has to fill in a DRF (Demat Request Form)
which is available with the DP and submit the same along with physical
certificates that are to be dematerialised. Separate DRF has to be filled for
each ISIN. The complete process of dematerialisation is outlined below:
·
Surrender certificates for dematerialisation to your DP.
·
DP intimates to the Depository regarding the request
through the system.
·
DP submits the certificates to the registrar of the
Issuer Company.
·
Registrar confirms the
dematerialisation request from depository.
·
After dematerialising the certificates, Registrar
updates accounts and informs depository regarding completion of
dematerialisation.
·
Depository updates its accounts and informs the DP.
·
DP updates the demat account of the investor.
29. What is an ISIN?
ISIN (International Securities Identification
Number) is a unique 12 digit alpha-numeric identification number allotted
for a security (E.g.- INE383C01018). Equity-fully paid up, equity-partly
paid up, equity with differential voting /dividend rights issued by the same
issuer will have different ISINs.
30.
Can odd lot shares
be dematerialised?
Yes,
odd lot share certificates can also be dematerialised.
31.
Do dematerialised
shares have distinctive numbers?
Dematerialised
shares do not have any distinctive numbers. These shares are fungible, which
means that all the holdings of a particular security will be identical and
interchangeable.
32. Can electronic holdings be converted back into physical
certificates?
Yes. The process
is called rematerialisation. If one wishes to get back his securities in the
physical form he has to fill in the RRF (Remat Request Form) and request his DP
for rematerialisation of the balances in his securities account. The process of
rematerialisation is outlined below:
• Make a request for rematerialisation.
• Depository
participant intimates depository regarding the request through the system.
• Depository
confirms rematerialisation request to the registrar.
• Registrar
updates accounts and prints certificates.
• Depository updates accounts and downloads
details to depository participant.
• Registrar
dispatches certificates to investor.
Trading /
Settlement
33. What is the procedure for selling dematerialised
securities?
The procedure for
buying and selling dematerialised securities is similar to the procedure for
buying and selling physical securities. The difference lies in the process of
delivery (in case of sale) and receipt (in case of purchase) of securities.
In case of purchase:-
The broker will receive the
securities in his account on the payout day.
The broker will give
instruction to its DP to debit his account and credit BO's account.
BO will give ‘Receipt Instruction’ to DP for
receiving credit by filling appropriate form. However BO can give standing
instruction for credit to his account that will obviate the need of giving
Receipt Instruction every time.
In
case of sale:-
BO will give delivery instruction through Delivery
Instruction Slip (DIS) to DP to debit his account and credit the broker’s
account. Such instruction should reach the DP’s office at least 24 hours before
the pay-in, failing which, DP will accept the instruction only at the BO’s
risk.
34. What 'Standing Instruction' is given in the account
opening form?
In a
bank account, credit to the account is given only when a 'pay in' slip is
submitted together with cash/cheque. Similarly, in a depository account
'Receipt in' form has to be submitted to receive securities in the account.
However, for the convenience of BOs, facility of 'standing instruction' is
given. If you say 'Yes' for standing instruction, you need not submit 'Receipt
in' slip everytime you buy securities. If you are particular that securities
can be credited to your account only with your consent, then do not say 'yes'
[or tick ] to standing instruction in the application form.
35. What is delivery instruction slip (DIS)? What
precautions do one need to observe with respect to Delivery Instruction Slips?
To give the delivery one has to fill a form
called Delivery Instruction Slip (DIS). DIS may be compared to cheque book of a
bank account. The following precautions are to be taken in respect of DIS:-
Ensure and insist with DP to
issue DIS book.
Ensure that DIS
numbers are pre-printed and DP takes acknowledgment
for the DIS booklet issued to investor.
Ensure that your account
number [client id] is pre-stamped.
If the account is
a joint account, all the joint holders have to sign the instruction slips. Instruction cannot be
executed if all joint holders have not signed.
Avoid
using loose slips.
Do not leave
signed blank DIS with anyone viz., broker/sub-broker, DPs or
any other person/entity.
Keep the DIS book under lock
and key when not in use.
If only one entry
is made in the DIS book, strike out remaining space to prevent misuse by any
one.
BO should personally fill in target account-id and all details in the DIS.
If
the DIS booklet is lost / stolen / not traceable, the same must be intimated to the DP immediately in writing. On receipt of such
intimation, the DP will cancel the
unused DIS of the said booklet.
36. Is it possible to give delivery instructions to the DP
over Internet and if yes, how?
Yes. Both NSDL and
CDSL have launched this facility for delivering instructions to your DP over
Internet, called SPEED-e and EASI respectively. The facility can be used by all
registered BOs after paying the applicable charges.
37. Is it possible to get securities allotted in public
offering directly in the electronic form?
Yes,
it is possible to get securities allotted to in Public Offerings directly in
the electronic form. In the public issue application form, there is a provision
to indicate the manner in which an investor wants the securities to be allotted.
He has to mention the BO ID, name and DP ID on the application form. Any
allotment made will be credited into the BO account.
Pledging
38. Can one pledge the dematerialised securities?
Yes. Pledging
dematerialised securities is easier and more advantageous as compared to
pledging physical securities.
39. What should one do to pledge electronic securities?
The procedure to pledge electronic
securities is as follows:
ú
Both BOs, investor (pledgor) and the lender (pledgee)
must have BO account with the same depository;
ú
Pledgor will have to instruct DP to create pledge in prescribed
standard form (Pledge Request Form) with
the details of the securities;
ú
The lender (pledgee) has to confirm the request
through his/her DP;
ú
Once this is done, securities are pledged.
ú
All financial transactions between the pledgor and the
pledgee are handled as per usual practice outside the depository system.
40.
What is the procedure
for closure of pledge after
repayment of loan?
After the
repayment of loan, pledgor can request for a closure of pledge by instructing
the DP in a prescribed format. The pledgee on receiving the repayment will
instruct his DP accordingly for the closure of the pledge.
41. Can pledgor (investor) change the securities offered
in a pledge?
Yes, if the pledge
(lender) agrees, pledgor (investor) may
change the securities offered in a pledge.
42. Who will receive the corporate benefits on the pledged
securities?
The securities
pledged are only blocked in the account of pledgor (investor) in favour of the pledge (lender). The pledgor would
continue to receive all the corporate benefits.
Transaction
Statement
43. How does one know that the DP has updated the account
after each transaction?
The
DP provides a Transaction Statement periodically, which gives details of
current balances and various transactions made through the depository account. If
desired, DP may provide the Transaction Statement at intervals shorter than the
stipulated ones, probably at a cost.
Depositories also provide SMS Alert facility for demat account holders whereby investors can receive alerts for
debits (transfers) to their demat accounts and for credits in respect of
corporate actions for IPO and offer for sale. Under this facility, investors
can receive alerts, a day after such debits (transfers)/credits take place.
These alerts are sent to those account holders who have provided their mobile
numbers to their Depository Participants (DPs).
44. At what frequency will the investor receive his
Transaction Statement from his DP?
DPs have to
provide transaction statements to their clients once in a month, if there is
any transaction and if there is no transaction, then once in a quarter.
DPs also provide
transaction statement in electronic form under digital signature subject to
their entering into a legally enforceable arrangement with the BOs to this
effect.
45. What is to be done if there are any discrepancies in
transaction statement?
In case of any discrepancy in the
transaction statement, BO can contact his DP. If the discrepancy cannot be
resolved at the DP level, BO should approach the Depository.
46. Whom should BO contact in case of any investor
complaint / problem / query?
In case of any
investor complaint / problem / query
one may first contact his DP. If DP is unable to solve the complaint / problem
/ query one should approach concerned depository. If one is not satisfied one
may approach SEBI. One may also approach SEBI directly.
Nomination
47. Who can nominate?
Nomination
can be made only by individuals holding beneficial accounts either singly or
jointly. Non-individuals including society, trust, body corporate, karta of
Hindu Undivided Family, holder of power of attorney cannot nominate.
48. Who can be a nominee?
Only an individual can be a
nominee. A nominee shall not be a society, trust, body corporate, partnership
firm, Karta of Hindu Undivided Family or a power of attorney holder.
49.
Why is it important to nominate?
Nomination
is helpful in smooth transmission of shares upon the death of the BO/s. The
nomination once made can be changed at a later date as desired by the BO/s.
Transmission of
dematerialised securities
50. What is transmission of dematerialised securities?
Transmission is the process by which
securities of a deceased account holder are transferred to the account of his
legal heirs / nominee. Process of transmission in case of dematerialised
holdings is more convenient as the transmission formalities for all securities
held in a demat account can be completed by submitting documents to the DP,
whereas in case of physical securities the legal heirs/nominee/surviving joint
holder has to independently correspond with each company in which securities
are held.
51. In the event of death of the sole holder, how the
successors should claim the securities lying in the demat account?
The claimant
should submit to the concerned DP an application Transmission Request Form
(TRF) along with the following supporting documents
1. In case of death of sole holder;
where the sole holder has appointed a nominee
·
Notarised copy of the death certificate
2. In case of death of the sole holder; where
the sole holder has not appointed a nominee
· Notarised copy of
the death certificate
And anyone
of the below mentioned documents -
· Succession certificate
· Copy of probated will
· Letter of Administration
The DP, after ensuring that the application
is genuine, will transfer securities to the account of the claimant.
The major advantage in case of dematerialised
holdings is that the transmission formalities for all securities held with a DP
can be completed by interaction with the DP alone, unlike in the case of
physical share certificates, where the claimant will have to interact with each
Issuing company or its Registrar
separately.
Inter Depository
Transfers
52.
If a BO holds an account
with NSDL/CDSL, can he receive securities from an account in CDSL/NSDL?
Yes.
Inter depository transfers are possible without any additional costs.
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