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DEPOSITORY PARTICIPANTS
AUDIT
BY SAMRISH BHANJA(FCS, LLB)
MANAGING PARTNER,
B SAMRISH & CO

B Samrish & Co.
INTRODUCTION & HISTORICAL
BACKGROUND

B Samrish & Co.
INTRODUCTION & HISTORICAL BACKGROUND

 In the past when there was just a handful of investors the system of

settlement b...
CONCEPT OF DEPOSITORY SYSTEM
 According to section 2(e) of the Depositories Act, 1996, ―Depository

means a company forme...
The Depositories Act, 1996
The depositories legislation as per the Statement of Objects and Reasons appended to
the Deposi...
CONSTITUENTS OF DEPOSITORY SYSTEM

There are basically four participant:
 The Depository
 The Depository Participant
 T...
WHO IS DEPOSITORY?


Depository facilitates holding of securities in the electronic form and enables
securities transacti...
FEATURES OF DEPOSITORY SYSTEM IN INDIA

1.

In the depository system, the apex body is the Depository..

2.

A depository ...
A BANK-DEPOSITORY ANALOGY

BANK

DEPOSITORY

Holds funds in an account on behalf Holds securities in an account on
of a cu...
WHO IS DEPOSITORY PARTICIPANT:

 A Depository Participant (DP) is an agent of the depository through

which it interfaces...
DEPOSITORY PARTICIPANT

B Samrish & Co.
WHO CAN BE DEPOSITORY PARTICIPANT?
In terms of the Depositories Act, 1996, SEBI (Depositories & Participants)
Regulations,...
SUBMISSION OF REPORTS
& DOCUMENTS

B Samrish & Co.
INTERNAL AUDIT AND CONCURRENT AUDIT OF OPERATIONS OF
DEPOSITORY PARTICIPANTS


The two Depository service providers in In...
SCOPE OF AUDIT

B Samrish & Co.
SCOPE OF AUDIT
The scope of Internal Audit was to verify the transactions executed in DP and to
assess whether the operati...
ACCOUNT OPENING

B Samrish & Co.
ACCOUNT OPENING











Whether proof of identity and residence is collected as per NSDL
requirements. (Circular...
ACCOUNT OPENING: BASIC
INSPECTION
 Whether the client signature has been appropriately stored in physical form and

scann...
ACCOUNT OPENING: AGREEMENTS TO BE
EXECUTED
Every participant shall enter into an agreement with a beneficial owner before
...
ACCOUNT OPENING : PROOFS
 Proof of Identity
 Proof of Address
 Proof for bank details

Observations:
 No POI
 PANCARD...
ACCOUNT OPENING : In person verification


SEBI Circular SEBI/MIRSD/Cir. No. 02/2010 dated January 18, 2010



‗In Perso...
ACCOUNT OPENING: KNOW YOUR CLIENT
NORMS
Applicability of KYC Requirements & KRA Regulations
 SEBI Circular No. MIRSD/SE/C...
ACCOUNT OPENING

Methodology
 Type of documents
 Validity of documents
 Signature of DP official and stamp
 Stamp of I...
ACCOUNT OPENING : Additional Documents
Additional Documents to be collected from different type of BOs(comm.887,932)
Body ...
ACCOUNT OPENING : Additional Documents
Additional Documents to be collected from different type of BOs(comm.887,932)
Publi...
ACCOUNT OPENING : AUTHORISED SIGNATORIES & NOMINATIONS
Authorized signatories
 Names of the authorized signatories, desig...
 Signatures of all joint holders to be scanned
HUF a/c
 Karta to sign under the stamp of HUF
Corporate / CM A/c
 Mode o...
ACCOUNT MODIFICATION

B Samrish & Co.
ACCOUNT MODIFICATION

Bank details


Obtaining of bank details and proof made mandatory(comm.887)

 Proof of bank accoun...
ACCOUNT MODIFICATION

Change in signature of the BO
Individuals
Reason for change of signature
BO to visit personally w...
ACCOUNT MODIFICATION

Letters confirming modification
 To maintain the hard copies or soft copies of letters

along with ...
DEMATERIALIZATION & REMATERIALIZATION

B Samrish & Co.
DEMATERIALIZATION & REMATERIALIZATION
 Any person who has entered into an agreement under section 5

shall surrender the ...
DEMATERIALIZATION & REMATERIALIZATION
 Date of receipt stamp to be affixed on DRF when received from

BO.
 To be sent to...
DISCREPANCIES OBSERVED IN INSPECTION REPORTS
 Whether Demat request received from BOs are sent to the






issuer/RT...
DELIVERY INSTRUCTION SLIPS

B Samrish & Co.
DELIVERY INSTRUCTION SLIPS : ISSUE

Proper inventory management
 – Reconciliation
 – Maintenance of stock & issue regist...
DELIVERY INSTRUCTION SLIPS : PROCESSING
 Instruction slip serial number to be checked against issue












...
DELIVERY INSTRUCTION SLIPS : Areas of concern

 Issuance Of DIS booklet
 Misuse of DIS booklets
 All rights with one pe...
ACCOUNT CLOSURE

B Samrish & Co.
ACCOUNT CLOSURE

 Closure initiated by BO

 Closure initiated by DP

B Samrish & Co.
Initiated by BO
 Duly filled ACF/Letter from BO
 Signatures of all BOs

 In case of transfer of holdings –
 Duly fille...
Initiated by BO
 Power of Attorney holder cannot close
 Procedure for transfer to be initiated within 2 days from date o...
Initiated by BO


Closure with pending demat
 Non responding issuers / RTAs

 BO to submit
 A letter in prescribed for...
Withdrawal of DP


Option to BOs
 Transfer to another DP

 Rematerialise

B Samrish & Co.
Shifting of account
 New account in the same order of names
 Documents to be submitted

 ACF
 Instruction slip – duly ...
Initiated by DP


Reasons such as : Non payment of dues

 Violation of agreement with the DP
 Transfer to another DP/ ...
Delivery Instruction Slips

B Samrish & Co.
New Arrivals
 Communiqué no. 846- Safeguards regarding issuance/ use/

execution of DIS and booklets

 Issue only one bo...
New Arrivals
 Not to issue more than 10 loose DIS to one BO in a financial year

(April to March).

 The loose DIS shoul...
New Arrivals
Communiqué no. 847- Future-dated transactions
 DPs were instructed to exercise care while entering future-da...
New Arrivals

Communiqué no. 884 dated 27.04.2007 – Cautionary note in
delivery instruction slip:
 ―Blank & Signed DIS sh...
Common violations in DP operations
 1.

The inventory control mechanism for instruction slip booklets
is not proper.

 2...
Common violations in DP operations


4.
Some delivery instruction booklets are issued to the BOs
without keeping requisit...
Discrepancies in the inspection report
 As explained/ informed by DP in case of:
 Inventory control

 Issue of first DI...
New Arrivals
Communiqué No. 956 dated 14.09.2007- Supervision of branches
of Depository Participants:
 To keep record of ...
New Arrivals
 To maintain documentation at the main office regarding the
scope of activity of each branch (live or back o...
New Arrivals
 To ensure that all live connected branches as well as back office

connected branches display the types of ...
Back office software
 Mandatory from 1st April 2007 for DPs with more than 500

accounts

 Minimum features
 Maker-chec...
Back office software
 Minimum features ( contd…)
 Proper records of instruction slips

 Inventory control
 Details of ...
Back office software
 Matching of statement of transaction from CDAS with backoffice
 Sample selected – bigger clients

...
Back office software
 Back office network connected to Internet
 Try accessing portals – preferably government sites

 ...
OTHER TRANSACTIONS

B Samrish & Co.
Transmission
 Transmittee BO with CDSL DP
 Receipt of intimation of death
 Notarized copy of Death Certificate
 No exe...
Transmission

Joint holders

Sole holder
Nomine
e
Holding > 100000

Holding < 100000

B Samrish & Co.
Transmission
 Death of one of the Joint Holders
 Transmission in favour of surviving joint holders

 Duly filled in TRF...
Transmission
 Death of Sole Holder – Nominee
 Duly filled in Transmission request form(TRF)
 Notarized copy of death ce...
Transmission
 Death of sole holder

- No nomination – value of holding >

100,000
 Duly filled in TRF complete all respe...
Transmission
 Death of sole holder - No nomination – value of holding <
100,000
 Duly filled in TRF complete all respect...
Transmission
 Statement of transaction to the transmittee after transmission

B Samrish & Co.
Pledge/ Unpledge
 PLEDGE :
 Pledgor & Pledgee must have active accounts in CDSL DP

 PRF should be complete in all resp...
Pledge/ Unpledge
 Unpledge
 Initiated by pledgee – auto unpledge

 Initiated by pledgor - acceptance by pledgee DP
 UR...
Rematerialization
 RRF in duplicate signed by all the holders

 RRN to be generated on CDAS on the

working day from the...
Freeze /Unfreeze
 Initiation of Freeze

 BO as safekeeping measure

 DP based on instructions received from CDSL or

st...
Freeze /Unfreeze



Records to be maintained
 Freeze/ unfreeze requests received from BOs
 Orders from statutory author...
Power of Attorney (POA)
 Verify signatures of the BO

 If POA is granted by all joint holders to one person , POA

shoul...
Power of Attorney (POA)
 DP to have internal controls for expiry date
 POA to single entity should not have any clause w...
BO Grievance
 BO Grievance
 Register to be maintained

 BO grievance report on monthly basis to CDSL
 Resolve the grie...
Transaction statements
 Main DP to send transaction statements to all BOs including

branch BOs

 Transaction statements...
Records & Documents
 Proper filing system and maintenance of details of files for easy

retrieval

 If records are shift...
Records & Documents
 Separate record for each depository.
 Maintain records for a minimum period of 10 years
 Verify ar...
Records & Documents
 Concurrent audit of risk prone areas
 Report on monthly basis
 Action taken by the DP
 Concurrent...
Thank You!!

B Samrish & Co.
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DP Audit

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DP Audit: Presentation on Audit of Depository Participants.

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Transcript of "DP Audit"

  1. 1. DEPOSITORY PARTICIPANTS AUDIT BY SAMRISH BHANJA(FCS, LLB) MANAGING PARTNER, B SAMRISH & CO B Samrish & Co.
  2. 2. INTRODUCTION & HISTORICAL BACKGROUND B Samrish & Co.
  3. 3. INTRODUCTION & HISTORICAL BACKGROUND  In the past when there was just a handful of investors the system of settlement based on physical delivery of paper certificates was probably adequate  But with the increase in number of listed entities the clearing and settlement mechanisms had been encumbered by the huge volumes of paperwork related to processing of share certificates.  Need for the introduction of scripless was felt for the settlement to improve the efficiency of the markets and eliminate various problems brought about by dealing in physical certificates.  Thus The Depositories Act was passed by both the Houses of Parliament in August, 1996. B Samrish & Co.
  4. 4. CONCEPT OF DEPOSITORY SYSTEM  According to section 2(e) of the Depositories Act, 1996, ―Depository means a company formed and registered under the Companies Act, 1956 and which has been granted a certificate of registration under section 12(1A) of the Securities and Exchange Board of India Act, 1992‖.  A Depository Participant (DP) is an agent appointed by the Depository i.e. —National Securities Depository Ltd (NSDL) and/or Central Depository Services Ltd (CDSL) and is authorized to offer depository services to all investors. An investor has to open his account through a DP only. Thus, the DP is basically the interface between the investor and the Depository. PNB is a DP of both Depositories (NSDL as well as CDSL.). B Samrish & Co.
  5. 5. The Depositories Act, 1996 The depositories legislation as per the Statement of Objects and Reasons appended to the Depositories Act, 1996 aims at providing for:  A legal basis for establishment of depositories to conduct the task of maintenance of ownership records of securities and effect changes in ownership records through book entry;  Dematerilisation of securities in the depositories mode as well as giving option to an investor to choose between holding securities in physical mode and holding securities in a dematerialized form in a depository;  Making the securities fungible;  Making the shares, debentures and any interest thereon of a public limited company freely transferable; and  Exempting all transfers of shares within a depository from stamp duty. B Samrish & Co.
  6. 6. CONSTITUENTS OF DEPOSITORY SYSTEM There are basically four participant:  The Depository  The Depository Participant  The Issuing Company  The Investor B Samrish & Co.
  7. 7. WHO IS DEPOSITORY?  Depository facilitates holding of securities in the electronic form and enables securities transactions to be processed by book entry by a Depository Participant (DP), who as an agent of the depository, offers depository services to investors  As per SEBI: 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.  As per CDSL: A "Depository" is a facility for holding securities, which enables securities transactions to be processed by book entry. To achieve this purpose, the depository may immobilize the securities or dematerialise them (so that they exist only as electronic records).India has chosen the dematerialisation route. In India, a depository is an organisation, which holds the beneficial owner's securities in electronic form, through a registered Depository Participant (DP). A depository functions somewhat similar to a commercial bank. To avail of the services offered by a depository, the investor has to open an account with a registered DP B Samrish & Co.
  8. 8. FEATURES OF DEPOSITORY SYSTEM IN INDIA 1. In the depository system, the apex body is the Depository.. 2. A depository can be compared with a bank 3. Depository services through depository participants. 4. Fungibility 5. Registered Owner/ Beneficial Owner (two types of owner) B Samrish & Co.
  9. 9. A BANK-DEPOSITORY ANALOGY BANK DEPOSITORY Holds funds in an account on behalf Holds securities in an account on of a customer behalf of an investor. Transfer funds between accounts on Transfer securities between accounts the instruction of the account holder. on the instruction of the account holder. Physical handling of funds is avoided. Physical handling avoided. Provides safe custody of fund Provides safe custody of securities. B Samrish & Co. of securities is
  10. 10. WHO IS DEPOSITORY PARTICIPANT:  A Depository Participant (DP) is an agent of the depository through which it interfaces with an investor.  A DP can offer depository services only after it gets proper registration from SEBI.  A DP is just like a Branch of a Bank. B Samrish & Co.
  11. 11. DEPOSITORY PARTICIPANT B Samrish & Co.
  12. 12. WHO CAN BE DEPOSITORY PARTICIPANT? In terms of the Depositories Act, 1996, SEBI (Depositories & Participants) Regulations,1996, only the following entities are eligible to become a Depository Participant:  Financial Institutions,  Banks, including approved foreign bank  Custodians,  Stockbrokers,  A clearing corporation or a clearing house of a stock exchange  A non-banking finance company,  A registrar to an issue or share transfer agent B Samrish & Co.
  13. 13. SUBMISSION OF REPORTS & DOCUMENTS B Samrish & Co.
  14. 14. INTERNAL AUDIT AND CONCURRENT AUDIT OF OPERATIONS OF DEPOSITORY PARTICIPANTS  The two Depository service providers in India, viz., National Securities Depository Ltd. (NSDL) and Central Depository Services (India) Limited (CDSL) have allowed Company Secretaries in Whole-time Practice to undertake internal / concurrent audit of the operations of Depository Participants (DPs). Report/ Document Frequency Due date To be submitted By Internal audit report Half yearly 15th May & 15th November Main & branch DP Report of Concurrent audit of risk prone areas Half yearly Along with internal audit report Main & branch DP BO grievance report- (format Comm. Monthly 1529 & for soft Comm. 1720) 10th of next month Main DP (include branch report Compliance report for Internal audit/ Inspection within 30 days Main / branch DP B Samrish & Co.
  15. 15. SCOPE OF AUDIT B Samrish & Co.
  16. 16. SCOPE OF AUDIT The scope of Internal Audit was to verify the transactions executed in DP and to assess whether the operations of the DP are in accordance with the Regulatory requirements. The said assignment to be carried out as per the requirement of Depository Act, 1996, SEBI (Depository & Participants) Regulation, 1996, NSDL Byelaws and the agreements with the clients and NSDL.  Audit of Organisational Structure :  Audit of DPM Operations :  Audit of Account opening procedures :  Audit of Demat request :  Audit of Delivery Instructions :  Back office software :  Account closure initiated by the participant;  Investor grievances received by the participant;  Power of attorney modifications;  Providing transactions statements to clients. B Samrish & Co.
  17. 17. ACCOUNT OPENING B Samrish & Co.
  18. 18. ACCOUNT OPENING        Whether proof of identity and residence is collected as per NSDL requirements. (Circular No. NSDL/PI/2000/1394 dated April 09, 2000) Whether necessary documents are collected from clients such as corporates, NRIs, OCBs, FIIs, etc. Whether necessary documents are collected from Speed-e users at the time of opening Speed-e account, resetting password, adding prenotified accounts, etc. Whether the procedure for dispatch of the smart card and the PIN (in case of Speed-e users) is diligently followed by the DP, i.e., sending the smart card and the PIN separately. Whether DP has maintained the records in its internal database with respect to details of Speed-e application forms as per NSDL requirements. Whether an agreement is executed with every client. Whether the client is given copy of the agreement and the schedule of B Samrish & Co. charges.
  19. 19. ACCOUNT OPENING: BASIC INSPECTION  Whether the client signature has been appropriately stored in physical form and scanned into the system.  Whether the data entry in the system is strictly and completely in accordance with the information furnished by the client in the account opening form and as per NSDL requirements.  Whether there is adequate mechanism to ensure that all the account opening forms accepted are in fact entered in the DPM system and the client is given the client ID only after account comes in „Active‟ status. (Circular No. NSDL/PI/98/583 dated November 18, 1998)  Whether there is a mechanism in place to ensure that the changes in the demographic details are updated in the DPM system (say, for change of address, etc.) based on proper authorisation and only after collecting new proof of address from the client.  Whether the procedure followed for opening the accounts and servicing illiterate person followed as per NSDL requirements. (Circular No. NSDL/PI/2000/0709 dated May 03, 2002)  Whether any supplementary agreement/ letter of confirmation, etc. is executed in addition to standard DPB Samrish & Co. Client agreement.
  20. 20. ACCOUNT OPENING: AGREEMENTS TO BE EXECUTED Every participant shall enter into an agreement with a beneficial owner before acting as a participant on his behalf.  Agreement to be executed before opening an account  Agreement to be executed under stamp & signature of DP  Printed agreement with printed name of DP and signed  Agreement not produced for verification at the time of inspection  Account to be opened based on Account Opening Form  Single form for multiple accounts of same exchange for a CM  To be in specified format as per Bye laws (new clauses as per comm. 1597 )  Agreements to be signed by both the parties  Witness for DP and BO required B Samrish & Co.
  21. 21. ACCOUNT OPENING : PROOFS  Proof of Identity  Proof of Address  Proof for bank details Observations:  No POI  PANCARD given does not match. Any other POI obtained if PANCARD is not there or it mismatches.  Comment whether the account is freezed for debit, if no PANCARD or it mismatches  Non-compliance pointed should be as per SEBI guidelines only  Bank statement obtained as proof of address(comm.807,967) B Samrish & Co.
  22. 22. ACCOUNT OPENING : In person verification  SEBI Circular SEBI/MIRSD/Cir. No. 02/2010 dated January 18, 2010  ‗In Person‘ Verification done for opening beneficial owner‘s account by a Depository Participant (DP) will hold good for opening trading account by a stock broker and vice versa,  ‗In Person verification is mandatory and to be done before activation of the account  DPs to do In Person verification of the applicants at the time of opening of demat accounts  Authorized official of DP should personally verify the photograph(s) affixed on the AOF and proof of identity document  DP to affix a stamp ―In Person verified ―on proof of identity document having verified ‗in person‘  Also required to verify valid original proof of identity documents with the copies and affix ―verified with originals‖ stamp  Authorized official doing in person verification and verification of documents with original should sign under the DP stamp B Samrish & Co.
  23. 23. ACCOUNT OPENING: KNOW YOUR CLIENT NORMS Applicability of KYC Requirements & KRA Regulations  SEBI Circular No. MIRSD/SE/Cir-21/2012/0017 2011 dated October 5, 2011 & SEBI‟s Circular No. MIRSD/Cir- 26 /2011 dated December 23, 2011  The KRA system shall be applicable for all new Client accounts opened from January 1, 2012.  An intermediary shall perform the initial KYC of its clients and upload the details on the system of the KRA. KYC verification  „Verified with Original‟ stamp  „Verified in –person‟ stamp  In person verification by stock broker holding or subsidiary company.  “Web Camera” allowed  Signature of DP official under DP stamp  Self Attestation of KYC documents. B Samrish & Co.
  24. 24. ACCOUNT OPENING Methodology  Type of documents  Validity of documents  Signature of DP official and stamp  Stamp of In Person verified and verified with original affixed on a valid POI document (SEBI specified) and signed by the authorized official of the DP under DP stamp  Verify with the documents that only authorized official of DP has signed, check the authority of the person doing the same B Samrish & Co.
  25. 25. ACCOUNT OPENING : Additional Documents Additional Documents to be collected from different type of BOs(comm.887,932) Body Corporate & Corporate CM :   Certificate of Incorporation POA- Document registered with registering authority or bank statement or agreement for sale or leave license agreement or acknowledged copy of income tax return OCB:  Declaration from the OCB that it meets with the guidelines issued by RBI/Ministry of finance  Certificate from overseas auditors in form OAC-1  Statement of A/c from the bank Registered Society:  POA –Document registered with registering authority or bank statement or agreement for sale or leave license agreement or acknowledged copy of income tax return  Certificate of Incorporation or copy of RBI registration certificate in case of scheduled/cooperative banks  POA -Proof of address – document registered with registering authority / agreement for sale/ leave and license agreement / acknowledged copy of income tax return Banks Mutual funds  SEBI Registration Certificate clearly indicating the address of the mutual fund B Samrish & Co.
  26. 26. ACCOUNT OPENING : Additional Documents Additional Documents to be collected from different type of BOs(comm.887,932) Public Trust /Charitable Trust and trust capable of holding property in its name (Registered Trust /Public trust)  Certificate of Registration of Trust under the Public Trust Act 1950/Public trust Act of relevant state or Societies Registration Act,1860  PANCARD of trust  Proof of address  Proof of registered office address evidenced by document registered with registering authority or bank statement or agreement for sale or leave license agreement or acknowledgement copy of income tax return Recognized Funds/trusts /other Similar entities        Categories :Employees PF, recognized by PF commissioner under PF Act, 1952,employees Gratuity fund under payment of gratuity act,1972,superannuation fund formed under guidelines issued by income tax dept., venture capital funds registered with SEBI,ESOP trust formed pursuant to SEBI guidelines Accounts of the above Funds/trusts /other Similar entities should be opened as they are recognized either with Income tax Act or SEBI Documents : Certificate of registration Trust deed and rules and/or charter defining their constitution and providing for management thereof List of members on the Board of trustees/Governing body Certified true copy of resolution passed by Board of trustees/Governing body B Samrish & Co.
  27. 27. ACCOUNT OPENING : AUTHORISED SIGNATORIES & NOMINATIONS Authorized signatories  Names of the authorized signatories, designation and their specimen signatures duly verified by the managing trustee  One passport-size photograph of all authorized signatories with signature across photograph  PAN card of Fund/Trust/Entity  POA of registered office address evidenced by document registered with registering authority or bank statement or agreement for sale or leave license agreement or acknowledgement copy of Income Tax return Nomination  Nomination form signed by all joint holders  Only individuals to appoint nominees and be appointed as nominee  A minor, represented by guardian, can be appointed as nominee  Two witness to sign the nomination form  Nomination register to be maintained  Nomination registration number ( as per register) to be noted on the nomination form  Details to be captured in CDAS B Samrish & Co.
  28. 28.  Signatures of all joint holders to be scanned HUF a/c  Karta to sign under the stamp of HUF Corporate / CM A/c  Mode of Operations to be specified & captured in system.  Signature of Power of Attorney Holders to be scanned  Financial details and nature of business to be     obtained Photographs to be pasted & not stapled Signature across photograph Details of AOF to be correctly entered in CDAS POI & POA in foreign language – translation in B Samrish & Co. English required.
  29. 29. ACCOUNT MODIFICATION B Samrish & Co.
  30. 30. ACCOUNT MODIFICATION Bank details  Obtaining of bank details and proof made mandatory(comm.887)  Proof of bank account details :  Photocopy of cancelled cheque having name of the account holder  Photocopy of bank statement having name and address of the BO and not more than 4 months old  Photocopy of bank passbook having name and address of the BO  Letter from bank Address  Individuals  Proof of address - verified with original by DP official  Corporate  Certified true copy of Form 23  Latest transaction statement received from the DP  Verified with original  Confirmation letter to be sent to BO at old as well as new address B Samrish & Co.
  31. 31. ACCOUNT MODIFICATION Change in signature of the BO Individuals Reason for change of signature BO to visit personally with valid proof of identity BO to affix new signature in the presence of a DP official If BO cannot come personally Modification form / letter to contain old and new signature New signature – attested by the BO‘s banker  Corporates  Certified true copy of Board Resolution  Fresh list of authorized signatories  Bank – a letter on the letter head of the bank B Samrish & Co.
  32. 32. ACCOUNT MODIFICATION Letters confirming modification  To maintain the hard copies or soft copies of letters along with proof of dispatch. If sent in electronic form, provisions of the Information Technology Act, 2000 to be complied with.(comm. 1962 dt. 16.04.2010). B Samrish & Co.
  33. 33. DEMATERIALIZATION & REMATERIALIZATION B Samrish & Co.
  34. 34. DEMATERIALIZATION & REMATERIALIZATION  Any person who has entered into an agreement under section 5 shall surrender the certificate of security, for which he seeks to avail the services of a depository, to the issuer in such manner as may be specified by the regulations.  The issuer, on receipt of certificate of security under sub- section (1), shall cancel the certificate of security and substitute in its records the name of the depository as a registered owner in respect of that security and inform the depository accordingly.  A depository shall, on receipt of information under sub-section (2), enter the name of the person referred to sub-section (1) in its records, as the beneficial owner. B Samrish & Co.
  35. 35. DEMATERIALIZATION & REMATERIALIZATION  Date of receipt stamp to be affixed on DRF when received from BO.  To be sent to Issuer RTA within 7 days of receipt  Rejections to be analysed.  Rejected certificates to be sent to BO within 7 days of receipt.  PODs to be maintained.  Follow-up with RTA to be done  For pending Demat &Remat  For non receipt of documents within 30 days of rejection date.  For physical securities lost in transit B Samrish & Co.
  36. 36. DISCREPANCIES OBSERVED IN INSPECTION REPORTS  Whether Demat request received from BOs are sent to the     issuer/RTA within seven days- As informed by the DP. In case of demat rejection –whether there is a system in place to analyze the demat rejection Details of dispatch maintained by the DP – Date of dispatch is not mentioned. The procedure to affix a stamp "surrendered for dematerialization along with DP name, DP ID and BO ID" on the certificates submitted for demat is not followed while processing some demat requests. The time limits prescribed for processing of demat requests received from BOs are not adhered to in all cases. B Samrish & Co.
  37. 37. DELIVERY INSTRUCTION SLIPS B Samrish & Co.
  38. 38. DELIVERY INSTRUCTION SLIPS : ISSUE Proper inventory management  – Reconciliation  – Maintenance of stock & issue register First Issue  – Proof of dispatch to be maintained  – Should not be handed over to representative of BO  – If handed over to BO – sign of BO maintained Subsequent Issue  – On the basis of requisition slips  – Dispatch of DIS booklet, POD to be kept on record. B Samrish & Co.
  39. 39. DELIVERY INSTRUCTION SLIPS : PROCESSING  Instruction slip serial number to be checked against issue          details. Signatures of all BOs obtained / as per mode of operations . Date and time of receipt stamp affixed. Maker-checker concept followed. POA executed by CM settlement purpose. DIS signed by the POA holder (Authorized person) has to be kept on record in case of Transactions executed on the basis of POA. Verifier for slips with value more than 5 lakhs. Two step verification. (Comm. 2487). Debits in dormant accounts - Two step verification. (Comm. 2487). Fax Transactions - Original DIS has to be obtained within 3 working. B Samrish & Co. Execution of transactions based on receipt of digitally-
  40. 40. DELIVERY INSTRUCTION SLIPS : Areas of concern  Issuance Of DIS booklet  Misuse of DIS booklets  All rights with one person – especially in branches  Issue of DIS booklets without requisition slips  Blank signed DIS accepted at DP’s office  Reconciliation with broking back office  High value transaction verification  Execution of transaction in dormant account B Samrish & Co.
  41. 41. ACCOUNT CLOSURE B Samrish & Co.
  42. 42. ACCOUNT CLOSURE  Closure initiated by BO  Closure initiated by DP B Samrish & Co.
  43. 43. Initiated by BO  Duly filled ACF/Letter from BO  Signatures of all BOs  In case of transfer of holdings –  Duly filled in instruction slip  Transaction statement for the quarter  Account closed / to be closed  Proof of despatch  Final statement of account showing zero balance B Samrish & Co.
  44. 44. Initiated by BO  Power of Attorney holder cannot close  Procedure for transfer to be initiated within 2 days from date of receipt B Samrish & Co.
  45. 45. Initiated by BO  Closure with pending demat  Non responding issuers / RTAs  BO to submit  A letter in prescribed format requesting rejection  A letter giving details of DRN details duly signed and stamped by the DP  DP to follow up with Issuer?RTA for rejection B Samrish & Co.
  46. 46. Withdrawal of DP  Option to BOs  Transfer to another DP  Rematerialise B Samrish & Co.
  47. 47. Shifting of account  New account in the same order of names  Documents to be submitted  ACF  Instruction slip – duly filled  Unused debit instruction slips  Client master report – stamped and signed by new DP  Verification of names and order of names B Samrish & Co.
  48. 48. Initiated by DP  Reasons such as : Non payment of dues  Violation of agreement with the DP  Transfer to another DP/ Main DP due to closure of branch / Main DP  Notice of 30 days specifying the reasons  Proof of despatch and copy of the notcie to be maintained  No response – DP can initiate  Transaction statement – as per ‗closure initiated by BOs‘ B Samrish & Co.
  49. 49. Delivery Instruction Slips B Samrish & Co.
  50. 50. New Arrivals  Communiqué no. 846- Safeguards regarding issuance/ use/ execution of DIS and booklets  Issue only one booklet containing not more than 20 slips for individual account holder and not more than 100 slips for nonindividual account holder, at a time.  In case of the booklet reported lost/ stolen/ not traceable by the BO, the unused DIS of the said booklet must be cancelled.  Subsequent issue of DIS booklet to the BO should be only after BO has used not less than 75% of the slips contained in the previous DIS booklet B Samrish & Co.
  51. 51. New Arrivals  Not to issue more than 10 loose DIS to one BO in a financial year (April to March).  The loose DIS should be signed in the presence of an authorised DP official.  DP should mandatorily verify with the BO before acting upon the DIS , in case of dormant account whenever all the ISIN are transferred at a time.  To record the details of the process, date & time of verification (on DIS under his sign) of the transaction where BO has 5 or more ISINs and all such ISINs are transferred at a time. B Samrish & Co.
  52. 52. New Arrivals Communiqué no. 847- Future-dated transactions  DPs were instructed to exercise care while entering future-dated transactions so as to prevent error, especially in the future date of the transaction as transaction with execution date greater than 10 days from the date of entry/ upload on the CDSL system will fail. B Samrish & Co.
  53. 53. New Arrivals Communiqué no. 884 dated 27.04.2007 – Cautionary note in delivery instruction slip:  ―Blank & Signed DIS should not be left with your DP/ Broker‖- Rider should be added to DIS.  As and when new stock are ordered. B Samrish & Co.
  54. 54. Common violations in DP operations  1. The inventory control mechanism for instruction slip booklets is not proper.  2. Physical inventory of instruction slip booklets is not tallied with the inventory records at prescribed intervals.  3. Some of the DIS issued to BOs do not have pre-stamped BO ID and/or pre-printed serial number.  B Samrish & Co.
  55. 55. Common violations in DP operations  4. Some delivery instruction booklets are issued to the BOs without keeping requisition slip (which forms part of the earlier issued instruction slip booklet and has pre-printed instruction slip serial number range of the booklet), on record.  5. The instruction slip numbers are not verified, at the time of receipt from BO, against the issue details.  6. In some cases, instructions are executed by the DP on the basis of instruction slips which are not signed by all joint holders or which are not signed as per the ‗mode of operation‘. In some cases, the instructions are executed in spite of prima-facie mismatch of signatures. B Samrish & Co.
  56. 56. Discrepancies in the inspection report  As explained/ informed by DP in case of:  Inventory control  Issue of first DIS  Procedure to be followed in case of issue of DIS without requisition slip  Dormant account  Fax indemnity  Blocking of DIS B Samrish & Co.
  57. 57. New Arrivals Communiqué No. 956 dated 14.09.2007- Supervision of branches of Depository Participants:  To keep record of identification documents (including photo- identification) of all persons engaged in DP operations (1) at their main office (2) at all live-connected branches, and (3) at back office connected branches B Samrish & Co.
  58. 58. New Arrivals  To maintain documentation at the main office regarding the scope of activity of each branch (live or back office). This document should include the following aspects: (1) Services being provided by each branch (2) Authorization levels of each type of transaction i.e. - maker/ checker - limits based on value of transaction. (3) Record-keeping policy, including exception reporting mechanism, maintenance of registers, agreements, inventory of instruction slip booklets, reconciliation procedures (if any documents are forwarded to the main DP) B Samrish & Co.
  59. 59. New Arrivals  To ensure that all live connected branches as well as back office connected branches display the types of services provided by each of them. The display board/ chart should be prominently visible to the clients. The DO‘S and DONT‘S should also be displayed similarly. B Samrish & Co.
  60. 60. Back office software  Mandatory from 1st April 2007 for DPs with more than 500 accounts  Minimum features  Maker-checker  Approval of verifier required for slips with value transactions more than Rs.5 lakhs  Capture of BO signature and retrieval for verification B Samrish & Co. of
  61. 61. Back office software  Minimum features ( contd…)  Proper records of instruction slips  Inventory control  Details of serial numbers issued to a BO  Verification of issue details with instruction slip serial no. submitted for execution  Blocking of serial numbers already used  Facility to block serial numbers – reported as lost/ misplaced B Samrish & Co.
  62. 62. Back office software  Matching of statement of transaction from CDAS with backoffice  Sample selected – bigger clients  Generate statement of transaction from CDAS and Backoffice for the same period and compare  Back office (including web site) is updated regularly  Check update procedure and frequency  Back up of data residing in back office B Samrish & Co.
  63. 63. Back office software  Back office network connected to Internet  Try accessing portals – preferably government sites  If connected to internet  Check from system personnel for installation of firewalls  Check system policy for access rights  Back office network connected to CDSL  Check upload procedure  Mechanism to ensure integrity of files  Check system controls  Check access controls B Samrish & Co.
  64. 64. OTHER TRANSACTIONS B Samrish & Co.
  65. 65. Transmission  Transmittee BO with CDSL DP  Receipt of intimation of death  Notarized copy of Death Certificate  No execution of any instruction other than transmission request B Samrish & Co.
  66. 66. Transmission Joint holders Sole holder Nomine e Holding > 100000 Holding < 100000 B Samrish & Co.
  67. 67. Transmission  Death of one of the Joint Holders  Transmission in favour of surviving joint holders  Duly filled in TRF  Notarized copy of death certificate  Client master –DPA5 of the surviving joint holders if a/c is with other CDSL DP  Transposition form - If a/c in different order of names B Samrish & Co.
  68. 68. Transmission  Death of Sole Holder – Nominee  Duly filled in Transmission request form(TRF)  Notarized copy of death certificate  Client master-DPA5 report of the nominee‘s a/c if a/c with other CDSL DP B Samrish & Co.
  69. 69. Transmission  Death of sole holder - No nomination – value of holding > 100,000  Duly filled in TRF complete all respect  Notarized copy of death certificate  Any of the following :  Succession Certificate  Letter of Administration  Probate of the will  In case of multiple successors- Each successor should submit separate TRF B Samrish & Co.
  70. 70. Transmission  Death of sole holder - No nomination – value of holding < 100,000  Duly filled in TRF complete all respect  Notarized copy of death certificate  Letter of surety  Letter of indemnity  Affidavit from applicant  No objection letter from legal heirs who are not applicants B Samrish & Co.
  71. 71. Transmission  Statement of transaction to the transmittee after transmission B Samrish & Co.
  72. 72. Pledge/ Unpledge  PLEDGE :  Pledgor & Pledgee must have active accounts in CDSL DP  PRF should be complete in all respects  PSN should be recorded on the PRF  Pledgor DP to send PRF and system generated letter to pledgor  Copy of PRF to be kept on record  Acceptance of pledge – on the basis of PRF signed by pledgor DP B Samrish & Co.
  73. 73. Pledge/ Unpledge  Unpledge  Initiated by pledgee – auto unpledge  Initiated by pledgor - acceptance by pledgee DP  URF should be complete in all respects  Invocation  IRF should be complete in all respects B Samrish & Co.
  74. 74. Rematerialization  RRF in duplicate signed by all the holders  RRN to be generated on CDAS on the working day from the date of receipt same day or the next  RRN noted RRF to be sent to Issuer/RTA within two days of receipt of RRF  Follow up with RTA if not honoured within 30 days from the date of receipt of RRF by the RTA  Corrective action for rejected RRF B Samrish & Co.
  75. 75. Freeze /Unfreeze  Initiation of Freeze  BO as safekeeping measure  DP based on instructions received from CDSL or statutory / regulatory authority  CDSL based on instructions received from statutory authority  Verification of signature – BO initiated freeze  Acknowledgment letter to be sent to the BO B Samrish & Co.
  76. 76. Freeze /Unfreeze  Records to be maintained  Freeze/ unfreeze requests received from BOs  Orders from statutory authorities  copies of acknowledgement sent to BOs  Record of despatch of acknowledgement copy B Samrish & Co.
  77. 77. Power of Attorney (POA)  Verify signatures of the BO  If POA is granted by all joint holders to one person , POA should be signed by all such holders  Copy of POA – certified as ―true copy‖ by BO  Notarization at the discretion of the DP  If expiry date is mentioned on POA, the same should be captured in CDAS  DP to have internal controls for expiry date B Samrish & Co.
  78. 78. Power of Attorney (POA)  DP to have internal controls for expiry date  POA to single entity should not have any clause which is detrimental to the interest of the BO  Delivery Instruction slips to be issued only to POA holder and not to the BO  Instructions to be routed only through the POA holder  Merger of balances kept under various accounts to nullify the debit in any other account of the client without taking any further instructions from the constituent  Lien on the securities of the clients towards realization of the dues including broking related operations. B Samrish & Co.
  79. 79. BO Grievance  BO Grievance  Register to be maintained  BO grievance report on monthly basis to CDSL  Resolve the grievance within 30 days  Email id for grievances(comm.816) B Samrish & Co.
  80. 80. Transaction statements  Main DP to send transaction statements to all BOs including branch BOs  Transaction statements to be sent at least once at the end of every month, if there has been any transaction. In any event, such statement has to be sent once at the end of each quarter to all BOs  Maker checker concept in all other transaction to check unauthorized transaction B Samrish & Co.
  81. 81. Records & Documents  Proper filing system and maintenance of details of files for easy retrieval  If records are shifted to a different place – a log of such files  Proper records of retrieval B Samrish & Co.
  82. 82. Records & Documents  Separate record for each depository.  Maintain records for a minimum period of 10 years  Verify arrangements made for storage of documents  Maintenance of proper details  May check on sample basis  Compliance officer  Employee of the DP  Intimation of change to the depository B Samrish & Co.
  83. 83. Records & Documents  Concurrent audit of risk prone areas  Report on monthly basis  Action taken by the DP  Concurrent auditor to inform the serious non-compliances to depository B Samrish & Co.
  84. 84. Thank You!! B Samrish & Co.
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