Demat & Remat Process, NSDL, CDSL andStock Market Indices- BSE Sensex, NSE50(Nifty) and S & P CNX 500 Presented By- Upendra Kr MBA Finance Roll no -46 FMS BHU
Before Demat process• The company should amend its Articles by passing a special resolution at general meeting to insert the articles relating to dematerialisation of shares.• The company should sign agreements with the Depositories, NSDL and CDSL after getting it approved by the board of Directors in Board meeting. SEBI has stipulated that if a company wishes to provide demat facility to its investors it must sign agreements with both the depositories.• In order to dematerialise its shares, a company must have electronic connectivity with the depositories. Electronic connectivity can be established either in-house by investing in computer hardware, software and other equipment or through a Registrar which has got the required infrastructure. In case a company opts for an outside Registrar, the agreement mentioned above will be a tri-partite agreement.• Once the company is admitted in the depository system, an ISIN (International Securities Identification Number) is allotted by the depository. This number is unique for each security of the company that is admitted in the depository.
• After establishment of electronic connectivity, Depositories inform the name and ISIN of the company, which has joined the depository System, to the Participant.• The company should inform the Stock Exchanges, where its shares are listed that the companys shares are eligible for dematerialisation. The shareholders should also be informed that the companys shares can be held in dematerialised form. This can also be done by issuing an advertisement in newspapers or by way of a mention in the Annual Report of the Company.
Dematerialization Process• Open an account with DP• Fill up the Dematerialisation Request Form and submit together with share certificate which is to be demat.• The DP upon receipt of the shares and the DRF, will issue an acknowledgement and will send an electronic request to the Company/Registrars and Transfer Agents of the Company through the Depository for confirmation of demat.
• DP, then issues an acknowledgement to the investor and afterwards follows the following procedure:• (a) Defaces the Share Certificates by putting a rubber stamp "Surrendered for Dematerialisation" and by punching two holes on the name of the company on the Share Certificate.• (b) Generates a Demat Request Number (DRN) through his Depository Participant Module (DPM) and fills the same in DRF at the appropriate place.• (c) Sends an electronic communication to Depository viz. NSDL or CDSL, as the case may be, to the effect that so many shares of this company (Identified by ISIN) have been received for dematerialisation.• (d) Sends the DRF and Share Certificates to the company by courier. The role of DP comes to an end with this but he must send a reminder in case credit of shares is not received in demat account of investors within a month.• The depository electronically downloads the particulars of demat request, received from DP and sends to the electronic Registrar of the company so that these shares could be dematerialized.
• Separate folios should be created in computer in the names of NSDL and CDSL to which dematerialised shares will be transferred.• The particulars mentioned in DRF should be checked from Share Certificates. This is very much similar to scrutiny of Share Certificates and Transfer Deed in case of Transfer of shares. However, special attention should be given that the pattern of holding written on DRF is the same as the endorsement on Share Certificates.• Signatures or shareholders on DRF should be verified from the specimen signatures as per records of the company. All the joint holders should sign the DRF.• The ISIN should be mentioned in the DRF. This, to a certain extent, ensures that the security mentioned in the DRF is the one, which the investor intends to dematerialise.• The data of all demat requests received viz. DRN, DP-Id, Client-Id, Distinctive Nos. of Shares are entered in computer.• After completion of data entry, a checklist containing all the demat requests is generated which should be checked thoroughly to ensure that only those shares for which Share Certificates have been received are dematerialised.
• After ensuring that all corrections pointed out during checking of check list have been made out, updation is done in computer as a result of which the shares are transferred from the Folios of various shareholders, who have surrendered their shares for demat, to NSDL/CDSL Folio as the case may be. Hence, the Register of Members gets updated.• In the end a report is generated which contains the details of DRNs, which have been dematerialised in companys records as well as DRNs, which have been rejected on account of some objection. The report is forwarded to the companys electronic Registrar which in turn uploads the data of confirmed demat requests to depository for credit of shares in demat account of shareholders. Similarly the DRNs rejected are also uploaded to depository so that an intimation regarding rejection of demat requests is sent to DPs. Once the DRNs are either accepted or rejected for dematerialisation these are removed from pending list of company.• The company should furnish the data of shares dematerialised comprising of Folio No., Name of Shareholder, No. of Shares, Distinctive No. of Shares to Stock Exchanges as per SEBI (Depository and Participant) Regulations, 1996 to enable Stock Exchange to update their database. A certificate to this effect should also be sent to the Depositories.• Depositories, then confirm the dematerialisation of shares to DP.• DP, then credit the holding of shares into account, electronically.• Dematerialisation will normally take about 30 days.
Rematerialization Process• The client will submit a request to the DP for rematerialisation of holdings in its account.• On receipt of the request form, the DP will verify that the form is duly filled in and issue to the client, an acknowledgement slip, signed and stamped.• The DP will verify the signature of the client as on the form with the specimen available in its records.• If the signatures are different the DP will ensure the identity of the client.• If the form is in order the DP will enter the request details in its DPM (software provided by NSDL to the DP). While entering the details, if it is found that the clients account does not have enough balance, the DP will not entertain the request.• The DP will intimate the client that the request cannot be entertained since the client does not have sufficient balance.• If there is sufficient balance in the clients account, the DP will enter the request in the DPM and the DPM will generate a Rematerialisation Request Number (RRN).• The RRN so generated is entered in the space provided for the purpose in the rematerialisation request form.
• Details recorded for the RRN should be verified by a person other than the person who entered the data. The request is then released to the DM by the DP.• The DM forwards the request to the Issuer/ R&T agent electronically.• The DP will fill the authorisation portion of the request form.• While processing the request, the Issuer/ R&T agent may report some objections. Depending on the nature of objection, the Issuer/ R&T agent may reject the request or process it partially, seeking rectification for the remaining, and send an objection memo to the DP.• The Issuer/ R&T agent accepts the request for rematerialisation prints and despatches the certificates to the client and sends electronic confirmation to the DM.• The DM downloads this information to the DPM and the status of the rematerialisation request is updated in the DPM.• The DP must inform the client about the changes in the client account following the acceptance of the request.
National Securities Depository Ltd• Established in August 1996 as the first depository in India.• This depository promoted by institutions of national stature responsible for economic development of the country has since established a national infrastructure of international standards that handles most of the securities held and settled in dematerialised form in the Indian capital market.• In the depository system, securities are held in depository accounts, which is more or less similar to holding funds in bank accounts. Transfer of ownership of securities is done through simple account transfers. This method does away with all the risks and hassles normally associated with paperwork. Consequently, the cost of transacting in a depository environment is considerably lower as compared to transacting in certificates.
Why NSDLBenefits of Depository System• Elimination of bad deliveries• Elimination of all risks associated with physical certificates• No stamp duty• Immediate transfer and registration of securities• Faster settlement cycle• Faster disbursement of non cash corporate benefits like rights, bonus, etc.• Reduction in brokerage by many brokers for trading in dematerialised securities• Reduction in handling of huge volumes of paper• periodic status reports• Elimination of problems related to change of address of investor• Elimination of problems related to transmission of demat shares• Elimination of problems related to selling securities on behalf of a minor• Ease in portfolio monitoring
Safety with NSDL• A DP can be operational only after registration by SEBI, which is based on the recommendation from NSDL and their own independent evaluation. SEBI has prescribed criteria for becoming a DP in the regulations.• DPs are allowed to effect any debit and credit to an account only on the basis of valid instruction from the client.• Every day, there is a system driven mandatory reconciliation between DP and NSDL.• All transactions are recorded at NSDL Central System and in the databases maintained by business partners.• There are periodic inspections into the activities of both DP and R&T agent by NSDL. This also includes records based on which the debit/credit are effected.• All investors have a right to receive their statement of accounts periodically from the DP.• Every month NSDL forwards statement of account to a random sample of investors as a counter check.
• In the depository, the depository holds the investor accounts on trust. Therefore, if the DP goes bankrupt the creditors of the DP will have no access to the holdings in the name of the clients of the DP. These investors can transfer their holdings to an account held with another DP.• The data interchange between NSDL and its business partners is protected by protection measures of international standards such as encryption hardware lock. The protection measures adopted by NSDL are more than what is prescribed in the SEBI Regulations.• Freeze Facility• Certification in Depository Operations• Investor grievance• Insurance Cover• Computer and communication infrastructure
Central Depository Securities Ltd• CDSL received the certificate of commencement of business from SEBI in February, 1999.• All leading stock exchanges like the National Stock Exchange, Calcutta Stock Exchange, Delhi Stock Exchange, The Stock Exchange, Ahmedabad, etc have established connectivity with CDSL.• As at the end of Dec 2007, over 5000 issuers have admitted their securities (equities, bonds, debentures, commercial papers), units of mutual funds, certificate of deposits etc. into the CDSL system.
Stock Market Indices• BSE SensexSENSEX, first compiled in 1986, was calculated on a "Market Capitalization-Weighted" methodology of 30 component stocks representing large, well-established and financially sound companies across key sectors. The base year of SENSEX was taken as 1978-79. SENSEX today is widely reported in both domestic and international markets through print as well as electronic media. It is scientifically designed and is based on globally accepted construction and review methodology. Since September 1, 2003, SENSEX is being calculated on a free-float market capitalization methodology. The "free-float market capitalization- weighted" methodology is a widely followed index construction methodology on which majority of global equity indices are based; all major index providers like MSCI, FTSE, STOXX, S&P and Dow Jones use the free-float methodology.
Various Indices in BSE• BSE SENSEX• BSE 100• BSE 200• BSE 500• BSE PSU• BSE TECK
BSE SENSEXBase Year 1978-79Base Index Value 100Date of Launch Jan 1, !986Method of Calculation Launched on full market Cap method and effective from Sept 1 2003Number of Scrips 30Index Calculation Real time
BSE 100Base Year 1983-84Base Index Value 100Date of Launch Jan 03 ,1989Method of Calculation Launched on full market cap method and effective April 05 2004Number of scrips 100Index calculation Real time
BSE 200Base Year 1989-90Base Index Value 100Date of Launch May 27, 2004Method of Calculation Launched on full market capitalization method and effective april 05, 2004 calculation methodNumber of scrips 200Index Calculation Real time
BSE 500Base Year 1st Feb 1999Base Index Value 1000Date of Launch 9th August, 1999Method of Calculation Launched on Full market cap method and effective april 05, 2004Number of Scrips 500Index Calculation Real time
BSE PSUBase Year Feb 01, 1999Base Index Value 1000Date of Launch June 04 2001Method of calculation Full market cap methodNumber of scrips All PSU stocks in BSE 500 IndexIndex calculation Real time
NSE 50 (Nifty)• The Standard & Poors CRISIL NSE Index 50 or S&P CNX Nifty nicknamed Nifty 50 or simply Nifty (NSE: ^NSEI), is the leading index for large companies on the National Stock Exchange of India. The Nifty is a well diversified 50 stock index accounting for 23 sectors of the economy. It is used for a variety of purposes such as benchmarking fund portfolios, index based derivatives and index funds. Nifty is owned and managed by India Index Services and Products Ltd. (IISL), which is a joint venture between NSE and CRISIL. IISL is Indias first specialized company focused upon the index as a core product. IISL has a marketing and licensing agreement with Standard & Poors.• The base period for the S&P CNX Nifty index is November 3, 1995. The base value of the index has been set at 1000, and a base capital of Rs 2.06 trillion.• From June 26, 2009, the index is computed based on free float methodology.
S & P CNX 500• The S&P CNX 500 is India’s first broad based benchmark of the Indian capital market. The S&P CNX 500 represents about 94.92% of the Free Float Market Capitalization and about 91.68% of the total turnover on the NSE as on June 30, 2011. The S&P CNX 500 companies are disaggregated into 71 industry indices viz. S&P CNX Industry Indices. Industry weightages in the index reflect the industry weightages in the market. For e.g. if the banking sector has a 5% weightage in the universe of stocks traded on NSE, banking stocks in the index would also have an approx. representation of 5% in the index.• The calendar year 1994 has been selected as the base year for S&P CNX 500. The base value of the index is set at 1000.• S&P CNX 500 is computed using free float market capitalization.
Various indices in NSE• S&P CNX Nifty• CNX Nifty Junior• CNX 100• S&P CNX 500• CNX MIDCAP