Demat System in India

Demat System in India 1

- A REPORT ON -

THE SUMMER TRA IN INGTHE SUMMER TRA IN ING

AT

A N A G R A M S E C U R I T I E S L I M I T E DA N A G R A M S E C U R I T I E S L I M I T E D

GUJARAT UNIVERSITYGUJARAT UNIVERSITY

(( M B A M B A P R O G R A M M E 2 0 0 3 - 0 5 )P R O G R A M M E 2 0 0 3 - 0 5 )

(N .R . INST ITUTE OF BUS INESS MANAGEMENT)(N .R . INST ITUTE OF BUS INESS MANAGEMENT)

MIT VORAMIT VORACHITRA GOTHICHITRA GOTHI

CHRIST INA D ’SOUZACHRIST INA D ’SOUZA


A c k n o w l e d g e m e n t

In our summer training at Anagram Securities Ltd., we got a very pleasant experience of practically working in an organization. Every student owes a great deal to others and we are no exception because learning is a process which entails give and take; exchange of ideas and value addition through discussions. So it gives us immense pleasure to be able to express our gratitude to one and all who have contributed to the successful completion of our project with a great learning.

First and foremost, we would like to thank our project guide, Mr. Suresh Rajagopalan. He gave us an in-depth knowledge of the working of the demat system and enhanced our understanding on its various aspects. His invaluable and significant guidelines improved our outlook and contributed in making our project a real learning experience. He also encouraged us to put in our best efforts and bring out the best of our abilities.

We would also like to thank, the HR executive, Mr. Om Prakash who helped us out at each stage of our project. Moreover we are also grateful to the entire staff of Anagram Securities Ltd. for their co-operation and support.

This acknowledgement would remain incomplete without mentioning the role of our college faculty in guiding us. We thank our director Mr. Khandelwal for giving us a platform through which we got the opportunity of a knowledgeable training experience.

Mit Vora

Chitra Gothi

Christina D’souza


E x e c u t i v e S u m m a r y

The Indian Financial System has undergone a considerable change in the recent past. The Financial Sector reforms, along with technological advancement have integrated international markets, which have facilitated the scope for uninterrupted mobility of funds in various financial markets. It has also led to efficient and low-cost transactions related to securities. This can be seen in the Indian financial sector reforms also, which started in the early 1990s.

Dematerialization of financial securities is the first sign of financial reforms in India. Finance Ministry and SEBI realized the need of more efficient financial system. As a result of this NSDL and CDSL came into picture. It aims at ensuring the safety and soundness of Indian marketplaces by developing settlement solutions that increase efficiency, minimize risk and reduce costs.

Our project on “Demat System in India” gave us a detailed picture of how securities are transferred electronically in the share market. In our project we had done a comparative study of the various Depository Participants in Ahmedabad on the basis of their services and charges. This study helped us in finding out what additional services other DPs provide and how the charges differ. Another aspect of our project was to get a feedback from the clients regarding the Demat services provided at Anagram Securities Ltd. By meeting the various clients we were able to find out the scope of improvement in the services provided at Anagram.

It becomes increasingly important for students of management to understand the developments in the financial infrastructure that facilitates the whole financial system. We were fortunate enough to get an opportunity to do our summer training in such an area as it gave us a wide understanding of the entire demat system in our country.


T a b l e o f C o n t e n t s

Acknowledgement

Executive Summary

Certificates

(1) Scope of the Project ………………………………………………………………………………………....5

(2) About Anagram Securities Ltd ………………………………………………………………………..9

(3) Demat System in India…………………………………………………………………………………...14

(4) Comparative Study of DPs in Ahmedabad ……………………………………………………38

(5) A Clients’ Perspective …………………………………………………………………………………...46

(6) Demat System – Problems and Scope …………………………………………………………...50

(7) Suggestions and Recommendation ………………………………………………………………..55

(8) Annexure ……………………………………………………………………………………………………….60

Annexure - A …………………………………………………..……………………………………………..61

Annexure - B …………………………………………………………………………………………………67

Annexure - C …………………………………………………………………………………………………72

Annexure - D ……………………………………………………………………….………………………...75

BIBLIOGRAPHY……………………………………………………………….………………………………..77


SCOPE OF THE PROJECT


As a part of our summer training undertaken at Anagram Securities Ltd., we got an opportunity to learn and understand the process of the Demat System. The core of the project was to understand the working of a Depository Participant and thereby get an overall view of how the securities transfer takes place electronically in the share bazaar.

The basic objectives of the project were as follows:

1. Firstly, the core objective of our summer training was to understand the practical working of an organization, which so far we had only read about in the books. This training was our first experience of working in any organization which gave us an opportunity to look at the various aspects such as the hierarchy of employees in the organization, functioning of various departments, HR practices, flow of information etc.

2. The next objective was to apply the theoretical knowledge gained during our course of MBA Programme. This involves a wide area of topics like organization behavior, structure and design of organization, research methodologies and application of statistical for quantitative analysis.

3. Another main objective was to get a first-hand experience of working in an organization, which would be helpful for our future endeavor. For any MBA student it is crucial to get a good experience during the summer training. This gives the student a closer view of the actual working, thus maturing the view of the student as regards to the same.

4. To understand the financial system better, it is very necessary to understand the mechanism that facilitates it. Considering the contemporary developments in the Indian financial mechanism we felt that it would be better for us to understand the Demat system of Indian securities market. So the objective of the project was to study the various depository participants of Ahmedabad, which would give us a better idea of the part of the financial infrastructure.

5. Under the guidance of our project mentor, we realized that the conversion of physical securities into electronic form changed the way in which the security holders were looking at the things. It changed security level, convenience level, cost of holding and transacting in the securities and so on. So we decided to study these aspects along with the other objectives. The comparative study of various

INTRODUCTION

OBJECTIVE


DPs followed by this enabled Anagram to take a re-look at its position regarding various aspects vis-à-vis other DPs.

6. Moreover, we were asked to get a feedback of the services of the clients of Anagram Securities Ltd. and to find out the scope of improvement in the same. By doing so we were able to find out what the clients thought about the services provided and also what additional services could be provided.

In our project we were given a complete view of the mechanism of the Demat system as a base. We also gained some important knowledge about the fundamentals of the system by referring to certain material provided by NSDL as well as got a lot of information from the GLS library. A large amount of information on the related topics was retrieved from the Internet without which our knowledge would have remained shallow and incomplete.

We had done the project in a group of three students. As we were required to visit the different DPs and gather the relevant information, the approach we thought to be the most appropriate was as follows:

Two of us approached the DPs as students, who were interested in studying their services. This was done by getting a questionnaire filled up by the DP in-charge.

One of us approached the DPs as a prospective client, who was interested in opening an account in their DP.

Another aspect of our project was to get a feedback from the clients of Anagram Securities Ltd. with regards to the services and scope of improvement. Our approach with regards to this was a prior appointment with the clients, which consisted mostly of the sub-brokers, and some individual clients. Some of the clients were available at the office of Anagram itself.

We used the questionnaire method of data collection to get the required information from the DPs as well as the clients.

We had also made phone calls to the DPs to get accurate information for account opening.

Another method to get the information was a direct approach in which we approached the DPs/clients and got a direct response from them.

SOURCES OF INFORMATION

APPROACH

METHODOLOGY OF DATA COLLECTION


After collecting the required information from all the above-mentioned sources, what we got was raw data. Such raw data would not be of much help to anyone. As taught in our Business Research Methodology course, we tried to organize this data into a systematic report, which would enable the reader to understand it better.

Followed by this we tried to read between the lines and listed some important conclusions that we could draw from the information. This analysis was very helpful in understanding in depth the various factors that affect the working of a DP as a whole and the inter-relationships that exist among them.

Another aspect of our analysis included a study of the type of services provided to the clients of Anagram Securities Ltd. and the scope of improvement if any in the same. This information would be very helpful to Anagram Securities Ltd. in improving their services and customer satisfaction.

ANALYSIS OF DATA


ABOUT ANAGRAM SECURITIES LTD.


Anagram Securities Ltd. is part of the Rs.2500 crore Lalbhai Group, and one of India’s top broking houses, with memberships of the NSE, BSE and ASE and a decade of hard-won experience. Anagram has grown steadily after its origin in 1994 and has always focused on the needs of the retail client. Apart from this it also caters to the needs of institutional clients. It has more than 60 branches all over India with a total clientele of more than 15000.

Over the years it has had a stronghold in Gujarat and has now expanded to 38 offices

covering all the major business centers spread across the country. Their client base,

besides over 10000 individuals, also includes a substantial amount of institutional

business. The website of Anagram Securities Ltd., www.moneypore.com,

introduces itself as follows:

“Moneypore is not a place. You don’t need a passport to get there. Moneypore is that state of consciousness which enables retail investors to make intelligent decisions. You need not be rich to become a resident of Moneypore. All you need is an open mind and a desire to take charge of your financial affairs.”

Apart from conventional broking service, which is its main focus, it also offers online trading, and depository participant facilities with the NSDL. It has also ventured into mutual funds, commodity broking, futures and options, primary market. It has maintained prompt payouts to the clients, winning a reputation for reliability and transparency that is not too common a currency in this business. And it has done this despite the alarming and sudden slumps that the stock market and the economy have gone through over the last decade.

Anagram provides its customers a comprehensive range of investment services, thus, giving them an advantage of having all the services they need under one roof. The following services are provided:

INTRODUCTION

THE COMPLETE INVESTMENT SERVICE DESTINATION

1. STOCKBROKING

http://www.moneypore.com/


Anagram offers a complete range of pre-trade, trade, and post-trade services on the BSE and NSE. Their highly trained and committed workforce and sophisticated equipment ensures smooth transactions and prompt services.

It was one of the first to offer online trading. The site, www.moneypore.com, a high bandwidth leased lines, secure servers and accustom-built user interface gives the customers an international trading experience. Moneypore also gives regular updates during trading hours, and access to information, analysis and research, and a range of monitoring tools.

Anagram offers its registered sub-brokers and approved/authorized users fully equipped trading terminals- Moneypore Express, at the location of their choice. It is a fully functional terminal, with a variety of helpful features like market watch, order entry, order confirmation, charts, and trading calls, all available in resizable windows. And it can be operated through the keyboard using F1 for buy, F2 for sell, etc.

Anagram is a depository participant with the NSDL. Being an in-house DP, it provides hassle-free and speedy settlements.

The package of fee-based services provided by Anagram includes daily technical analysis, research reports, and advice on the clients existing investments. The research goes beyond the desks and company reports as the team goes out and meets company heads and visits plants and factories. The research covers all the major sectors, the major companies and the national and the global economies.

To help the clients manage their portfolio, Anagram offers a complete range of other investment products, including Mutual Funds, Bonds, and Small Saving products. On their site, a person would find huge amounts of information, updates and analysis, as well as a range of calculators and interactive tools to help him/her make their choices.

2. E-BROKING AND WEB-BASED SERVICES

3. TRADING TERMINALS- MONEYPORE EXPRESS

4. DEPOSITORY PARTICIPANTS SERVICES

5. PREMIUM RESEARCH SERVICES

OTHER INVESTMENT PRODUCTS



In order to trade stock through Anagram, the client must have an account here. There are two types of accounts, standard account and e-trading account. The client can have either of the two or both. The client may have a DP account even without a trading account. To invest in mutual funds or fixed income instruments, the client does not need to have any kind of account.

The investment philosophy of Anagram focuses primarily on recommending purchases in financially sound companies at reasonable market prices. They also recommend sales of companies which are above the sales price targets or whose business prospects are poor. For all these, Anagram Securities Ltd has a very good research team.

Anagram recognizes that every individual is unique in terms of his/her investment time horizon, investment objectives, personal financial situations, level of interest and inclination in the investment decision taking process and last but not the least, his/her risk taking ability. Whilst it is hard to beat the level of absolute customization and hand holding that a qualified personal financial planner would provide, it has attempted to individualize, as much as possible, model portfolios that it believes to reflect the individual’s unique investment profile.

A team of highly skilled analysts and experienced investment professionals are constantly monitoring a population of potential investment in companies so as to buy and sell on the basis of analytically derived risk/return ratios. The population of companies has been selected based on many quantitative and qualitative benchmarks.

The effort is directed to prevent permanent loss of capital and to make absolute returns over time with a minimal amount of business risk. Anagram is confident that through this process, over a three-year period, the investment results will be superior to any market index. The portfolio, however, may fluctuate in the short run, as the investment decisions will be guided by business prospects and not by short-term market movements. They feel that this process will be well suited to the needs of investors.

It sees its role as that of an unbiased information provider and advisor attempting to empower individuals to take investment decisions and styles that suit them. Their selection of companies reflects this. Many of the companies that they have recommended for investment are providers of goods and services that touch the every day life of most of us. Their belief is that the comfort level of investing in such companies, therefore, would be very high.

RESEARCH-BASED ADVICE

INVESTING WITH ANAGRAM

INVESTMENT PHILOSOPHY OF ANAGRAM SECURITIES


Chairman

(Mr. Sanjay Lalbhai)

CEO(Mr. Darshan Mehta)

Director(Mr. Dimple Shah)

Director(Mr. Ajay Saraogi)

Director(Mr. Mayank Shah)

Director(Mr. Sharma)

South West (only

Mumbai)East North,

Gujarat

Maharastra (except

Mumbai)

HRD Accounts/

Finance

DepositoryParticipant

Settlement Information Technology

ResearchCompliance,

Liasioning

Management Committee

Regional Divisions

Functional Divisions

ORGANIZATIONAL STRUCTURE


DEMAT SYSTEM IN INDIA

THE WORLD OF ELECTRONIC TRANSFER OF SECURITIES


In this new era of change and transformation, where time zones have disappeared and distance does not matter any more, each and every aspect of our life is being governed by knowledge-driven technology and communication. Even in a developing country like India, where nearly 33% of the population still lives below the poverty line, we can observe the transformation of the country from an agricultural and industrial economy, into knowledge and information-based economy.

India has had a vibrant capital market that is more than a century old, and the Indian shareholders are very much involved in it, which has largely contributed to its economic growth and development. Two of the major share markets in India, BSE and NSE, are widely reflective of the pattern of growth of the Indian economy. We can see that a large numbers of players are stepping into the share bazaar with an expectation of reaping huge benefits – some for long-term investment purposes and others for windfall profits. Most of these new players are tech-savvy and constantly in shortage of time.

In this new technology-driven era, can the share market be left behind?

Modernization in the trading and settlement system has been witnessed in the capital market through automated trading mechanism of Demat. The advent of Electronic trading and settlement has brought in transparency in trading and has eliminated risks associated with Bad Delivery and handling huge load of paperwork. The country has made a remarkable growth in the capital market by switching over to electronic trading.

Indian investor community has undergone sea changes in the past few years. India now has a very large investor population and ever increasing volumes of trades. However, this continuous growth in activities has also increased problems associated with stock trading. Most of these problems arise due to the intrinsic nature of paper based trading and settlement, like theft or loss of share certificates. This system requires handling of huge volumes of paper leading to increased costs and inefficiencies. Risk exposure of the investor also increases due to this trading in paper.

In this chapter we intend to discuss in detail the basics of a depository system, the depository participants (DP) and the dematerialization of shares.

DEPOSITORY SYSTEM


Your money may be held in the form of liquid cash at your home or may be deposited in a bank. The bank holds your funds in the electronic form and subsequently debits or credits the account, depending on your issuance of cheques or deposit of cheques. The advantages of safety and convenience of dealing with a bank overweigh the reasons for holding liquid cash in your home. Your financial assets such as Equity Shares may be compared to the above example. You may hold physical share certificates in your home and be exposed to the various risks of lack of safety, mutilation, loss etc. Alternatively, you may deposit your shares in an organization called a Depository, which holds your shares in the electronic form.

A Depository is a securities "bank," where dematerialized physical securities are held in custody, and from where they can be traded. This facilitates faster, risk-free and low cost settlement. Thus, a Depository is akin to a bank and performs activities similar in nature.

Depository functions like a securities bank, where the dematerialized physical securities are traded and held in custody. This facilitates faster, risk free and low cost settlement. Depository is much like a bank and perform many activities that are similar to a bank. Following table compares the two.

Bank Depository

Holds funds in accounts Holds securities in account

Transfers funds between accounts Transfers securities between accounts

Transfers without handling money Transfers without handling securities

Safekeeping of money Safekeeping of securities

The risk of loss, mutilation is common for physical certificates and completely removed in electronic shares.

Handling of a large number of physical certificates is ended in the Depository mode.

In the electronic segment, there are no bad delivers as in physical segment.

COMPARISON OF DEPOSITORY WITH BANK

COMPARISON OF DEPOSITORY SYSTEM WITH PHYSICAL SHARE SYSTEM


There is no stamp duty payable in electronic shares compared to the duty of 0.50% in the physical segment while transferring ownership.

In loans against shares, banks usually charge a lower interest rate and margin money than in the physical share certificates.

Settlements in the Stock Exchanges have commenced in the electronic segment and have proven to be far more efficient and convenient compared to physical shares.

1. Elimination of Bad Deliveries.

In the Depository environment, once holdings of an investor are dematerialized, the question of bad delivery does not arise. Hence after dematerialization, Depository / Depository Participants cannot hold the Dematerialized Securities " Under Objection ".

As per claims of NSDL, in the physical environment, about 20% of delivered stock constitutes bad deliveries. Of these, about 1% is ultimately absorbed by the system as bad delivery cost. Rectification of objection always involves extensive follow up by the investor. This means that in the physical environment, every fifth person taking delivery of stock gets securities, the genuineness to which there is a doubt whereas he parts with genuine funds.

2. Elimination of all Risks of Physical Certificates.

Physical Certificates are usually exposed to security risks due to theft of Stocks. The buyers of the Securities are also exposed to mutilation and / or loss of certificates during movements through and from the registrars. This requires the investor to incur additional burden for obtaining Duplicate Certificates including cost of advertisements, etc. This problem does not arise in the Depository Environment.

3.Special concession from Govt. of India for Stamp Duty.

Section 30 of the Depositories Act, 1996, has made special provision, which exempt the Transfer of Equity Instruments & Units of Mutual Funds in the Depository from incidence of Stamp Duty. In case of Physical mode of Transfer of Equity instruments & Units of Mutual Funds, the buyers had to shell out for Stamp Duty @ 0.5% of the purchase cost.

4. Immediate Transfer and Registration of Securities.

BENEFITS OF DEPOSITORY SYSTEM


In the Depository environment, investors (Clients) become Legal Owner of the Securities once the Securities are credited to the investors account with the Depository Participants on pay out, here in after the investors becomes the Beneficial Owner of the Depository.

The Depository System has relived the Buyer of the Securities from the exercise of sending the Securities to the Issuer for getting the securities transferred to his own name as Depository itself is the registered owner of Dematerialized Stocks is empowered to effect transfer of Ownership.

In the Physical mode of Transfers usually takes around three to four months and is rarely completed within the statutory framework of two months. The delay in the process might expose the investor to opportunity cost due to delay in transfer. The Transferee is further exposed to risk of loss of Securities in transit.

5.Shorter settlement Cycle.

The Depository affects transfers through Book Entry, and usually follows rolling settlement cycle of T+3. In the T+3 settlement, all trades are settled on the 3rd working day from the trade day. This enables faster turnover of stock and prompt liquidity to the investor.

6. Pay-in and Pay-out of Securities / Funds on the same day for Demat trades.

As mentioned above, in the Demat Segments the settlement of trades (both securities and funds) is on the 3rd working day from the trade day. This enables the Client / Buyer who makes the payments on the 3rd working day, to receive the securities in his Accounts with his/her D.P. on the same day in the evening and a Seller / Client who delivers the securities on the 3rd working day to receive the funds on the same evening.

7. Faster Disbursement of Non Cash Corporate Benefits like Rights, Bonus, etc.

The Beneficial Owner who opts for Demat Credit of Securities for Bonus / Rights, these non-cash Corporate entitlements are credited to Client's A/c with D.P. electronically. This ensures faster disbursement of entitlements and reduces the risk of loss of certificates in transit.

8. Reduction in Rate of interest on Loans Granted.

Some market friendly Banks / Financial institutions provide loans at confessional rates against pledge of dematerialized securities. The pledge of dematerialized stock provides the institution with greater control and opportunity for recovery in case of default by the loanee. The Dematerialized Stocks further enable the institution hassle free transaction, while getting securities registered in their (Bank / Institutions) name at the time of book closure.

9. Reduction in Brokerage by many brokers for Trading in Dematerialize Securities


Some brokers provide concession in Brokerage for Dematerialized Stocks, as dealing in dematerialized securities reduces Brokers back office work of handling paper and other incidental risk.

10. Reduction in handling of huge volumes of paper.This is due to the electronic form of the securities. The dematerialization of This is due to the electronic form of the securities. The dematerialization of securities would drastically bring a reduction in the paperwork.

11. Elimination of problems related to change of address of investor, transmission, etc.

In case of change of address or transmission of demat shares, investors are saved from undergoing the entire change procedure with each company or registrar. Investors have to only inform their DP with all relevant documents and the required changes are effected in the database of all the companies, where the investor is a registered holder of securities.

12. Periodic status reports.

The investors receive the Statement of Holding and Transaction Statement regularly. This enables them to have a better control over their operations.


Depository means a company formed and registered under the Companies Act, 1956 and which has been granted a certificate of registration under sub-section (1A) of section 12 of the Securities & Exchange Board of India Act, 1992. A Depository is an Organization which holds Securities in Dematerialized Form i.e. by way of Electronic Records and which enables Securities Transactions to be processed by Book Entry, at the request of the shareholder. This eliminates the physical form of holding.

A Depository can be compared to a bank, which holds securities, such as shares, debentures, bonds, Government Securities, units etc., of investors in an electronic form. Besides holding securities, it also provides services related to transactions in securities.

A Depository interacts with the investors through its agents called Depository Participants (DPs). If an investor wants to avail the services offered by the Depository, he/she has to open an account with a DP. This is similar to opening an account with any branch of a bank, in order to utilize the bank's services.

The Depository is obligated to maintain the Client Holdings, enable Demat and Remat of eligible securities, disbursement of corporate benefits, effect settlement of securities traded

Main concerns of the Investors, after receiving deliveries of securities is to get the securities registered in his / her own name. However, in most of the times, investors are exposed to Risk related to Capital Market and due to various reasons Investors are not able to register his / her ownership. We can broadly classify the Investor's Risks as below:

Default by Seller of Securities relating to Transfer Deeds. Default by Seller of Securities relating to Share Certificates. Default by Purchaser of Securities to present the Securities along with duly

completed Transfer Deed within stipulated time period. Default by Issuer, Registrar to Register Transfer Request. Default by Issuer, Registrar to deliver the duly Transferred Share Certificates

to the Transferee.

The above list shows that except for one reason, buyer of the Securities is always at Risk of losing the ownership of the share purchased, due to seller's default. To provide

DEPOSITORY

BENEFITS OF DEPOSITORY TO THE INVESTORS


much needed protection / relief to the Buyer Investors, Govt. of India had decided to introduce the Depository System in India.

The Dematerialization is back bone of the Depository .The term depository is explained as " a depository is an Organization which holds Securities in Dematerialized Form i.e. by way of Electronic Records & which enables Securities Transactions to be processed by Book Entry ".

The Section 9 (1) of Depositories Act, 1996 state, " all securities held by a depository shall be dematerialized and shall be in a fungible form ", which implies that without dematerialization the depository cannot function.

At present, there are two Depositories in India, National Securities Depository Limited (NSDL) and Central Depository Services (CDSL).

DEMATERIALIZATION - THE CORE ACTIVITY OF DEPOSITORY


National Securities Depositories Ltd. (NSDL) was set up as the first depository in the country having various depository participants registered with it. NSDL was inaugurated on 8th November 1996. It was set up with an initial capital of Rs.124 crore, promoted by Industrial Development Bank of India (IDBI), Unit Trust of India (UTI), National Stock Exchange of India Ltd. (NSEIL) and the State Bank of India (SBI). The actual trading in dematerialized securities started at National Stock Exchange on 26th December 1996.

Although India had a vibrant capital market, which is more than a century old, the paper-based settlement of trades caused substantial problems like bad delivery and delayed transfer of title till recently. The enactment of Depositories Act in August 1996 paved the way for establishment of NSDL, 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 standard that handles most of the trading and settlement in dematerialized form in Indian capital market.

Using innovative and flexible technology systems, NSDL works to support the investors and brokers in the capital market of the country. NSDL aims at ensuring the safety and soundness of Indian marketplaces by developing settlement solutions that increase efficiency, minimize risk and reduce costs. NSDL plays a quiet but central role in developing products and services that will continue to nurture the growing needs of the financial services industry.

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.

Under the provisions of the Depositories Act, NSDL provides various services to investors and other participants in the capital market like, clearing members, stock exchanges, banks and issuers of securities. These include basic facilities like account maintenance, dematerialization, rematerialisation, settlement of trades through market transfers, off market transfers & inter-depository transfers, distribution of non-cash corporate actions and nomination/transmission. The Depository System, which links the issuers, depository participants (DPs), NSDL and clearing corporation/ clearing house of stock exchanges, facilitates holding of securities in dematerialized form and effects

NATIONAL SECURITIES DEPOSITORY LTD. (NSDL)

BASIC SERVICES


transfers by means of account transfers. This system, which facilitates scripless trading, offers various direct and indirect benefits to the market participants.

Depository is a facility for holding securities, which enables securities transactions to be processed by book entry. In addition to the core services of electronic custody and trade settlement services, NSDL provides special services like pledge, hypothecation of securities, automatic delivery of securities to clearing corporations, distribution of cash and non-cash corporate benefits, stock lending, distribution of securities to allottees in case of public issues, Internet-based services for clearing members 'SPEED' & Internet based services for account holders 'SPEED-e'.

NSDL has taken the initiative for providing the facility of enabling brokers to deliver contract notes to custodian / fund managers electronically through its STEADY facility. STEADY (Securities Trading - information Easy Access and DeliverY) was launched by NSDL on November 30, 2002. STEADY is a means of transmitting digitally signed trade information with encryption across market participants electronically and efficiently, through Internet.

NSDL carries out its activities through service providers like Depository Participants (DPs), Issuing companies and their Registrars and Share Transfer Agents, Clearing corporations/ Clearing Houses of Stock Exchanges. These entities are called business partners in NSDL terminology. These entities need to get integrated into NSDL depository system to be able to provide various services to the investors and Clearing Members.

The investor can obtain depository services through a depository participant of NSDL. Just as one opens a bank account in order to avail of the services of a bank, an investor opens a depository account with a depository participant in order to avail of depository facilities.

A clearing member can open a special account in the depository system for the purpose of settling trades done on stock exchanges. The clearing account enables the clearing member to receive securities from its clients for delivery to the Clearing House/Clearing Corporation as pay-in, and to distribute the payout to its clients received from the Clearing-House.

Issuer can make dematerialization services available to their shareholders by signing an agreement to that effect with NSDL. After the agreement is entered into, an electronic link is established between NSDL, Issuer or its R & T Agent.IJHUHUH8UHUH

The clearing corporations/houses of stock exchanges also have to be electronically linked

JOINING NSDL

BASIC SERVICES

SPECIAL SERVICES


to the depository in order to electronically receive securities delivered by clearing members towards pay-in and to give out securities to clearing members towards pay-out.

Bye Law: 6.4 Provides for Rights & Obligations of Participants & Clients. 6.4.1. Provides that no Participant shall conduct business as a Participant with its Clients unless it has entered into an agreement with its Clients. 6.4.2. Every Participant shall enter into an Agreement referred to above with each of its Clients as per Annexure " B " of these Bye Laws.

Annexure " B " of NSDL Bye Law

The Annexure " B " at clause No.1 has enumerated, client obligations towards the Participant. Clause No.1: Stipulates that " The Client shall pay the charges to the Depository Participant for the purpose of opening & maintaining his account, for carrying out the instruction of the Client & for rendering such other services as may be agreed to between the Depository Participant & the client as set out in Schedule " A ".

Schedule " A “: This Schedule has listed below mentioned charges for inclusion in this schedule, such as:

1. Account Maintaining Charges. 2. Custody Charges. 3. Transaction Charges. 4. Rematerialisation Charges. 5. Other Charges.

NSDL & SEBI had conveniently ignored the act of DP’s to include without authority the charges of Dematerialization in Schedule " A “ of the agreement. Clause No.2: Inter alia it stipulates that " The Client shall have the Right to get the Securities which have been admitted on the Depository, Dematerialized in the form & manner laid down under the Bye Laws & Business Rules ".

Accordingly this Clause had empowered the investors the right of Dematerialization in the form & manner laid down under the Byelaws & Business Rule. Hence if the depository participant is providing services of Dematerialization, they are under obligation to provide the same to the investors for which no charges can be levied.

Bye Law 9.2: Deals with Dematerialization: Bye Law 9.2.2: Says that " A Client may convert his physical holding of securities into Dematerialized form by making an Application to the Participant in a Dematerialization

BYE LAWS OF NSDL


Request Form in the form prescribed under the Business Rules along with the relevant Securities Certificates ". Accordingly client is required to submit his securities to Depository Participant only for Dematerialization.

NSDL claims to have undertaken sufficient security measures. These measures are:

A DP can be operational only after registration by Sebi, which is based on the recommendation from NSDL and Sebi’s own independent evaluation. Sebi has prescribed criteria for becoming a DP in the regulations.

DPs are allowed to affect 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 the DP and NSDL.

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 affected.

The data interchange between NSDL and its business partners is protected by standard protection measures such as encryption. This is a SEBI requirement.

There are no direct communication links between two business partners and all communications between two business partners are routed through NSDL

All investors have a right to receive their statement of accounts periodically from the DP.

Every month NSDL forwards statement of accounts to a random sample of investors as a counter check.

In the depository, the depository holds the investor holdings 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 then either dematerialize their holdings or transfer them to a different account held with another DP.

Investor grievance: All grievances of the investors are to be resolved by the concerned DP. If they fail to do so the investor has the right to approach NSDL.

Insurance Cover: NSDL has taken a comprehensive insurance policy to protect the interest of the investors in cases of failure of the DP to resolve a genuine loss. The details of the policy is as under:

Upper limit per claim: Rs200mn

SECURITY


Number of claims allowed: unlimited Minimum value of the claim: Rs150, 000 To cover claims valued less than Rs150, 000 NSDL has an investor protection

fund in place.

Besides all these safety measures efforts have been done to make this electronic system foolproof.

The systems are accepted by NSDL only after a rigorous testing procedure.

Machine level back up: The IBM mainframe situated at "Trade World" (NSDL office in Mumbai) in which the data is processed has adequate redundancy built into its configuration. There is a standby central processing unit (CPU) to which processing can be switched over to in case of main system CPU failure. The disk has RAID implementation, which ensures that a single point failure will not lead to loss in data.

System has spare disk configuration where data is automatically copied from the main disk upon encountering the first failure (due to RAID implementation - first failure does not result in loss of data).

All network components like router, communication controllers etc, have on-line redundancy and thus a failure does not result in loss of transaction.

Disaster back up site: In addition, a disaster back up site equipped with a computer identical to the mainframe computer & computing resources has been set up at a remote location about 175 km away from Mumbai. This site has been tested for operations from the site.

Back-up in case of power failure: Continuity in power supply to the main systems is assured by providing for; dual uninterrupted power supply (UPS) for IBM-Mainframe and related components wherein the two UPSs are connected in tandem. In case of failure of primary UPS, the secondary UPS takes over instantaneously and thus, there is no interruption in operation, and back-up diesel generator set.

If an investor looses his statement of holdings, he may inform his DP and obtain a duplicate statement of holdings. The loss of statement of holding will not affect his actual holdings.

If a DP goes bankrupt, there is no need for an investor to be unduly concerned as enough provisions are there for the investor to transfer his account from the defunct DP to another DP or get the securities rematerialized. There cannot be any lien on the account holders’ assets by creditors belonging to the DP or NSDL and therefore the account holders’ assets are absolutely safe. There is no credit risk in case of a defunct NSDL or its DPs.

COMPUTER AND COMMUNICATION INFRASTRUCTURE OF NSDL


Depository account details are confidential. There are strict systems and procedures established to protect the confidentiality of investor information at the depository to ensure that these are available to only authorized persons. Even a DP other than your own, cannot have access to your account.


The second depository, Central Depository Services (India), was promoted by the Stock Exchange, Mumbai (BSE) jointly with leading banks such as State Bank of India, Bank of India, Bank of Baroda, HDFC Bank, Standard Chartered Bank, Union Bank of India and Centurion Bank. CDSL got the certificate of commencement on 8th February 1999 and commenced limited operations at Bombay Stock Exchange, of opening accounts and processing Demat request from 22nd March 1999. The initial capital of the company is Rs.104.50 crores.

All leading stock exchanges like the National Stock Exchange, Calcutta Stock Exchange, Delhi Stock Exchange, the Stock Exchange of Ahmedabad, etc have established connectivity with CDSL.

CDSL was set up with the objective of providing convenient, dependable and secure depository services at affordable cost to all market participants. Some of the important milestones of CDSL system are:

CDSL received the certificate of commencement of business from SEBI in February 1999.

Honorable Union Finance Minister, Shri Yashwant Sinha flagged off the operations of CDSL on July 15, 1999.

Settlement of trades in the Demat mode through BOI Shareholding Limited, the clearinghouse of BSE, started in July 1999.

As at the end of July 2003, over 4600 issuers have admitted their securities (equities, bonds, debentures, commercial papers), units of mutual funds, certificate of deposits etc. into the CDSL system.

The following are the major benefits of having an account with CDSL.

Wide DP Network: CDSL has over 200 DPs spread around 114 cities/towns across the country, offering convenience for an investor to select a DP based on his location.

On-line DP Services: The branches of a DP can also be directly connected to CDSL thereby providing on-line and efficient depository service to investors Wide Spectrum of Securities Available for Demat: More than 4600 companies have admitted their equity into CDSL. Further, CDSL has also admitted an entire gamut of debt instruments viz. bonds, debentures, commercial paper, government securities, certificate of deposits, etc. Thus an investor can hold almost all his securities in one account with CDSL.

CENTRAL DEPOSITORY SERVICES LTD. (CDSL)

CONVENIENCE:


Competitive Fees Structure: CDSL has kept its tariffs very competitive to provide affordable depository services to investors. CDSL also does not collect any custody fees or ISIN fees from its DPs. Internet Access: A DP, which registers itself with CDSL for Internet access, can in turn provide demat account holders with access to their account on the Internet.

On-line Information to Users: CDSL's system is based on centralized database architecture; DPs can thus provide on-line depository services with to-the-minute status of the investor's account.

Convenient to DPs: The entire database of investors is stored centrally at CDSL. If there are any system-related issues at DPs end, the investor is not affected, as the entire data is available at CDSL. Contingency Arrangements: CDSL has made provisions for contingency terminals, which enables a DP to update transactions, in case of any system related problems at the DP's office. Meeting User's Requirements: Continuous updating of procedures and processes in tune with evolving market practices is another hallmark of CDSL's services.

Audit and Inspection: CDSL conducts regular audit of its DPs to ensure compliance of stringent operational and regulatory requirements. Dormant Account Monitoring: CDSL has in place a mechanism for monitoring dormant accounts. Helpdesk: DPs and investors obtain clarifications and guidance from CDSL's prompt and courteous help line facility.

Computer Systems: CDSL has installed state-of-the-art computer system and data storage devices. All data is stored at CDSL and is auto mirrored separately and also transmitted to a Disaster Recovery site. Data is also backed up on digital linear tapes, which are stored in fireproof cabinets at the main and disaster recovery sites. Unique BO Account Number: Each BO in CDSL is allocated a unique account number, which ensures that at the time of transfer of securities if the transferor's account number is wrongly entered, the transaction will not go through the CDSL system, unless corrected.

SECURITY:

DEPENDABILITY:


Data Security: CDSL ensures the security and integrity of all data by encrypting all communications between CDSL and its users. Claims on DP: If any DP of CDSL goes into liquidation, the creditors of the DP will have no access to the holdings of the BO.

Insurance Cover: CDSL has obtained adequate insurance cover in the unlikely event of any loss to a BO due to the negligence of CDSL or its DP.

Software: The software is developed and supported by CMC Ltd., who has also developed the BOLT system for BSE. The software is a modified version of the banking software-TC4 developed by a subsidiary of CMC Ltd. (in USA), which is currently being used by several banks worldwide. The software has been customized to suit the requirement of CDSL. Hardware: Hewlett Packard provides the hardware. HP 9000 (64 Bit) Enterprise server system (super computer technology with a robustness of enterprise class), is the highest performing RISC/UNIX server system available in the marketplace. This system is connected to a near fault tolerant storage system from EMC2 Corporation featuring multiple RAID levels and intelligent diagnostics (automatic disk fault finding system). This is the world's best storage system and the first of its kind to be installed in India; imported from United States of America after due certification by the relevant US Agency and installation at our site was also subject to inspection by the US Consulate. The load handling capacity of Unix systems used is virtually limitless.

Database Architecture:

A 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. According to SEBI guidelines, financial institutions, banks, custodians, stockbrokers, etc. are eligible to act as DPs. The investor who is known as beneficial owner (BO) has to open a Demat account through any DP for dematerialization of his holdings and transferring securities.

The balances in the investors account recorded and maintained with CDSL can be obtained through the DP. The DP is required to provide the investor, at regular intervals, a statement of account, which gives the details of the securities holdings and transactions. The depository system has effectively eliminated paper-based certificates, which were prone to be fake, forged, counterfeit resulting in bad deliveries. CDSL offers an efficient and instantaneous transfer of securities.

TECHNOLOGY USED


By looking at the spread of their operations, one would find out that the NSDL is way ahead of CDSL. This is because of various reasons- the major reason being that NSDL started much earlier in 1996, as compared to CDSL, which started operating from 1999.Many believe that the over-all set-up of the infrastructure developed by NSDL for DPs is much superior to that of CDSL. For example, it is a known fact that NSDL has a much better back-up system than CDSL.

DEPOSITORY PARTICIPANTS


The operations in the Depository System involve the participation of a Depository, Depository Participants, Company/Registrars and Investors. NSDL provides its services to investors through its intermediary called depository participants (DPs). A Depository Participant is the agent of the Depository and is the medium through which the shares are held in the electronic form. They are also the representatives of the investor, providing the link between the investor and the company through the Depository.

These agents are appointed by NSDL with the approval of SEBI. According to SEBI regulations, amongst others, three categories of entities i.e. Banks, Financial Institutions and Members of Stock Exchanges [brokers] registered with SEBI can become DPs. All the DPs are appointed subject to fulfillment of uniform requirements of SEBI (Depositories and Participants) Regulations, 1996 and requirements of NSDL. However, the type of services offered and the service standards may differ among various DPs. For example, a DP branch having direct connectivity with the main office having depository set-up may be in a position to execute instructions faster. You can select your DP to open a Demat account just like you select a bank for opening a savings account. Some of the important factors for selection of a DP can be:

1.Convenience - Proximity to your office/residence, business hours. 2.Comfort - Reputation of the DP, past association with the organization, whether the DP is in a position to give the specific service you may need? 3.Cost - The service charges levied by DP and the service standards.

There are no restrictions on the number of DPs you can open accounts with. Just as you can have savings or current accounts with more than one bank, you can open accounts with more than one DP.

NSDL requirements for the DPs:

The Participant shall have the discretion to charge any fees to its Clients. Further, the Participant may charge different types of fees to its various Clients.

The Depository on Dematerialization Requests shall charge no Fee. However, in case of Rematerialisation, a flat fee of Rs. 10 per Certificate will be charged.

Moreover, an issuer may pay a one-time custody fee to NSDL and consequent upon such payment, NSDL shall not levy any custody fee on the Participants.

This necessarily concludes that the Depository Participants are neither empowered to collect the Demat charges nor morally recover excess Custody Charges from the Clients.The charges prescribed by the NSDL for the DPs are as follows:


1. Account Opening Charges. 2. Custody Charges. 3. Transaction Charges. 4. Rematerialisation Charges. 5. Other Charges.

We will now examine different types of charges collected by Depository Participants against actual provision in this regard: 1. Account Opening Charges.

Clause No.1 stipulates that the client shall pay the charges to the Depository Participant for the purpose of opening & maintaining his account.

(a) Account Maintaining Charges. This clearly means that charges paid by the clients for Opening of Accounts also covers Account Maintaining Charges as well. Depository Participants can collect either Accounts Opening Charges or Account Maintain Charges. But in no case Client should be made liable to pay both the Charges that to Account Maintenance Charges on Periodically.

(b) Annual Membership Charges: Without clearly specifying the difference between Accounts Maintenance Charges, the same charge is recovered under the different nomenclature as Annual Membership Charges.Depository Environment had actually provided Depository Participants with free hand to Charge same Charge time & again under different nomenclature as per their own will.

2. Custody Charges: No periodicity for collecting these charges is fixed by the NSDL. Hence some Depository Participants are collecting Custody Charges at Quarterly Interval & some are collecting at Yearly Interval. Collection at Quarterly Interval has an effect of compounding nature. Again at NSDL " scale of Custody Charges varies from one Depository Participant to another Depository Participant ". As per our contention the Custody Charges are recovered twice from the Beneficial Account Holder.

First, through issuer where in the Beneficial Account Holder is a Share-Holder & when this issuer pays to the Depository One Time Custody Charges. Secondly, in spite of paying one time custody charges, the Beneficial Account holder are again made to pay custody charges to the Depository Participants as a Client. The absolute minimum custody charge is another ploy to recover much more than the applicable rate.

3. Transaction Charges.


The DP levies these charges for effecting Credit or Debit to the Clients Accounts. A) Non-Scheduled Charges of Dematerialization. The Schedule " A " at Annexure " B " has not prescribed this sort of Charges, which referred as Charges of Dematerialization. The NSDL business rule has prescribed fee for dematerialization & rematerialisation as under: The Depository on Dematerialization requests shall charge no fee. However, in case of Rematerialisation, a fee at the rate of 0.10% of the value of the securities requested for rematerialisation or Rs.10/- per certificate, whichever is higher will be charged.

4. Rematerialisation Charges.

This charges becomes payable at the time of Beneficial Owner Opting to withdraw from the Depository Environment & requires his Securities in Physical Mode.

5. Other Charges These Charges are actually designed to carter need of Depository Participants , for providing extra facilities i.e. more than & out side statutory obligation to the Client. Some banks which are also Depository Participants are asking the Account Holder to keep Fixed Deposit linked with Depository Account , before opening of accounts in depository. This clearly shows that in reality , with the protection of Business Rule : 5.3 , each & every charges out side the prescribed set of charges at Annexure " B " - Schedule " A " is classified under this head. Use Link For Complete Annexure " B " with Schedule " A " as prescribed by NSDL. Only solidarity of Beneficial Owner will provide the justice from " Other Charges " .

DEMATERIALIZATION


Demat is a commonly used abbreviation of Dematerialization, which is a process whereby securities like shares, debentures are converted from the "material" (paper documents) into electronic data and stored in the computers of an electronic Depository.

Securities registered in your name are surrendered to depository participant (DP) and these are sent to the respective companies who will cancel them after "Dematerialization" and credit your depository account with the DP. The securities on Dematerialization appear as balances in your depository account. These balances are transferable like physical shares. If at a later date, you wish to have these "Demat" securities converted back into paper certificates, the Depository helps you to do this by a process called Rematerialization.

By dematerialization of shares the cumbersome process of paper work is eliminated. It offers scope for paperless trading through state-of-the-art technology, whereby share transactions and transfers are processed electronically without involving any share certificate or transfer deed after the share certificates have been converted from physical form to electronic form.

Dematerialization of shares is optional and an investor can still hold shares in physical form. However, he/she has to Demat the shares if he/she wishes to sell the same through the Stock Exchanges. Similarly, if an investor purchases shares, he/she will get delivery of the shares in Demat form.

PROCESS OF DEMATERIALIZATION

Prescribed Demat Request Form (DRF) needs to be filled in by the client who wishes to convert the physical shares into Demat form. Client should verify whether the scrip, he wishes to Demat, is listed on NSDL or not. Only those scrips that are listed can be given for dematerialization. The list of tentative scrips listed on NSDL is made available to the branch. The same can be downloaded from NSDL's Internet site also, viz. www.nsdl.com.

The client should also deface the share certificates with the rubber stamp stating 'SURRENDERED FOR DEMATERIALISATION'. The said stamp is made available to the branch to facilitate the client to use the same. Also the said shares should be punched with minimum two holes on / near the name of the Company.

Separate DRF needs to be filled in per account per scrip. The said DRF, received by the branch from the client, should be verified for mandatory requirements in the DRF and also should verify the Physical shares. The details mentioned on DRF needs to tally with the physical shares and that the said shares are properly defaced with the required stamp and holes. The complete form with share certificates should be send to Ho for further processing. Normal process of completion of the Demat is 20 to 30 days.

http://www.nsdl.com/


As per NSDL Bye Law, Client in relation to a Participant means a Beneficial Owner who has opened an account with the participant & has entered into the agreement in accordance with the provision of Chapter 6 of NSDL Bye Laws.

MANDATORY REQUIREMENTS

Firstly the client has to open an account with a Depository Participant and get a unique Client ID number. Thereafter, he has to fill the Dematerialization Request Form (DRF) provided by the DP and surrender the shares in physical form to the DP. The Depository participant on receipt of the above documents will send an electronic request to the companies through the Depository for confirmation of demat. Each request will bear a unique transaction number. The DP will surrender the DRF and the above-mentioned documents with a covering letter requesting the company to confirm Demat. The company will confirm Demat to the Depository after necessary verification. This depository will confirm the Dematerialization to DP, which is holding the account. Then DP will credit the account with the shares so dematerialized. The DP will hold the shares in the dematerialized form thereafter on behalf of the client. The client will be beneficial owner of these dematerialized shares.


Seller’s Shares Buyer’s Funds

Depository Broker

Broker Clearing Bank

Clearing Corp.

Seller gets MoneyBuyer gets Shares

BrokerBroker

Clearing BankDepository

SECURITIES PAY-IN

FUNDS PAY-IN

SECURITIES PAY-OUT

FUNDS PAY-OUT

SETTLEMENTS: THE NEW ORDER


COMPARITIVE STUDY OF DP S IN

AHMEDABAD


In the early 1990s, the government decided to strengthen the financial infrastructure in our country and one of the steps in this direction was the dematerialization of securities. And as a result of this we have two depositories, namely, National Securities Depository Ltd. (NSDL) and Central Depository Services Ltd. (CDSL) in our country. The enactment of the Depositories Act in August 1996 paved the way for establishment of NSDL, the first depository in India. This depository, promoted by institutions of national stature, responsible for the economic development of the country, has since established a national infrastructure that handles most of the trading and settlement in the dematerialized form in the Indian capital market.

By looking at the spread of their operations, one would find out that the NSDL is way ahead of CDSL. This is because of various reasons- the major reason being that NSDL started much earlier in 1996, as compared to CDSL, which started operating from 1999. NSE, being one of the promoters of NSDL, made it mandatory for security holders to dematerialize their securities phase-by-phase. Many believe that the over-all set-up of the infrastructure developed by NSDL for DPs is much superior to that of CDSL. For example, it is a known fact that NSDL has a much better back-up system than CDSL.

So, as of now, in India NSDL has more DPs under its umbrella than CDSL.

In our study of various DPs of Ahmedabad, we have found out that almost all the DPs are registered with NSDL, however some of the DPs like HDFC, Ratnakar Securities, Shah Investors and Stock Holding Corporation of India are also registered with CDSL.

The Indian capital market moved along with international standards as it can be seen in the case of dematerialization. It was realized by the broker community that it would take more than stock broking services for them to survive in this new era of the vibrant capital market. Therefore, the large broking houses of the country started offering Demat services, thus providing a one-stop-shop for their clients. They now provide their clients with broking services, Demat facilities, financial consultancy, asset management services and so on. So dematerialization has helped them to retain their existing clientele and expand it at the same time by attracting new clients.

On the other hand, the major financial institutions of the country were also attracted by the opportunity, as they could also provide demat services using their existing network of branches.

(1) NSDL V/S CDSL

(2) BANKS V/S BROKERS

ANALYSIS OF THE STUDY ON DPs


In our study, we found out that in Ahmedabad all the large and old brokerage firms provide Demat services to their clients. And the competition doesn’t end here as many banks like UTI, HDFC, KCCB and Nutan Nagarik also provide the demat services.Thus, we can now conclude that the ball is in the customers’ court as it is up to the customer to decide whether he should be loyal to his banker or broker.

The Banks and the Broking houses are different in providing their services as a DP. It is difficult to compare them since their mode of operation is different. Therefore, the services and the charges for the same are also different. Some of the banks provide DP services only to those clients who have an account in their bank-in other words a client who wants to open a Demat account with a bank must be an account holder of the bank. This was observed by us in the case of Nutan Nagrik Bank which requires its clients to be an accountholder of the bank in order to avail of the demat services.

NSDL is India’s first depository which started in the year 1996, and soon after that, there were some early birds in Ahmedabad to. In our sample of 13 DPs in Ahmedabad including banks, Shah Investors is the oldest DP to be incorporated in the year 1994. Among the banks UTI seems to be the initiator, which started providing DP services since 1996 followed by Investmentor Securities in 1995. The most recent players in this field include Nutan Nagrik Sahakari Bank Ltd. and ACML, which started its operation from 2001. Today there are more then 20 DPs in Ahmedabad. As Indian capital market is in its growing phase, it seems that there is a good scope for new players to enter this competitive market.

Earlier the Indian market makers were not conversant with Demat system. But with the emerging capital markets and the transformation of the paper-based settlement to electronic form, the incorporation of DPs would require technical know-how of the process. As per the norms of NSDL it is mandatory for each and every DP including all the branches to have at least one NSE Certificate for Financial Management (NCFM) qualified employee. Kalupur Commercial Co-operative Bank ranks the highest among the DPs surveyed with 18 out of 20 employees being NCFM qualified. Ratnakar has 10 NCFM certified employees. We found out in our study that this NCFM certified employees to total employees ratio is increasing by the day. Since NCFM exam is taken in English language, many of the DP employees find it difficult to clear the exams in spite of having the technical knowledge.

(3) INITIATORS AND FOLLOWERS

(4) NCFM – MANDATORY


We found out in our study that many large broking houses in Ahmedabad provide

many services apart from broking. In Ahmedabad many brokers provide services like asset management, demat, financial advice etc. Further in our study we realized that these houses provide additional services apart from their core service of broking in order to retain their clients. In Ahmedabad broker firms like Shah Investors, Pravin Ratilal share & stock broker Ltd. and Investmentor Securities Ltd. provide combination of services apart from broking services. So clients would now get one-stop-shop in terms of such firms.

As we have suggested through out the discussion that it makes sense to provide service bundling. In future the emergence of such firms providing multiple services would increase because of increasing competition and we can conclude that it is an art of survival. As far as banks are concerned HDFC provides broking and asset management apart from banking services and UTI provides financial advice.

Generally DPs have different kinds of clients such as individual clients, HUF firms, NRIs, corporates, clearing members etc. In Ahmedabad, we found that almost all the DPs surveyed had such a combination. And it turned out that individual clients formed the major chunk of the pie. The individual clients form more than 95% of the clientele across all the DPs. But it would be unwise to draw any conclusions from this. Because business generated by other clients like corporates, clearing members etc is much more than that of individual clients.

In our study we found out that Shah Investors has the highest number of clients which stands at nearly 45000, next comes KCCB (35000), Ratnakar Securities (15000), Invetmentor (13450) etc. Though Shah Investor has the highest number of individual clients, the highest number of corporate clients is with Khandwala Securities. Khandwala Securities also has the highest number of clearing members (4) as clients.

Another obvious difference found out was the volume of instructions per day for different DPs. One can easily correlate it with the number of clients with the DPs. These instructions are of three kinds namely Delivery instructions, Account opening instructions and Demat requests.

We found out that ACML gets the highest number of instructions for delivery followed by Stock Holding Corporation of India Ltd. In Account Opening category Nutan Nagarik gets the highest number of instructions, which stands, at 60 instructions per day. The next in line is Invetmentor, Pravin Ratilal securities and ACML. For the last

(5) ‘BROKER + DP’ MAKES SENSE

(6) ‘INDIVIDUALS’ RULE THE ROOST

(7) VOLUME MATTERS


category of Demat request, Pravin Ratilal gets the highest number of instructions (350) next comes Stock Holding Corporation of India (200) and Shah Investors (100).

One can probably make out from this information about the extent of active clientele with the DP. We can infer that Pravin Ratilal and ACML have more active clientele than others. But it is difficult to conclude the difference it makes to their bottom-line.

Isn’t it? As we discussed earlier DPs have different kinds of clients. Some of the clients form a major chunk of revenue, some clients generate major chunk of volume with respect to sub-broker, Corporates etc. So DPs use different strategies to retain such clients. DPs sometimes offer discounted charges to such clients, which bring more business. This differentiation of clients can be done on various basis such as volume, value, as per category of clients etc.

We found out that almost all the DPs in Ahmedabad have such differentiation, though they have their own criteria for differentiating. There is also a possibility of bargaining/negotiation between clients and DPs. We observed that most of the DPs discriminate between the sub-brokers and clients. Discrimination is also done when the volume of transaction varies a lot. Sometimes discrimination is reasonable, at least in business!

Payment systems followed by different DPs is an important factor for comparing them because it determines the level of convenience for the clients. It can also be used as a tool by the DPs to attract their clients. As far as the payment system is concerned we have observed that almost all the broking houses under our study providing DP services have an advance payment, upfront payment and post transaction payment system. Some of them also offer two or all of the three options. Most of the banks follow such a system where payment would be debited directly from their bank account.

In Ahmedabad, many DPs prefer post transaction payment such as Anagram Stockbroking Ltd., Ratnakar Securities, UTI, Investmentor and Stock Holding Corporation of India whereas Goldmine prefers upfront payment. Khandwala, ACML and Pravin Ratilal Share and Stock brokers Ltd. follows advance payment and post payment system.

As we discussed earlier communication between clients and DPs can be done through various modes and it comes into the picture when DPs want to send Statement of Holding (SoH hereafter) and Transaction statement (TS hereafter). As per NSDL

(8) DISCRIMINATION – AN ORDER OF THE DAY!

(9) PAYMENT SYSTEM

(10) ‘ON DEMAND’ IS IN DEMAND:


guidelines it is mandatory for the DPs to send the SoH and TS on quarterly basis. A common pattern observed in majority of the DPs is that they send these statements on a monthly basis if any transaction takes place otherwise they are sent quarterly. Khandwala and Goldmine send the SoH monthly even if no transaction has taken place.

Each time a client enters into a transaction, he/she needs to know the balance in the account. For this purpose some clients may require the SoH and TS more frequently. Therefore the DPs have started providing SoH and Ts on demand, for which additional charges may be imposed. Anagram Stockbroking Ltd., Shah Investors and Stock Holding Corporation of India provide these statements on demand for free which the clients have to go and collect. It may also be e-mailed to the clients as UTI does. In the long run it would be futile to charge the clients for on demand statements, as competition would necessitate the use of technology, which would reduce the cost in any case.

Since the system of Dematerialization has come into existence it has become much easier for the clients to enter into transactions. All one needs to do is to submit the instruction slips duly filled to their respective DP. In doing so if the DP finds any error or inaccuracy with regards to the amount, signature or the details regarding the shares, the DP may reject the same. Some DPs may not charge for the rejected instructions.

Among those DPs that charge their clients for rejected instructions are Infinite Financial Services Ltd., Pravin Ratilal, Investmentor Securities, Nutan Nagrik, Goldmine, UTI and Shah Investors. Moreover these DPs also impose a service tax of approx. 8% on these charges. Therefore small mistakes could cost the client dearly.

In this new era of competition, DPs have introduced many innovative things to retain and add to their clientele. And that reflects in their modes of communication to the clients for sending Transaction Statement and Statement of Holding. We observed that DPs used many new modes of communication apart from communication modes like post and courier. New modes of communications include telephone, e-mail, fax, website and telephone (automatic) where clients can get information 24*7.

In Ahmedabad, all the DPs use post/courier. But, the difference is apparent in offering more convenience to clients through different modes. Shah investors uses e-mail, telephone (automatic) and fax. HDFC and Ratnakar securities have their own website which they update regularly for clients. Clients can access TS and SoH through it. E-mail and Telephone (automatic) are also becoming increasingly common for DPs to serve their clients.

As Demat services became more and more popular, and DPs spread their services across all the sections of the clients, the DPs were driven by competition and thus started

(11) BETTER SAFE THAN SORRY

(12) MODE OF COMMUNICATION

(13) ‘SLIPS’ FOR CLIENTS!


giving more services and convenience to their clients. So as a result of this matters of little importance started getting more and more importance to differentiate one DP from the other. This was visible even in the deadlines for submission of instruction slips. Now-a-days, the DPs have became more and more flexible towards their clients. We found out that some DPs set the deadlines in such a way that it would be more convenient to clients. Even some DPs go out of their way to accept the instruction slips of clients, even after the deadlines. Khandwala Securities is the most client friendly in this regard which accepts instruction slips up to 6.00 p.m. This setting of deadlines by DPs is largely dependent on the efficiency of DPs, as all the DPs have to submit these instructions to the depository. So it depends on how much of load/pressure the DPs are willing to take for their clients.

The emergence of Information Technology has created a wide communication network with the widespread use of Internet and a large number of upcoming dotcom companies. The traditional organization is transforming itself into a Net-Savvy organization. Thus more and more people are becoming Net-Savvy and have started transacting with virtual brokers.

Many websites like icicidirect.com, sharekhan.com etc. provides facility of online trading. As far as the DPs are concerned, most of them have their own websites, which helps one to get detailed information about their organization. NSDL has come up with new net-enabled services such as SPEED-e and IDeAS. Some of the DPs have started to subscribe to these in order to enhance their services for the net-savvy clients. In future most of the DPs will provide these services, as more and more people will demand for the same.

SPEED-e is a net-based service, which helps you to enter your DP transactions through the Internet. You need not physically submit the slips to the DP but you can do the same at your convenience from your home or office with the help of Internet.

On the basis of our study of DPs, we observed that Pravin Ratilal, HDFC, Khandwala and UTI have subscribed to SPEED-e services and provide the same to the clients. As of now very few clients have availed of this service. This may be due to their lack of willingness to use the Internet, but the future scenario is likely to change with the gradual acceptance of Internet.

(14) BRICK ‘N CLICK

(15) B-e SPEED-e


More and more people are becoming net-savvy with the emergence of Information Systems and Technology. People have started transacting with virtual brokers. Many websites like icicidirect.com, sharekhan.com etc. provides this facility of online trading. Thus it is becoming increasingly necessary to know the balance online. So this so-called ‘net-savvy community’ found their answer in terms of IDeAS. Through IDeAS the DP provides a net-based access to the SoH and TS for those customers who require knowing their balance on a more frequent basis than. In Ahmedabad also many DPs have now subscribed to IDeAS services. Some of them being HDFC, Khandwala, Shah Investors, Goldmine, KCCB, and ACML, though the client base for this service is not very large. In our sample, ACML has highest number of clients (more than 200) followed by Khandwala (100) and KCCB (70).

An interesting aspect of comparing the DPs is the charge structure as it affects the choice of the clients for choosing a particular DP. We observed that the whole charge structure could be divided in two parts- fixed and variable. All the DPs have set different charges and in some case nothing is charged for some of the services. This is an area where the DPs can attract the attention of the clients by charging differently as compared to competitors.

Fixed component of charge structure includes A/c opening charges and annual maintenance charges. Variable charges include purchase and sell charges based on number of transactions, Demat and Remat charges based on the number of certificates etc.

Shah Investors is one of the DP that has high A/c opening charges (Rs.190/- including stamp paper charges) followed by Ratnakar (Rs.175/-), ACML (Rs.150/-) and Infinite (Rs. 150/-). Annual maintenance charge of Stock Holding Corporation of India is the highest at Rs.350/-. Most of the other DPs charge Rs. 300 per year. ACML charges the least at Rs.150/- per year.

(16) ‘IDeAS CAN CHANGE YOUR LIFE’

(17) ITS ALL ABOUT MONEY, HONEY!


A CLIENTS’ PERSPECTIVE

ANALYSIS OF A CLIENTS’ PERSPECTIVE


After understanding and analyzing the different aspects of various DPs, we were given a task to analyze the clients’ perspective towards DPs. For that we chose a sample of 30 clients of Anagram Securities Ltd. These clients are very important for Anagram Securities Ltd. , as most of them are brokers of Anagram and some are big investors. We chose the questionnaire method for this task. This second stage of our study has become equally important for us as it gives us the other side of the picture.

As we discussed earlier also, it makes sense for prime brokerage firms to provide dematerialization service as well. It works as a supporting service and a one-stop shop for clients. We observed in our study that major clients like brokers, sub-brokers prefer their principal which also provides demat service. It is because it would become easy for them to settle any problems regarding pay-in. Thus it would save their time and would provide them with more flexibility in their work.

When clients decide about the DP, there are many issues on their mind. They also consider many implicit costs. For example many clients would prefer a DP which is nearer to their home/office because it would give them convenience. We found out in our study that many individual clients consider this issue important while choosing a DP. It doesn’t make much difference to big brokers and sub-brokers as they have far greater volumes and so they give more importance to the charges, relationships and so on.

All the clients, whether an individual, a sub-broker or a main broker, would consider charges closely while choosing a DP. This is the most important factor which influences the clients’ choice of DP. There are two types of charges in demat, namely, fixed and variable. The major fixed charge is annual maintenance charge and the major variable charge is the transaction (buy/sell) charge. Active clients would look at variable charges closely while selecting a DP. On the other hand, those clients who are not so active would look at annual maintenance charge closely.

Customer service is one of the most important issues for clients. It includes a variety of things, starting from the sending of the statement of holding and the transaction statement on time, to providing the latest internet-based SPEED-e and IDeAS facilities. The clients look for that DP which matches their need of services. Certain clients require the Statements more frequently than other clients and may find it cumbersome to visit the DP

(2) LOCATION

(3) CHARGES

(4) CUSTOMER SERVICE

(1) BROKER – DP & CONVENIENCE


everyday for the same. Now-a-days, the number of internet-friendly clients is increasing due to the Information revolution. At present there may not be many clients willing to use the Internet, but this number is only set to rise in future, and this could provide a wide scope of improvement.

It is very important for DPs to provide satisfactory level of services with consistency. This means that the quality of service should not keep changing from time to time. The client should be able to estimate the timings and functioning of the services with a fair level of accuracy. By providing services with consistency creates reliability. One important aspect here is that the client should be assured that their transactions are all valid and safe as far as the services of the DP are concerned.

Many clients also consider goodwill of the DPs, because ultimately they are putting their securities with the DPs and therefore taking risk. So the clients would prefer well-established DPs. We observed that clients have positive perceptions regarding Anagram’s goodwill, the key reason behind this is the goodwill of Lalbhai Group in the industry. It takes time, money and loads of efforts in building a good reputation for a company. The clients should be convinced of the credibility and the reliability of the organization. Anagram passes this test with flying colors as almost 90% of the clients are happy and satisfied with it.

Familiarity with the organization is also one of the key issues for clients. We found out that some of Anagram’s clients have very good relationship with the staff members. Clients become aware of the culture, people, procedures etc of the organization over a period of time. So this also influences the clients’ decision. Familiarity with the organization gives certain level of comfort to the clients. We can say that a good relationship will lead to good business. In any organization, maintaining relationships is of utmost importance. As some of the clients have been dealing with Anagram since its inception, it is like a second home to them. This is a very positive sign for Anagram. Such satisfied clients spread through word of mouth the goodwill of Anagram, thus attracting more clients.

(5) RELIABILITY

(6) GOODWILL

(7) FAMILIARITY WITH THE ORGANIZATION

(8) TIMINGS FOR INSTRUCTION SLIP SUBMISSION


Timings for submission of instruction slip is not the critical issue, still for many clients it is not a non-issue either. Generally clients would prefer some flexibility on the part of DPs to accept the instruction slips. Most DPs are quite flexible in this regard and have no problems in adjusting to the requirements of the clients. Anagram too is pretty much flexible in this regard.


PROBLEMS AND SCOPE OF DEMAT

DEMAT SYSTEM - PROBLEMS & SCOPE


Like they say, ‘Every coin has two sides’. Despite all the efficiencies brought-in by the demat system, there are certain drawbacks to which your attention needs to be drawn.

The Indian systemic inefficiency has actually turned the virtual queue into a reality. The dematerialization process for paperless trading of shares has created a virtual queue, which will take months, if not years, to process. It highlights several inefficiencies in the new system and has thrown up an important new tax issue.

Demat ought to take care of many inefficiencies. The tedious process of physically transferring ownership of shares is shortened. Instead of several months, ownership is supposed to change hands instantly. The chance of a bad transfer because a signature doesn't match is reduced to zero. So are the opportunities of thievery in the mail or forged share certificates. The twin problems of odd lots and jumbo lots both disappear since it is possible to trade either a single demat share or lakhs at a shot.

So demat solves various familiar problems that plague every stock market that operates with physical paper. No wonder when SEBI initiated the process of demat it was welcomed wholeheartedly by most investors.

Some insecure company managements dislike rapid, unsupervised transfer of ownership. The odd unscrupulous investor who deliberately messed up his signature and gave bad delivery in order to obtain interest-free cash also dislikes demat. But the vast majority welcomed it. One instantly beneficial effect was the easing of brokerage rates. Another was a vast increase in institutional volumes. When you buy physical shares from the stock market, you could never be certain of the validity of the title of shares. There were many reasons- the sellers' signature did not match, or the certificates were fake, forged or stolen, and so on.

Demat shares are supposed to obviate these problems. Buying shares in the demat form always guarantees you a good title as soon as the settlement is over. The biggest attraction of trading in demat shares is that the shares you buy come with a clean title and immediately after the settlement on the relevant stock exchange.

But then problems started surfacing. First of all, the demand for demat services was severely under-estimated. According to estimates, there are now 9 million pending individual applications for demat accounts. The system has been overloaded and reached a breaking point. As a result, somebody opening a demat account can expect to spend several months waiting for the paperwork to be completed.

Meanwhile, a physical trading route does exist for the individual investor who needs to raise cash in a hurry. But while a physical sale is possible, all transfers (in the shares of designated companies) now involve a compulsory demat. Since the buyer of physical securities must factor in a long waiting period, there is a wide differential between paper trade quotes and demat quotes. The discount on physical paper is now around 15 percent, or more.


The amount of paperwork involved in the demat process is also seriously painful. Some of it is absurd. For example, if Mr and Mrs Haridoss Paul hold some shares in the name of Mr & Mrs Haridoss Paul and a second batch in the name of Mrs & Mr Haridoss Paul, they will need to open two demat joint accounts with their names reversed! There are other niggling little details.

Brokers and banks are therefore quite reluctant to initiate the process for their clients. Some refuse outright. Others disregard the SEBI directives and insist that demat clients open low-interest or zero-interest accounts as a sort of extra fee. At a minimum deposit of Rs 1,000 per demat account and 9 million individual accounts, the amount already blocked in these low-interest or zero-interest accounts adds up to around Rs.900 crore. Assuming this trend continues, and given that there are more than 23 million individual investors, the eventual cost of demat would include sub-optimal returns on about Rs 2,300 crore. That is a large and unforeseen opportunity cost for any new system.

There are further problems. The simple fraud of stealing a share certificate out of the mail and selling it in the kerb is no longer possible with a demat account. But the only proof of ownership for demat shares is a receipt. Trades and transfers are carried out on the basis of that piece of paper. Anybody who has the account number and knows the details can order a transfer of shares from one account to the other very easily.

Forgery is actually easier. The receipt itself isn't too difficult to duplicate either. Frauds of this nature haven't started happening yet at least on a large enough scale to draw attention. But it is something that gives the investor pause for serious thought. It's bound to occur sooner or later. And given the lack of a paper trail, it will be difficult to establish the fraud, let alone prosecute and offer relief to victims.

Another problem lies in the tax treatment of demat shares. With dated physical transfer certificates, it is fairly easy to calculate Capital Gains Tax (CGT) liability. Demat shares are fungible and don’t have distinctive numbers. It is not easy to track the sale or trade of shares after they are dematerialized.

Suppose the investor has two lots of shares of the same company. One lot was bought several years ago and is hence, liable only to long-term capital gains tax, in case of a sale. This is levied at 10 per cent flat or an inflation-indexed at 22 per cent whichever is lower. The second lot was, however, bought within the last fiscal. This is liable to 33 per cent short-term CGT in the event of a sale.

All this has of course changed, with the Budget 2004-2005 announced on 8th of July by the Finance Minister, Shri P. Chidambaram. There will be no more long-term capital gains tax, and a flat rate of 10% short-term capital gains tax.

If you sold a physical lot, presumably you would deliver the older set to minimize the payout. But in case of a demat, there is an extremely grey area about which CGT rate should be levied. The Central Board of Direct Taxes hasn't worked out a clear procedure for distinguishing the earlier lot from the later lot. You could find yourself locked in a


dispute and facing a demand for short-term capital gains tax. This is obviously of major significance.

There are several more niggling problems. In theory, the demat is supposed to be within 24 hours. However, PSU bank timings don't conveniently overlap trading times. Banking hours close at 2 pm while trading continues till 4.30 pm. On average, a transfer will take 48 hours or more. On occasion, the demat account may be temporarily credited with shares pending confirmation of a transfer. An unwary investor who sells without ensuring that he has actually received a confirmed transfer is open to everything starting from severe embarrassment and ending with charges of fraud.

None of these problems are insurmountable. But it will require a coordinated effort from various agencies to sort them out. SEBI and RBI have to come up with a way of streamlining the demat process and regularizing the status of deposits accepted, if any. The NSDL and CSDL will have to speed up their registration procedures and devise a more foolproof system of receipt and transfer. Banks and stock exchanges will have to coordinate working hours and the use of temporary entries. The CBDT will have to come up with clear tax guidelines.

None of these are processes, which needed to be ratified or mandated by Parliament. So the excuse of political instability cannot be trotted out for delays. Demat has already been in progress for a year.

Rule 100 of market regulator SEBI determines whether the shares delivered in a settlement, are good or not. Under rule 100, the shares that have been transferred any number of times can still be withdrawn by the company, if a transfer is found to be invalid for any reason.

Suppose A sells physical shares to B and B gets them dematerialized. Later B sells the shares in the stock exchange and C buys them. Meanwhile A discovers that his share certificates were stolen and fraudulently sold by someone else. He gets a court order restraining the company from further transferring the shares and attaching them (currently in possession of C). This is known as 'stop transfer'. So C who has bought dematerialized shares is now struck with the shares. He cannot sell these shares since they would be frozen in his account

In demat shares, pre-demat problems about the validity of a share do not effect the interest of the buyers after dematerialization. Shares go through a verification process at the registrars' before they are dematerialized.

Therefore the responsibility lies with the registrar. The registrar must find a remedy if the original transfer of shares, before their dematerialization comers under doubt. But there is a catch. The company and its registrars are not responsible if the reasons for original transfer being invalid were not available at the time of dematerialization. Matters have to be dealt with on a case to case basis. Which means that even demat buyer may find that


his shares have been frozen in his demat account. This kind of case has to be contested in court by the parties involved.

This issue is not directly addressed in The Depositories Act, 1996. SEBI’s regulations on depositories and depository participants also do not mention the issue. Matters get more complex if an investor has traded further in shares of the same company in his demat account.

Investors do not like receiving physical share certificate because the process of getting the shares converted into dematerialised form takes anywhere between four to six weeks. Many investors look to sell immediately on listing especially a stock that is up 60 per cent on listing. Of course, if 25 per cent of all investors are barred from trading because they hold physical shares it automatically reduces the floating stock and potentially creates a perfect situation for stock prices to remain artificially high.


SUGGESTIONS & RECOMMENDATION


Based on the our first study done on the various depository participants in Ahmedabad and on clients perspective, we came to know about Anagram’s status vis-à-vis other DPs.

We focused on key areas too for comparison. We have made following suggestions which will help Anagram to rethink about different aspects.

NSDL charges its DPs for the various services and the DPs in turn charge their clients on the basis of their own standards, thus differentiating themselves from their competitors. Based on our observations we can say that the annual maintenance charge of ACML is the least, which stands at Rs. 150/-. They also charge the least for buy and sell transaction, which charges nothing for purchase transactions and Rs. 13 for sell transaction. Thus, those clients who consider the charges to be a major factor might go for ACML. We have ranked the DPs that we studied on the basis of their AMC (The DP charging the least gets the first rank and so on)

We suggest that Anagram Securities remain with more or less with the same charges or at the most discriminate among some of the clients while charging for the same services. It should charge less to more active clients to retain them.

In today’s world service to the customers forms the major aspect of differentiation and every organization strives to offer its customers maximum services in order to increase their satisfaction. In our study we observed that many brokers/DPs offer many other services like financial advice, asset management etc. It would give the clients the one-stop solutions for all the financial worries. So we recommend Anagram to also provide financial consulting to the clients. These other services include financial advice,

Rank Name of DP AMC

1 ACML Rs.150/-2 Nutan Nagrik,

Pravin RatilalRs.200/-

3 KCCB Rs.225/-

4 Goldmine Securities Rs.250/-5 Khandwala,

Shah Investors, Investmentor, Infinite Securitiies.

Rs.300/-

(1) CHARGES

(2) SERVICES


asset management, MF schemes etc. It would be very helpful in the long term to retain the clients.

Various DPs provide Transaction Statements and Statement of Holdings through different modes. The basic objective behind this is to give options to the clients which will take care of their convenience and flexibility in the operations. Some DPs provide these statements through courier, e-mail, phone(HI), phone(A), website etc. Hereunder we have listed some of the DPs’ name and their offerings to the clients.

Serial

No.

Name of DP Courier E-mail

Phone

(HI)

Phone

(A)

Website Fax

1 Shah Investors - -

2 Ratnakar Securities

- - -

3 Goldmine Stocks - - - -

4 Pravin Ratilal - - -

5 UTI - - -

Now it is becoming increasingly important for Anagram to come up with various options of providing TS and SoH to the clients. Currently Anagram provides it through courier only but in our opinion they should provide options to the clients. It should also consider providing TS and SoH on demand. It might charge reasonable amount for the same, which as per our calculations comes in the range of Rs.3/- to Rs.5/-. This, we think, would be competitive enough.

We observed in our study that many DPs have started providing IDeAS and SPEED-e services. This makes these DPs more competitive in terms of attracting those clients who are internet savvy. We felt after reasonable observation that it would be quite necessary for Anagram Securities to survive and compete in the long-run. So here, we strongly recommend them to provide SPEED-e and IDeAS services. This is the area where they can differentiate their services from others. One major thing which supports this argument is the increasing trend of doing online transactions. So it is quite obvious that the future in this area looks good.

The data of some of the competitors which have already started providing these services in Ahmedabad is given below. HDFC and Khandwala Securities provide both the services.

(3) MODE OF COMMUNICATION

(4) SPEED-e & IDeAS


SerialNo.

Name of DP SPEED-e IDeAS

1 Khandwal Int. Fin Services Pvt Ltd 2 Ratnakar Securities Pvt Ltd - 3 Goldmine Stocks Pvt Ltd - 4 ACML - 5 Pravin Ratilal Share & Stockbrokers Ltd. -6 HDFC

Ultimately how you provide the services matters the most. Services should be fast, reliable and with fair degree of consistency. In our survey we asked the clients to rate the different parameters which they consider relevant while choosing their DP. We have included in our survey different aspects like location/ proximity, charges, customer service, security level, reliability, goodwill etc. in our survey we got that customer service is the most important aspect for clients. 25 out of 30 clients have rated it very high while choosing the DP.

SerialNo.

Factor VeryHigh

High Medium Low VeryLow

1 Location/Proximity 14 6 6 4 -

2 Timings for Instruction SlipSubmission

15 8 7 - -

3 Charges 20 5 3 2 -

4 Customer Service 25 4 1 - -

5 Security System 14 9 7 - -

6 Reliability 18 10 2 - -

7 Goodwill 15 14 1 - -

8 Others’ Reference 6 5 10 7 2

9 Familiarity withThe Organization

16 10 4 - -

(5) DELIVERY IS THE KEY


In our study we found that most of the clients of Anagram Securities are fairly satisfied with the demat services of it. But the problem is when it comes to settlement of their dues as majority of them are sub-brokers. So the actual problem is not the demat services but the its more about on broker- sub broker relationship. So at the end we recommend to Anagram to continue providing high level of customer services. And should take care of some minor things which we found out in during the study like sending TS and SoH on time.

Apart form the above recommendations, some of the clients have given suggestions for the scope of improvement in services for Anagram as a whole. They are as follows:

Anagram should focus on the retention of the existing clients by improving the services rather than trying to increase the number of clients. This would ensure client satisfaction and also increase its goodwill.

The website of Anagram should provide the latest information and it should make sure that authentic information with respect to their research is available.

The major focus of Anagram has been on equity so far and it has done quite well. Similarly it should try to concentrate on Mutual Funds which is an emerging area in the financial market.

They should set up a committee that concentrates on the clients and their activities and accordingly makes suggestions to the clients as per their risk- taking ability and other requirements.


ANNEXURE


ANNEXURE –A

QUESTIONNAIRE ON SERVICES PROVIDED BY DEPOSITORY PARTICIPANTS

Note:

(1) We kindly request you to provide the following information to the best of your knowledge.

(2) The information collected through the following questionnaire will be kept confidential and will be used for study purposes only.

________________________________________________________________________

(1) Name of the DP: ____________________________________________________

(2) Year of Incorporation:________________________________________________

(3) Under which Depository are you registered?

NSDL CDSL Both

(4) Which of the following services do you provide apart from depository services?

Broking Asset Management Financial Advice Banking Others (specify): ____________

(5) Where is the Head Office located? _____________________________________

(6) Number of Branches which provide DP services: __________________________

(7) Number of Employees for DP operations: ________________________________


(8) How many of them are NCFM qualified? ________________________________

(9) How many clients do you have? _______________________________________

(10) Please give us an approx. break-up of the following categories of clients as per the number of accounts.

Clearing Members: ________________ Individuals: ________________

HUF: ________________NRI: ________________Corporates: ________________Others: ________________

(11) At your DP, what is the volume of instructions per day in terms of

(i) delivery instructions?_________________________(ii) account opening? ____________________________(iii) demat request?______________________________

(12) Do you charge different categories of clients differently?

Yes No

If, yes, on what basis do you differentiate your clients?______________________________________________________________________________________________________________________________

(Please attach the charge sheet for the same.)

(13) Do you offer free transactions?

Yes No

If yes, to whom? _________________________________________________________________


(14) What is the frequency of sending the Statement of Holding to the clients?

Daily Weekly Fortnightly Monthly

(i) To which kind of clients do you send the Statement of Holding Daily/weekly/fortnightly?__________________________________________________________________________________________________________________________________________________________________________________________

(15) Do you provide the clients with the Statement of Holding on demand?

Yes No

If yes,

(i) To whom? ________________________________________________________

(ii) Do you charge them for the service? _____________________________________________________________________

(iii) If so, what are the charges for the same?_____________________________________________________________________

(16) What mode of communication do you use for sending the Statement of Holding?

Post/Courier E-mail Fax Telephone - Human Interface Telephone - Automatic Website Others specify: ___________


(17) What is the frequency of sending the Transaction Statement to the clients?

Daily Weekly Fortnightly Monthly

(i) To which kind of clients do you send daily/weekly/fortnightly Transaction Statement?__________________________________________________________________________________________________

(18) Do you provide the clients Transaction Statement on demand?

Yes No

If yes, (i) Do you charge them for the service? _________________________________________________________________

(ii) What are the charges for the same? _________________________________________________________________

(19) What mode of communication do you use for sending the Transaction Statement?

Post/Courier E-mail Fax Telephone - Human Interface Telephone – Automatic Website Others specify: ___________

(20) What payment system do you follow for delivery instructions/demat charges?

Advance Payment Collected Post Transaction Payment (Bills dispatched and collected) Direct debit from Bank a/c Others specify _________________________________________________


(21) Do you charge for failed/rejected instructions?

Yes No

If yes, how much? ______________________

(22) What are the timings for the submission of the instruction slips? ________________________________________________________________

(23) Do you accept instructions after the deadlines?

Yes No

If Yes, (i) In which cases? __________________________________________________________________________________________________________________________________(ii) Do you charge for the same? _______________________________________

(iii)If yes, how much? _______________________________________________

(24) What is the deadline for the branches of your DP to submit the instructions to the HO?

____________________________________________________________________________________________________________________________________

(25) If the deadline is not met, what actions are taken?____________________________________________________________________________________________________________________________________

(26) What is the mode of communication between the branch and HO for instruction slips and client requests?

Post/Courier E-mail

Fax Others Please specify ____________________________________________


(27) Have you subscribed to SPEED-e?

Yes No

If yes, (i) How many clients subscribe to these services? ___________________________________________________________

(ii) How do you charge for the same? ___________________________________________________________

(28) Have you subscribed to IDeAS?

Yes No

If yes,

(i) How many clients subscribe to these services? ___________________________________________________________

(ii) How do you charge for the same? ___________________________________________________________

(29) What are the special services that your DP provides to differentiate itself from other DPs?

________________________________________________________________________________________________________________________________________________________________________________________________________________________


ANNEXURE – B

QUESTIONNAIRE FOR CLIENTS’ FEEDBACK

________________________________________________________________________

Note:(1) Please complete the following questionnaire to the best of your knowledge.

(2) The information collected will be kept confidential and will be used for study purpose only.

________________________________________________________________________

(1) Name: - ______________________________________________________________

(2) Address: - ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ ____________________________________________________________

(3) Phone No: - (R) _______________ (O) _______________ (4) Client I.D: - __________________

(5) Name of the Account: __________________________________________________

(6) Age Group: -

Below 25 26-35 36-50 Above 50


(7) Occupation:

Student Business Housewife Trader

Landlord Agriculture Service Broker

Profession Investor Others (specify) _________________________________________

(8) Income Per Month (in IRS): -

Below 25000 25000- 50000

50000-100000

100000-200000

200000-500000

Above 500000

(9) Do you have any accounts in another DP?

Yes No

If yes, which DP? _______________________________________________

(10) While choosing a DP, how would you rate the following factors?(Tick the appropriate)

SERIAL NO.

FACTORVERY HIGH

HIGH MEDIUM LOWVERY LOW

1 Location/Proximity

2Timings for Instruction Slip Submission

3 Charges

4 Customer Service

5 Security System

6 Reliability7 Goodwill8 Others’ Reference

9Familiarity with the Organization


(11) Why have you opened your account at Anagram? _________________________________________________________________ _________________________________________________________________ _________________________________________________________________ _________________________________________________________________

(12) Are you satisfied with the services provided at Anagram?

Yes No

Why? _________________________________________________________________ _________________________________________________________________ _________________________________________________________________ _________________________________________________________________ _________________________________________________________________

(13) How do you rate the services at Anagram?

Excellent Very Good Good Fair Poor

(14) What is the scope of improvement in the services? _________________________________________________________________ _________________________________________________________________ _________________________________________________________________ _________________________________________________________________ _________________________________________________________________ _________________________________________________________________ _________________________________________________________________ _________________________________________________________________

(15) Do you get your Transaction Statement on time?

Yes No


(16) How often do you require your Transaction Statement?

Weekly Fortnightly Monthly Quarterly

(17) Do you get your Statement of Holding on time?

Yes No

(18) How often do you require your Statement of Holding?

Weekly Fortnightly Monthly Quarterly

(19) How would you like to receive the Transaction Statement and the Statement of Holding?

Post/Courier Telephone E-mail Fax

Visit DP personally

(20) Are you aware of the SPEED-e services?

(SPEED-e is a net-based service, which helps you to enter your DP transactions through the Internet i.e. you need not physically submit slips to the DP but you can enter it at your convenience at your home/office)

Yes No

(21) Are you interested in subscribing to SPEED-e services?

Yes


No

If yes, which type do you prefer?

Password Based (The user has to use his user I.D and password to access to the SPEED-e services. You can enter transactions for pay-in into 3 pre-notified broker pool accounts)

Smart Card Based (It works like an ATM card where only the person possessing the smart card and PIN can submit the instructions. Off-market instructions can also be keyed in)

(22) The NSDL charges for SPEED-e are as follows:

Password Based: Rs.30/- per quarter

Smart Card Based: Rs.130/- per quarter

The one-time charges for Smart Card are as follows: If you go for the Card reader with kit: Rs.7000/- If you go for the Card alone: Rs.1000/-

Which of the above would you be willing to go for?

None

Password Based for your residence/office Password Based using computer system at Anagram

Smart Card Based with reader and used at your residence/office

Smart Card Based with card alone using computer system at Anagram

(23) Are you aware of the IDeAS Services?

(IDeAS is a net-based access to Statement of Holding and Transaction Statement)

Yes No


(24) The NSDL charges for IDeAS is Rs.10 per quarter?

Would you be willing to subscribe?

Yes No

ANNEXURE - C

COMPARATIVE CHARGE STRUCTURE OF VARIOUS DPs - 1

Serial No.

Name of DP A/C Opening

Annual Maintenance

Transaction

Buy Sell

1Anagram Stockbroking Ltd

Rs.50/- Rs.300/- NIL Rs.18/-

2 HDFC NIL Rs.299/- ( 0.04%* or Rs.25/-)**

3Khandwala Int. Fin Service Pvt. Ltd.

NIL Rs.300/- NIL Rs.18/-

4 Shah Investors Rs.190/- Rs.300/- NIL Rs.15/-

5Ratnakar Securities Pvt Ltd

Rs.175/- Rs.200/- Rs.15/- Rs.15/-

6 UTI NIL Rs.200/- Rs.12/- Rs. 23/-

7Goldmine Stocks Pvt. Ltd.

Rs.60/- Rs.250/- NIL Rs.15/-

8Investmentor Securities Ltd.

Rs.60/- Rs.300/- NIL (0.04%* or Rs.20/-)**

9

Kalupur Commercial Co-operative Bank

Rs.60/- Rs.225/- (0.02%* or Rs.10/-)** (0.02%* or Rs.15/-)**

10Stockholding Corporation of India

Rs.100/- Rs.350/- Rs.15/-(0.05%* or Rs.15/-)** +

depository charges

11Nutan Nagarik Sahakari Bank Ltd.

Rs.70/- Rs.200/- (0.02%* or Rs.10/-)** (0.02%* or Rs.15/-)**


12 ACML Rs.150/- Rs.150/- NIL Rs.13/-

13Pravin Ratilal Share & Stock Brokers Ltd.

NIL Rs.200/- NIL (0.02%* or Rs.20/-)**

14Infinite Fin Services Pvt Ltd

Rs.150/- Rs.300/- (0.02%* or Rs.15)** (0.04%* or Rs.15/-)**


Serial No.

Name of DP Demat Demat Per Certificate Remat Remat Per Certifiate


Rs.30/- Rs.2/- Rs.30/- Rs.20/-

2 HDFC Rs.35/- Rs.3/- - Rs.10/-


Rs.28/- - - -

4 Shah Investors Rs.30/- Rs.2/- Rs.50/- Rs.10/-


Rs.30/- Rs.5/- NIL NIL

6 UTI Rs.50/- Rs.2.50/- Rs.50/- Rs.20/-


Rs.30/- Rs.2/- Rs.50/- Rs.13/-


Rs.20/- Rs.3/- Rs.20/- Rs.25/-

9


Rs.25/- Rs.3/- - (0.01%* or Rs.10)**


Rs.25/- Rs.3/- Rs.25/- Rs.25/-


Rs.25/- Rs.3/- Rs.15/- 0.03%*


12 ACML Rs.30/- - NA NA


Rs.25/- Rs.2/- Rs.50/- Rs.10/-

14Infinite Fin Services Pvt Ltd.

Rs.25/- Rs.2/- Rs.25/- Rs.10/-


Serial No.

Name of DP Custody Pledge/Hypothecation

Creation Closure Invocation


Rs.1.50/- per quarter Rs.50/- Rs.50/- Rs.25/-

2 HDFC Re.1/- per month (0.02%* or Rs.25)**


As per NSDL Rs.50/- Rs.25/- Rs.25/-

4 Shah Investors NIL Rs.30/- Rs.10/- Rs.10/-


Re.1/- per month Rs.50/- - Rs.25/-

6 UTI Rs.1.75/- per quarter (0.02%* or Rs.25)** Rs.50/- Rs.50


Re.1/- per month NA NA NA


- Rs.30/- Rs.20/- -

9Kalupur Commercial Co-operative Bank

Rs. 0.75/- per month (0.02%* or Rs.50)**


Re.1/- per month 0.02%+ NSDL charges Rs.50/-


Re.1/- per month (0.02%* or Rs.35/-)**

12 ACML Re.1/- per quarter Rs.25/- Rs.25/- Rs.25/-


NIL Rs.50/- Rs.50/- Rs.50/-

14Infinite Fin Services Pvt. Ltd.

Re.1/- per quarter (0.02%* or Rs.25)**


Note:(1) * means ‘on the value of the transaction’.(2) ** means ‘whichever is more’. (3) Service tax is applicable as per the norms.(4) Account opening charges include form fees and stamp charges.

ANNEXURE – D

BREAK-UP OF CLIENTS OF VARIOUS DPs

Serial No. Name of DP Total Individuals HUF NRI CorporatesClearing members

Others


10272 10000 130 15 125 2 0

2

Khandwala Int. Fin Service Pvt. Ltd.

12000 11066 300 30 400 4 200

3Shah Investors

45000 44498 100 300 100 2 0


9000 8923 15 10 50 2 0


13453 13338 71 19 24 1 0

6


35000 34615 230 0 155 0 0

7

Nutan Nagarik Sahakari Bank Ltd.

4650 4525 94 2 29 0 0

8 ACML 11180 10000 1000 55 125 0 0

9 Ratnakar Securities Pvt. Ltd

15000 14700

300 (rest all)


NOTE: SOME OF THE DPs WERE NOT WILLING TO DISCLOSE THE BREAK UP.

GRAPHICAL PRESENTATION OF THE NUMBER OF CLIENTS (INDIVIDUALS ONLY)


B IBL IOGRAPHY


Books

Avadhani, V.A. Marketing of Financial Services and Markets. Mumbai: Himalaya Publishing House,1999. 639 pp.

Cooper, Donald R.; and Schindler, Pamela S. Business Research Methods. 6th edn. New Delhi: Tata Mc Graw-Hill Publishing Company Limited, 2002. 703 pp.

Dalton, John M. How the Stock Market Works. 2nd edn. New Delhi: Prentice Hall of India Limited, 1997. 325 pp.

Literature provided by NSDL.

Pathak, Bharati V. Indian Financial System. Delhi: Pearson Education (Singapore) Pte. Ltd., 2003. 592 pp.

Pandian, Punithavathy. Security analysis and Portfolio Management. New Delhi: Vikas Publishing House Ltd., 2001. 464 pp.

Rao, S. Sreenivas. Handbook For Writers and Editors. Ahmedabad: Ahmedabad Management Association, 2002. 139 pp.

Sharma, A.K. Indian Stock Market Regulation, Performance and Perspective. New Delhi: Deep and Deep Publications Pvt. Ltd., 2001. 154 pp.

Internet Documents

www.nsdl.co.inwww.moneypore.comwww.indiainfoline.comwww.cdslindia.comwww.bseindia.com

BIBLIOGRAPHY

http://www.bseindia.com/

http://www.cdslindia.com/

http://www.indiainfoline.com/


http://www.nsdl.com/

Demat System in India

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