Introduction to Finacial Markets Final with refence to cdsl

7/29/2019 Introduction to Finacial Markets Final with refence to cdsl

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CHAPTER: 1

1.1 INTRODUCTION TO FINACIAL MARKETS IN INDIAWITH DEFINITION:

A financial market is a market in which people and entities

can trade financial securities, commodities, and otherfungible items of value

at low transaction costs and at prices that reflect supply and demand.

Securities include stocks and bonds, and commodities include precious

metals or agricultural goods.

There are both general markets (where many commodities are traded) and

specialized markets (where only one commodity is traded). Markets work by

placing many interested buyers and sellers, including households, firms, and

government agencies, in one "place", thus making it easier for them to find

each other. An economy which relies primarily on interactions between

buyers and sellers to allocate resources is known as a market economy in

contrast either to a command economy or to a non-market economy such as

a gift economy.

In finance, financial markets facilitate:

The raising ofcapital (in the capital markets) The transfer ofrisk(in the derivatives markets) Price discovery Global transactions with integration of financial markets The transfer ofliquidity (in the money markets) International trade (in the currency markets)
http://en.wikipedia.org/wiki/Trade_(financial_instrument)http://en.wikipedia.org/wiki/Securitieshttp://en.wikipedia.org/wiki/Commodityhttp://en.wikipedia.org/wiki/Fungiblehttp://en.wikipedia.org/wiki/Transaction_costhttp://en.wikipedia.org/wiki/Supply_and_demandhttp://en.wikipedia.org/wiki/Market_economyhttp://en.wikipedia.org/wiki/Command_economyhttp://en.wikipedia.org/wiki/Market_economicshttp://en.wikipedia.org/wiki/Gift_economyhttp://en.wikipedia.org/wiki/Financehttp://en.wikipedia.org/wiki/Capital_(economics)http://en.wikipedia.org/wiki/Capital_markethttp://en.wikipedia.org/wiki/Risk#Risk_in_financehttp://en.wikipedia.org/wiki/Derivatives_markethttp://en.wikipedia.org/wiki/Liquidityhttp://en.wikipedia.org/wiki/Money_markethttp://en.wikipedia.org/wiki/International_tradehttp://en.wikipedia.org/wiki/Currency_markethttp://en.wikipedia.org/wiki/Currency_markethttp://en.wikipedia.org/wiki/International_tradehttp://en.wikipedia.org/wiki/Money_markethttp://en.wikipedia.org/wiki/Liquidityhttp://en.wikipedia.org/wiki/Derivatives_markethttp://en.wikipedia.org/wiki/Risk#Risk_in_financehttp://en.wikipedia.org/wiki/Capital_markethttp://en.wikipedia.org/wiki/Capital_(economics)http://en.wikipedia.org/wiki/Financehttp://en.wikipedia.org/wiki/Gift_economyhttp://en.wikipedia.org/wiki/Market_economicshttp://en.wikipedia.org/wiki/Command_economyhttp://en.wikipedia.org/wiki/Market_economyhttp://en.wikipedia.org/wiki/Supply_and_demandhttp://en.wikipedia.org/wiki/Transaction_costhttp://en.wikipedia.org/wiki/Fungiblehttp://en.wikipedia.org/wiki/Commodityhttp://en.wikipedia.org/wiki/Securitieshttp://en.wikipedia.org/wiki/Trade_(financial_instrument)


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DEFINITION

In economics, typically, the term market means the aggregate of possible

buyers and sellers of a certain good or service and the transactions betweenthem.

The term "market" is sometimes used for what are more strictly exchanges,

organizations that facilitate the trade in financial securities, e.g., a stock

exchange or commodity exchange. This may be a physical location (like

the NYSE, BSE and NSE) or an electronic system (like NASDAQ). Much

trading of stocks takes place on an exchange; still, corporate actions (merger,

spinoff) are outside an exchange, while any two companies or people, for

whatever reason, may agree to sell stock from the one to the other without

using an exchange.

Trading of currencies and bonds is largely on a bilateral basis, although

some bonds trade on a stock exchange, and people are building electronic

systems for these as well, similar to stock exchanges.

Financial markets can be domestic or they can be international.

Therefore we can conclude saying it is any market place where buyers and

sellers participate in the trade of assets such as equities, bonds, currencies

and derivatives.


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1.2 TYPES OF FINANCIAL MARKETS

Within the financial sector, the term "financial markets" is often used to

refer just to the markets that are used to raise finance: for long term finance,the Capitalmarkets; for short term finance, the Moneymarkets.Money markets and capital markets are parts of financial markets. The

instruments bear differing maturities, currencies, credit risks, and structure.

Therefore they may be used to distribute the exposure.

I. CAPITAL MARKETSA capital market is a market for financial assets which have a long or

indefinite maturity. Generally it deals with long term securities which have a

maturity period of above one year. Capital market may be further divided

into:

(a) Industrial securities market

(b) Govt. securities market and

(c) Long term loans market.

FINANCIAL

MARKETS

Capital

market

Money

market


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So capital markets are financial markets for the buying and selling of long-

term debt- or equity-backed securities. These markets channel the wealth of

savers to those who can put it to long-term productive use, such as

companies or governments making long-term investments.

Thus capital market generally deals in medium and long-term funds.

Companies and governments use capital markets to raise funds for their

operations; for example, a company may issue an IPO while a government

may issue a bond in order to conduct new or expand

ongoing activities. Investors purchase securities in the capital markets in

order to extract a return and earn profit on the securities.

The market where securities are traded known as Securities market.

It consists of two different segments namely primary and secondary market.

1. Primary market :The primary market deals with new or fresh issue of securities and is,

therefore, also known as new issue market. In primary markets, new stock or

bond issues are sold to investors, often via a mechanism known

as underwriting. The main entities seeking to raise long-term funds on the

primary capital markets are governments (which may be municipal, local or

national) and business enterprises (companies). Governments tend to issue

only bonds, whereas companies often issue either equity or bonds. The main

entities purchasing the bonds or stock include pension funds, hedge

funds, sovereign wealth funds, and less commonly wealthy individuals and

investment banks trading on their own behalf.


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2. Secondary markets :In the secondary markets, existing securities are sold and bought among

investors or traders, usually on an exchange, over-the-counter, or elsewhere.

The existence of secondary markets increases the willingness of investors in

primary markets, as they know they are likely to be able to swiftly cash out

their investments if the need arises

The secondary market can also be further divided as:

a) Spot market:The spot market where securities are traded for immediate delivery and

payment.

b)Forward market:The forward market is a market where the securities are traded for future

delivery and payment. This forward market is further divided into

Futures and Options Market.


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II. MONEY MARKETSMoney market is a market for dealing with financial assets and securities

which have a maturity period of up to one year. In other words, its a

market for purely short term funds. Generally money market does not

deal in cash or money as such but simply provides a market for credit

instruments such as bills of exchange, promissory notes, commercial

paper, treasury bills, etc. These instruments help the business units, other

organizations and the Government to borrow the funds to meet their

short-term requirement. Most of the money market transactions are taken

place on telephone, fax or Internet. As money became a commodity,

the money market became a component of the financial markets for

assets involved in short-term borrowing, lending, buying and selling with

original maturities of one year or less. Trading in the money markets is

done over the counter and is wholesale.

Various instruments exist, such as Treasury bills, commercial

paper, bankers' acceptances, deposits, certificates of deposit, bills of

exchange, repurchase agreements, federal funds, and short-

lived mortgage-, and asset-backed securities. It provides liquidity funding

for the global financial system.
http://en.wikipedia.org/wiki/Deposit_(finance)http://en.wikipedia.org/wiki/Deposit_(finance)


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1.3 DIFFERENCE BETWEEN MONEY MARKET AND

CAPITAL MARKET:

Money market is distinguished from capital market on the basis of thematurity period, credit instruments and the institutions:

1. Maturity Period:

The money market deals in the lending and borrowing of short-term finance

(i.e., for one year or less), while the capital market deals in the lending and

borrowing of long-term finance (i.e., for more than one year).

2. Credit Instruments:

The main credit instruments of the money market are call money, collateral

loans, acceptances, bills of exchange. On the other hand, the main

instruments used in the capital market are stocks, shares, debentures, bonds,

securities of the government.

3. Nature of Credit Instruments:

The credit instruments dealt with in the capital market are more

heterogeneous than those in money market. Some homogeneity of credit

instruments is needed for the operation of financial markets. Too much

diversity creates problems for the investors.


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4. Institutions:

Important institutions operating in the' money market are central banks,

commercial banks, acceptance houses, nonbank financial institutions, bill

brokers, etc. Important institutions of the capital market are stock exchanges,

commercial banks and nonbank institutions, such as insurance companies,

mortgage banks, building societies, etc.

5. Purpose of Loan:

The money market meets the short-term credit needs of business; it provides

working capital to the industrialists. The capital market, on the other hand,

caters the long-term credit needs of the industrialists and provides fixed

capital to buy land, machinery, etc.

6. Risk:

The degree of risk is small in the money market. The risk is much greater in

capital market. The maturity of one year or less gives little time for a default

to occur, so the risk is minimized. Risk varies both in degree and nature

throughout the capital market.

7. Basic Role:

The basic role of money market is that of liquidity adjustment. The basic

role of capital market is that of putting capital to work, preferably to long-

term, secure and productive employment.


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8. Relation with Central Bank:

The money market is closely and directly linked with central bank of the

country. The capital market feels central bank's influence, but mainly

indirectly and through the money market.

9. Market Regulation:

In the money market, commercial banks are closely regulated. In the capital

market, the institutions are not much regulated.

1.4 ROLE OF FINANCIAL MARKETS

One of the important requisite for the accelerated development of an

economy is the existence of a dynamic financial market. A financial market

helps the economy in the following manner.

Saving mobilization:

Obtaining funds from the savers or surplus units such as household

individuals, business firms, public sector units, central government, state

governments etc. is an important role played by financial markets.

Investment:

Financial markets play a crucial role in arranging to invest funds thus

collected in those units which are in need of the same.


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National Growth:

An important role played by financial market is that, they contributed to a

nations growth by ensuring unfettered flow of surplus funds to deficit units.

Flow of funds for productive purposes is also made possible.

Entrepreneurship growth:

Financial market contributes to the development of the entrepreneurial claw

by making available the necessary financial resources.

Industrial development:The different components of financial markets help an accelerated growth

of industrial and economic development of a country, thus contributing to

raising the standard of living and the society of well-being.

1.5 FUNCTIONS OF FINANACIAL MARKETS

Intermediary Functions:The intermediary functions of financial markets include the following:

Transfer of Resources:

Financial markets facilitate the transfer of real economic resources from

lenders to ultimate borrowers.


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Enhancing income:

Financial markets allow lenders to earn interest or dividend on their surplus

invisible funds, thus contributing to the enhancement of the individual and

the national income.

Productive usage:

Financial markets allow for the productive use of the fund borrowed,

enhancing the income and the gross national production.

Capital Formation:Financial markets provide a channel through which new savings flow to aid

capital formation of a country.

Price determination:

Financial markets allow for the determination of price of the traded financial

assets through the interaction of buyers and sellers. They provide a sign for

the allocation of funds in the economy based on the demand and supply

through the mechanism called price discovery process.

Sale Mechanism:

Financial markets provide a mechanism for selling of a financial asset by an

investor so as to offer the benefit of marketability and liquidity of such

assets.


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Information:

The activities of the participants in the financial market results in the

generation and dissemination of information to the various segments of the

market so as to reduce the cost of transaction of financial assets

Financial Functions Providing the borrower with funds so as to enable them to carry

out their investment plans.

Providing the lenders with earning assets so as to enable themto earn wealth by deploying the assets in production debentures.

Providing liquidity in the market so as to facilitate trading offunds.

it provides liquidity to commercial bank it facilitate credit creation it promotes savings it promotes investment it facilitates balance economic growth it improves trading floors


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CHAPTER: 2

2.1 THE DEPOSITORY ACT

The Depositories Act, 1996, ushered in an era of efficient

capi tal market infrastructure, improved investor protection, reduced risks

and increased transparency of transactions in the securities market. It

also immensely benefited the issuer companies, in terms of reduced

costs and the

effortexpended in manag ing their s harehol der popula ce. Perh

aps, no other single Act other than Depositories Act has had such

profound al l round impact on every s ingle s takeholder in the

Ind ian cap it al mark ets . Thi s legislation envisaged multiple

depositories in India to ensure benefits of competition for the users

of the depository system

2.2 MEANING OF DEPOSITORY PARTICIPANT

In India, a Depository Participant (DP) is described as an agent of the

depository. They are the intermediaries between the depository and the

investors. The relationship between the DPs and the depository is governed

by an agreement made between the two under the Depositories Act. In a

strictly legal sense, a DP is an entity who is registered as such with SEBI

under the sub section 1A of Section 12 of the SEBI Act. As per theprovisions of this Act, a DP can offer depository-related services only after

obtaining a certificate of registration from SEBI.


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SEBI (D&P) Regulations, 1996 prescribe a minimum net worth of Rs. 50

lakh for stockbrokers, R&T agents and non-banking finance companies

(NBFC), for granting them a certificate of registration to act as DPs. If a

stockbroker seeks to act as a DP in more than one depository, he should

comply with the specified net worth criterion separately for each such

depository. No minimum net worth criterion has been prescribed for other

categories of DPs; however, depositories can fix a higher net worth criterion

for their DPs.

2.3 DEPOSITORY SYSTEM

A depository is an organization which holds securities (like shares,

debentures, bonds, government securities, mutual fund units etc.) of

investors in electronic form at the request of the investors through a

registered Depository Participant. It also provides services related to

transactions in securities. At present two Depositories viz. National

Securities Depository Limited (NSDL) and Central Depository Services

(India) Limited (CDSL) are registered with SEBI. The minimum net worth

stipulated by SEBI for a depository is Rs 100 crores.

Depository is an institution or a kind of organization which holds securities

with it, in which trading is done among shares, debentures, mutual funds,

derivatives, F&O and commodities. The intermediaries perform their actions

in variety of securities at Depository on behalf of their clients. Theseintermediaries are known as Depositories Participants. Depository interacts

with its clients / investors through its agents, called Depository Participants

normally known as DPs.


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For any investor / client, to avail the services provided by the Depository,

has to open Depository account, known as Demat A/c, with any of the DPs.

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

interfaces with the investor and provides depository services. Public

financial institutions, scheduled commercial banks, foreign banks operating

in India with the approval of the Reserve Bank of India, state financial

corporations, custodians, stock-brokers, clearing corporations /clearing

houses, NBFCs and Registrar to an Issue or Share Transfer Agent complying

with the requirements prescribed by SEBI can be registered as DP. Banking

services can be availed through a branch whereas depository services can be

availed through a DP.

As per the available statistics at BSE and NSE, 99.9 per cent transactions

take place in dematerialized mode only. Therefore, in view of the

convenience of trading in dematerialized mode, it is advisable to have a

beneficial owner (BO) account for trading at the exchanges.

However to facilitate trading by small investors (Maximum 500 shares,

irrespective of their value) in physical mode the stock exchanges provide an

additional trading window, which gives one time facility for small investors

to sell physical shares which are in compulsory demat list. The buyer

of these shares has to demat such shares before further selling.First an

investor has to approach a DP and fill up an account opening form. Theaccount opening form must be supported by copies of any one of the

approved documents which serve as proof of identity (POI) and proof of

address (POA) as specified by SEBI. Apart from these PAN card has to be

shown in original at the time of account opening.


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2.4 SERVICES PROVIDED BY DEPOSITORY

Dematerialization (usually known as demat) is converting physical

certificates to electronic form Rematerialisation, known as remat, is reverse of demat, i.e. getting physical

certificates from the electronic securities

Transfer of securities, change of beneficial ownership Settlement of trades done on exchange connected to the Depository

2.5 DEPOSITORIES IN INDIA

At present there are two depositories in India, National Securities

Depository Limited (NSDL) and Central Depository Services (CDS).

NSDL is the first Indian depository; it was inaugurated in November 1996.

NSDL was set up with an initial capital of US$28mn, promoted by Industrial

Development Bank of India (IDBI), Unit Trust of India (UTI) and National

Stock Exchange of India Ltd. (NSE). Later, State Bank of India (SBI) also

became a shareholder.

The other depository is Central Depository Services (CDS). It is still in the

process of linking with the stock exchanges. It has registered around 20 DPs

and has signed up with 40 companies. It had received a certificate of

commencement of business from Sebi on February 8, 1999.

These depositories have appointed different Depository Participants (DP) for

them. An investor can open an account with any of the depositories DP. But

transfers arising out of trades on the stock exchanges can take place only

amongst account-holders with NSDLs DPs. This is because only NSDL is


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linked to the stock exchanges (nine of them including the main ones-

National Stock Exchange and Bombay Stock Exchange).

In order to facilitate transfers between investors having accounts in the two

existing depositories in the country the Securities and Exchange Board of

India has asked all stock exchanges to link up with the depositories. Sebi has

also directed the companies registrar and transfer agents to effect change of

registered ownership in its books within two hours of receiving a transfer

request from the depositories. Once connected to both the depositories the

stock exchanges have also to ensure that inter-depository transfers take place

smoothly. It also involves the two depositories connecting with each other.

The NSDL and CDSL have signed an agreement for inter-depository

connectivity.

1 NATIONAL SECURITIES DEPOSITORY LIMITED

NATIONAL SECURITIES DEPOSITORY LIMITED [NSDL] is

a depository promoted by National Stock Exchange of India Limited,

IDBI, UTI, SBI and other financial institutions. NSDL commenced

operation in November 1996.

2 CENTRAL DEPOSITORY SERVICE [INDIA] LIMITED

CENTRAL DEPOSITORY SERVICE (INDIA) LIMITED

[CDSL] is a depository promoted by The Stock Exchange, Mumbai

jointly with SBI, Bank Of India, HDFC Bank and other financial

institutions. CDSL commenced its operations in July 15

th

1999.


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CHAPTER: 3

3.1 INTRODUCTION TO CENTRAL DEPOSITORY

SERVICE (INDIA) LIMITED [CDSL]

Central Depository Services Limited (CDSL) is the second Indian central

securities depository based in Mumbai. Its main function is the holding

securities either in certificated or uncertificated (dematerialized) form, to

enable book entry transfer of securities. CDSL is promoted by Bombay

Stock Exchange Limited (BSE) jointly with State Bank of India, Bank of

India, Bank of Baroda, HDFC Bank, Standard Chartered Bank and Union

Bank of India and CenturionBank.

A Depository facilitates holding of securities in the electronic form and

enables securities transactions to be processed by book entry. The

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 dematerialisation 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.


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CDSL was promoted by BSE Ltd. jointly with leading banks such as State

Bank of India, Bank of India, Bank of Baroda, HDFC Bank, Standard

Chartered Bank and Union Bank of India.

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 SEBIin February, 1999.

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

Settlement of trades in the demat mode through BOI ShareholdingLimited, the clearing house of BSE Ltd., started in July 1999.

All leading stock exchanges like the National Stock Exchange, CalcuttaStock Exchange, Delhi Stock Exchange, The Stock Exchange,

Ahmadabad, etc have established connectivity with CDSL.

As at the end of Jan 2012, Over 10,000 issuers have admitted theirsecurities (equities, bonds, debentures, and commercial papers), units of

mutual funds, certificate of deposits etc. into the CDSL system.

A Depository facilitates holding of securities in the electronic form

ande n a b l e s s e c u r i t i e s t r a n s a c t i o n s t o b e p r o c e s s e d b y b

o o k e n t r y b y 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


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owner (BO) has to open a demat account through any DP for

dematerialisation 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 , a t regular in tervals , a s ta tement of account which g

ives thedetails of the securities holdings and transactions. The depository

system has effectively eliminated paper-based certificates which were prone

to be fake, forged, counterfe i t resul t ing in bad del iver ie s.

CDSL offe rs an efficient and instantaneous transfer of securities.

CDSL was promoted by Bombay Stock Exchange Limited

(BSE) joint l y with leading b anks such as State Bank of In dia,

Bank of India, Bank of Baroda, HDFC Bank, Standard Chartered

Bank, Union Bank of India and Centurion Bank.

CDSL Ventures Limited (CVL)

CDSL Ventures Limited is a subsidiary of Central Depository Services

(India) Limited. It was set with the motive to provide convenient,

dependable services at affordable prices. CDSL Ventures Limited (CVL) is

a wholly owned subsidiary of CentralDepository Services (India) Limited

(CDSL), a leading securities depository in the country. CVL derives its

confidence from its team, which has a 'Securities Market Domain

Expertise'. CVL has in place a stringent policy and systems to ensure

confidentiality of data. Strong electronic and physical security measures

ensure security of confidential data.

CSDL ventures limited (CVL) is owned subsidiary of central depository

services India limited it is one of the leading depository in the country.


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CSDL is promoted by Bombay stock exchange in association with most of

the leading banks such as bank of India, bank of Baroda, state bank of India,

HDFC. CDSL was set with the motive to provide convenient, dependable

services at affordable prices to all the market participants. According to

SEBI norms any one can act as depository participant (DP) which includes

banks, financial institutes, or even a stock broker and many more. Person

who wants to invest in this field is popularly known by the name beneficial

owner has to open a DMAT account through any of the depository

participant for holding and transferring securities.

3.2 WHY A DEMAT ACCOUNT WITH CDSL

WHY DEMAT

ACCOUNT WITH

CDSL

CONVINIENCE DEPEDABILITY SECURITY


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WHY A DEMAT ACCOUNT WITH CDSL

CONVENIENCE:

WIDE DP NETWORK:CDSL has over 300 DPs spread around cities/towns across the country,

o f f e r i n g c o n v e n i e n c e f o r a n i n v e s t o r t o s e l e c t a D P

b a s e d o n h i s location.

ON-LINE DP SERVICES:The DPs and i t s branches can a lso be d i rec t ly connected to

CDSL thereby providing on-line and efficient depository service to

investors.

WIDE SPECTRUM OF SECURITIES AVAILABLE FOR DEMAT:Over-5000 users have admitted their securities in CDSL consisting 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.

COMPETITIVE FEES STRUCTURE:C D S L h a s k e p t i t s t a r i f f s v e r y c o m p e t i t i v e t o p r o v i d e

a f f o r d a b l e depository services to investors.

INTERNET ACCESS:A DP of CDSL can provide to its BOs their demat account

statement along with a valuation of their holding as per the last


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traded price on BS E an d a su m m a r y o f t h e i r t r an sa c t i o n s

f o r a l l a c c o u n t h o l d e r s through CDSLs internet facility easi. The

BOs can also avail of the facility of execution of all types of

transactions viz, on market, off-market and inter-depository, through

CDSLs internet facility easiest.

DEPENDABILITY:

ON-LINE INFORMATION TO USERS: CDSL's system is built on a centralized database architecture and

thusenab les DPs t o pr ovid e on -

li ne de po si to ry se rv ic es wi th th e la te st status of the investor's

account.

C O N V E N I E N T T O D P S :In case any system related problem develops at the DPs end, it

doesn o t a f f e c t t h e B O s i n t e r e s t i n a n y w a y a s t h e C D S L

d a t a b a s e i s maintained centrally.

CONTINGENCY ARRANGEMENTS:CDSL has made provisions for contingency terminals, which enables aDP

to update transactions, in case of any system related problems at the

DP's office.

MEETING USER'S REQUIREMENTS: C o n t i n u o u s u p d a t i o n o f p r o c e d u r e s a n d p r o c e s s e s i n t u

n e w i t h evolving market practices is another hallmark of CDSL's system.


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AUDIT AND INSPECTION:C D S L c o n d u c t s r e g u l a r a u d i t o f i t s D P s t o e n s u r e c o m p

l i a n c e o f stringent operational and regulatory requirements.

SECURITY:

COMPUTER SYSTEMS:CDSL has state-of-the-art computer systems, data storage methods and

communication networks which ensure the security and integrity of all data

uninterruptedly. All data at CDSL and is automatically mirrored

and t ransmi t ted to a Disas ter Recovery s i te , which i s located

away from the main site.

UNIQUE BO ACCOUNT NUMBER:Each BO in CDSL is allotted a unique account number. This

preventsw r o n g t r a n s f e r o f s e c u r i t i e s i n t h e e v e n t t h e t r a n

s f e r e e s a c c o u n t number is keyed in wrongly.

SYSTEM ACCESS:Only a person at the DPs end who has been pre authorized by

CDSL can access the CDSL system.

INSURANCE COVER:CDSL has obta ined adequate insurance cover for any

unl ikely loss occurring to a BO due to the negligence of CDSL


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3.3 BENEFITS OF CDSL:

Dematerialization of securities with CDSL offers numerous benefits to

the issuer of securities. Some of the benefits are:

In the demat form transfer of securities takes place at CDSL and if theentire issue of a security is held in demat form, the issuer can

save considerable t ime and money being incur red on i t s

share department.

Demat ted secur i t ies are not subjec t to loss , thef t , mut i lat ion o r misuse by faking or forging certificates, thereby saving

companies from lengthy correspondence, litigation and complaint

handling. It will therefore eliminate instances of bad delivery.

All noncash corpora te ac t ions such as r ights , bonus, merg er s, consolidations, subdivision of holdings, conversion ofsecurities, issuing securities on mergers/amalgamations and in

initial public offerings (IPO) can be handled in demat form

without any hassles in the shortest possible time and at very low

cost.

With the CDSL's centralized database, the issuer can get upto-the-moment informat ion on any ch anges in i ts holding

pat te rn of a securi ty.

Thus, the company ef fec t ive ly moni tors the change in

holding and is alert to any undue threat.


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CHAPTER: 4

4.1 SERVICES OFFERED BY CDSL

The Depository Participant (DP) is the link between the investor, the

company and CDSL and provides the following services:

Account OpeningTo utilize the services offered by a depository, any person having investment

in any security or intending to invest in securities needs to have a demat

account with a CDSL-DP. The holder of such demat account is called

as "Beneficial Owner (BO)". A BO can maintain a demat account with

zero balance in such account. A BO can open more than one account with

the same or multiple DPs, in the same name/s and order, if he/she desires so.

The investor can approach any DP/s of his/her choice to open a demat

account.

DematerializationDematerialization is a process by which physical certificates (of shares /

debentures / other securities) are converted into electronic balances. A BO

has to submit the request for dematerialization by submitting the demat

request form (DRF) duly completed along with the concerned physical

certificates, to his/her DP.

Processing Delivery & Receipt InstructionsTo settle trades done on a stock exchange (on-market trades) and trades,

which are directly settled between two BOs (off-market trades), BOs submit

duly completed delivery instructions in the prescribed form to DP. For


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receipt of securities into his/her account, a BO can give one time "standing

instruction" to DP. Once such a standing instruction is given to the DP, there

is no need to submit separate instructions for receipt every time the investor

buys securities.

Account StatementGenerally a DP sends to the BO, a statement of his account, monthly, if there

is any transaction in the account or every quarter if the account is not

operated during that period. The balances and transactions can also be

viewed by the BOs through CDSL web based facility 'easi'

RematerialisationRematerialisation is the process by which the electronic balances held in the

demat account can be converted back into physical certificates

PledgingIf the BO decides to pledge any securities in his BO account, he can avail of

the same by submitting the pledge creation form duly completed, to his DP.

NominationIndividual BOs have a facility for nomination in favor of an individual. If

the sole or all the joint holders are deceased, the shares of different

companies held in the demat account will be transmitted easily to the demat

account of the nominee on submission of the death certificate and

transmission form. It may be noted that in the event of the death of one of

the joint holders, the securities will be transmitted in the demat account of

the surviving holders.


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Transmission of securitiesCDSL offers a facility for transmission of balances held in BO

account/s (to other BO account/s) if so required due to death, lunacy,

bankruptcy, insolvency or required due to operation of any law.

Change in AddressA BO who wishes to register his change in address submits his/her

request in writing to his/her DP. The changes entered by the DP in the

CDSL system will be automatically downloaded to all the companies

in which the BO is holding securities. This facility offered by CDSL

saves money, time and effort for the BO.

Bank Account DetailsSEBI has made it mandatory for companies to print details of bank

account of the BO on dividend/interest warrants etc. to prevent

possibilities of misuse of the warrants. All BOs should submit a

request in writing to the DP if they wish to record / change their bank

account details.

SMSCDSL sends SMS regarding transactions and modifications in account

details to the mobile number registered in the account.


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4.2 FEATURES OF CDSL

Convenience: Wide DP Network:

CDSL has a wide network of DPs, operating from over 10,000 sites, across

the country, offering convenience for an investor to select a DP based on his

location.

On-line DP Services:The DPs are directly connected to CDSL thereby providing on-line and

efficient depository service to investors.

Wide Spectrum of Securities Available for Demat:The equity shares of almost all A, B1 & B2 group companies are available

for dematerialisation on CDSL, consisting of Public (listed & unlisted)

Limited and Private Limited companies. These securities include equities,

bonds, units of mutual funds, Govt. securities, Commercial papers,

Certificate of deposits; etc. Thus, an investor can hold almost all his

securities in one account with CDSL. A BO can also hold warehouse

receipts pertaining to commodities, in a demat account. However, a separate

account should be opened for holding warehouse receipts.

Competitive Fees Structure:CDSL has kept its tariffs very competitive to provide affordable depository

services to investors.


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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.

Dependability: On-line Information to Users:

CDSL's system is built on centralized database architecture and thus enables

DPs to provide on-line depository services with the latest status of the

investor's account.

Convenient to DPs: The entire database of investors is stored centrally atCDSL. If there is 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 operational

and regulatory requirements.


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Dormant Account Monitoring:CDSL has in place a mechanism for monitoring dormant accounts.

Helpdesk:DPs and investors can obtain clarifications and guidance from CDSL's

prompt and courteous helpline facility.

Security: Computer Systems:

All data held at CDSL is automatically mirrored at the Disaster Recovery

site and is also backed up and stored in fireproof cabinets at the main and

disaster recovery site.

Unique BO Account Number:Every BO in CDSL is allotted a unique account number, which prevents any

erroneous entry or transfer of securities. If the transferor's account number is

wrongly entered, the transaction will not go through the CDSL system,

unless corrected.

Data Security:All data and communications between CDSL and its users are encrypted to

ensure its security and integrity.

Claims on DP:


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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 an insurance cover in the unlikely event of loss to a BO due to the

negligence of CDSL or its DPs.

4.3 TECHNOGOLIES USED IN CDSL

Software:The software is developed and supported by CMC Ltd., who have also

developed the BOLT system for BSE and Indian Railway Reservation

System. 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 customised to suit

the requirement of CDSL.

HardwareThe server infra structure is procured from Hewlett Packard Company. The

hardware systems at CDSL is powered by mission critical HP UNIX

operating system, which is proven for Reliability, Scalability and High

Availability These systems are highly scalable and provide main frame class

Reliability and Robustness.

This system is connected to one of the most robust and secure storage

systems in the world from EMC, the world leader in products, services, and

solutions for information storage and management. CDSL has invested in an

end-to-end fiber architecture storage system, which combines Fiber Channel


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connectivity, non-disruptive capacity and performance scalability, multiple

processors, resulting in faster performance, continuous data availability and

data integrity. The EMC systems also provide the most advanced software

capabilities, including full and incremental replication and anytime/any

distance mirroring for business continuity protection.

Database ArchitectureCDSL has gone in for a centralised database system. This centralised

architecture provides distinct advantages to the users. The initial set-up cost

for Issuer Companies/their RTAs and Depository Participants is low.

Information on investor's holdings is available to the Depository Participantand the Issuer or its RTA instantly.

Disaster Recovery Site (DRS)From the business continuity angle, CDSL has in place, a robust system with

multiple back-up levels including a redundant fail-over cluster and a DRS,

Located at a different seismic zone over 1000 kms from the main site.

Consequently, in the event of a disaster at the main site, users connected to

the CDSL connectivity network viz. Depository Participants (DPs), Clearing

Corporations and Registrar & Transfer Agents (RTAs) can electronically

connect to the DRS for seamlessly carrying on day-to-day operations.

Information SecurityCDSL has committed itself to highest level of information security practices

and is committed to maintain the Confidently, Integrity and Availability of

all its information, in any from whatsoever. Towards, this end CDSL has

complied with ISO 27001 Standards and has been awarded the coveted ISO

27001 certificate by leading certification body.


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Business ContinuityCDSL is one of the few depository institutions in the world to be awarded

ISO22301:2012 certification for it Business continuity Management Systems

in June 2013. It is a step to assure all its stakeholders across the world for

uninterrupted operations of CDSL depository services.

4.4 CDSL LATEST NEWS:

CDSL has s igned a Memorandum of Unders tanding (MOU)

with The Depository Trust & Clearing Corporation [DTCC] of New York,

designed to build a cooperative relationship. Under the terms of

the MOU, DTCC and CDSL will establ ish a mechanism whereby

board members, senior management and s taff of both s ides

co ul d me et on a reg ula r ba si s t o i n c r e a s e m u t u a l

u n d e r s t a n d i n g

a n d e x c h a n g e m a r k e t u p d a t e i mp ro v em e nt o p p o rt u n

i t i e s a n d i n f o r m a t i o n o n b u s i n e s s o p e r a t i n g models.

CDSL AND DTCC (U.S.A.) SIGN INFORMATION

SHARING AND COLLABORATION PACT

The MOU noted that the parties anticipate developing a closer

working re la t ionship in the fu ture and wish to mainta in chan

nels of communicat ion for exchange of informat ion and to

promote v is i t s for reasons of friendship and other businesspurposes.


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India is one of the fastest growing areas of the world and CDSL is a major

part of the securities infrastructure in the country, said Donald F Donahue

DTCC Chai rman e lec t and Chief Execut ive Off icer . This

agreement with CDSL will give us a structure to exchange ideas,

share market insights and develop coordinated ways of working with each

otherin what is rapidly becoming a global trading environment.

The MOU with DTCC is an extension of the good relations that

CDSL shares with them. I see it as an initial formal handshake, the

beginning of a long and mutual ly benefi cial

business re la t ionship , sa id Vi jay V. Raut , CDSL Managing

Director & CEO. We are sure that th is event wi l l resul t

insignificant, tangible benefits, not just to both organizations but also to

ours takeholders and to the secur i t ies markets a t large . He

fur ther added, Although DTCC and CDSL have different

legislative frameworks and settlement systems; it would be

beneficial for both depositor ies to share their experiences to reduce

risks and to enhance the efficiency of systems. We look forward to sharing

our experience and tapping DTCC's expertise on global market practices.


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CONCLUSION AND SUGGESTION

An Individual who wants to keep his / her cash safe in a bank has to open

an account wi th a bank as a f i r s t s tep and mainta ins cash in

book entry form. Similar ly, an investor has to open a demat

account with any DP of CD SL as a f i r s t s t ep to ho ld

s e c u r i t i e s i n d e m a t f o r m i n t h e d ep os it or y s ys te m. T he

investor can op en an account with a ny DP of CDSL. CDSL

system facilitates opening of demat account for different categories

of investors. De mat ac cou nt ope ned wi th CD SL are re fer red as

B enef ici al Owner Accountsor BO Account.When securities are held in physical form name of the investor i s

recorded in the books of the company as R e g i s t e r e d

O w n e r . W h e n t h e s a m e s e c u r i t i e s a r e c o n v e r t e d i n t o e l e

c t r o n i c f o r m a n d h e l d i n d e m a t a c c o u n t , t h e d e p o s i t o r y

b e c o m e s r e g i s t e r e d o w n e r o f t h e s e c u r i t i e s

S i n c e d e p o s i t o r y i s a c t i n g a s a c us to di an o f t he

secur i t ies , or ig inal investor i s legal ly ent i t led for a l l r ights

and l iabi l i t ies a t tached wi th the secur i t ies and i t i s ca l led as

Be ne fi ci al Owne r. All accounts opened on CDSL system are

beneficial accounts irrespective of the type of accounts. A Demat account

may be opened and maintained in the name(s) of one person or more than

one person. All he joint holders have to sign the application form

and the agreement. The supporting documents and p ho to gr ap h

should a lso be provided for a l l jo in t holders . Though

the beneficial ownership of jointly held securities vests equally in

all joint holders, communications about depository account are

provided only to the first holder.


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BIBLIOGRAPHY

Books:

Financial markets and services Gordon and Natarajan

NSEs Certification in FinancialMarkets

Website:

www.cdslindia.com

www.cdsl.net.in

www.cvlindia.com

www.cdsl.co.in
http://www.cdsl.net.in/http://www.cdsl.net.in/


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ANNEXURE

What is a depository?

Who is a Depository Participant?

What are the services provided by a DP?

What are the benefits of opening a CDSL demat account?

Can a demat account be opened directly with CDSL?

What are the benefits of opening a demat account?

What should an investor do to open a demat account?


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Is it necessary for a BO to open a demat account with the same DP asthat of the broker for settling trades done through him?

How does a BO get information that the account has been updatedafter each transaction?

Is it mandatory to submit PAN card details?

Is dematerialisation of securities compulsory?

Can a sole holder of the share certificate, add/ delete any name as ajoint holder, at the time of dematerialising the share certificate?

What is the procedure for delivery of securities demats form in caseof sale of securities?


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What is the procedure for delivery of securities demats form in caseof sale of securities?

What is transmission of dematerialised securities?

What are differed services provided by CDSL?

Introduction to Finacial Markets Final with refence to cdsl

Documents

Transcript of Introduction to Finacial Markets Final with refence to cdsl