A Depository Participant (DP) account may be opened and maintained in the names of more than one person. All the joint-holders have to sign the application form and acknowledge receipt of a copy of the Rights and Obligations document.

The DP should open a separate account in the name of each beneficial owner. The securities of each BO should be segregated from the securities of other beneficial owners or from the DP’s own securities.

Inter-Settlement Transfers – In a clearing member account, the securities are always kept in a bucket of specific market type and settlement number. The clearing member may have to move securities from one bucket with a different market type-settlement number combination to another bucket from where pay-in is to be effected.

Non-individuals including society, trust, body corporate, Hindu Undivided Family (HUF), and holder of power of attorney cannot nominate.

Dematerialization is the process of holding the securities in a fungible form. They do not bear any distinguishable features like distinctive numbers folio numbers, or certificate numbers.

Fungible means “movable things that are standardized, so that one unit is essentially the same as another which may be estimated and replaced by weight, number and measure”.

A beneficial owner’s account is an ownership account. The holder/(s) of securities in this type of account owns the securities.

For example, Mr. Suresh who is a retail investor trades in the securities market. The securities which he buys or sells will be kept in his beneficial owner account which he would have to open with a DP.

Debt instruments can be classified into different categories like bonds, debentures, commercial paper, government securities, treasury bills, etc., and can be issued by Banks, Corporates, governments, etc.

Government security means a security created and issued by the central government or a state government for the purpose of raising a public loan.

The process of a broker submitting securities towards the securities sold by him on behalf of his client, to the clearing corporation of a stock exchange is called ‘PAY IN.’

Locked-in securities cannot be invoked before the lock-in release date.

The creation of pledges and hypothecation against securities that are held in demat mode is permitted under the Depositories Act, 1996. (Not 1956)

There can be any number of pledge/hypothecation transactions between the same set of pledges and pledgors.

As per the SEBI (Depositories & Participants) Regulations, 1996 the aggregate value of the securities of the beneficial owners, held in dematerialized form through a stockbroker DP, cannot be more than 100 times the net worth of the stockbroker.

A client can rematerialize his dematerialized holdings at any point in time. The rematerialisation process is completed within 30 days. The securities sent for rematerialization cannot be traded.

Demat request form for dematerializing government securities is different and is called “DRF – GS”.

Any trade that is cleared and settled without the participation of a clearing member or clearing corporation is called an off-market trade. In such cases, funds move from the buyer to the seller outside the depository system.

• The Rajiv Gandhi Equity Savings Scheme (RGESS) was introduced to encourage first-time retail investors to invest in the equity markets.
• Under Section 80CCG, eligible investors could claim a 50% deduction on investments up to Rs. 50,000, which means the maximum tax benefit was Rs. 25,000 over a period of three consecutive financial years.
• However, RGESS was discontinued from April 1, 2017, meaning new investments are no longer eligible for tax benefits under this scheme.
• Since the scheme is no longer in effect, the statement is false.

Nomination facility can be availed at the time of opening the depository account itself or subsequently also.

Nomination can also be changed at will by resubmitting the nomination details in the prescribed form.

• When transferring Government Securities (G-Secs) in Subsidiary General Ledger (SGL) form to a Depository account, it is crucial to verify the client’s signature for security and compliance.
• The Depository Receipt Form for Government Securities (DRF-GS) must match the signature on the account opening form to ensure authenticity and prevent unauthorized transfers.
• This verification step is part of risk management and regulatory compliance to maintain the integrity of transactions in the government securities market.

• Foreign Institutional Investors (FIIs) and Overseas Corporate Bodies (OCBs) are subject to SEBI and RBI regulations when opening accounts or conducting investments in India.
• SEBI/RBI registration details, along with an attested copy of the registration certificate issued by SEBI, are mandatory to verify the legitimacy of the entity.
• Additionally, an authorization letter is required to ensure that the account operations are being handled by authorized representatives.
• This compliance measure helps in monitoring foreign investments, ensuring regulatory adherence, and preventing financial misconduct.

The applicant should furnish information and details of its business history for a minimum period of THREE years or from the date of its inception if less than three years.

Remember – the certificate is valid for 5 years from the date of ISSUE and not an application.

(A certificate of registration is valid unless it is suspended or canceled by the Board. The DP, to keep the registration in force, shall pay the registration fee for every five years from the sixth year.The specified fee shall be paid three months prior to the expiry of the block for which the fee has been paid)

Allotment in electronic form is given only when the client name and the beneficiary account are matched with details filled in the application form.

The instructions are executed on the execution date. If there is adequate balance in the account, such quantity will be debited on the execution date. If adequate balances do not exist in the account, then instruction will wait for adequate balances till the end of the execution day.

In cases where adequate balances are not received by the end of the day of the execution date, the instruction will fail.

The applicant shall be mandated to appoint a Compliance Officer, who would interact with the depository and on the DP’s behalf for compliance with the Bye-Laws and Business Rules and resolving investors/clients’ grievances.

The Depositories Act, of 1996, ushered in an era of efficient capital market infrastructure, improved investor protection, reduced risks, and increased transparency of transactions in the securities market.

A holder of eligible securities in the depository system may get his physical holdings converted into electronic form by making a request through the DP with whom he holds a beneficiary account.

The request should be made in the prescribed Dematerialization Request Form.

Clearing Members and brokers have to open a beneficiary account if they have to deal with their own holdings.

Once the Depository Participant finds everything in order and approves  the remit request, the R&T Agent issues security certificates.

The Depositories need to maintain the following records for 10 years :

• Records of securities dematerialized and rematerialized.

• The names of the transferor, transferee, and the dates of transfer of securities.

• A register and an index of beneficial owners.

• Details of the holdings of the securities of beneficial owners  at the end of each day.

• Records of instructions received from, and sent to, participants, issuers, issuers’ agents and beneficial owners.

• Records of approval, notice, entry and cancellation of pledge or hypothecation.

• Details of participants.

• Details of securities declared to be eligible for dematerialization in the depository.

• Such other records as may be specified by SEBI for carrying on the activities as a depository

A Client may withdraw its security balances with the Depository at any point in time by making an application for rematerialization into physical form to the Depository through its DP by submitting the Remat Request Form (RRF).

Upon the death of the sole holder or the death of all the joint holders, as the case may be, the nominee shall request the DP in writing along with an original death certificate for transmitting the securities covered by the nomination to the account of the Nominee, held with any Depository, if the nominee has a demat account in individual capacity with another DP.

If the Nominee does not have an account with the Depository, the Nominee shall be required to open an account with any Depository.

A CM is required to track the securities, which it has received for payin. A CM can obtain such information from the following sources:

(1) Its clients: CM may contact selling clients to inquire whether they have delivered securities.

(2) Its DP: CM may contact its DP to find out the deliveries received into its CM settlement account.

(3) Internet – using facilities provided by the depositories such as ‘IDeAS’ of NSDL and ‘easy’ and ‘easiest’ of CDSL

Rematerialisation Request Form (RRF-GS).

Transmission means devolution of title to shares due to death, lunacy, bankruptcy, winding-up (in case of corporate), etc. In case the shares are physically held, they will have to be sent to the Company / R & T agent along with the relevant documents for transmission.

A clearing member account is also popularly known as a Broker settlement account’ or ‘Broker pool account’.

At least Two Delivery Instruction Slips (DIS) shall be issued at the time of opening a BSDA.

An investor in government securities has the option to have securities issued either in physical form or in book-entry form (commonly known as SGL form).

There are two types of SGL facilities – SGL-1 and SGL-2.

This Act introduced provisions for nomination in respect of shares, debentures, fixed deposits, etc., allowing individuals to nominate someone to receive the benefits of their holdings in case of their demise.

Under the Automatic Delivery Out system, delivery-out instructions for moving securities from the Clearing Member (CM) Pool Account to the CM Delivery Account can be generated automatically by the respective Clearing Corporations based on the net delivery obligations of its Clearing Members. This process is implemented in the National Securities Depository Limited (NSDL).

Any trade that is cleared and settled without the participation of a clearing member or clearing corporation is called off-market trade, i.e., transfer from one beneficiary account to another due to a trade between them.

Ownership of the pledged/hypothecated securities remains with the pledgor (borrower) until the pledge is invoked. Whenever securities are given as a pledge (say for borrowing money), the ownership will remain with the pledgor – that is the person who has given the securities to borrow money.

Only if the pledgor defaults and the pledge agreement is invoked, the ownership is transferred to the pledgee (lender) as per the terms.

The depositories G-Sec cell, on receipt of the RRF-GS, matches the Rematerialisation Request Number given on the RRF-GS with the electronic message received by the depository’s system linked to its shareholders system.

In case of a mismatch, the depositories G-Sec’s cell will send a letter to the DP intimating them of the mismatch. The DP has to resolve the mismatch.

Securities to be dematerialized must be recognized by the depository, as eligible security. So only those securities whose ISIN (International Securities Identification Number) has been activated by the depository, can be dematerialized in the depository system.

For Pay in – Pay out of securities, the Clearing Members will be required to give Inter-settlement Instructions to the Participants for securities lying within the same CM account but in different settlement pockets.

One annual physical statement of holding shall be sent to the stated address of the beneficial owner in respect of accounts with no transaction and nil balance even after the account has remained in such a state for one year.

After a depository receives an application for registering as a Depository Participant (DP), it evaluates and forwards the application to the Securities and Exchange Board of India (SEBI) within 30 days. This timeframe is mandated by regulatory requirements to ensure the timely processing of DP registration applications.

Insurance companies, Mutual Funds (MFs), and Foreign Institutional Investors (FIIs) are all examples of Institutional Investors. These entities typically invest large sums of money in various financial instruments such as stocks, bonds, and other assets. They often have professional management teams and invest on behalf of their clients or policyholders.

As per the Depository Act rules, a company will have to issue securities in Demat form only if the issue size is above Rs 10 crores. In the above example, the issue size is Rs 9 crore, so the company can issue securities in physical form.

But the same cannot be sold as all trading on stock markets is done in Demat form only.

When shares are held in physical form, the required documents such as transfer deeds, share certificates, and relevant forms need to be sent to the company’s registrar or transfer agent for processing. The company maintains records of its shareholders and oversees the transfer of shares held in physical form. Therefore, the documents have to be sent to the company for further processing.

A Depository Participant may terminate its participation in the depository by giving a notice of not less than 30 days. On receipt of such notice, the depository may cease to provide any service or act for the DP. The depository should notify the DP, other participants, and  clients of the surrendering DP and SEBI within seven days of this action.