Financial Matters - National Securities Depository Limited ( NSDL )

National Securities Depository Limited ( NSDL )

National Securities Depository Limited is the first depository to be set-up in India. It was incorporated on December 12, 1995. The Industrial Development Bank of India (IDBI) – the largest development bank in India, Unit Trust of India (UTI) – the largest Indian mutual fund and the National Stock Exchange (NSE) – the largest stock exchange in India, sponsored the setting up of NSDL and subscribed to the initial capital. NSDL commenced operations on November 8, 1996.

Ownership:

NSDL is a public limited company incorporated under the Companies Act 1956. NSDL had a paid up equity capital of Rs.105crore. The paid up capital has been reduced to Rs.80cr since NSDL has bought back its shares of the face value of Rs.25cr in the year 2000. However, its net worth is above the Rs.100cr, as required by SEBI regulations.

The following organizations are shareholders of NSDL as on March 31, 2002:

1. Industrial Development Bank of India.

2. Unit trust of India.

3. National Stock Exchange.

4. State Bank of India.

5. Global Trust Bank Limited.

6. Citibank NA.

7. Standard Chartered Bank.

8. HDFC Bank Limited.

9. The Hong Kong and Shanghai Banking Corporation Limited.

10. Deutsche Bank.

11. Dena Bank.

12. Canara Bank.

Management of NSDL:

NSDL is a public limited company managed by a professional Board of Directors. The day-to-day operations are conducted by the Managing Director. To assist the MD in his functions, the Board appoints an Executive Committee (EC) of not more than 15 members. The eligibility criteria and period of nomination, etc. are governed by the bye-laws of NSDL.

Bye-laws of NSDL :

Bye-laws of National Securities Depository Limited have been framed under powers conferred under section 26 of the Depositories Act 1996 and approved by Securities

and Exchange Board of India. The bye-laws contain fourteen chapters and pertain to the areas listed below.

1. Short title and commencement

2. Definitions

3. Board of Directors

4. Executive Committee

5. Business Rules

6. Participants

7. Safeguards to protect interest of clients and participants

8. Securities

9. Accounts / transactions by book entry

10. Reconciliation, accounts and audit

11. Disciplinary action

12. Appeals

13. Conciliation

14. Arbitration

Functions:-

NSDL performs the following functions through depository participants (DPs):

· Enables the surrender and withdrawal of securities to and from the depository (dematerialization and re-materialization).

· Maintains investor holdings in the electronic form.

· Effects settlement of securities traded on the exchanges.

· Carries out settlement of trades not done on the stock exchange (off-market trades).

· Transfer of securities.

· Pledging / hypothecation of dematerialized securities.

· Electronic credit in public offerings of companies or corporate actions.

· Receipt of non-cash corporate benefits like bonus rights, etc. in Electronic Form.

· Stock lending and borrowing.

Services Offered by NSDL :

NSDL offers a host of services to the investors through its network of DPs:

· Maintenance of beneficiary holdings through DPs.

· De materialization

· Off-market Trades.

· Settlement in dematerialized securities.

· Receipt of allotment in the dematerialized form.

· Distribution of corporate benefits.

· Re-materialization.

· Pledging and hypothecation facilities.

· Freezing / locking of investor’s account.

· Stock lending and borrowing facilities.

Fees Structure of NSDL:

NSDL charges the DPs and not the investors directly. These charges are fixed. The DPs, in turn, are free to charge their clients, i.e., the investors for their services. Thus, there is a two- tier fee structure.

Inspection, Accounting and Internal Audit :

NSDL obtains audited financial reports from all its DPs once every year. NSDL also carries out periodic visits to the offices of its constituents – R & T agents, DPs and clearing corporations - -to review the operating procedures, systems maintenance and compliance with the bye-laws, business rules and SEBI Regulations.

Additionally, DPs are required to submit to NSDL internal audit reports every quarter. Internal audit has to be conducted by a chartered accountant or a company secretary in practice.

The Board of Directors appoints a Disciplinary Action Committee (DAC) to deal with any matter relating to DPs clients, issuers and R & T agents. The DAC is empowered to suspend or expel a DP, declare a security as ineligible on the NSDL, freeze a DP account and conduct inspection or call for records and issue notices.

Settlement of Disputes:

All disputes, differences and claims arising out of any dealings on the NSDL, irrespective of whether NSDL is a party to it or not, have to be settled under the Arbitration and Conciliation act 1996.