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Summer Internship Project report on

FUNCTIONS OF DEPOSITORY PARTICIPANT

LSE

Ludhiana Stock exchange

Submitted by-

Amandeep Singh FPB0709/10 Indian Business Academy Bangalore

In partial fulfillment of the requirement for the summer internship project during the Post Graduate Diploma in Business Management.

Under the guidance of: Project Guide Miss Pooja Sharma Sr. Executive (Training & Education Cell) Ludhiana Stock Exchange Ludhiana (INDIA) Mentor Prof. Arvind Dholakia Indian Business Academy Bangalore (INDIA)

CEOs Certificate
This is to certify, that Mr Amandeep Singh is a bonafide student of Indian Business Academy, Bangalore and is presently pursuing a Post Graduate Programme in Business Management.

Under my guidance, he has submitted his project report titled Functions of DP in partial fulfillment of the requirement for the summer internship project during the Post Graduate Diploma in Business Management.

This report has not been previously submitted as part of another degree or diploma of another Business School or University.

Mr. Manish. Jain, CEO, Indian Business Academy

INDIAN BUSINESS ACADEMY Lakshmipura, Thataguni Post Kanakapura Main Road Bangalore 560 062

Deans Certificate
This is to certify, that Mr Amandeep Singh a bonafide student of Indian Business Academy, Bangalore and is presently pursuing a Post Graduate Diploma in Business Management.

Under my guidance, he has submitted his project report titled Functions of DP in partial fulfillment of the requirement for the summer internship project during the Post Graduate Diploma in Business Management.

This report has not been previously submitted as part of another degree or diploma of another Business School or University.

Dr. Subhash Sharma, Dean, Indian Business Academy

INDIAN BUSINESS ACADEMY Lakshmipura, Thataguni Post Kanakapura Main Road Bangalore 560 062

Mentors Certificate
This is to certify, that Mr Amandeep Singh a bonafide student of Indian Business Academy, Bangalore and is presently pursuing a Post Graduate Diploma in Business Management.

Under my guidance, he has submitted her project report titled Functions of DP in partial fulfillment of the requirement for the summer internship project during the Post Graduate Diploma in Business Management.

This report has not been previously submitted as part of another degree or diploma of another Business School or University.

Prof . Arvind Dholakia

INDIAN BUSINESS ACADEMY Lakshmipura, Thataguni Post Kanakapura Main Road Bangalore 560 062

Student Declaration
I, Amandeep Singh, the undersigned, a student of Indian Business Academy,

Bangalore, declare that this project report titled Functions of DP is submitted in partial fulfillment of the requirement for the Summer internship project during the Post Graduate Diploma in Business Management, at Indian Business Academy, Bangalore.

This is my original work and has not been previously submitted as a part of another degree or diploma of another Business school or University.

The findings and conclusions of this report are based on my personal study and experience, during the tenure of my summer internship.

Amandeep Singh
INDIAN BUSINESS ACADEMY Lakshmipura, Thataguni Post Kanakapura Main Road Bangalore 560 062 INDIA

INDEX
TOPICS
PART-A
INTRODUCTION OF STOCK EXCHANGE ORGANIZATIONAL CHART OF LUDHIANA STOCK EXCHANGE. PROFILE OF LUDHIANA STOCK EXCHANGE ASSOCIATION LIMITED. ORGANIZATIONAL CHART OF LUDHIANA STOCK EXCHANGE SECURITIES LIMITED. RISK MANAGEMENT SYSTEM OF LSE SECURITIES LTD. DEPARTMENTS.

PART-B
DEPOSITORY SYSTEM REGULATIONS OF DEPOSITORIES FUNCTIONS OF DEPOSITORY SPECIAL SERVICES BANKING SYSTEM FUNCTIONS OF BANKS OPERATIONAL MODEL OF BANK

PART-C
ANALYSIS CONCLUSION BIBLIOGRAPHY

ACKNOWLEDGEMENTS
After three trimester of hectic schedule full of case studies,exams and presentation , two month of summer training in PGPM course provides the opportunity to gain some practical knowledge in the industry and my summer training at Ludhiana Stock Exchange Association Ltd .provides me one such opportunity. It gave me much

needed knowledge of the capital market that a student of finance much possess. I got the chance to understand the activities performed. However, this would not have been possible without the noble attitude of some persons in the exchange & college.

In preparing this project I have drawn on materials from a variety of books and journals that have a bearing on different facets of project.

I also wish to extend sincere gratitude to Mr.Manish jain(CEO-IBA), Mr. A. Dholakia ( Sr. Prof. & HOD-HR), Mrs. Pratima Verma (Prog. Coordinator PGPM),Mrs. Pooja M. Kohli (Executive Director ,officiating) , Mr. Jagit Singh Arneja (Senior Manager) , Miss. Pooja Sharma (Sr. Executive, Training & Education cell) Mr. Gurbhagwant Singh(C.E.O.Margin Section), Mr. Vinay Mahajan (Depository Section) and other members of LSE. Last but not the least , I thank my parents and friends who helped and assisted us in their various capacities during the various activites.
AMANDEEP SINGH

PREFACE
In order to make the students competent, all students are requested to take a real time project work. This exposure to real life situation gives an insight to the students about what problem he can expect to face during his/her career. Efficient management of material, time and financial resources is very important for the accomplishment of any objective. Above to this coordination is must, which determines the degree of success. Theoretical studies are not sufficient to understand the complexities of large scale organization and whenever we have to solve any problem the partial study assist with the theoretical aspect in order to solve any problem so if we have the practical knowledge than only that problem can be solved.

So in order to undergo for practical work I took my training at Ludhiana Stock Exchange. At Ludhiana stock Exchange I have done a project on FUNCTIONS OF DEPOSITORY PARTICIPANT The present report is well arranged in a coherent manner. In project first of all I have made the study of depository and banks. An annexure at the end of this report shows a real scene of explained matter and about some unexplained matter also. Actually this report is a result of an assignment, to improve myself and gain confidence. In this I have done my best to make it a genuine study but as we all know a maxim TO ERR IS HUMAN so there is a chance of mistakes.

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INTRODUCTION OF STOCK EXCHANGE

A Stock exchange is the nervous system of the capital market. Change in the capital market are brought are about by a complex set of factor, all operating on the market simultaneously. Such changes are subject to secular trends set by the economic progress of the nation, and govern by the factors like general economic situation, financial and monetary policies, tax changes, political environment, international economic and financial development etc. It is pillar of the private sector and corporate economy where the buyer of the security may find an immediate seller who is ready to sell his holding at a reasonable and fair price and similarly the seller of a security may find a buyer for his security which he is ready to sell. The securities contracts (Regulations) Act, 1956 define stock Exchange as An Association, Organization or Body of individuals, whether incorporated or assisting, regulating and controlling business in buying selling and dealing in securities.
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A stock exchange provides necessary mobility to capital and directs the flow of the capital into profitable and successful enterprises. A stock exchange is a place or a market where security, shares, debentures, bonds, mutual funds of joint stock company, central and state government organizations, local bodies and foreign government are bought and sold. A stock exchange is a platform for the trade of already issued securities through primary market.. It is the open auction market where buyers and seller meet and involve a competitive price for the securities. It reflects hope aspirations and fears of people regarding the performance of the economy. It exerts a powerful and significant influence as a depressant or stimulant of business activity. The trade in market is through the authorized members who have duly registered with concerned stock exchange and SEBI.

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Functions of Stock Exchange :

Ready Market :A holder of securities can get back his securities by selling through brokers. Similarly a person who wants to make investment can do so through brokers. Liquidity of Capital: A stock exchange provides a place where securities are easily converted into cash. Because a stock exchange provides a ready market for securities. Evaluation of securities : Stock Exchange record and make public the prices at which securities are traded. On the basis of this investors can evaluate the value of their holdings. Center of business information: Companies listed with the stock exchange are required to provide financial statements and other reports. Thus, stock exchanges are the centers of providing business information relating to the enterprises whose securities are traded.

The stock exchange discharges these functions by laying down a number of regulations, which is to be compiled with while making public issues e.g. offering at least a prescribed %age of capital to the public, keeping subscription list open at least for three days making provisions for receiving applications, allotting shares against on a fair and unconditional basis. Traditionally, trading of scripts was done under a tree where three or four came and traded. The earliest records in security dealing indicate that trading in securities was vogue in India as early as 1793 but with the development of the capital market, the need for proper place to trade was recognized. Thus, the first stock exchange in India i.e. BOMBAY STOCK EXCHANGE (BSE) Came into being in 1875.The setting up of AHMEDABAD STOCK EXCHANGE in 1894 and another at CALCUTTA in 1908 followed this being the first Stock Exchange in India. At present there are 24 Stock Exchanges in India recognized by the Govt. under the SC r Act, 1956

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HISTORY OF INDIAN CAPITAL

MARKET AT A GLANCE In India only registered stock exchange can operate the stock market activities & the recognition is government under provisions of securities & contract (regulation) act, 1956. there are 24 regional stock exchange in India BSE & NSE daily turnover of all the stock exchange is about 30,000 crores daily. BSE is old, which was established in 1875 where NSE is just 13 years old and was established in 1993. 19th Century 1800 Trading of shares of East India Co.s in kolkata and mumbai 1850 1860 1875 1894 Joint Stock Co.s came into existence. Speculation and feverish dealing in securities. Formation of Stock Exchange Mumbai. Formation of Ahmedabad Stock Exchange

20th Century 1908 1939 1940 1956 1957 1988 1991 1992 1993 1995 1995 1997 1998 Formation of Calcutta Stock Exchange Formation of Lahore and Madras Stock Exchange Formation of U.P and Delhi Stock Exchange Securities contract Regulation Act enacted landmark. Scam of Hari Das Mundra Securities and exchange board of India. SEBI Scam of M.S.Shoes SEBI given statutory power under SEBI Act, 1992 National Stock Exchange Scam of Harshad Mehta Scam of Sesa Goa Scam of C.R.B. Scam of BPL and Videocon.

15 21st Century 2000 2001 2002 2002 2003 2005 2005 2006 2006 2007 2007 2008 2008 Depository came into existence (Electronic form of shares.) Trading of futures trading, scam of ketan parekh. Start of rolling settlement and banning of badla trading Introduction of T +3 settlements of April Introduction of T+2 settlements. BSE sensex touches all the high time of 7100 in july. BSE fluctuated 200 points 100( ) and 100 ( ) in July. BSE sensex touches all the high time of 11307 in March. BSE sensex falls down by 565 points in may 17 BSE sensex goes upto 15500 in July 2007 record. BSE sensex goes upto 15800 on 23 July 2007 record. BSE sensex goes upto 21077 on 8 Jan 2008,all time high BSE sensex faces struggling 15000 basic points in May due Global economic slowdown & rising inflation.

WHO BENEFITS FROM STOCK MARKET?.

INVESTORS: It provides them liquidity marketability, safety etc. of investments COMPANIES: It provides them access to market funds, higher rating and public interests. BROKERS: They receive commission in lieu of their services to investors.

ECONOMY AND COUNTRY: There is large flow of savings, better growth, and moves industries, higher incomes. The recognition accorded to a stock exchange is normally valid for the period of five years subject to the satisfactory performance of Bombay, Delhi, Chennai , Hyderabad and Bangalore have been granted permanent recognition.

16 ORGANISATION CHART OF LUDHIANA STOCK EXCHANGE

BOARD OF DITECTORS

CHAIRMAN

EXECUTIVE DIRECTOR

GENERAL MANAGER CUM COMPANY SECRETARY

MANAGER

LEGEL DEPAR TMENT

LISTING DEPARTMENT

MAINTENANCE DEPARTEMET

SURVEILLANCE

COPPUTER DEPARTMENT OR EDP SECTION

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THE LUDHIANA STOCK EXCHANGE ASSOCIATION LIMITED PROFILE

The Ludhiana Stock Exchange Association Limited Was established in 1983, with 220 members by Sh. S.P. OSWAL and Sh. B.M. MUNJAL leading industrial luminaries, to fulfil a vital need of having a Stock Exchange has grown phenomenally. It switched from manual trading to screen based trading on 18th November 1996 and number of listed companies increased from 160 in 90s to 405 in 2008 of which 271 are regional 132 are non-regional companies. The Stock Exchange has played an important role in channeling saving into capital for the various industrial and commercial units of the State of Punjab and other parts of the country. Number of members 293

205 Individual

88 Corporate

Number of listed companies

405

271 Regional

132 non-regional

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Trading System: On-line screen based trading system commenced at Ludhiana Stock Exchange on November 18, 1996. On-Line Trading Through VSATS: With the objective to broad-base business opportunities to the investors and members, the exchange has set up 37 trading terminals at remote sites in the State of Punjab , delhi and union territory of Chandigarh. Now from October 1999, trading through VSATS is being smoothly conducted . Settlement Guarantee Fund (SGF) : Ludhiana Stock Exchange implemented a SGF w.e.f. April 6, 1998. It provides assurance of all the trades made through the screen based trading system of the stock Exchange . The SGF has a corpus of Rs.55.38 crore as on 28.02.2008 and membership of 176 brokers. Depository System: By becoming participant of NSDL, LSE commenced trading and settlement in Demat Securities, LSE has set up in house DP services. Investor Related Services:

Investor Grievances The Exchange has made special arrangements to handle investors complaints and grievances. It has established an Investor Grievance cell that receives complaints from investors and follows up the complaints with companies and member brokers to ensure their satisfactory redressal . Recording of complaints and monitoring of their redressal has been fully computerized The Committee meets periodically to concile the grievance between investors and broker members

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Investor Protection Fund The Exchange has set up an Investor Protection Fund in the month of January 1990 for providing compensation to investors in case of default by a member of the Exchange. The Fund has a corpus of Rs. 408.27 lac as on February 28,2008. In case any member broker defaults to meet his obligation toward investors in respect of deal that took place through the trading system of the Stock Exchange then the concerned investors are compensated from this fund.

Investor Service Center The Exchange has set up an Investor Service Center in its premises for providing information relating to the general public. The center has a well equipped library which subscribes to leading economic financial dailies and periodicals. It also stock Exchange the investor service center is also equipped with a terminal for providing live rates of trading at NSE .A large number of the investors visit the center to utilize the services being provided by the Exchange.

Trading on Bigger Stock Exchanges Through Subsidiary Route

The Exchange acquired the membership of NSE s BSE through its subsidiary the LSE Securities Limited, with the objective of providing an enabling mechanism to its member to its member brokers of LSE Securities Limited.

20 AGM At every Annual General Meeting, one third of the elected Directors retire by rotation. Administration of the Exchange is managed by the Executive Director Who is assisted by the General Manager Cum Company Secretary and a team twenty five Advisory and Standing committees including the Investor Grievance Committee to assist the

administration. Corporate Governance Although the Ludhiana Stock Exchange is not a listed company, yet it has followed a model of corporate governance, which is evident from the composition of the statutory committees, the investor grievance committee and audit sub-committee. The committee comprises of three public representatives and three broker members. It is headed by Sh. Dina nath sharma, Retd. Additional sessions Judge and under his leadership; the stock exchange is able to redress the investor grievances by following the corporate governance model. Sh. P.C. goyal, charted Accountant who is also a non-broker, heads the audit committee. Brokers and non-brokers in 40-60 ratios represent statutory committee.

Objectives of Ludhiana Stock Exchange: 1. The main objective of LSE is the development of healthy orderly and transplant capital market. 2. 3. 4. To protect the interest of investors. The LSE also aims to assist, requests and control trade. To maintain high standard of commercial honour.

21 LSE SECURITIES LIMITED: BRIEF PROFILE Introduction: LSE securities ltd. Was incorporated in January 2000 with a view to revive the capital markets in the region and for taking full advantage of the emerging opportunities being provided by expansion of bigger stock exchange like NSE and BSE. The company since its inception has marched forward rapidly and achieved many milestones in a short span of existence. Objectives of the company LSE securities limited is a subsidiary of the Ludhiana Stock Exchange which was formed with an objective to enhance business and investment opportunities for the investors members of Ludhiana Stock Exchange at large, through innovative products by encompassing a variety of activities related to the capital market. The company has an authorized and paid up capital of Rs. 5,50,00,000. Governing council The council of the management of the company comprises of 11 directors of which six are broker member and five non brokers. Among the non brokers members, three are independent directors of eminent status from the field of finance, law and management. Remaining two are gm cum company secretary and executive director of the holding company (ludhiana stock exchange ) who are the board of the company as ex officio directors. Thus the council of management has representation of sub broker as well as professionals and subject specialist representation various fields of business activities. Operations of the company are run in a professional, transparent and fair manner keeping in view of the interest of investors as well as other stakeholders.

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Corporate Membership Of NSE & BSE

SEBI, at the initiative of LSE, permitted smaller Stock Exchanges, to trade on bigger Stock Exchanges through their subsidiary companies. The Ludhiana Stock Exchanges floated its subsidiary company, the LSE Securities Limited, with the objective of obtaining trading rights on bigger Stock Exchanges. It has obtained corporate membership of both NSE and BSE in the first half of year 2000.

F&O Segment Of NSE The LSE Securities Ltd. Commenced trading operations in Future and Options Segment of NSE in February 2002. The Company became the first subsidiary of any Regional Stock Exchange, which commenced trading in F&O Segment of NSE. Response to trading facilities in the F&O segment of NSE has been very encouraging and volumes generated in this segment soon exceeded those in Capital Market segment.

Trading Through V-SATS The LSE Security Ltd. Has also provided facility to its sub-brokers for trading on NSE and BSE through VSAT counters, which are located outside Stock Exchange Building. Presently, 23 sub-brokers of the company have been trading through VSAT on NSE and four on BSE. Certification In Financial Market In order to provide professional services to the investors of LSE Security Limited through its sub-brokers, the company motivated its sub-brokers and its staff to qualify the certification in financial markets conducted by NSE. As a result, the persons having qualified the said

23 certification are operating 97 trading terminals for Capital Market Segment and 44 for F&O segment.

Depository Participant Services- National Security Depository Limited (NSDL) In order to further strengthen its services to sub-broken and investors, the Company applied for the DP of CDSL. It started DP operations of CDSL, in December 2001. With the operationalisation of DP Service of CDSL, the company has been able to provide delivery of shares to sub-brokers and investors on the day of payout, which in turn helps the sub-brokers to give timely deliveries to their clients. Introduction of CDSL operation has also enabled the subbrokers and investors of the Company to timely meet the pay in obligations of securities purchased by the investors on BSE and sold next day on NSE through the company and viceversa. Expansion Project To increase its presence in the region further, the company plans to open its branches of Depository services in the major cities of the region. To start with, it has already opened its branches at Jalandhar, Amritsar, Ferozepur, Sirsa (Haryana), Una (H.P), Chandigadh. Also having plans to open branches in Moga and Sangroor.

Risk Management system of LSE Securities Limited

Deposit Every member of LSE registered with SEBI as sub-brokers of LSE Securities limited trading through LSE Securities Limited on NSE has deposited an interest free security Deposit 1.50 lac with the form of cash . Trading System LSE Securities limited has been using CTCL based Neat . XS Trading Software developed by NSE,IT for trading on NSE . The said trading software has the features like setting up of Intra Day

24 Trading Limits, Gross Exposure Limits and MTM Limits . The system has also the feature for viewing top n Number of Sub-Brokers in order of MTM loss incurred by them at particular of time.

Gross Exposure Limits Sub-brokers have an Intra Day Trading Limit of 8 times of their Interest Free Security Deposit of Rs.1.50 lac. The sub-broker desirous of availing higher limits is required to deposit additional capital in the form of Cash /FDRs. It is important to mention here that validation by the systems done on the basis of orders input by a sub-broker not on the basis of trades As such, a sub-broker cannot exceed his Gross Exposure Limit at any point of time. As soon as a sub-broker reaches 100% of his Gross Exposure Limit, his terminal is deactivated automatically by the system and for activation the concerned sub-broker is required to deposit additional capital in the form of Cash/FDR.

Day and Reports 1. LSE Securities Limited generates a report detailing sub-broker wise open purchase position,

MTM loss, MTM gain and deposits available with the Exchange at the end of a particular trading day to monitor the overall positions of the sub-broker to take preventive measures wherever required in the subsequent trading days. 2. LSE Securities Limited also generates a sub-broker wise report detaining the Mark-to-Market

loss incurred by the sub-brokers during a specific period along with their deposits available with the Exchange so as to monitor those cases closely where the Mark-to Market Loss during a specific period are very high. 3. LSE Securities Limited also generates a report with regard to the trades executed between its sub-brokers so as to check whether there have been any trades between the sub-brokers of LSE

25 Securities Limited especially illiquid scrips leading to creation of artificial market so as to take preventive measures/actions at the end of subsidiary itself.

Action in case of delay in meeting obligations by the sub-brokers towards pay-in and margin All the sub-brokers are required to meet their obligations towards pay-in and margin on T+1 day. In case any sub-broker fails to meet his obligations towards pay-in and/or margin on T+1 day and then the terminal of the concerned sub-broker is deactivated on T+2 day and the same is activated only on clearance of obligations with the reduced exposure limits fit by LSE Securities Limited.

It is important to mention here that since LSE Securities Limited is required to meet its obligations towards pay-in in T+2 day, the sub-brokers of LSE securities Limited are required to meet their obligations towards pay-in on T+1day so as to avoid any default in pay-in by LSE Securities Limited on NSE.

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DEPARTMENTS OF LSE

1. LEGAL DEPARTMENT

When the broker or outside client do not settle the claim in between themselves and move to the legal courts, the legal department comes into the picture to fight for the cause of investors and against the defaulting members. Legal department also assist the members, investors to settle their disputes through the arbitration committee, investor grievance committee so that the dispute may be settled at the earliest with out incurring heavy dues or amount regarding court fee, advocate fee etc. The main objectives of the legal department is to streamline and make effective, the rules and regulation of the exchange and to see that the guidelines circular and any amendments in rules made by SEBI are enforced at the appropriate time so that future complication may be reduced or avoided. Whenever the point of law is involved, it is the duty of legal department to take the legal opinions from senior advocate in accordance with the present law and circulate them amongst the member for their benefits.

As the name, Legal Department suggests, it is clear that the department will solve every matter involving legal work.

2. SECRETARIAL DEPARTMENT

The functions and duties of the secretarial department include maintenance of records of minutes like: a) Meeting of Board of Director

28 b) Meeting of Various committee c) Meeting of Members d) Minutes of Annual General Meeting (AGM) e) Minutes of Extra ordinary General Meeting (EGM)

These minutes are statutory requirements and are preserved by the secretarial department.

Another function of secretarial department is to send notices with the directions of B.O.D. to the respective director to attend Board Meeting. It is also a duty of secretarial department to ensure that every meeting held is a valid meeting having the quorum required by the law otherwise it would effect towards unlawfulness. The decision taken at such meeting cannot be rectified in another meeting.

It also sends notices to members for attending various committee meetings. Notices are also sent to members for attending annual general meeting and extraordinary general meeting. The notices are prepared very carefully because these contain the agenda pertaining to the meeting. Only the agenda shows the purpose of holding the meeting.

All this makes it necessary for the secretarial department to have a proper up dating data, up dating of law and timely show of latest information so that the objective of its functioning are properly accomplished. This department also deals with transfer of shares. In Order to be a member of stock exchange a person has to hold at least one share. If the member wishes to sell his ticket, he has to intimate the secretarial department in advance. A notice is given thereafter in newspaper for objection within 10 days of such a notice; the clients can lodge their claims . A 10 days notice is also displayed in the notice board of the exchange for objections to be raised by the members.This department covers: Listing department Membership

29 Investor grievance cell

(a)

LISTING DEPARTMENT

Listing is one of the major functions of stock exchange wherein the securities of the companies are enlisted for trading purpose. Any company incorporated under companies Act, 1956, coming out with an IPO (Initial public offering ), has to mandatory list its shares on a stock exchange . The Listing Department of Ludhiana stock exchange deals with listing of securities, further listing of issues like bonus and rights issues; post listing compliance of the companies which are already listed with ludhiana stock exchange. The Companies desirous of listing its securities on the exchange have to sign a listing agreement with the stock exchange.

(b) MEMBERSHIP This department deals with the membership of individual & corporate members . the trade in market is done through the authorized members who have duly registered with concerned stock exchange & SEBI. The total member brokers in exchange are 301.

MEMBERS

CORPORATE

INDIVIDUAL

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(c) L.G.C. (investor grievance cell)

The exchange has made special arrangement to handle investors complaints and grievance. It has established an I.G.C which receive complaints from investors and follows up the complaints with company and member brokers to ensure satisfactory redressal. Recording of complaints and monitoring of their redress are fully computerized.

Investor Protection Fund The exchange has set up an I.P.F. in the month of January,1990 for providing compensation to individual investor in case of default by a member of exchange. Investor services centre The exchange has set up an I.S.C in the premise of exchange, which provides information related to capital market. the centre has a well-equipped library. The exchange introduced a computer based stock-tel-system for providing

online real time information on a telephone through a fully automatic system, to the investor and members of general public such ass prices of scrip, new listing etc. centre is also well equipped with a screen for providing live rates of trading at LSE,BSE and NSE.

31 3. TECHNICAL DEPARTMENT This department of LSE is regulating the activities related to the fields of electrical, mechanical and civil engineering besides having other functions like that of security. Here are some important aspects: Air conditioning plant Electrification of building Maintenance of lifts Maintenance of generators Maintenance of telephone exchange

4.EDP SECTION

The growing technicalities and the increasing workload have enhanced the importance of computer dept. at L.S.E. now days. The computer section of stock exchange is the backbone of this organization as it remains active all the time and is directly or indirectly involved in all the activities of the exchange from beginning of the settlement period till its end. This department is mainly referred as to EDP SECTION i.e. electronic data processing section. The computer section of LSE prepares several reports namely.

1. 2. 3. 4. 5. 6. 7. 8.

Scrip wise statement of each member for each settlement period. Scrip status report for each settlement period. Receive order detail statement. Statement of transaction of each settlement period for each broker. Difference bill statement. Trial balance. Supplementary Report. Main Statement.

32 9. 10. Bank entry statement. Bank entry statement.

Some of the above mentioned reports are given to the broken, some are kept by the stock exchange for their own records, and last report is sent to bank.

Scrip status Report:

Scrip status report is for the internal use of exchange. It contains total number of transactions, quantity sold, value of transaction at highest, lowest and weighted average rate for the settlement

Receive order detail statement: The computer system generates this report for each member. The statement tells the broker regarding their net position of shares i.e. how many shares they are to receive from which broker.

Statement of transaction: Statement of transaction gives scripwise transaction of the broker. It contains hawala rate and according to hawala rate difference payable/receivable statement is prepared. This statement is also prepared for individual broker. It contains information on net amount payable/receivable from individual brokers. Supplementary Report : After the preparation of trial balance supplementary reports it contains information for the payment may against the Debit Note . After this main statement and main trial is prepared . main statement has the information regarding outstanding position of each member and the main trial has the information regarding net outstanding position of each member .

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Bank Entry Statement : This statement lists the amount to be Debited/Credited in each broker account . It contains: Serial Number . Broker Name Account Number . Debit Amount . Credit Amount . Grand Total. 5. ACCOUNTS DEPARTMENT Accounts department deals with maintenance of records regarding income and expenditure of the exchange. It prepares annual accounts of the exchange . Most of the work in the accounts department of LSE is done manually although help is taken from computer for making Trial balance , Income & expenditure statement & Balance Sheets . The manual report of LSE is generally published in Aug . every year .The account department of LSE performs the following functions: To make receive payments to the outside agencies . outside agencies include companies listed at LSE and brokers working in LSE . To keep the record of all incoming and outgoing money & preparation of financial matters at the end of the financial year . To get their accounts audited from the third party .

Some of the accounts polices followed are : Accrual system of accounting is followed . Fixed assets are stated at the historical cost less deprecation .

34 Deprecation is provided on W.D.V method in accordance with schedule 15th of companies Act 1956.

6. MARGIN SECTION It is necessary for every Stock Exchange to establish margin section in the exchange its basic function is to collect different type of margin from brokers as per regulations given by SEBI.. The idea behind this section is:To prevent the members form doing excessive speculative trading. To keep track of the members who are expected to default in future . Function of margin section 1. To collect BMC, ABMC. 2. To keep a track on the members / brokers. 3. Collection of the margins. 4. Release of the margins . Margin section is an important section . This section apart from dealing in securities & regulation the trading of brokers , keep a check on excessive trading in speculation . margin is the amount, which is collected from the brokers for the safety of transaction . as the transaction are to be finalized on T+2basis , in the mean time the rates may fluctuate which may lead to default . so to make a transaction safe , daily margins are collected from brokers . when a member gets registered in the exchange and with SEBI than before starting trading he is supposed to deposit some money , which is fixed by SEBI as security . now in SEs rolling statement prevails . Ultimately margin is the difference between the limit and the trade done by the member any member wants to do trade up to greater limit than he can deposit Additional Base Minimum Capital.

35 Net Exposure limit: Each member would have a net position limit i.e. net of volume of purchases and sales of each scrip would be equal to 8 times of the sub total of BMC&ABMC. So, it indicates the difference between sale and purchase and calculate on daily basis. Net position of each member at the end of the day would be carried over to the next day.

6. PERSONNEL DEPARTMENT

This department carries out all activities relating to The recruitment of the personal, whenever and where ever a vacancy arises, Maintenance of attendance registers, Appointment or removal of floor clerks or authorized representatives of brokers. Records of leaves and overtime of employees, Promotion, Demotion, Resignation, Conveyance allowance etc. `

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DEPOSITORY SYSTEM

Introduction:

Inherently, Indians are found of possession, which may be flat or house, financial assets or jewelry. Investors love to hold the physical share certificate acquired by them long back. The globalization of Indian capital market has introduced the concept of depository, which deprives. The principal function of a depository is to dematerialize securities and enable their transactions in book entry form. Dematerialization of securities occurs when securities issued in physical form, are destroyed and an equivalent number of securities are credited into the beneficiary owners account.

The first depository in the word was set up way back in 1947 in Germany. Depository in India is relatively a new concept as it was introduced in 1996 with the enactment of depositories act 1996. The1use of depository in India is voluntary or option.

Meaning of Depository In India ,the Depositories Act defines a depository to mean, a company formed and registered under the Companies Act, 1956 and which has been granted a certificate of registration under sub-section (IA)of section 12 of the Securities and Exchange Board of India Act, 1992. The term Depository means a place where something is deposited for safekeeping, a bank in which other deposit funds or securities, usually under the terms of specific depository agreement. Depository means one who receives a deposit of money, securities,

39 instruments or other property, a person to whom something is entrusted or trustee, a person or group entrusted with the preservation of safe keeping of something. A depository is an organization where the securities of the shareholders are held in the electronic form at the request of shareholders through the medium of depository participant. The depository holds electronic custody of securities on the settlement dates. Depository cannot act as depository unless it obtains a certificate of commencement of business from SEBI. National Securities Depository Ltd. (NSDL)promoted by IDBI.NSE is the countrys first depository. Later on Central Depository Services ltd. (CDSL) was promoted by BSE, Bank of Baroda etc.

The Depository System

The depositories are important intermediaries in the securities market. Depository system is concerned with conversion of securities from physical to electronic form, settlement of electronic segments, electronic transfer of ownership of shares and electronic custody of securities. The system results in instant transfer as compared to 6 & 8 weeks time under physical mode. In a depository system, the investors stand to gain by way of lower risks of theft or forgery, problem of fraudulent transfer etc. electronic transfer is faster in comparison to paper work. Stamp duty is exempted and turns over & liquidity enhances manifold. The securities are transferred by debiting the transferees depository account. The implementation of the system has to be secure and well governed. The intermediaries in the system have to follow strict rules.

40

ELECTRONIC LINKAGE ISSUER

EL.LINK

NSDL /CDSL

EXCHANGE (CC/CH)

DP

DP

Broker

Investor

Investor

Broker

Depository Participants:
A depository Participant is described as an agent of the depository. In legal sense, a DP is an entity that is registered with SEBI under the provisions of the SEBI (Depositories & Participants) Regulations, 1996. As per the provisions of this Act, a DP can offer depository related services only after obtaining a certificate of registration from SEBI. As per SEBI guidelines, financial institutions, banks etc. can become the participants in the depository. A DP maintains your securities accounts and intimates the status of your holding from time to time. The relationship between the DPs and the depository is governed by an agreement made between the two under the Depositories Act.

41 In India, Two Depositories Have Got Registration From SEBI.

These are: 1. NSDL National Securities Depository Ltd. 2. CDSL Central Depository Services Ltd.

NSDL: It is the first depository in India, registered on 7th June 1996 with SEBI and commenced operations on 8th November 1996. NSDL is promoted by for major institutions- Unit Trust of India, Industrial Bank of India , National Stock exchange, and State Bank of India. The depository has now become one of the critically important institutions providing infrastructure support to Indian Capital Market. As on April 30,2003, there are 37,89,416 Investor accounts from within the country and abroad. The following table shows the growth in investor accounts over a period of three years. Month-Year Client Account

No. Of Accounts(lakhs) Apr-01 Apr-02 Apr-03 Apr-04 Apr-05 Apr-06 Apr-07 Apr-08 34.54 37.02 37.89 43.48 53.30 66.73 80.01 95.00

42 CDSL: It is the second depository in India, secured its certificate of commencement of business on February 8,1999 from SEBI. CDSL is promoted by-The Bombay Stock Exchange (BSE)in association with Bank of India, bank of baroda, State Bank of India and HDFC Bank. The BSE has been involved with this venture right from the inception and has contributed towards the project. The main objective of CDSL is to accelerate scrip less trading and to create a competitive environment, which willl be responsive to users interests and concern. REGULATIONS OF DEPOSITORIES DEPOSITORIES ACT 1996

SEBI

SEBI ACT 1992

SEBI(Depositories & Partifipants) Regulations, 1996

DEPOSITORY

Business Rules

Bye Laws

Agreement

Application of acts/ regulations

43

COMMENCEMENT OF BUSINESS To get a business commence by depository the following is required to be performed:

Registration: As per the provisions of the SEBI act, a depository can deal in securities only after obtained a certificate of registration from SEBI. On being satisfied with the eligibility parameters of a company to act as a Depository SEBI may grant a certificate of registration subject to certain conditions. Commencement Of Business: A Depository , which has obtained a registration, can

start operations only after getting a certificate of commencement of business from SEBI. A depository must apply for and obtained a certificate of commencement of business from SEBI with in I year from the date of receiving a certificate of registration from SEBI. SEBI grants a certificate if it is satisfied that depository has adequate systems & safeguard to prevent manipulation of records and transactions. SEBI takes in to account all matters relevant to the efficient and orderly functioning of examines if: 1) The Depository has a net worth of not less than Rs. 100 lakhs. 2) The Byelaws of depository has been approved by SEBI. 3) The automatic data processing system of depository have been protected against alterations, destructions, disclosure of records and data. 4) The network, through which continuous electronic means of communication are established between depository, DPs, issuers and R&T agents, is secure against unauthorized entry. 5) The physical or electronic access to premises, facilities, automatic data processing system, data storage sites and facilities including backup sites and to the electronic data connecting the DPs, issuers and R&T agents is controlled, monitored & recorded. the depository. It particularly

44 6) The depository has made adequate arrangements including insurance, for indemnifying the beneficial owner any loss that may be caused by such beneficial owners by wrong full act default of the depository or its DPs participants or any employee of the depository. 7) The granting of certificate of commencement is in the interest of the investors in securities market. 8) The depository has detailed operational manual explaining all aspect or its functioning the interface and method of transmission of information between the Depository, issuers and R&T agents, DPs & beneficial owners. 9) The granting of certificates of commencement of business in the interest of investor in securities market.

Rights And Obligations Of Depositories

Depository have the rights and obligation conferred upon them under the Depositories Act, 1996, the regulations made under the Depositories Act, Byelaws approved by SEBI, and the agreement made with DPs, issuers and their R&T agents. Every depository must nave adequate mechanisms for reviewing, monitoring and

evaluating its control, systems, procedures and safeguards. It should conduct an annual inspection of these procedures and forward a copy of the inspection report to SEBI. The depository is also required to ensure that the integrity of the automatic data processing systems is maintained at all times and take all precautions necessary to ensure that the records are not lost, destroyed or tampered with. In the event of loss sufficient backup of records should be available at different place. Adequate measures should be taken including insurance, to protect the interest of beneficial owners against any risk. The depository should indemnify beneficial of security of any loss caused to them due to negligence of DP.

45 Bye laws:

The depository is required to make byelaws governing its operations. The byelaws have to be in conformity with Depositories Act, 1996 and the regulations made there under and need to be approved by SEBI before becoming effective

Services Of Depository

A depository established under the Depositories Act, 1996 can provide any services connecting with recording of allotment of securities or transfer of ownership of securities in a record of the depository. A depository can provide depository services through DP. Generally the following securities are eligible for dematerialization. Shares, scripts, stock, bonds, debentures or other marketable security of alike nature in or other body corporate. Units of mutual fund, rights under collective investment schemes and venture capital funds, commercial paper, certificates of deposit, securitised debt, money market instruments, government securities and unlisted securities. Securities admitted to NSDL depository are notified to all DPs through circulars sent.

46 FUNCTIONS OF DEPOSITORY Transfer and registration: A transfer is a legal change of ownership of securities in the records of the issuer. For affecting the transfer, certain legal steps have to be taken like endorsement, execution of transfer instrument and payment of stamp duty. The depository accelerates the transfer process by registering the ownership of entire issue in the name of the depository. Under a depository system, transfer of security occurs mainly by passing book entries depositories, on the instruction of the beneficial owners. the records of the

Pledge and hypothecation Depositories allow the securities placed with them to be used as collateral to secure loans and other credits. In the manual environment, borrows are required to deliver pledged securities in physical form to the lender or its custodian. These securities are verified for authenticity and often need to be transferred in the name of lender. All this takes time. It also has a money cost by way of transfer fees or stamp. If the borrows wants to substitute the pledge securities, these steps have to repeated. Use of depositary services for pledging/hypothecating the securities make the process very simple and cost effective. The securities pledge/ hypothecated are transferred to a segregated or collateral account through book entry in the records of depositary.

Dematerialization: One of the primary functions of depository is to eliminate or minimize the movement of physical securities in the market. This is achieved through dematerialization of securities. Dematerialization is the process of converting securities held in physical form into holding into book entry form.

47

Account transfer: The depository gives effect to all transfers resulting from the settlement of trades and the other transactions between various beneficial owner.

Corporate actions: A depositary may handle corporate action in two ways. In first case, it merely provides information to the person entitled to receives the corporate benefits. In other, case depository itself takes the responsibility of the distribution of the corporate benefits.

Linkages with the clearing system: Whether it is separate clearing corporation attached to a stock exchange, or a clearinghouse of a stock exchange, the clearing system performs the functions of ascertaining the pay-in(sell) or pay-put (buy)of brokers who have traded on the stock exchange . Actual delivery of securities to the clearing system from the selling brokers and delivery of securities from the clearing system to the buying brokers is done by the depositary. To achieve this, depositaries and clearing system should be electronically linked. Account Opening For an depositary account opening is very important and major function. It is a demat account and by Lse only Rs. 500 charged for account opening. And account opening form are as under and also their formalities.

48

RECORDS, WHICH ARE TO BE MAINTAINED BY DEPOSITORY

The record and documents which are required to be mainted by every depository, can be stated as below which have to be reserved for a minimum period of 5 Years: Records of securities dematerialized and rematerialized. The names of the transferor , transferee. A registrar and index of beneficial owner. Details of the holdings of the securities of beneficial owner as at the end of each Details of Dps Detail of securities declared to be eligible for dematerialization in the depositary Record of approval, notice, entry and cancellation of pledge or hypothecation. Record of instruction received from and send to participant, issuers, issuers agents and beneficial owner. Such other records as may be specified by SEBI for carrying on the activities as a depositary.

49 VARIOUS OPERATIONS PERFORMED BY DEPOSITORY

Account Opening: Any investor can avail depository services but first an account must be opened with a depository participant just as in a bank. Any person desiring to become a client of the DP shall make an application as per the forms, which have been laid out in Annexure. The participant shall ensure that the application form submitted by the client is completely filled & properly signed by the client.

Type of Account

Beneficial owner A/c

Intermediary A/c

Clearing member A/c

House

Non House

50

A DP may be required to open three categories of account for clients Beneficiary account, Clearing Member Account and Intermediary Account. A Beneficiary Account is an ownership account. The holders of securities in this type of account own those securities. The clearing member account and intermediary account are transitory accounts. The securities in these accounts are held for commercial purpose only. A clearing member account is opened by a broker or a clearing member for the purpose of settlement of trades.

An intermediary account can be opened by a SEBI registered intermediary for the purpose for the purpose of stock lending and borrowing.

Beneficiary Account This is an account opened by investors to hold their securities in dematerialized form with a depository and to carry out the transactions of sele and purchase of such securities In book entry from through the depository system a beneficiary account holder is legally entitled for all rights and liabilities attached to the securities held in that account is called beneficial owner account this is further classified as; i. ii. House account Non-house account

House Account ;- an account by a DP for the custody of and transactions in its own investment is referred to as a house account Non house account ;-all other beneficiary accounts are referred to as Non house

51

Clearing member account

The entities that are authorized to pay in and receive the pay out from a clearing corporation / clearing house against trades done by themor their clients are known as clearing members(CM). all pay in and pay out transactions are carried out through their accounts. There are two types of clearing members 1. All members of stock exchange properly known as brokers, and clearing members; 2. custodians who are permitted by the stock exchange to act as a clearing member.

Intermediary Account As per SEBI Regulations on Stock lending and borrowing only an approved intermediary can and borrow stocks from clients. This intermediary borrows from lenders and lends to borrowers. Intermediate registered with SEBI as approved intermediary account with a DP of its choice executing stock lending and boring transaction made through them. An intermediary account may be opened only after obtaining registration from SEBI under an approved stock lending scheme and getting the approval of the depository for opening the account. The process of opening an intermediary account is same as for opening a corporate be3nriciary account securities may be transferred to or from an intermediary account only as per the reproduce prescribed for this by the depository Transmission And Nomination One of the lesser-known but widely experienced problems of dealing in securities is with regard to their transmission The companies Act distinguishes transmission of shares from transfer of shares. While transfer of shares relates to a voluntary act of the shareholder, transmission is brought about by operation of law. The word transmission means devolution of title to shares, for example. Devolution by death, succession, inheritance, bankruptcy,

52 marriage etc. the person on whom the shares devolve has to prove his entitlement by submitting appropriate documents and seek transmission. If the securities are held in the depository system documents have to be submitted to the DP.

Nomination Facility The Companies (Amendment) Act, 1999 has introduced provisions for nominations in respect of shares, debentures, fixed deposits, etc. The nomination facility fulfils one of the long felt needs of the investors. This facility was already in place for deposits in banking industry. Under the provisions, a shareholder , a debenture-holder, a bondholder or deposits would vest, in the event of original investor s origin investor s death. Then facility can be availed of by any person whether Indian or a non-resident Indian investor.

53

DEMAT & REMAT;

Dematerialisation
One of the methods of preventing all the problems that occur with physical securities is through dematerialization (demat). India has adopted the demat route in which the book entry is made electronically against securities that are cancelled.

After this process each security is identified in the depository system by ISIN and short name. International security Identification Number (ISIN) is a unique for each security issued in any of the International Standards Organization (ISO) member countries in accordance with the ISIN standard (ISO 6166). ISIN is a 12-character long identification mark. It has three components- a pre- fix, a basic number and a check digit.

Steps: 1) Client / Investor submits the DRF (Demat Request From) and physical certificates to DP.DP checks whether the securities are available for demat. Client defects the certificates by stamping Surrendered for Dematerialisation. DP punches two holes on the name of the company and draws two parallel lines across the face of certificate. 2) DP enters the demat request in his system to be sent to NSDL. DP dispatches the physical certificates along with the DRF to the R&T Agent. 3) NSDL records the details of the electronic request in system and forwards the requests to the R&T Agent. 4) R&T Agent, on receiving the physical documents and the electronics request, verifies and checks them. Once the R&T Agent is satisfied, dematerialistion of the concerned securities is electronically confirmed to NSDL.

54 5) NSDL credits the dematerialized securities to the beneficiary account of the investor and intimates the DP electronically. The DP issues a statement of transaction to the client.

REMATERIALISATION
The process of getting the securities in an electronic form , converted in to the physical form is known as rematerialisation . An investor can rematerialize his shares by filling a Remat request form (RRF) . The whole process as follow :

REMATERIALISATION PROCESS
1. Investor makes a request for rematerialisation to the DP 2. DP informs depository about the the request. 3. Depository confirm the request to the registar of the issuer company 4. Account are updated by the depository and detail are provided to the DP 5. Investor receive the certificate from the registar

TRADING AND SETTLEMENT

One of the basic service provided by NSDL is to facilitate transfer of securities from one account to another at the instruction of the account holder. transfer of securities from one account to another may be done for any the following purpose: a. Transfer due to a transaction done on a person-to-person basis is called off-market transaction.

55 b. Transfer arising out of a transaction done on a stock exchange c. Transfer arising out of transmission and account closure.

OFF-MARKET TRADE

NSDL

DP1

DP2

SELLER 1.

BUYER

Seller gives delivery instructions to his DP to move securities from his account to the buyers account.

2.

Buyer automatically receives the credit of the securities into his account on the basis of standing instruction for credits.

3.

Buyer receives credit of securities into his account only if he gives receipt instructions, if standing instructions have not been given.

4.

DP needs to be extra carefull in verifying the signature of the client if unusual quantities of securities are being debited to the account.

5.

Funds move from buyer to seller outside the NSDL system.

56 A market trade is one that is settled through participation of a clearing corporation in the depository environment, the securities move through account transfer. Once the broker on the stock exchange executes the trade, the seller gives delivery instructions to his DP to transfer securities to his brokers account. The broker has to than complete the pay-in before the deadline prescribed by the stock exchange. The broker removes securities from his account to CC/CH of the stock exchange concerned, before the deadline given by the stock exchange. The CC/CH gives pay-out and securities are transferred to the buying brokers account. The broker then gives delivery instructions to his DP to transfer securities to the buyers account. The movement of funds takes place outside the NSDL system. 1. Seller gives delivery instructions to his DP to move securities from his account to his brokers account. 2. Securities are transferred from brokers account to CC on the basis of a delivery out instruction 3. 4. On pay-out , securities are moved from CC to buying brokers account. Buying broker gives instructions and securities move to the buyers account.

SPECIAL SERVICES Pledge and Hypothecation: The depositories Act permits the creation of pledge and hypothecation against securities. For this purpose , both the parties to the agreement, i.e. the piedgor and the pledge must have a beneficiary account with NSDL .However . both parties need not have their Depository account with the same DP The nature of on the securities offered as collateral determines whether the transaction is a pledge or hypothecation . if the lender (pledgee)

57 has unilateral right (without reference to borrower) to appropriate the securities the securities to his account if the borrower (pledgor)defaults or otherwise, the transaction is called a pledge . If the lender needs concurrence of the borrower (pledge ) for appropriating securities To his account the transaction is called hypothecation.

PLEDGE OF DEMAT SHARES

Steps: 1) Agreement is signed between the pledgor and pledgee outside the NSDL system . 2) Pledgor gives a pledge creation request to DP who enters it in the system . 3) The request reaches the pledgees DP through the NSDL system . his DP intimates pledgee . 4) Pledge gives a pledge creation confirmation to his DP who it in the system . 5) Securities are transferred free balances head t pledged balances head. 6) Loan is given by pledge to pledgor outside the NSDL system .

PLEDGE CLOSURE The pledgor can request for closure of pledge /hypothecation after the performance of the underlying agreement.

STEPS: 1) Pledgor repays the loan to pledgee . 2) Pledgor gives a pledge closure request to his DP.DP forwards the request to pledgees DP through NSDL. 3) Pledge gives a pledge closure confirmation form to DP.DP confirms the on the system .

58 4) The pledge is closed and the securities are moved from pledged balances to free balancse in the pledgors account.

STOCK LENDING AND BORROWING The transaction involving lending and borrowing of securities are executed through approved intermediaries duly registered with SEBI under the Securities Lending Scheme, 1997 Such an intermediary may deal in the depository system only through a special account (known as intermediary account ) opened with intermediary account may be opened with the DP only after the intermediary has obtained SEBI approval and registered itself with SEBI under the securities Lending Scheme . the intermediary also needs to obtain an approval of NSDL.

CORPRORATE ACTIONS Benefits acquiring to shareholders in the nature of diviedends and bonus,etc are generally referred to as corporate actions in the context of depository operations . corporate actions are the events , which affects the rights obligataions and/ or interest of the beneficial owners of the securities hsld in a depository. the most common examples are payment of interest , dividend bonus shares rights splits merger, redemption calling of call-money due, liquidation etc.. `Public Issues Primary market is a market for raising funds from the primary source of savings i.e. investors. The issue of securities in the primary market can be made by a new company, promoted by an existing company, an existing public listed company, or an existing public unlisted public unlisted company. According to the Companies Act (section 6&B) every listed public company, making an initial offer of any security of Rs.10 crore and above has to issue it only in dematerialised from in accordance with Depositories Act, 1996.

59

DEBT INSTRUMENTS & GOVERNMENT SECURITIES Debt Instruments The interest bearing securities are called debt instruments. Depending on features like issuer, tenure, interest rate, etc., debt instruments can be classified into different categories like bonds, debentures, commercial paper, government securities, etc. These are further classified broadly into subordinate bonds, floating rate bond/ debenture, deep discount bond, secured/ unsecured debentures, zero coupon bonds, debentures and commercial paper, government securities are issued by governments State or Central.

GOVERNMENT SECURITIES Government securities meansa security created and issued by the Central Government or State Government for the purpose of raising a pubic loan. There are two types of Government Securities and Treasury Bills. Dated securities have a maturity period of more than one year and the maturity period of treasury bills is to one year. RBI through its Public Debt Office (PDO) handles all the activities relating to issue of government securities, settlement of trade SPEED-e NSDL has set-up an Internet based service called SPEED-e. Demat account holders (including brokers) can submit delivery instructions to their Depository Participants (DPs) electronically, thus eliminating the need to submit instructions in paper form. The facility features high level of security for server authentication and data encruption. The instructions submitted by the account holders are digitaly signed. SPEED-e allows both interactive and batch file operation with digital signatuer. Thus, data entered by the account holder is received in to the depository participants system and executed.

Freeze Facility on Speed-e

The clients can freeze/ un-freeze their accounts through Speed-e website.

60 The freeze/ unfreeze indtructions given through Speed-e will be directly applined cn the depositry system and the DP cannot override such freeze/ unfreeze instructions.

61

62

BANKING SYSTEM
We are beginning the study of commercial banking by looking its meaning .this safe place ultimayely evolved into financial institutions that accept deposits and make loans i.e. the modern commercial banks. Banks accept money for the safe custody, which is repayable on order of the depositor.

MEANING: Banking means the accepting for the purposes of lending or investment of deposit of money from the public, repayable on demand or otherwise & withdraw able by cheque, draft or otherwise. In short we can say : 1. A bank is a commercial establishment- a dealer in debts which 2. Aims at earning profits 3. By accepting deposit form the public, which 4. Are payable on demand or otherwise, through 5. Cheque, drafts or otherwise; and 6. Which are used for lending or investment

63

FUNCTIONS OF MODERN BANKS

ACCEPTING DEPOSITS

LENDING LOAND & ADVANCES

CREDIT CREATION

CHEQUE SYSTEM OF PAYMENT OF FUNDS

Fixed or Time Deposit A/C

Current A/c Recurring Deposit A/c Saving bank Deposit A/c

Money at Call

Cash credit Overdraft Term Loans

Credit to govt.

Banks performs different functions & services so that they can be described as departmental stores of financial service 1.Accepting Deposits The major function of modern bank is acceptance of deposit form the public. Banks accepts deposit by mobilizing the saving of public. to mobilize the saving and to hold deposits, banks pay interest on the deposits. To attract the depositors banks maintains different types of accounts like:

64 Fixed or time deposit account: Fixed deposit account is one where in money is deposited for a fixed and is not supposed to be withdrawn before the expiry of the said period.this period usually varies from 15 days to 5 years.the rate of interest allowed on such accounts is also known as term deposits account.but if a customer does need money before the expiry of the fixed period,he can either take a lian against the fixed deposit or the bank may allow him to withdraw a deposit before the expiry of the due date. Saving bank deposit account: This is an account in which the customer deposit small saving in the bank. This account meant for the benefit of middle class and low-income group people .in person minimum specified deposits could open a saving bank deposit account. deposits can be made naresh this account for any number of times in a week. at present 50 withdrawals are permitted in a half-year By most of the banks. interest is allowed on a minimum balance standing to the credit of an account during the period frm the 10th day of the month to the last day of every month. Current account Current accounts,some times also called asopen account is one in which money can be deposited and withdrawn at any time during working hours without giving any notice to the bank.this account can be defined as running account between a banker and customer.current accounts suit the requirement of a businessmen,companies,corporations,institutions,firms etc.

Recurring deposit account : In this account, a predetermined amount is deposited in the account every month. The rate of itererst in normally equal to the rate of interest payable on a term deposits account of same period i.e. the tenure of a recurring deposit. In a case of need, premature withdrawal is allowed. Private sector banks are using latest technology in banking and are presenting certain innovative accounts different names. These are: Flexible account: These accounts combine the features and benefits of saving account & fixed deposit accounts.

65 ATM (Automatic Teller Machines): The banks, which have computerised high tech branches, are providing round the clock banking facilities through ATM. The facilities through ATM can differ depending upon the software being used.

2. Lending or Advancing loans Lending loans and advances is another function of a modern bank. A bank must lend depositsf or make advances to the public directly or indirectly. LENDING MUST BE ON THE BASIS OF FUNDS RAISED THROUGH ACCEPTANCE OF DEPOSITS FROM THE PUBLIC. The usual methods adopted by banks to make advances are: Money at Call: It is the money lent for a very short period, generally varying from 1 to 14 days. Such advances are usually made to other banks and financial institutions only. Overdraft: An overdraft is an advance given by allowing a customer to overdraw his current account upto an agreed amount. An overdraft account is opened in the same way as a current account. In overdraft the interest is charged only on the credit actually utilised, i.e. to the extent account is overdrawn. Cash Credit: Advancing credit as cash credit is also very popular. Under this system, the bank advances loans to the customer on the basis of his current assets, receivables or fixed assets by hypothecating them in favour of the banker. Discounting of bills: This is another very popular method of advancing credit. In a bill of exchange, the debtor accepts a bill drawn upon him by the creditor and thus agrees to pay the amount mentioned on maturity. In discounting the bank takes the bill and after making deductions for the margin makes the payment to the holder. Term loans: This is a lump sum loan advanced with a fixed maturity period of more than one year. Term loans are usually secured and provide medium to long-term funds to the borrowers. Repayment is made either on maturity or in installments

66 Credit to Government:- Banks provide indirect credit to the central or state government by investing in their securities. Investment in securities makes an important part of the portfolio of a bank. It enables it to meet requirement of statutory liquidity ration SLR. 3. Credit Creation Credit creation is another distinct function performed by banks. This function is automatically performed while advancing credit or loans or by accepting deposits. Banks are able to create credit because the demand deposits i.e. a claim against the bank is accepted by the public in settlement of their debts. Thus, when a bank advances a loan or credit, it does not lend cash but opens an account in favour of the customer and credits the amount to the account. It creates a claim against itself, which is acceptable by the public for settlement of debts. As the public for settling their debts accepts these claims against the banks, it is an important constituent of money supply. In this process bank creates money. Banks need not keep the entire deposits in cash. Only a part of the deposits is required to be kept in cash because the bank in practice is never required to repay all the deposits in cash. This enables the bank to create money many times more than the deposits with it. 4. Cheque system of payment of funds. The cheque system was evolved in very early stages of banking and now it has become the credit instrument in the banking world. Banks perform the functions of payment of funds. Because of clearing houses and clearing operation of banks, cheques can be and are used for transferring funds from one centre to another. In modern days they can also be used for transferring funds from one country to another.

67 OPERATIONAL MODEL OF A BANK

HEAD OFFICE

BRANCES

BRANCES

CLIENTS

CLIENTS

CLIENTS

CLIENTS

BANKS NORMALLY PERFORM FOLLOWING OPERATIONS: 1. Account Opening:

There are various types of accounts such as : Fixed deposit account Saving deposit account Current deposit account Recurring deposit account

Accounts

Fixed deposit

Saving Deposit

Current Account

Recurring Deposit

Steps for opening and operations of Bank Account: a. The first step to open an account if that a client has to give an application in a prescribed form giving particulars such as name of the applicant, occupation, full

68 address, specimen signature and bank my also call for references from the applicant. b. If a company wants to open a current account with bank the following documents will have to be submitted: i. A certified copy of the resolution of Board of Directors for opening of the account. ii. A copy of memorandum and Articles of Association of the company. iii. Copy of certificate of incorporation and certificate of commencement of business. iv. Specimen signature of the person authorised to operate the account.

C.

The next step is that the applicant deposits the initial amount and the banker opens the account in the name of an applicant. Generally, the minimum amount to be deposited initially varies from bank to bank. When the banker opens the account in the name of applicant, it provides him with: Pass book Cheque book, and Pay-in-slip book

2.

TRANSFER BETWEEN INTRA BRANCH ACCOUNTS BRANCH online Transfer of money if any person wants to transfer the funds, then he/she has to give written instructions to bank. BRANCH

Steps: 1.

2.

The bank will debit the applicants account credit beneficiarys account.

69 In case bank has centralised banking system, then transfr is made through on-line transfer of funds, else the debiting branch of the bank sends a postal advise to the branch having beneficiarys account. 3. INTER-BANK TRANSRERS

BANK MAINTAINING APPLICANTS

CLEARING HOUSE

BANK MAINTAINING BENEFICIARIES

Steps: 1. 2. 3. A person who wants to transfer money issues cheques in favour of beneficiary. Beneficiary deposits. The collecting bank will send cheque to the clearing house and after the settlement through clearing house cheque in his/her bank credits beneficiary account. 4. TRANSMISSION AND NOMINATION Transmission:- The act distinguishes transfer from transmission, while transfer is a voluntry act; transmission is brought by operation of law. Transmissin means the devolution of the titles of property in mveable assets that is devolved by death, succession, inheritance, bankruptcy and marriage etc: Nomination :Under this provision, an account holder nominates a person in whom the funds would vest in the event of death of the original account holder. The facility can be acailed by any person whether Indian resident or NRI.

70

5) DEPOSITS AND WITHDRAWAL: PAY IN SLIP

CURRENCY WITH ACCOUNT HOLDER

INVESTORS ACCOUNT WITH BANK

PAY OUT SLIP CASH WITHDRAW (CHEQUE) STEPS. I. A Person has to fill a pay-in slip of required amount, Which is to be deposited. II. Then afterdepositing the cash to the cashier the data is feeded in to the cliet ,s account, which is electronically maintained in computer-based systerns. III. In the case of withdrawal of money, a person has to fill up a withdrawal slip or a cheque. IV. Blanks debits the clients account while encashing his cheque or withdrawan slip. V. Required amount is taken from the cashier.

6)

PLEDGE AND HYPOTHECATION: Nature of control on the securities offered as collateral ;determines whether the transaction is a pledge or hypothecation. If the lender that is the pledge has a unilateral right to appropriate to his account in case the borrower defaults, the

71 transaction is called as a pledge. If a lender meeds concurrence of the borrower for appropriating securities to his account, the transaction is called hypothecation.

STEPS: I. to start with, the pledges as to fill up a request form to get lienmarked his/her property in favour of specified pledge. II. The bank then marks the lien in favour of the pledge at the request of pledge.

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ANALYSIS
After compiling and interpreting information gathered and after meeting some key persons working in both of the systems. My analysis is that although the objective for being in business and logic behind doing various functions of banks and depositories are totally different yet their operational models have many similarities, some of which are following: ACCOUNT OPENING 1. 2. In both of the systems to avail the services a customer has to open an account. In both of the systems there are different types of accounts such as fixed, saving, current accounts in banks and individual, HUF and corporate accounts in Depositories. An investor client can choose any of the accounts as per his/her needs. 3. In both of the systems, in order to open an account, the client has to fill up an application form which includes different information about the client such as name, address, identity(photograph), speciman signatures, nominees, refrences etc. 1. Depository account in banks and individual system is somewhat parallel to current account maintenance system of bank. It can be seen from the following factors.

DEPOSITORY In depository system a share Transfer book is given to Client. No minimum balance is Required. No. restriction in operating In transfer of scrips. Allocated client ID number. Transfer securities between Account

BANKS In Banks a chequebook is given to client.

Minimum balance is Required. No restriction in operating In current account. Allocates account number. Transfer funds between account.

74 Safeguarding of securities. Different types of services Are provided by depository Such as pledge, transfer of Scrips etc. Function through depository Farticipants. Transfer without physical Handling of securities. DP charge account opening And closing fee. Demat and Remat fee, transaction fee And custody. Safeguarding of money. Different types of services are provided by banks such as pledge, transfer of money etc. Function through Branches. Transfer without physical Handling of money. Charges commission/ service charges.

Transmission means the devolution of the titles of property in moveable. Assets that is devolved by death , succession, inheritance, bankruptcy and marriage etc. NOMINATION : Under this provision and account holder nominates a person in whom the funds would vest in the event of death of the origional account holder. The facitlity can be availed by any person whether Indian resident or NRI . DEPOSITS AND WITHDRAWAL : STEPS: 1. A person has to fill a pay in slip of required amount which is to be deposited. 2. Then aferdepositing the cash to the cashier the data is feeded in to the client account . which is electronically maintained in computer based systems. 3. In the case of withdrawal of money, a person has to fill up a withdrawal slip or a cheque.

75 TRANSFER OF SCRIPS/ MONEY: In both depository and banking system written instructions are necessary for debiting account. In depository system one can transfer the scrips directly from one account to another without physical handling or movement of scrips. In the same manner banks can transfer from one account to another without physical handling of cash. TRANSMISSION: In depository system the scrips can be transferred to the nominee after death of the account holder. Similarly , in banking system funds can be transferred to the nominee after death of the account holder. NOMINATION: In both of the system aclient can nominate any person of his/her choice as a nominee. It means that nominee is a legal owner of the funds in he bank or scrips in the depository after death. DEMAT AND REMAT / PAY IN AND PAY OUT: In depository system, physical scrips can be transferred from physical to electronic from through the process of Dematerialization and vice-versa from electronic from to the physical scrips through the process of Dematerialization. In the same manner, in the banking system cash is transformed into electronic form through pay in and from electronic to cash form through withdrawal process. PLEDGE AND HYPOTHECATION: In both depository and banking system, transferring the securities from FREE BALANCE head to PLEDGED BALANCES does pledge creation in favour of third party. After analyzing the similarities between the operation and maintenance of DP account of depository with operation and maintenance current account of a bank we can infer that operational model of Depository in India has been taken from the operational model of banking system. Although there are still some dissimilarities in between these two models , some of which are given as below.:ACCOUNT OPENING:

76 a) In account opening the signature and photograph of nominee is not necessary in banks while it is mandatory in depository. b) No minimum balance is required while opening an account in depository system, while banks do require an initial deposit to open an account. TRANSMISSION AND NOMINATION : NOMINATION :Nominee is aware of his /her nomination in depository system while in banking system nomination can be kept confidential by the account holder. DEMAT AND REMAT: Banks do have pay-in-slips and withdrawal froms. TRANSFER OF SCRIPS/MONEY: In the banking system the transfer of money is done through online and real time but in depository system there id only online transfer of scrips because credit to beneficiarys account is given on receipt of confirmation from the beneficiary. PELDGE AND HYPOTHECATION: Banks can create a pledge in favour of itself but in case of depository it cannot create pledge in its own favour. For the purpose of my study that is making a comparative analysis in between the operational model of banks and operational model of banks and operational model of DPs, the data regarding banks that have entered into DP services are:ICICI BANKS: ICICI banks is a private bank providing DP service. They have ICICI direct. Com, which is providing online share trading services. This bank commenced its operation in 1997.They are connected with NSDL only and they have 27000 account holders in Ludhiana, of which 26200 accounts are active and remaining are passive. Their DP is online.

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HDFC BANK after merger with Centurion bank Of Punjab HDFC bank is providing DP services. This bank commenced its operation in 2001. They have connectivity with NSDL only . In Ludhiana,they have the client base approx. 35000 out or which 31300 are active and remaining 3700 are passive while their DP is online. The unique selling propositions of this bank are: Lowest charges Same day execution of trade Buy/sell facility. Banking DP secure and safest. Now HDFC Bank

IDBI BANK: IDBI is another private bank providing DP services. They commenced its DP operations in Ludhiana in 2002. They are connected with both NSDL and CDSL . They are having a client base of only 12000 out of which 11500 are active and 500 are passive. Their DP is online.

They have their unique selling proposition as: Efficient service. Personalized DP book State Bank of India: This public sector bank is also providing DP services among various private sector banks. SBI commenced its operation at Ludhiana in 2000. Their DP is connected with CDSL only . They have around 17000 customers in Ludhiana and all are active. They have their unique selling proposition as: Doing of online. Low charges. Better services.

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CONCLUSION :
The study has prompted me to think that if the depositories in India had not adopted the operational model of bank then what could have been the alternate model. Could it be railway or airline reservation or an inventory accounting & maintaining system or result compilation system or something new and innovative? The study also indicates that Functioning of Depository is derived from the Operational Model of Banking system. More efforts should be done for improvement in the operational model of the depository system like-

The clearing system works on T+2 days basis where banking & depository both work together. The T+1 system should be brought in but that is possible when our country will have its banking system functioning more effective. At this present moment T+1 system is operational only in TAIWAN.

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BIBLIOGRAPHY

MAGAZINES:HAND BOOK FOR NSDL DEPOSITORY OPERATIONS MODULEVOLUME, 1 VOLUME, 2 VOLUME, 3 VOLUME, 4 BOOKS:BANKING AND FORIGN TRADE (BY)- R.K. SHARMA

SHASHI K. GUPTA JAGWANT SINGH

WEBSITES:WWW. NSDLINDIA. COM WWW. CDSLINDIA . COM. WWW.LSE.CO.IN WWW.BSEINDIA.COM