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Settlement Agencies

9th February 2019 by stocksbaazigar

Several entities are involved in the process of clearing. These are clearing corporation, clearing members, custodians, Clearing banks, Depositories etc. Lets study the roles of each of these entities. Clearing Corporation The clearing corporation is responsible for post-trade activities such as risk management and clearing and settlement of trades executed on a stock exchange. The National Securities Clearing Corporation Ltd (NSCCL) while Clearing House of BSE called Bank of India Shareholding Ltd (BOISL) handles the clearing and settlement operations on behalf of respective exchanges. Clearing Corporations clear all trades, determine obligations of members, arranges for pay-in of funds/securities, receives funds/securities, processes for shortages in funds/securities, arranges for pay-out of funds/securities, guarantees settlement, and collects and maintains margins/collateral/base capital/other funds. Clearing Member Clearing members are responsible for settling their obligations as determined by the clearing corporation. They have to make available funds/or securities in the designated accounts with clearing bank/depositories, as the case may be, to meet the obligations on the settlement day. In the capital market segment, all trading members of the Exchange are required to become the Clearing Member of the Clearing Corporation. Custodians Custodians are clearing members but not trading members. They settle trades on behalf of trading members when a particular trade is assigned to them for settlement. The custodian is required to confirm whether he is going to settle the trade or not. If he confirms to settle the trade, then clearing corporation assigns that particular obligation to him. If he rejects the trade, the obligation is assigned back to the trading/clearing member. Custodians empanelled by NSCCL are: Deutshe Bank A.G. ,HDFC Bank Ltd ,HSBC Ltd ,ICICI Bank Ltd ,Standard Chartered bank Ltd ,Axis bank Ltd ,Stock Holding Corporation of India Ltd ,DBS Bank Ltd ,J P Morgan Chase Bank ,Kotak Mahindra Bank Ltd ,SBI,Citibank N.A.,Obris Financial Corporation Ltd. ,IL&FS Ltd Clearing Banks Clearing Banks are a key link between the Clearing Member and Clearing Corporation to effect settlement of funds. Every clearing member is required to open a dedicated clearing account with one of the designated clearing banks. Based on the clearing member’s obligations as determined through clearing, the clearing member makes funds available in the Clearing account for the pay-in and receives funds in case of pay-out. Designated Clearing Banks: Axis Bank Ltd ,Bank of India Ltd ,Canara Bank Ltd ,Citibank N.A. ,HSBC Ltd ,HDFC Bank Ltd,ICICI Bank Ltd, IDBI Bank Ltd,Indusind Bank Ltd ,Kotak Mahindra Bank ,Standard Chartered Bank, State Bank of India Union Bank of India Depositories Depositories hold securities in dematerialized form for the investors in their beneficiary accounts. NSDL & CDSL are the two depositories of India Each clearing member is required to maintain a clearing pool account with the depositories. He is required to make available the required securities in the designated account on settlement day. The depository runs an electronic file of transfer of securities from accounts of custodians/clearing member of NSCCL and visaversa as per the schedule of allocation of Securities. Professional Clearing Member NSCCL admits a special category of members known as professional clearing members (PCMs). PCMs may clear and settle trades executed for their clients (individuals, institutions etc.) In such cases, the functions and responsibilities of the PCM are similar to that of custodians. PCMs also undertake clearing and settlement responsibilities of the trading members. The PCM in this case has no trading rights, but has clearing rights i.e. he clears the trades of his associate trading members and institutional clients

What is ISIN?

28th January 201926th January 2019 by stocksbaazigar

Each of the securities dematerialized in the NSDL/CDSL depository bears a distinctive ISIN – an identification number. International Securities Identification Number (ISIN) is a unique identification number for each security issued in any of the International Standards Organization (ISO) member countries in accordance with the ISIN standard (ISO 6166). ISO 6166 was developed for use in an international (cross-border) as well as domestic trades. ISIN is a 12-character long identification mark. It has three components – a pre-fix, a basic number and a check digit. The pre-fix is a two letter country code as stated under ISO 3166 The number comprises nine alphanumeric characters (letter and/or digits).The check digit at the end of the ISIN is computed according to the modulus 10 “Double-Add-Double”. It establishes that the ISIN is valid. Securities issued by the same company, issued at different times or carrying different rights, terms, and conditions are considered different securities for the purpose of allocating ISIN and are allotted distinct ISINs.In India, SEBI assigns ISIN to various publicly traded securities. Different ISINs allocated to the physical and dematerialized securities of the same issue. To illustrate, ISIN INE 475c 01 012 has the following break up: IN – India E- Company Last digit (2 in this example) – check digit First four digits 475c – Company Serial Number; 01- Equity (it can be mutual fund units, debt or Government securities); 01 – issue number The third digit (E in the above example) may be E, F, A, B or 9. Each one carries the following meaning: E – Company F- Mutual Fund Unit A- Central Government Security B – State Government Security 9 – Equity Shares with rights which are different from equity shares bearing INE number. Whenever dealing with ISIN number, it is important to pay special attention to the third digit.

How to open an account with Depository Participants?

25th January 2019 by stocksbaazigar

Any investor who wishes to avail depository services must first open an account with depository participants of NSDL and CDSL The investor can open an account with any depository participant of NSDL and CDSL. An Investor may open an account with several DPs or he may open several accounts with a single DP. The investor has the freedom to choose a DP based on criteria like convenience, comfort, service level, safety, reputation, and charges. After exercising the choice, the investor has to enter into an agreement with the DP. Types of accounts with DP Types of depository account depend on the operations to be performed. There are three types of demat accounts which can be opened with a depository participants wiz. 1. Beneficiary Account 2.Clearing Member Account 3.Intermediary Account A DP may be required to open three categories of accounts for clients – Beneficiary account, clearing member account and intermediary account. A beneficiary account is an ownership account. The holder/s of securities in this type of account own those securities. A Clearing Member Account and Intermediary Accounts are transitory accounts. The securities in these accounts are held for a 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 of stock lending and borrowing. Documents for Verification For the purpose of verification, all investors have to submit the following documents along with the prescribed account opening form. Proof of Identity – A beneficiary account must be opened only after obtaining proof of identity of the applicant. The applicant’s signature and photograph must be authenticated by an existing account holder by the applicant’s bank or after due verification made with the original of the applicant’s valid passport, voter ID, driving license or PAN Card with a photograph Proof of Address – The account opening form should be supported with proof of address such as verified copies of ration card/ passport/ voter ID/ PAN card/driving license/ bank passbook. An authorized official of Participants, under his signature, shall verify the original documents. In case any account holder fails to produce the original documents for verification within the aforesaid period 0f 30 days, it must be immediately brought to the notice of NSDL. Failure to produce the original documents within the prescribed time would invite appropriate action against such account holder, which would even include the freezing of their accounts Client Types in Depository System There are several client types in the depository system and different codes are allotted to them. These are listed below. 1)Resident – Ordinary and HUF 2)Financial Institutions – Govt sponsored FI, State FCs, other 3)FIIs – Mauritius-based, Others 4)NRI –Repatriable, Non-Repatriable, Depository Receipts 5) Body Corporate – Domestic Company, Overseas Corporate Body, Repatriable, Govt company, Central Govt, State Govt, Co-operative body, NBFC, Non- NBFC, Broker, Foreign Bodies, Group companies, others, OCB – Non-repatriable, Depository Receipt 6) CM (Clearing Member) 7) Foreign National – Foreign National/Depository Receipt 8) Mutual Fund – Foreign National/ Depository Receipt 9) Trust 10) Bank – Foreign Bank, Co-operative bank, Nationalized bank, Other 11) Intermediary These are several client types in the depository system and different codes are allotted to them as above. No minimum balance is required for opening a depository account. After verifying the form and the documents DP opens the account of their clients.

Depository system of India

29th January 201925th January 2019 by stocksbaazigar

Background: The earlier settlement system on Indian stock exchanges was very inefficient as it was unable to take care of the transfer of securities in a quick/speedy manner. Since the securities were in the form of physical certificates; their quick movement was again difficult. This led to settlement delays, theft, forgery, mutilation, and bad deliveries and also to added costs. To wipeout these problems, the Depositories Act 1996 was passed. It was formed with the purpose of ensuring free transferability of securities with speed, accuracy & security. It has been able to do so by: Making securities of public limited companies freely transferable, subject to certain exceptions. Dematerializing the securities in the depository mode. Providing for maintenance of ownership records in a book entry form. What is Depository? A depository is an institution or a kind of organization which holds securities with it in De-Mat form. In this, trading is done among shares, debentures, mutual funds, derivatives, F&O, and commodities. It is a company that maintains a record of investors dematerialized, shareholding in individual accounts, which are known as the demat account. Depositories in India Fundamentally, there are two sorts of depositories in India. National Securities Depository Limited (NSDL) Central Depository Service (India) Limited (CDSL). These are regulated by SEBI and are governed by the Depositories Act, 1996 NSDL: National Securities Depository Limited (NSDL) is an Indian Central securities depository based in Mumbai. It was established on 8 November 1996 as the first electronic securities depository in India with national coverage. It was established based on a suggestion by a national institution responsible for the economic development of India . CDSL: The second depository Central Depository Services Limited (CDSL) has been promoted by Bombay Stock Exchange and Bank of India. It was formed in February 1999. Both depositories have a network of Depository participants (DPs) which are further electronically connected to their clients. So, DPs act as a link between the depositories and the clients. What are the Depository Participants? Depository Participant (DP) is described as an Agent (law) of the depository. They are the intermediaries between the depository and the investors. The relationship between the DPs and the depository is governed by an agreement made between the two under the Depositories Act. In a strictly legal sense, a DP is an entity who is registered as such with SEBI under the sub section 1A of Section 12 of the SEBI Act. Who can become Depository Participant? SEBI (D&P) Regulations, 1996 prescribe a minimum net worth of Rs. 50 lakh for stockbrokers, R&T agents and non-banking finance companies (NBFC), for granting them a certificate of registration to act as DPs. If a stockbroker seeks to act as a DP in more than one depository, he should comply with the specified net worth criterion separately for each such depository. No minimum net worth criterion has been prescribed for other categories of DPs; however, depositories can fix a higher net worth criterion for their DPs. Services provided by Depositories: Dematerialization (usually known as demat) is converting physical certificates of Securities to electronic form Rematerialisation, known as re-mat, is reverse of demat, i.e. getting physical certificates from the electronic securities. Transfer of securities, change of beneficial ownership Settlement of trades done on exchange connected to the Depository Pledging and Unpledging of Securities for the loan against shares Corporate action benefits directly transfer to the Demat and Bank account of the customer