DEPOSITORY SYSTEM

Concept of depositary system essentially aims at eliminating the voluminous and cumbersome paper work involved in the scrip-based system and offers scope for ‘paperless’ trading through state-of-the-art technology. It enables conversion of physical securities in electronic form through a process of ‘dematerialization’ (also known as ‘demat’) of share certificates and facilitates share transactions and transfers electronically without involving any share certificate or transfer deed. It thus alleviates the hardship currently faced by the investors and it offers options for converting the shares from electronic to physical or paper from through a process of ‘rematerialization’ (also known as ‘remat’).

Depositary System is, indeed, time-tested and long prevalent in many advanced countries and has been playing a significant role in stock markets around the world.

In India, the first depositary has been set-up by National Securities Depositary Limited (NSDL), which is jointly promoted by IDBI, UTI and the NSE (National Stock Exchange) in accordance with the Rules and Regulations framed by SEBI.

Constituents

· Depository (NSDL)

· Depository Participants (DPs)

· Companies Registrars

• Investors

We would like to describe the concept step-by-step:

Few years’ back, it was a concept of scrip-based system it was indeed a quite complex and time consuming and was riddled with a variety of problems like bad deliveries for several reasons, e.g.:

• Litigations and disputes in respect of shares purchased,
• Tearing and mutilation of certificates,
• Fake certificates
• Loss of certificate in transit,
• Delay in postal transit,
• Time taken in processing
• Mistakes in completing the details in transfer deeds,
• Stamp Duty/ postal charges, etc.

DEMATERIALISATION

DEMAT is a process by which your share certificates are taken back by HLL through your DP, verified and if found in order, demat is confirmed by HLL and then an equivalent number of shares are credited by the DP to your account as electronic holding. The entire process of dematerialization has to be completed within a period of 15 days.

The depository system is very much like our banking system as,

• NSDL holds securities in accounts
• Safe keepings of securities
• Transfers without handling securities
• Transfers securities between accounts

Rematerialization

Rematerialization is a process of converting your electronic holdings back into share certificates in paper form. The process of rematerialization is also carried out through your DP and the process has to be completed within a period of 30 days.

Switching over depository system from scrip-based system

The switching procedure is described here systematically:

STEP 1: -

• Approach a DP of your choice and open an account just like we open an account with a bank.
• With the opening of account, you get identification number called ‘Client ID’ that serve as a reference point for all your transactions with the DP.
• Fill up a form called Dematerialization Request Form (DRF) to be provided by the DP and hand over your share certificates duly called by writing “ surrendered for dematerialization” to them for demat. The DP will accept certificates registered only in your name. A specimen of DRF as prescribed by NSDL is given in annexure ‘C’.

STEP 2: -

• Upon receipt of DRF along with the original share certificates, the DP sends an electronic request to HLL through NSDL for confirmation of demat and simultaneously surrenders your DRF and share certificates accompanied by a standard letter to HLL for demat confirmation.

STEP 3: -

• HLL is already equipped with the requisite hardware/software facility and is linked to NSDL network through a V-SAT connection. Your DP’s request for demat is thus electronically received by HLL through NSDL without any delay.

STEP 4: -

• As soon as HLL receives the DRF and your share certificates, necessary verification is done and demat is confirmed to NSDL.

STEP 5: -

• NSDL further confirms demat to your DP.

STEP 6: -

• DP credits your account with the number of shares so dematerialized and thereafter you hold the securities in electronic form.
• Your DP also gives you a statement of holdings and updates your account after each transaction just like your bank account.

FREEZING OF YOPUR ACCUONT WITH THE DP

If at any time, as a security measure, you wish that no transaction should be affected in your account, you may accordingly advise your DP who shall then ensure that your account is totally frozen until further instructions from you.

CORPORATE BENEFITS

When HLL announces dividend, NSDL will provide the details of all persons having electronic holding of HLL shares with reference to the record date/book closure and HLL will disburse the dividend to such holders by sending dividend warrants directly to them as per the practice presently followed in scrip-based system. In case of rights/bonus issues, the distribution of share entitlement will be done in electronic from by NSDL based on the information provided by HLL.

For any discrepancy with regard to corporate benefits, you can always approach your HLL/DP for any assistance of clarification.

BENEFITS OF THE DEPOSITORY SYSTEM:

• As would be evident from the above, electronic transaction of securities eliminates the problems and delays arising out of scrip-based system.
• Bad deliveries are almost eliminated.
• There is no hassle, filling in transfer deeds and lodging/dispatching the transfer documents with the company, thus avoiding a lot of paper work.
• You no longer have to wait for the shares to be transferred in your name and suffer delays because of processing time.
• It thoroughly eliminates risks associated with loss/fraudulent interception of share certificates in postal transit.
• There is no scope for any risk of loss, theft of fraud with regard to share certificates.
• When you buy shares in depository mode, you become the owner of those shares in electronic from within a day of the completion of settlement. Similarly, when you sell shares in electronic from, you receive the payment much faster.
• Investment is highly liquid at all times, as there is shorter waiting period.
• The marketable lot for transaction in depository mode has been fixed as one share. Therefore, the problem of odd lots is eliminated.
• Once you open an account with the DP for HLL shares, you can utilize the same for transacting securities of other companies, which are part of the depositary system.
• You save on stamp duty @ 0.5% of the market value of shares and although you incur some cost towards DP’s service charges, it could still lead to some savings. This however needs to be evaluated by the individual investor.

• The Syndicate, thus, request you to evaluate seriously this option of investment. We would be please to provide our assistance.

.