SUMMER TRAINING

PROJECT REPORT

ON

ONLINE TRADING : UNDERSTANDING THE FUNCTIONING AND STRATEGIES

in partial fulfillment of the requirement for the degree of

Master of Commerce(M.Com)

Submitted by:

Monika RaniM.ComRoll No._______Submitted to:

MASTER TARA SINGH MEMORIAL COLLEGE FOR WOMEN, LUDHIANA ACKNOWLEDGEMENT

The project report concept in M.Com curriculum is of immense utility to the students. Project helps to assess the students ability to individually conceive, conceptualize, execute and present a life like project by making use of the skills acquired during the course of study.

My project could not have been fruitful without the able guidance of Mr. Rahul Vij (Training Manager) & Mrs. Gurvinder Kaur (H.O.D). I extend my deepest gratitude to all persons who gave me full support during the project.

Despite serious constraints of time and resources, the study was executed with sincerity and commitment. The report is characterized by its straight forward, to the point approach. A deliberate effort has been made to introduce novelty in the report.

Monika RaniM.ComDECLARATION

I hereby declare that the Online Trading has been undertaken by me for the award of M.Com. I have completed this work under the guidance of Mr. Rahul Vij , Edelweiss Share Trading Pvt. Ltd., Ludhiana.

CERTIFICATE

This is to certify that the Project work on Online Trading is submitted by MONIKA RANI a student of M.Com Master Tara Singh memorial College for Women, Ludhiana (Panjab University, Chandigarh) under the supervision of Mr. Rahul Vij.

It is further certified that this is bonafide work. The candidate and matter embedded in this project has not been submitted to any other university earlier for the award of any degree to the best of my knowledge. The data sources have been duly acknowledged.

Mr. Rahul VijTraining ManagerINTRODUCTIONNirmal Bang Securities Pvt Ltd (Nirmal Bang) is amongst the top full-service broking firm established in the year 1989. It started as a small localised player and ultimately transformed into a diverse group in a span of 20 years. The company offers comprehensive range of products and services to meet the financial needs of its investors. It is solidly capitalized to meet the demands of retail clients and sufficiently caring to ensure that service is not compromised.

History

The Nirmal Bang group of companies were founded by Nirmal Bang, Dilip Bang and Kishore Bang. The group always believed in developing retail client network and had wide network of clients all over India. It started up the DP services and also added broking into commodities and insurance advisory services to diversify into allied activities. Thus Nirmal Bang became a corporate member of BSE with three membership rights. The company, besides broking is a depository participant with NSDL and CDSL. Bang Equity Broking Private Limited was formed in the year 1997. This company also became the corporate member of the BSE with three membership rights in the year 1999. The Group was thus the first in the history of the Bombay Stock Exchange to acquire six membership rights of the Exchange.

Major Strengths

Professionally driven

Nirmal Bang is a professionally driven organization having people with diverse professional backgrounds. The blend of experience, skill and dedication is shared with all clients. The group has more than 300 well-experienced and efficient staff to cater to the large clientele base.

Approach

The company focuses on adequate and thorough research on local and world-wide developments, balancing these with the astute discovery of intrinsic values, synergies and growth.

Aim

It aims at maximizing returns of its investors depending upon the investment motive.

Commitment

The Company is committed in providing service at par excellenceMajor Offerings

Nirmal Bang currently offers the full stock brokerage services in line with the overall strategy of the group. Some of the major offerings include the following:

Trading in Equities & Derivatives

Equity trading is offered to retail clients through multiple channels including online trading in the BSE and the NSE, for cash & derivatives segments. Live quotes, market commentary and major news are also offered through its website. This segment contributes a major portion of its revenue.

Trading in Commodities

The group company is a member of Indias premier commodity exchanges, namely, the Multi Commodity Exchange of India Ltd (MCX), the National Commodity & Derivatives Exchange Ltd (NCDEX).

Online Trading

The company offers an online trading portal which is developed and

maintained by Financial Technologies (India) Ltd.

Depository

Nirmal Bang is a depository participant of NSDL and CDS(I)L. It offers depository services through an online platform provided by Apex Softcell.

IPO

Nirmal Bang is also involved in the marketing of IPOs. It even offers

information about forthcoming IPOs, open issues, new listing etc.

Reach & Access

Nirmal Bang has pan India presence with offices and branches spread across all major cities and states. Its wide spread network is further supported by franchisees and more than 200 sub brokers. As on Oct 2007, the company had 180 offices, 242 sub brokers and more than 300 employees.

The company has tie ups with some of the leading IT solution providers

for constant support and development of its technology set up. It has about 50 VSATs that enhance connectivity across several branches and terminals.

Some of its technology partners include Financial Technologies, Apex Softcell and Reliable Software.

Performance

During the first 10 months of CY07, Nirmal Bang reported growth across all its major businesses namely; equity and derivative reporting a growth of 200% and 75% and commodity reported a growth of 50% respectively. Number of terminals went upto 800 in 2007. Similarly number of offices and sub-brokers also underwent a substantial rise.

The company added 15,000 domestic customer accounts in 2007 as compared to 3,000 in the previous year. The E-broking business also showed 100% growth and it added about 300 e-broking accounts.

Future Plans

Nirmal Bang plans to enhance its FII and institutional client base. The company is further planning to enhance its existing service portfolio by

introducing investor advisory, portfolio management services and merchant banking services in the near future. Introduction about the company

SPECIALITY

ABOUT NIRMAL BANG Founded in 1986 by Shri Nirmal Bang, the Nirmal Bang Group is recognized as one of the largest retail broking houses in India, providing an array of financial products and services. Our retail and institutional clients have access to products such as equities, derivatives, commodities, currency derivatives, mutual funds, IPOs, insurance, depository services and PMS.

A leading Financial Services & Brokerage House in the Country

Amongst top 10 Brokerage house in the country in terms of branches.

Amongst top 15 brokerage houses by trading volume.

Member of all principal stock and commodity exchanges in the country.

Represented advisory and action committee of stock exchanges and SEBI. All financial Services under one roof.

Widespread national presence in Retail Brokerage sector

Wealth of Experience and Penetration in the Indian financial market

Strong Technological infrastructure

Extensive Research Support

Cutting edge technology to ensure world class customer service

DEPOSITORY SYSTEM

Introduction:

Inherently, Indians are found of possession, which may be flat or house, financial assets or jewellery. Investors love to hold the physical share certificates required by them long back. The globalisation of Indian Capital market has introduced the concept of depository, which deprives the investors of being proudly possessed with the physical certificates. 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 owner's account.

The first depository in the world 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. The use 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 (1A) 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, instruments or other property, a person to whom something is entrusted or trustee, a person or a 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 the request of 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 IBDLNSE is the country's first depository. Later on Central Depository Services Ltd. (NSDL) promoted by IDBI. NSE is the country's 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 trades in 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, problems 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 transfer's depository account & crediting the transferee's depository account. The implementation of the system has to be secure and well governed. The intermediaries in the system have to follow strict rules.

What's the difference between a depository and a depository participant?

A depository is a place where the stocks of investors are held in electronic form. The depository has agents who are called depository participants (DPs).

Think of it like a bank. The head office where all the technology rests and details of all accounts held is like the depository. And the DPs are the branches that cater to individuals.

There are only two depositories in India- the National Securities Depository Ltd. (NSDL) and the Central Depository Services Ltd. (CDSL). There are over a 100 DPs.

ELECTRONIC LINKAGE

ISSUR

EL.LINK

NSDL / CDSL

EXCHANGE

(CC/CH)

DP

DP

BROKER INVESTOR

INVESTOR BROKERS/ CMDepository 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.

In India, Two Depositories Have Got Registration From SEBI.

These are:

1.NSDL National Securities Depository Ltd.

2.CDSL Central Depository Services Ltd.

NATIONAL SECURITY DEPOSITORY LIMITED

It is first depository in India, Registered on 7th 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, State Bank of India. The depository has now become one of the critically important institutions providing infrastructure support to Indian Capital Market. With in a full years of operations, its investor's accounts rose to 37 lakhs and the number of depository participants connected to it are 189. This show the spread of awareness about the depository system in general and NSDL in particulars. The LSESL has approx 30806 accounts with NSDL, and out of which approx 23498 are active upto 17th July, 2006.

CENTRAL DEPOSITORY SERVICES LIMITED

It is the second depository secured its certificate of commencement of business of February 9, 1998 from SEBI, CDSL if promoted by. The Bombay Stock Exchange (BSE) in association with Bank in 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 over willingly to the fruition of the project.

Over 2 years of its operation 14444 depository participants are registered with it and 77000 investor's accounts. The main objective of CDSL is to be responsive to user's interest and concern. The LSESL has near about 8026 accounts with the CDSL upto 21st July, 2006.

REGULATIONS OF DEPOSITORIES

DEPOSITORIES ACT 1996

SEBI

SEBI ACT 1992

SEBI (Depositories &

Participants)

REGULATIONS, 1996

Business rules Bye laws Agreement Applicability

of acts/ Regulations

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 1 year from the date of receiving a certificate of registration from SEBI.

SEBI grants a certificate if it is satisfied that depository has 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 the depository. It particularly 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 SEEBI.

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.

6)The depository has made adequate arrangements including insurance, for it demnifying 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 including 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 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 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.

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 dematerialisation.

Shares, scrips, stock, bonds, debentures or other marketable security of allies nature in or other body corporate.

Units of mutual funds, 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.

SCHEDULE OF SERVICE CHARGES

HeadsRevised NSDL charges

(including service tax)

Annual maintenance chargesRs. 500 (for year)

Annual maintenance chargesRs. 750 (for corporate)

DematerialisationRs. 2 per certificate

RematerializationRs. 20 per certificate

Market transfer (only on sale side)Rs. 15 per debit instruction

Off Market transfer (only on sale side)Rs. 15 per debit instruction

Pledge CreationRs. 50 per instruction

Pledge ClosureRs. 25 per instruction

InvocationRs. 25 per instruction

ClosureRs. 25 per instruction

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 in the records of the depositories, on the instructions of the beneficial owners.

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, borrowers 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 borrower wants to substitute the pledged securities, these steps have to repeated. Use of depository services for pledging/hypothecating the securities makes the process very simple and cost effective. The securities pledged/hypothecated are transferred to a segregated or collateral account through book entry in the records of depositary.

Dematerialisation:

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. Dematerialisation is the process of converting securities held in physical form into holding into book entry form.

Account Transfer:

The depository gives effect to all transfers resulting from the settlement of trades and the other transaction between various beneficial owners by recording the entries in the accounts of such beneficial owner.

Corporate Actions:

A depository may handle corporate actions in two ways. In first case, it merely provides information to the issuer about the person entitled to receive the corporate benefits. In other case, depository itself takes the responsibility of the distribution of the corporate benefits.

Linkage 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-out (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 broker is done by the depositary. To achieve this, depositories and clearing system should be electronically linked.

RECORDS, WHICH ARE TO BE MAINTAINED BY DEPOSITORY

The records and documents, which are required to be maintained by every depository, can be started 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 index of beneficial owner.

Details of the holdings of the securities of beneficial owner as at the end of each day.

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

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

Records of instructions received from and send to participants, issuers, issuer's agents and beneficial owners.

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

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.

Types of Accounts

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 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 of stock lending and borrowing.

Diagrammatic Representation of Account Opening Procedure

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 sale and purchase of such securities in book-entry form through the depository system. A beneficiary account holder is legally entitled for all rights and liabilities attached to the securities held in that accounts therefore the account is called "beneficial owner account". This is further classified as:

1.House Account

2.Non-House Account

House Account: An account opened by a DP for the custody of and transactions in its own investments is referred to a house account.

Non-House Account: All other beneficiary accounts are referred to as non-house account.

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 (CMs). All pay-in and pay-out transactions are carried out through their accounts.

1.All members of a stock exchange popularly known as brokers, are 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 lend and borrow stocks from clients. This intermediary borrows from lenders and lends to borrowers. Intermediaries registered with SEBI as approved intermediary may open an intermediary account with a DP of its choice, for executing stock lending and borrowing transactions 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 beneficiary account only as per the procedure prescribed for this by the depository.

Freezing of accounts

Account freezing means suspending any further transaction from a depository account till the account is de-frozen. A depository account maintained with a DP may be frozen in certain cases.

1.If a written instruction is received from the client by the DP, requesting freezing of account; or

2.If written instructions are received from the depository pursuant to an order of the Central or State Government, SEBI, or any orderly the court or any statutory authority.

A depository account holder (beneficiary account) may freeze securities lying in the account for as long as the account holder want it. By freezing the account, account holder can prevent unexpected debits, credits, or both, creeping into its account. The following types of freeze facility may be availed of by submitting freeze instruction to the DP in the prescribed form the table give summarizes the description of status for different types of freeze.

Freeze TypeAccount StatusAdditional Details

Freeze for debits onlySuspended for Debit-

Freeze for debits as well as creditsSuspended for All-

Freeze a particular ISIN in the accountActiveISIN status : Freeze

Freeze specific number of securities under an ISINActive Specific no. of securities are blocked in the account

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, marriage etc. the person on whom the shares devolves 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 nomination 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 death. The facility can be availed of by any person whether Indian resident or a non-resident Indian investor.

DEMAT & REMAT

Dematerialisation

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

After this process each security is identified in the depository system by ISIN and short name. International Securities Identification Number (ISIN) is a unique for each security issued in any of the International Standards organisation (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.

DEMATERIALISATION PROCESS

Steps :

1.Client/Investor submits the DRF (Demat Request Form) and physical certificates to DP. DP checks whether the securities are available for demat. Client defaces the certificate by stamping 'Surrendered for Dematerialisation'. DP punches two holes on the name of the company and draws two parallel lines across the face of the 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 if the electronic request in the system and forwards the request to the R&T Agent.

4.R&T Agent, on receiving the physical documents and the electronic request, verifies and checks them. Once the R&T Agent is satisfied, dematerialisation of the concerned securities is electronically confirmed to NSDL.

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.

FEW IMPORTANT POINTS REGARDING DEMAT AND REMAT

What are the chances of any fraud/disputes in using a demat account? Whom should I approach in such cases?

Common risk factors applicable to trading in physical shares like mismatch in signatures, loss in postal transit, etc., are absent since the dematted shares are traded scripless.

However, in the unlikely event of any other dispute, the concerned stock exchange and/or Depository Custodian viz. NSDL/CDSL or SEBI would have to be approached for resolving such issues.

Can the dematted shares be converted back into physical shares?

Yes, definitely. If you wish to get your securities in the physical form all you have to do is to submit a Rematerialisation Request Form (RRF) through your DP in the same manner as Dematerialization. Your Depository Participant will forward your request to the Depository after verifying that you have the necessary securities in balance. The Depository in turn will intimate the Registrar and Transfer Agents of the Company who will print and dispatch to you the share certificates for the number of shares so rematerialized and your account will be debited by the Depository and credited with the Company.

Will we get back the same certificates after Rematerialisation?

It does not really matter at all. The Registrars and Transfer Agents will print new certificates with a new range of certificate numbers. You will be allotted a new folio number; however if you already have an existing folio number you may be allotted the same.

Rematerialisation:

Rematerialisation is the exact reverse of dematerialisation. It refers to the process of issuing physical securities in place of the securities held electronically in book-entry from with a depository. The register prints fresh candidates to the investor after conforming the request with NSDL and CDSL and to the extent the accounts balance of the investor with NSDL and CDSL is reduced. Under this process, the depository a/c of a beneficial owner is debited for the securities sought to be re-materialised and physical certificates for the equivalent no. of securities are issued.

REMATERIALISATION PROCESS

Steps :

Beneficial owner requests for Rematerialization.

Depository participants intimates NSDL of the request through the system.

NSDL confirm remat request to the registrar.

Registrar up dates accounts and download details to DP.

Registrar dispatches certificates to investor.

Trading and Settlement

One of the basic services 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 of the following purposes:

a.Transfer due to a transaction done on a person-to-person basis is called "off-market" transaction.

b.Transfer arising out of a transaction done on a stock exchange.

c.Transfer arising out of transmission and account closure.

Off-market Trade

1)Seller gives delivery instructions to his DP to move securities from his account to the buyer's account.

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

3)Buyers 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.

SETTLEMENT OF MARKET TRANSACTION

Market Settlement Demat Shares

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 broker's account.

The broker has to then 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 gives by the stock exchange.

The CC/CH gives pay-out securities are transferred to the buying broker's account. The broker then gives delivery instructions to his DP to transfer securities to the buyer's 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 broker's account.

2.Securities are transferred from broker's account to CC on the basis of a delivery out instruction.

3.On pay-out, securities are moved from CC to buying broker's account.

4.Buying broker gives instructions and securities move to the buyer's account.

PAY-IN:

The process of a broker (CM) submitting securities being towards the securities sold by him on behalf of his client, to CC/CH of a stock exchange is called 'pay in'. All CMs are expected to complete the pay in before the deadline time prescribed by the stock exchange in a depository environment.

PAY-OUT:

The process of a CC/CH transferring the securities to the broker's settlement-account for the quantity of securities purchased by them on behalf of their clients is known as pay-out.

SPECIAL SERVICES

Pledge & 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 pledge and the pledgee 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 collasteral determines whether the transaction is a pledge or hypothecation. If the lender (pledgee) has unilateral right (without reference to borrower) to appropriate 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 (pledgor) for appropriating securities to his account, the transaction is called hupothecation.

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 pledgee's DP through the NSDL system. His DP in imates pledgee.

4.Pledgee gives a pledge creation confirmation to his DP who enters it in the system.

5.Securities are transferred from 'free balances' head to pledged balances head.

6.Loan is given by pledgee 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 forward the request to pledgee's DP through NSDL.

3.Pledgee gives a pledge closure confirmation from to DP. DP confirms the closure on the system.

4.The pledge is closed and the securities are moved from 'pledged' balances to free balance in the pledgor's account.

STOCK LENDING AND BORROWING

The transactions 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 deal in the Intermediary Account) opened with a DP. An 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.

CORPORATE ACTIONS

Benefits acquiring to shareholders in the nature of dividends 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, obligations and/or interests of the beneficial owners of the securities held 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

Primary market is a market for raising funds from the primary sources of savings i.e. investors. The issue of securities in the primary market can be made by a new company, a new company promoted by an existing company, an existing public listed company, or an existing public unlisted company. According to the Companies Act (section 68B) every listed public company making an initial offer of any security of Rs. 10 crore and above has to issue it only in dematerialized form in accordance with Depositories Act, 1996.

DEBT INSTRUMENTS & GOVERNMENT SECURITIES

Debt Instruments

The interest bearing securities are called debt instruments. Depending on features like issuer, teanure, 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 security means a security created and issued by the Central Government or State Government for the purpose of raising a public loan. There are two types two types of Government Securities Dated Securities and Treasury Bills. Dated securities have a maturity period of more than one year and the maturity period of treasury bills is up 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 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 encryption. The instructions submitted by the account holders are digitally signed. SPEED-e allows both interactive and batch file operation with digital signature. 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. The freeze/unfreeze instructions given through Speed-e will be directly applied on the depository system and the DP cannot override such freeze/un-freeze instructions.

BANKING SYSTEM

We are beginning the study of commercial banking by looking its meaning. This "safe place" ultimately 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 from 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.

FUNCTIONS OF MODERN BANKS

Banks performs different functions & services so that they can be described as departmental stores of financial services.

1.Accepting Deposits

The major function of modern bank is acceptance of deposit from the public. Banks accepts deposit by mobilizing the saving of public. To mobilize the savings and to hold deposits, banks pay interest on the deposits. To attract the depositor's banks maintains different types of accounts like:

FIXED OR TIME DEPOSIT ACCOUNT: Fixed deposit account is one where in money is deposited for a fixed period 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 generally increases with the period of deposits. This account 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 loan 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 deposits small savings in the bank. This account is meant for the benefit of middle class and low-income group people. Any person with minimum specified deposits could open a saving bank deposit account. Deposits can be made in 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 from the 10th day of the month to the last day of every month.

CURRENT ACCOUNT: Current Account, some times also called as "Open 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 a 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 into account every month. the rate of interest is normally equal to the rate of interest payable on a term deposits account of a 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 under different names. These are:

FLEXIBLE ACCOUNT: These accounts combine the features and benefits of saving account & fixed deposit accounts. ATM (Automatic Teller Machines): The banks, which have computerized 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 deposits 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:

a)Money of 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.

b)Overdraft: An overdraft is an advance given by allowing a customer to overdraw his current account upto an agreed amount. An overdraft account is operated in the same way as current account. In overdraft the interest a charged only on the credit actually utilized, i.e. to the extent account is overdrawn.

c)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.

d)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.

e)Term loans: This is 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.

f)Credit to Government: Banks provide indirect credit to the central or state governments 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 ratio (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 ash 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 dept 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 & now it has become the credit instrument in the banking world. Banks perform the functions of payment of funds. Because of clearing houses & clearing operation of banks, cheques can be & are used for transferring funds from one center to another. In modern days they can also be used for transferring funds from one country to another.

OPERATIONAL MODEL OF A BANK

HEAD OFFICE

BRANCHES

BRANCHES

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 a 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 address, specimen signature & bank may 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:

A certified copy of the resolution of the Board of Directors for opening of the account.

A copy of Memorandum and Articles of Association of the Company.

Specimen signature of the person authorized 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

TRANSFER OF MONEY

STEPS :

I.If any person wants to transfer the funds, then he/she has to give written instructions to bank.

II.The bank will debit the applicant's account credit beneficiary's account.

In case bank has centralized banking system, then transfer is made through on-line transfer of funds, else the debiting branch of the bank sends a postal advise to the branch having beneficiary's account.

3)INTER-BANK TRANSFERS

Payment

Confirmation

Cheque

Credit Advice

STEPS :

I.A person who wants to transfer money issues cheque in favour of beneficiary in favour of beneficiary.

II.Beneficiary deposits.

III.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 voluntary act; transmission is brought by operation of law.

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, 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 availed by any person whether Indian resident or NRI.

5)DEPOSITS AND WITHDRAWAL PAY IN SLIP

CASH DEPOSITS

PAYOUT 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 after depositing the cash to the cashier the data is feeded in to the client's account, which is electronically maintained in computer-based systems.

III.In the case of withdrawal of money, a person has to fill up a withdrawal slip or a cheque.

IV.Banks debits the clients account while encashing his cheque or withdrawal 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 pledgor has a unilateral right to appropriate to his account in case the borrower defaults, the 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, he pledgesas to fill up a request form to get lien-marked his/her property in favour of specified pledgee.

II.The bank then marks the lien in favour of the pledgee at the request of pledge.

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 & 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

I.In both of the systems to avail the services a customer has to open an account.

II.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 account as per his/her needs.

III.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), specimen signatures, nominees, references etc.

IV.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.

CLEARING HOUSE

In depository system there is a clearing house/clearing corporation, which works similarly as clearinghouse of banks works. Each clearing member of stock exchange is connected to NSDL/CDSL is required to open one clearing account with depository participants of his choice and if a clearing member is member of more than one stock exchange, then one clearing account per stock exchange is required to be opened and in the same manner each bank is required to open an account with clearing house of that particular area. In both of the systems netted him of funds or securities is debited or credited to the accounts of banks and clearing member accounts.

ANCILLARY FUNCTIONS

Banks can perform many ancillary functions like locker facility, life and general insurance facility. Banks also provide various types of loans. On the other hand the depositories will not perform all such ancillary functions. Banks also provide ATM facility which is not possible by the depositories. In nutshell it can be said that following are the main dissimilarities between bansk and depositories.

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 funds from one account to 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 the death of the account holder.

NOMINATION

In both of the systems 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 banks 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 of electronic form through the process of Dematerialisation and vice-versa from electronic form to the physical scrips through the process of Rematerialisation.

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 reaction in favour of third party.

After analyzing the similarities between the operations and maintenance of DP account of depository with operation and maintenance of 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 : -

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 forms.

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 beneficiary's account is given on receipt of confirmation from the beneficiary.

PLEDGE AND HYPOTHECATION

Bank 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 DPs, the data regarding banks that have entered into DP services are:

DEPOSITORYBANKS

1.In depository system a share transfer book is given to Client.In bank a chequebook is given to client.

2.No minimum balance is required.Minimum balance is required.

3.No restriction in operating in transfer of scrips.No restriction in operating in current account.

4.Allocates client ID numberAllocates account number.

5.Hold securities in A/cHold funds in A/c

6.Safeguarding of securitiesSafeguarding of money

7.Different types of services are provided by depository such as pledge, transfer of scrips etc.Different types of services are provided by bank such as pledge, transfer of money etc.

8.All joint holders has to signature the instruction slip.Either holder can signature the instruction slip.

9.Interest only through stock lendingEntitled for the interest

10.Signature and photograph of the nominee is requiredNomination is kept confidential in banks.

11.Safeguarding of securitiesSafeguarding of money

12.Not provide ancillary functionsBanks provide ancillary functions

ICICI BANKS

ICICI bank is a private bank providing DP services. They have ICICI direct.com, which is providing online share trading services. This bank commenced its operations in 1997. They are connected with NSDL only and they have 750 account holders in Ludhiana, of which 700 accounts are active and remaining 50 are passive. Their DP is online.

CENTURION BANKS

Centurion Bank was promoted by 20th century Finance Corporation limited. Previously in association with Keppel tatlee bank of Singapore, it has an equity participation from international finance corporation Washington & Asia development bank manila. It has introduced depository services for its investors, all its branches are linked through V SAT and offers any where banking to its customer. But now the centurion is merged with bank of Punjab and become centurion bank of Punjab in October, 2005. But this bank is banned to open DMAT accounts after the IPO scam, but this may be temporarily.

After visiting this bank, and after collecting the required information from ms. simu I conclude the following points:

ACCOUNT OPENING LSESL provide the function of opening the DMAT account to its customers but the Centurion Bank of Punjab is banned to perform this function after the IPO scam.

DEMAT/RAMT: Both LSESL and CBOP will perform the function of DEMAT/REMAT.

TRADES AND SETTLEMENT: The depositories provide the function of trade and settlement, but CBOP provide the function of transfer of securities.

The Centurion Bank of Punjab also provide the many ancillary functions such as locker facility, FOREX (foreign exchange), fixed deposits, loans, ATM facility, insurance facility in life and general insurance.

The centurion bank of Punjab has near about 2000 DEMAT accounts with them. Their account opening charges are nill, but their annual maintenance charges are Rs. 500 p.a. They take more than a week near about 10 days to open an account. They charge Rs. 25 per certificate for converting shares from physical to DEMAT and also Rs. 25 for DEMAT to physical, and rate list is also attached in annexure.

HDFC BANK

HDFC Bank is also providing DP services. This bank commenced its operations in 2001. They have connectivity with NSDL only. They have the client base approx. 3500 out of which 2000 are active and remaining 1500 are passive their DP is online.

BANK OF PUNJAB

Bank of Punjab is the North India's premier bank providing retail services to its customer. Their bank is also providing DP services to its clients. The main edge point of this bank is that in Ludhiana they have six branches and the person can avail DI' services from any of its branch. They have commenced their DP operation in 2000 in Ludhiana. Their DP is providing online services to its customer. They have connectivity with NSDL only. They have it client base of 4600.

The unique selling propositions of this bank are

Lowest charges

Same day execution of trade

Buy/sell facility

Banking DP-secure and safest

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 400 out of which 350 are active and 50 are passive. Their DP is online.

They have their unique selling proposition as

Efficient service

Personalized DP book

Quick confirmation of trade

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. Their DP is online. They have only 450 customer in Ludhiana and all are active.

They have their unique selling proposition as

Doing on online

Low charges

Better services

PUNJAB NATIONAL BANK

The Punjab National Bank is a govt. sector bank, which also deal in the depositories function. After visiting this bank I come to know that this bank has charged Rs. 335 p.a. for maintaining the DEMAT account and Punjab National Bank have near about 1000 DEMAT accounts with them. The Punjab National Bank working with NSDL from 1993-1994 and not work with CDSL. The Punjab National Bank also provide the function of opening the DEMAT account. The Punjab National Bank deals in non life insurance only. They charged Rs. 25 for physical to DEMAT of shares and also Rs. 25 for DEMAT to REMAT. This bank also provide many ancillary functions like other banks but not deal in life insurance.

BANK OF India

Bank of India is also a nationalized bank. This bank of India also deals in the depositories functions. I have visited the bank of India and meet Mr. Surinder Kumar Maheshwari and collect the required information. The bank of India perform the functions like account opening, DEMAT/REMST, transfer of securities, pledge and hypothecation and nomination and transmission.

The Bank of India have more than 1500 DEMAT accounts. They take only one day to open a DEMAT account. They charge Rs. 200 p.a. for annual maintenance charges. The Bank of India charges Rs. 20 for physical to DEMAT of share for per certificate and also Rs. 20 per certificate for REMAT to DEMAT.

Following are the things which must be required while opening a DEMAT account:

PROOF OF INDENTITY

PROOF OF ADDRESS

Pan card with photograph

Ration card

Passport

Passport

Voter ID

Voter ID

Driving License

Driving License

I-card from employer

Bank statement

RESEARCH METHODOLOGY

OBJECTIVES OF THE RESEARCH

1.To compare the Operational model of Depositary with the Operational model of Bank

2.To know what Depositary System has taken from Banking System (similarities and dissimilarities).

3.To study the investors perceptions regarding Depositary Participant.

RESEARCH METHODOLOGY

The present study was undertaken to perform a comparative analysis of operational model of Depository with the operational model of bank and investors perception regarding Depository. This chapter gives the research design, data collection methods, sampling techniques, field work carried out, analysis & interpretation limitations inherent in the project and finally coverage (scope of the research work).

RESEARCH DESIGN

The research design is a pattern or an outline of a research project's working, it is statement of only the essential elements of a study, those that provide the basic guidelines for the details of the project. The present study being conducted followed a descriptive research design. It produces picture of the phenomenon in which the decision maker is interested. As the data would be responses from a sample containing a large number of sources, it is a "cross section" of the situation. Design of descriptive studies include the nature and source of the data, the nature of the expected results and the analytical method.

DATA COLLECTION METHOD

Both primary and secondary source of data has been used to collect information. The secondary data means data that are already available. It is collected through published data. Published data are available in books, magazines, reports and publication of various associations connected with bank, stock exchange and various sites of Internet. The primary data was collected by personally interviewing the bank manager and various investors. Personal interview method was adopted, taking into consideration the availability of time and other resources, whenever need arouse various supplementary question were also asked to gain maximum information from the respondents. Questionnaire was prepared to study the investors perception regarding depositary. A survey was conducted keeping in view the objective of the study. The questionnaire contained both open-ended and close ended questions.

SAMPLING PLAN

Sampling is an effective step in collection of primary data and has a great influence on the quality of results. The sampling plan includes the populations, sample size and sampling design.

POPULATION

The study aimed to include the investors of Ludhiana Stock Exchange in Ludhiana. As the study was on investors perception regarding depository so LSE securities was selected for the study.

SAMPLE SIZE

The sample size for the research was 90 investors.

SAMPLING DESIGN

The selection of the investors was done on the basis of convenience sampling as the universe has the coverage area of the study was to large. Under this sampling technique samples which were easily accessible chosen.

DATA ANALYSIS AND INTERPRETATION

For the purpose of analyzing, raw data was summarized into a master table and from this table the results have been carried out. The questions, which has alternatives choices, were analyzed by taking percentages. In case of questions on likert and itemized rating scale, the mean scores and percentages were calculated. The questions to which there were specific answers. The ranges were clubbed and percentages were calculates. In case of exploratory questions, the general suggestions were summarized.

IMPORTANCE OF STUDY

The study is very significant in the sense that it examines what the depository system has been taken from the baking system by comparing the similarity and dissimilarities between then and also satisfaction level of investors having depository account in LSE Securities Ltd.

LIMITATION OF THE STUDY

The main limitation of the study is the availability of the time. As sufficient time was not available for collection of information from investors in each Depository Participant so only LSE Securities Limited has been taken place.

The technique for the selection of sample on which entire study is based, its convenience sampling hence limitation on account of error prevalent in proposed sampling technique cannot ruled out.

Some respondents were not interested in giving answer and they appeared to be busy or bored at the very sound question.

Since this is an opinion survey, personal bias may have crept in due to the respondent tendency to rationalize their views.

RESULT AND DISCUSSION

After compiling and interpreting information gathered after meeting some key persons working in both of 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.

SIMILARITIES:

1.In both of the systems to avail the services a customer has to open an account.

2.In both the systems there are different type of accounts such as fixed, saving, current accounts in banks and individual, HUF and corporate accounts in Depositories. An investor clients 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 to fill up an application form which includes different information about the client such as name, address, identity (photograph), specimen signatures, nominees, references etc.

4.Depository account in banks and individuals system is some what parallel to current account maintenance system of bank. It can be deducted from the following factors i.e. DISSIMILARITIES.

DEPOSITORYBANKS

1.In depository system a share transfer book is given to Client.In bank a cheque book is given to client.

2.No minimum balance is required.Minimum balance is required.

3.No restriction in operating in transfer of scrips.No restriction in operating in current account.

4.Different types of services are provided by depository such as pledge, transfer of scraps etc.Different types of services are provided by bank such as pledge, transfer of money etc.

5.Safeguarding of securitiesSafeguarding of money

CUSTOMER PERCEPTION REGARDING DEPOSITORY

4.2.1Opinion from the Investors

As discussed in chapter on research methodology, 90 investors were covered in Ludhiana who are availing depository services from the respective DPs. The opinion of the investors are as under:

4.2.2.Opinion regarding the duration since which the respondents have been operating in capital market.

DURATIONNO. OF RESPONDENTS

Less than one year12(13)

More than 1 year17 (19)

More than 2 year20 (22)

More than 3 year41(46)

TOTAL90(100)

Table No. 1

It is evident from the above table that majority (56%) of the respondents are operating in capital market for more than three years, followed by 22% operating in capital market for more than 2nd year and 19% for more than one year. 13% for less than 1 year. These 87% respondents are operating in capital market for more than 1 year.

4.2.3.Opinion regarding the purpose of transacting on stock exchange.

OPINIONNO. OF RESPONDENTS

Making short-term gain29(32)

Making long-term gain15 (17)

Regular income28 (31)

All18(20)

TOTAL90(100)

Table No. 2

Table 2 reveals that majority 32% of the respondents transacting on the stock exchange for the purpose of making short-term gains, followed by 31% transacting for the purpose of getting regular income from stock exchange, followed by 17% of the respondents transacting for the purpose of making long-term gains and followed by 20% of the respondents transecting on the stock exchange for the purpose of all.

4.2.5.Opinion regarding Money spend initially to open on DP account.

MONEYNO. OF RESPONDENTS

Between Rs. 100 to Rs. 20015(17)

Between Rs. 200 to Rs. 30040 (44)

More than 30035(39)

TOTAL90(100)

Table 3

Table 3 reveals that 44% of the respondent have spend their money between Rs. 200 to Rs. 300 initially to open a Demat account, followed by 39% of the respondent have spend more than Rs. 300 initially to open Demat account and was about 15% of the respondent spend money between Rs. 100 to Rs. 200 initially to open a Demat account.

4.2.4.Opinion regarding the name of DP with whom they DP account.

NAME OF DPNO. OF RESPONDENTS

LSE Securities44(48)

Bank DP22 (24)

Other24(28)

TOTAL90(100)

Table 4

Table 4 reveals that 48% of the respondents have their DP account in LSE securities, followed 24% of the respondent have their DP account in bank and 28% of the respondents have their DP account in other DP's include master trust, Stock Holding Corporation India Ltd., Karvy, India Bulls etc.

2.2.6.Opinion regarding Days spend initially to open on DP Account.

DAYS SPENDNO. OF RESPONDENTS

One day15(16)

Two days43 (48)

Three days or more32(36)

TOTAL90(100)

Table 5

Table 5 reveals that 48% of the respondent have spend two days initially to open Demat account, followed by 36% of the respondent have spend three days or more initially to open a Demat account, followed by 16% of the respondents have spend one day initially to open a Demat Account.

Thus 84% of the respondents have spend initially more than one day to open a Demat Account.

2.2.7.Opinion regarding amount charged by DP.

OPINIONNO. OF RESPONDENTS

Excessive58(64)

Insufficient0 (0)

Adequate

32(36)

TOTAL90(100)

Table 6

Table 6 reveals that 64% of the respondents view that the amount the amount charged by the DP is excessive, i.e. excess than the required and followed by 36% of the respondents view that the amount charged by the DP is adequate means that the DPs will charge reasonable amount from its customers.

2.2.8.Opinion regarding decision of Opening a Demat account has been influenced by amount charged by various DPs.

Yes58(64)

No32(36)

TOTAL90(100)

Table 7

The evident from the above table that 64% of the respondents decisions of opening a DEMAT account have been influenced by among charged by various DP's means because of too expensive some persons hesitate to open a DEMAT account and about 36% of the respondent decision have not been influenced by the amount charged by various DPs means if they want to open DEMAT a/c then its cost doesn't matter.

2.2.9.Opinion regarding time taken by the DP to credit the security in electronic form to account.

OPINIONNO. OF RESPONDENTS

One week28(31)

2-3 weeks36 (40)

Above 3 week26(29)

TOTAL90(100)

Table 8

Table 8 The opinion of the respondents regarding time taken for Demat of shares is cleared from table 8 as majority 40% of the respondent are of the view that 2 3 weeks time is taken for demat of shares; and 31% of the respondents says that DPS will DEMAT their shares with in a week and only 29% of the respondents are saying that time taken is more than 3 weeks to demat the shares.

2.2.10.Details regarding DEMAT system is beneficial for investors or not.

Yes54(60)

No36(40)

TOTAL90(100)

Table 9

From the above table it is viewed that 60% of the respondent think that Demat system is beneficial for them and 40% of the respondents think that it is not beneficial for them.

System is beneficial for them is that the quick services provided by their DP and also they thing that there is immediate transfer of shares and also minimum risk of transfer and delivery is included and there is less chances of misappropriation of securities by the stock brokers so DEMAT is beneficial for investors.

Out of 40% of the respondents, 20% think that it is not beneficial for them as more time taken by the DP and 20% of the respondent though that it is not beneficiary because more amount charged by their DP so it is wastage of money and time.

2.2.11.Opinion regarding satisfactory about service provided by their Depositories.

OPINIONNO. OF RESPONDENTS

Highly satisfied26(29)

Satisfied34 (38)

Indifferent25(28)

Dissatisfied05(5)

Highly Dissatisfied0(0)

TOTAL90(100)

Table 10

From above table it is viewed that about 38% of the respondent are satisfied by the DP, followed by 26% of the respondent are high satisfied by their DP, followed by 28% of the respondents are indifferent about their DP and 5% of the respondent are dissatisfied by their depositories services.

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 "Operational Model of Depository is derived from the Operational Model of Banking System". More efforts should be done for improvement in the operational made of the depository system.

BIBLIOGRAPHY

MAGAZINES

Hand Book for NSDL Depository Operations Module:

VOLUME :1

VOLUME :2

VOLUME :3

VOLUME :4

NEST UPDATE

MAY 2006

LUDHIANA STOCK EXCHANGE ANNUAL REPORT 2005 2006

BOOKS

BANKING AND FOREIGN TRADE

(By) R.K. Sharma

Shashi K. Gupta

Jagwant Singh

Investment Management

(By)V.K. Bhalla

Research Methodology

(By)Boyd.

WEBSITES

WWW.NSDLINDIA.COM

WWW.BANKERSINDIA.COM

WWW.NSEINDIA.COM

WWW.CDSLINDIA.COM

QUESTIONNAIREI am a student of B.B.A. (Professional). For the shake of my summer training. I am doing the research work on the project 'Depository.Do you invest in capital market? (Yes\No)If, Yes, for how long, you are transacting on stock exchange?(a) Less than one year(b) More than one year(c) More then two year

(d) More then three yearWhat is the purpose of your transaction on stock exchange?(a) Marking short terms gains (b) Making long term gains(c) Regular income

(d) AllDo you have any DEMAT account? (Yes\No) if No, do you want toopen?

If yes, Name the DP with whom you have your DP account?(a) LSE securities (b) Bank DP(c) Any otherHow much money you have to spend initially to open your DEMAT account?(a) Between Rs. 100-Rs. 200 (b) Between Rs. 200-Rs. 300

(c) Above Rs. 300How many days you have to spend initially to open your DEMAT accounts?(a) 1 day(b) 2 days(c) 3 daysWhat are your views about the amount charged by your DP?(a) Excessive(b) Insufficient(c) adequateHad your decision regarding opening a DEMAT account was influenced byamount charged by various DP's?(Yes/No)

On an average, how much time in your DP takes to credit the security in electronic form to your account?(a) l weak (b) 2-3 week (c) Above 3 weekDo you think that DEMAT system is beneficial to you? (YES\NO) if yes then, what are the benefits ?-------------------------------------------------------------------------

-------------------------------------------------------------------------

(b) If No what are the areas where your DP is lacking?(a) Late services provided(b) More Amount charges(c) More Time taken(d) Bad delivery(e) Any otherHow would you rate the depository service provided to you by your DP?(a) Highly satisfied(b) Satisfied (c) Indifferent(d) Dissatisfied(e) Highly dissatisfiedGive your views regarding the following statement:Strongly agree \ Agree \ Neutral \ Disagree \ Strongly DisagreeDepository System over come the problems associated with physical shares Account.Depository system helps in immediate transfer of shares.Depository system has eliminated the chances of bad delivery.Dealing through Depository is costlier than physical shares.What are the difficulties faced by you while dealing in depository mode ?

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If giving an opportunity, where would you like to open a new DEMAT account?(a) With same old DP (LSE)(b) DP of Bank (c) Any otherDEMOGRAPHIC PROFILENAME: ADDRESS: OCCUPATION : (a) Businessman (b) Serviceman (c) Any otherIncome: (a) 50,000-1,00,000(b) 1,00,000-1,25,000(Annually) (c) 1,25,000-1,50,000(d) Above 1,50,000SUMMER TRAINING

PROJECT REPORT

ONDEPOSITORY SYSTEMUndertaken at :

Ludhiana Stock Exchange

Submitted in partial fulfillment of the requirement of degree of

BACHELOR OF BUSINESS ADMINISTRATIONSUBMITTED TO:

SUBMITTED BY:

Panjabi University

Gurpreet KaurPatiala

B.B.A. 4th Sem

(2009-2010)

TARA VIVEK COLLEGE GAJJAN MAJRA (MALERKOTLA)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 given 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 organisation and whenever we have to solve any problem the partial study assist with the theoretical aspect in order to solve that 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 " DEPOSITORY SYSTEM".

The present report is well arranged in a coherent manner. In project first of all I have made the study of depository and banks and after that I have made the comparative analysis of these two models.

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.

ACKNOWLEDGEMENT

One and half month of training at Ludhiana Stock Exchange was a prolific experience. I was overwhelmed with the friendly, cooperative attitude and erudite and information extended to me by everyone.

To start with, I wish to place my gratitude and sincere thanks to Smt. Pooja M. Kohli (Executive Director), LSE for giving me the opportunity do my summer training in this esteemed organization. The summer training has provided me the knowledge of Capital Market reforms and working of Stock Exchange.

My acknowledgement will be incomplete without expressing my regards to my parents and my friends for their invaluable advice and co-operation.

GURPREET KAURBBA (4TH SEM.)CONTENTS

S. No.TitlePage No.

1.Introduction1-4

2.Depository Participants (CDSL & NSDL)5-6

3.Legal Framework (Regulations of Depositories) 7-11

4.Functions12-13

5.Records 14

6.Operations 15-19

7.Demat 20-22

8.Remat 23-25

9.Settlement 25-44

10.Data Analysis46-54

11.Research Methodology55-58

12.Limitations 59

13.Results and Discussion59

14.Similarities 60

15.Conclusions 73

16.Bibliography 74

17.Questionnaire75-76

DEPOSITORY

Clearing Member A/c

Beneficial owner A/c

Intermediary A/c

House

Non House

Normal Pool

Vyaj Badla

House

Procedure of A/c opening

Client

Fills and

submits the

Form

Depository Participant

Gives acknowledgement

Verification of the details of

form

Signatures done on all the places

All documents attached

DP allows client identification number or account number and inform the client

Client master list

Contain all the detail which were filled in the account opening form by the client

INVESTOR

R & T AGENT

DP

NSDL

1

2a 5 2

4

3

1

2a 5 2

4

3

NSDL

DP

R & T AGENT

INVESTOR

NSDL

DP2

SELLER

DPI

SELLER

NSDL

CC

DP

DP

BROKER

BROKER

SELLER

SELLER

BUYER

BUYER

Pledger's

DP

Pledgee

Pledgee's DP

Pledgers

NSDL

3

2

5

4

2

1

LOAN

6

Confirmation

Agreement

Request

Closure Request

Accepting Deposits

Confirmation

PAYMENT

1

2

3

4

2

2

PLEDGER'S

DP

PLEDGEE

PLEDGEE'S

DP

PLEDGERS

NSDL

3

2

Lending Loans

& Advances

Credit Creation

Cheque System of Payment of funds

Fixed or Time Deposit A/c

Saving Bank Deposit A/c

Current A/c

Recurring Deposit A/c

Money at Call

Overdraft

Cash Credit

Teams Loans

Credit to govt.

BRANCH

BRANCH

BANK MAINTAINING APPLICANTS

CLEARING

HOUSE

BANK MAINTAINING BENEFICIARIES

CURRENCY WITH ACCOUNT HOLDER

INVESTOR'S ACCOUNT WITH BANK

PAGE

_1245492948.xlsChart4

0.64

0

0.36

Figure 4.6

Sheet1

Between Rs.100 to Rs.20017

Between Rs.200 to Rs.30044

More than 30039

Excessive64%

Insufficient0%

Adequate36%

Sheet1

0

0

0

Figure No.4.3

Sheet2

0

0

0

Figure 4.6

Sheet3

_1245497627.xlsChart1

12

17

20

41

No. of respondents

Duration

Figure No. 4.1

Sheet1

Less than one year12

More than 1 year17

More than 2 year20

More than 3 year41

No. of respondents

Less than one year12

More than 1 year17

More than 2 year20

More than 3 year41

Sheet1

0

0

0

0

Duration

Sheet2

0

0

0

0

No. of respondents

Duration

Sheet3

_1245852853.xlsChart2

29

15

28

18

Opinion

No. of respondents

Figure No. 4.2

Sheet1

Less than one year12

More than 1 year17

More than 2 year20

More than 3 year41

No. of respondents

Less than one year12

More than 1 year17

More than 2 year20

More than 3 year41

Making short-term gain29

Making lo