NSDL - National Securities Depository Limited

The NSDL was established as an attempt to modernise the Indian financial market by building a dematerialized format for all securities traded across India. These securities include bonds and shares in the form of physical and non-physical certificates, held in specialised bank accounts known as demat accounts. A demat account facilitates fast electronic transfer of the securities in comparison to the traditional practice of physical exchange which was required after a particular trade is completed.

No risks associated with physical certificates

The primary reason for the establishment of NSDL is the elimination of risks associated with certificates. Risks such as physical wear and tear, fire, destruction etc. are all avoided when securities are held in a demat format. Additionally, it saves the cost of issuing duplicate physical copies of certificates.

No risk of bad deliveries

NSDL has eliminated the issue of bad deliveries. This is because NSDL holds securities in a dematerialised format which does not require the examination of asset before purchasing.

No stamp duty

Since the securities are transferred via depositories electronically, there is no need for paying stamp duty link in the traditional method. No stamp duty is required while transferring equity shares, debts, bonds and mutual funds.

Transfer and registration of securities

Once you have purchased a security, you are the legal owner for the same. This implies that there is no need to send the transaction receipt to the registrar which is time consuming like the traditional physical system. This also would add a risk of loss and delays in the transaction.

Faster settlement process

NSDL provides the fastest mode of settling transactions. The settlement is done on the second day from the day of trading. This also improves liquidity and enables a faster turnover for the investor.

Faster disbursement of non-cash corporate benefits

With NSDL, corporates can easily credit corporate benefits in the form of shares, bonds and debentures straight to the account of the investor. It also offers a quick and safe way to transfer these funds.

Reduction in paperwork process

Since everything is available online, there is less paperwork involved. Less paperwork means that there is no need to maintain a huge trail of lengthy documents which are time consuming.

Periodic reports

With NSDL, you receive a periodic set of statements and accounts via email. These reports comprise of the consolidated account statement which has details of all the transaction that have taken place.

Investor’s details

In the traditional system, it was a difficult task when it came to updating any of the communication details of the investor. To do the same, an investor would have to update the same in every company that they have invested in. Under the depository system, all information can be updated online, simply by uploading the relevant KYC documents at the Depository Participants (DPs).

Process of transmission

If an investor decides to transfer their securities of ownership, the can do that by simply providing the relevant documents to the DPs, and the details for the same are immediately updated in the database of all the companies. In the traditional system, an investor will have to individually communicate to all the companies where they hold the shares.

Easy process to sale of securities held on behalf of minor

As a guardian of a minor, you do not need the permission of the court for selling the securities which have been invested on behalf of the minor in the demat account.

NSDL has a number of business partners for carrying out its activities. Mentioned below are the same:

Depository Participants (DP)

As an investor, the services rendered by NSDL is via DPs. They include banks, financial institutions, brokers and any other intermediary as appointed by SEBI. For appointment as a DPs, there are two requirements to be met - evaluation and confirmation by SEBI and evaluation and approval by NSDL.

Issuers

In order to become an issuer, the agency must be able to provide dematerialization facilities to the investors. Next, they need to submit the relevant financial documents for the last two years to NSDL. This request is forwarded to Tripartite Agreement to R & T agent. The R&T agent along with the issuer signs the agreement and sends the same to the NSDL.

Registrar and Transfer (R&T) Agent

There are different ways by which an issuer can create as well as extinguish the respective securities held in the demat form.

The way in which a security can be created is via dematerialisation, while the way in which a security can be extinguished is through rematerialisation.

Clearing Corporation/House

A clearing corporation/house is an authorised mediator between investors who buy/sell securities from the financial market. It provides the following functions of - clearing trades, collecting margin money, updating status reports, settling trade accounts etc. All stock exchanges are required to have a clearing corporation house with a settlement guarantee mechanism, pre-approved by SEBI.

Investor

Any individual who invests in financial instruments via demat account is an investor.

Broker

Brokers are mediators between investors and clearing corporations. The broker does not have any ownership rights on the shares of the investor. A broker is simply a facilitator who provides a clearing account for the investor for the purpose of receiving and transferring shares from one party to another.

Clearing Member Accounts

This account has three parts:

1. Pool account: Transfers and receptions from buying/selling clients is done via pool account.
2. Delivery account: Shares received from the selling clients is moved to the respective clearing corporation house via delivery account.
3. Receipt account: It holds the shares received from the pool account to the clearing corporation house.

NSDL offers a variety of new generation safety protocols to begin with. Mentioned below are some of the most prominent ones.

1. The Securities and Exchange Board of India follows a strict evaluation method when it comes to selecting Depository Participants as only a selected few with a successive line of credit are selected.
2. NSDL maintains the data of its various business partners with respect to every transaction which has been conducted.
3. All investors receive periodic account statements from their respective DPs, thereby allowing them complete control over their individual securities portfolio. Investors have complete control over their portfolio as they receive periodic consolidated account statements from their DPs. The investors also have an option to compare between these statements send by their DPs against the one issues by NSDL. Also, the DPs are not allowed to make any type of transaction without the permission of their client.
4. NSDL provides a freeze facility to the account holder, in case the holder intends to freeze their existing securities.
5. The NSDL is also responsible for initiating any grievance redressal which has been addressed before. The NSDL also has a potent insurance policy in place, as a countermeasure against any damages and errors.
6. The NSDL has also provided a back-up website as a disaster backup available 24x7.
7. All systems, hardware and software are state of the art and heavily encrypted by NSDL.