NSDL Full Form
NSDL Full Form is National Security Depository Limited and CDSL full form is Central Depository Services (India) Limited. As name suggests, NSDL and CDSL are depositories of India.
The Depository Participants of NSDL and CDSL has formed Depository Participants Association of India (DPAI). The first proposal to form such an association was made during a Depository Participant’s meeting held on 23rd July 1999 at Mumbai.
It came into existence on 20th September 1999 at New Delhi. The association got registered under the Societies Registration Act,1860 on 21st December 1999.
The meeting was attended by representatives from well- known DPs like Stock Holding Corporation India Limited (SHCIL), Centurian Bank, ANZ Grindlay Bank and many more.
During this meeting an ad hoc committee was constituted for framing bye-laws of the proposed Association. The committee was headed by unanimously elected Mr.V.D. Aggarwal, Chairman of Abhipra Capital Limited.
The committee under his guidance framed bye-laws and successfully got it approved during a meeting held on 20th September 1999 at New Delhi.
The underlying objective of forming the Association is not profit making but to protect the interest of Depository Participant’s and investors and also to provide a common platform for Depository Participant’s, Depositories and regulators to have required interaction for a healthy capital market.
As per the Memorandum of Association of the DPAI, “The society will not be operated for profit and no part of its income shall accrue to any of its members or office bearers or members of its Executive Committee, provided that nothing herein contained shall prevent the payment in good faith of remuneration, perquisites, facilities or benefits of any nature whatsoever to any member of the Executive Committee, office bearer, or anyone else as the Executive Committee may deem fit in return or as consideration for any service rendered to the Society.”
CDSL and NSDL
Settlement volumes and value through CDSL have shown an encouraging increase in recent months. The average number of shares settled through CDSL (per settlement) have risen from 10.77 crore shares in June, 2000 to 16.14 crore shares in November, 2000.
Similarly, the average value of shares settled through CDSL (per settlement) have risen from Rs. 1952.65 crores in June, 2000 to Rs. 2422.42 crores in November, 2000 which is still lower than NSDL but still very significant increase.
NSDL: The First Depository
The investor population in the country is yet to be adequately covered in terms of accessibility to depository services. Of an estimated population of 2.4 crore investors, only about 34 lakh accounts have been opened so far by NSDL, the first depository and CDS together.
The estimated number of eligible Depository Participants, including banks, custodians and stockbrokers is 1000, while the Depository Participants with both depositories presently in about 220. CDS would have approximately 500 DPs before March 31, 2000.
Further, SEBI has shown its earnest intention to introduce Delivery vs. Payment (DvP) settlementin the country, in line with G-30 recommendations. To this end, CDS plans to acquire a limited banking license which will enable it to handle settlement-related funds.
It is envisaged the Reserve Bank of India will require entities seeking such limited banking license to have a quantum of net worth that is apart from the net worth requirement relevant to any other business of that entity.
Handling of settlement-related funds, can become an additional source of income for CDSL in the future. Hence the proposal to increase the paid up capital of the company. Thus, the scope for the growth of depository and related services in the country remains substantial.
Before the advent of screen-based trading in India, the investors were beleaguered by numerous problems such as long delay in realisation of sale proceeds, forged certificates, delays in delivery of certificates, bad deliveries etc.
Over the Counter Exchange of India (OTCEI) which entered into a tie-up with NASDAQ (National Association of Securities Dealers Automated Quotations), a completely automated exchange was the first attempt made in India to introduce screen-based trading facilities.
A screen -based trading system is different from the traditionally followed ‘open outcry system’.
In the open outcry system, the brokers shout out the offers in the trading rings of the stock exchange to conclude buy/sell transactions and then write down manually all the transactions in a book called Sauda Book whereas in a screen based trading system, the players(brokers) strike deals from their respective locations through their terminals thereby eliminating the need to assemble at one place.
The computer located at the broker’s end is connected to the central computer(s) located at the exchange through a telephone system or a satellite based system.
The central computer(s) performs mainly three functions : –
- Online transaction execution
- Online transaction processing
- Information dissemination
The central computers not only provide transaction related inputs made by the broker, but also imparts trade related information (buy/sell prices, order value, the volume for each security).
The NSE has gone for the satellite-based connectivity where the brokers are linked to the NSE central computer(s) through Very Small Aperture Terminals (VSATs) installed at their office.
To give a more clear picture as to how transactions are executed in screen-based trading system, lets take an example.
Suppose an investor located at one of the suburbs of Rajasthan places an order for sale of 100 shares of Reliance through an NSE dealer located in his area for a price not less than Rs.1000/share. This order is disseminated through the network to all the trading members all over the country.
Now, if an investor in Delhi wants to buy Reliance at Rs.1500 the deal between them will be struck. Therefore we can say that screen-based trading has made the system more participative by overcoming the geographical barriers.
Screen-based trading also strengthens the investor decision making criteria by displaying various security quotes on the trading screens.
This enables the investor to get a better picture of how the market is performing and then he can place the orders according to the market trend.
But to realise all the benefits of screen based trading system it becomes imperative to replace paper-based trading with the depository mechanism.
Therefore in 1995 Government of India promulgated Depositories Ordinance Act which later on became Depositories Act 1996 to introduce and regulate the depository system in India. Depository System facilitated the transfer of trade obligations in the electronic mode.
Registration with the Depository.
To avail the facilities of a depository, a stock exchange in India needs to approach either NSDL or CDSL and become a Depository Participant under the category of clearing house or the clearing corporation.
Then the members of that particular stock exchange which is registered with the depository will open an account with the same depository in their trade names. These members are called as clearing members in the depository segment and the depository account opened by them to facilitate electronic transactions is called “Clearing Member Account”.
This account can only be used for carrying out the clearing and settlement business of the broker’s clients. The broker cannot use this account for settling off trades done in securities registered in his own name.
CDSL- A progress report
Central Depository Services of (India) Limited (CDSL) will complete two years of its existence in March 2001. CDSL which is initially promoted by Stock Exchange, Mumbai in association with few of the leading banks like State Bank of India, HDFC Bank started off with its operations in July 1999 after receiving the certificate of commencement of business in February 1999.
Within this one year, CDSL has achieved substantial progress in terms of Depository Participants, Beneficiary Accounts, Clearing Member accounts and admission of securities for dematerialisation by the companies in the CDSL depository segment.
During the last twelve months, the number of registered Depository Participants with the depository has increased to 153 in 120 locations spreading across 66 cities/towns in the country.
Similarly, the number of securities admitted in de-materialization mode with CDSL has increased to 2580. CDSL has also tapped the debt securities segment in its depository environment.
It has admitted 324 debt instruments of 19 issuer companies into demat mode. To facilitate demat and trading of Government Securities, CDSL has opened SGL I & II accounts with the Government. The settlement volumes handled through CDSL have also shown an upward trend.
The settlement figures indicate that the average settlement volumes of 11.23 crore securities per week in July, 2000 has gone up to 24.63 crore securities in the settlement cycle of February 19 to 24, 2001.
To keep on moving at a steady pace on the learning curve, CDSL has attained membership of The Asia Pacific Central Securities Depository Group (ACG). ACG is an organisation that facilitates exchange of information and promotes mutual assistance among member depositories and clearing organisation in the Asia-Pacific region.
Membership of this organisation will help CDSL in enhancing its knowledge base and contributing to the development of other member organisations in the fields of international best practices, settlement risk management, cross border linkage and technological development.
Status of CDSL and NSDL
The statistical figures for the month of February shows that CDSL has signed agreements with 2579 companies. Of these 2550 Companies are available for depository services. CDSL has 153 Depository Participants offering depository services in 66 cities/towns across 120 locations in the country .
In terms of dematerialisation, more than 131.43 lakh shares were dematerialised. With respect to the settlement figures as in February, 2001, a total quantity of 9064 lakh shares worth Rs. 12905.16 crores were settled in demat form.
CDSL at present is leading the depository business in Mumbai and its related areas. The success of CDSL can also be gauged by the fact that CDSL is getting its business mainly from Mumbai and its neighboring areas whereas NSDL has well-established network throughout the country, then also according to the statistical figures CDSL is at par with NSDL.
Please note that to avail of the various services offered by a Depository participant of NSDL an investor / broker has to open a NSDL Depository account.