NSDL guidelines on depository accounts

THE following are some significant aspects highlighted by the National Securities Depository Ltd (NSDL) on using the depository:

Account opening: The Securities and Exchange Board of India has issued guidelines for the due diligence needed for opening of depository account.

*A beneficiary account must be opened only after obtaining proof of identity of the applicant. The applicant's signature and photograph must be authenticated by an existing account-holder or by the applicant's bank or after due verification made with the original of the applicant's valid passport, voter ID, driving licence or PAN card with photograph;

*the account opening form should be supported with proof of address, such as verified copies of ration card, passport, voter ID, PAN card, driving licence or bank passbook. An authorised official of the Participant, under his signature, shall verify the original documents.

SEBI has also directed all Participants to immediately verify the accounts of all the beneficiary owners who have opened accounts with them and confirm in writing to NSDL that Participants have fully complied with the above procedure in all the cases. Failure to produce the original documents within the prescribed time would invite appropriate action against such account-holders, which could even include freezing of their accounts. Investors are requested to co-operate with Depository Participants in completing this exercise.

Future-dated instructions: NSDL has a facility in its software whereby an account-holder can choose the date on which its account will be debited. The account-holder must simply mention this date against the ``Execution Date'' column in the Delivery Instruction slip. The instruction will be booked in the central system of NSDL immediately on entry by the DP, but will be effected only on the execution date. In other words, the account of the investor will be debited only on the execution date.

For instance, a investor who sells shares on Monday (January 15) can give a delivery instruction slip to its DP on Tuesday (January 16) with an execution date of next Monday (January 22). The DP will enter this instruction either on Tuesday (January 16) or Wednesday (January 17), but the shares will be debited from the account only on next Monday (January 22).

The investor can use this facility by issuing instructions immediately on confirmation of sale by the broker with future execution date. This facility is particularly useful for investors having accounts at locations where DPs do not have direct connectivity to NSDL's central system.

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Corporate benefits in pool account: An investor is entitled to corporate benefits such as dividends, bonus, rights, etc., only if the holdings are in its beneficiary account on the record date. Brokers are required to transfer the shares purchased by investors to investor's account after they receive purchase consideration within working days.

Investors should insist upon transfer of shares purchased by them to their beneficiary owner's account immediately after payment is made. Otherwise, even though shares were purchased for the buyer, but held back in the pool account of the broker, the buying investor will not be entitled to the corporate benefits such as dividends, bonus shares, rights shares, etc.

Under the SEBI Rules, a broker is required to deliver shares to the buyer or make payments to the seller within two working days from the time of payout (both for securities and funds) declared by stock exchange. NSDL has set up a procedure to recommend to the company for release of corporate benefits to the buyers whose shares are lying in the CM pool account. However, investors should insist on and ensure that the shares bought by them are received into their account well in advance of the record dates.

Demat shares for transfer: The Securities and Exchange Board of India (SEBI) has extended the time-frame given to the investors for exercising the option of dematerialisation of shares sent for transfer from the existing 15 days to 30 days.

The investor intending to exercise the option of dematerialising shares shall be required to send the dematerialisation request within 30 days of the date of the option letter, failing which the Issuer or its Registrar and Transfer Agent shall proceed to despatch the certificates. Requests received subsequent to despatch of the certificates shall be rejected.

Nomination rules: The nomination facility for shares is provided by amendment in the Companies Act 1956. The beneficial owners (shareholders holding shares in demat form) can use this facility by furnishing the duly filled form available with their DPs.

The form must contain the nominee's photograph and other details to help the DPs identify and give effect to nomination given by the shareholder. The DPs have also been informed by NSDL about the procedure for giving effect to the nomination request made by beneficial owners.

NSDL on the Web: Addresses where certificates/demat request forms have to be sent for demat are now available on NSDL web site at www.nsdl.co.in. NSDL's web site has been enhanced to provide the addresses of the Registrar and Transfer agents where the certificates/demat request forms are to be sent for demat.

Updation of information: NSDL's software has been enhanced to allow a DP to extract incremental transaction data from the depository software module multiple times in a day. This will enable the DP to update its service centre with the latest transaction data by giving such information multiple times in a day through the back office of a DP. This will help the service centre of a DP to service the customer with the latest information wherever the concerned DP has connectivity and an adequate back office.

The road ahead: Most of the actively traded companies have already joined the NSDL, depository. Bringing debt instruments and government securities into the NSDL depository will be the focus area in time to come. NSDL will endeavor to offer the investor a facility to hold investments in all types of securities in demat form.

DP services are being offered from more than 1,800 locations across the country, and are expected to penetrate further into locations nearer the investors.

In order to enhance quality of service to the investors, NSDL will take initiative to provide investor-specific Internet-based service. The first of such services will be launched in the first quarter of 2001.

A new initiative based on permission granted by Government for connecting two wide area networks (WAN to WAN) will be launched soon. This facility, if used by the DPs, will help their branches to connect to the main DP machine and provide more up-to-date information to investors.

To improve service standards, DPs will be required to employ at least one qualified person at each of their branches. To facilitate DPs to have their staff qualified, efforts will be intensified to conduct `Procedure Training Programmes' and `NSDL Depository Operations Module' tests at the locations where DPs are located. The investor education initiative will continue, and NSDL will organise such programmes in the smaller cities and towns.

Source: Edited extracts from `NEST Update' published by the National Securities Depository Ltd.