National Securities Depository Ltd. (NSDL)

National Securities Depository Limited (NSDL) is one of the recognized depository in India that creates a competitive environment which will respond better to users’ interest and demand.

Setting up of National Securities Depository Ltd.

National Securities Depository Limited (NSDL) was promoted by the Industrial Development Bank of India, the Unit Trust of India, the National Stock Exchange of India Ltd., and State Bank of India.

NSDL is the first depository in India established in 1996. It commenced its operations on 8th November 1996. Since then it has been growing steadily.

Functions of National Securities Depository Ltd

NSDL performs the following functions through its participants:

1. It maintains investors’ holdings in the electronic form.
2. It enables the surrender and withdrawal of securities to and from the depository.
3. If effects settlement of securities traded on exchanges.
4. It carries out settlements that have not been done on the stock exchanges.
5. It makes allotment in electronic form, of initial public offerings (IPO).
6. It offers facility for freezing or locking of investors’ accounts.
7. It facilitates offer of securities as a mortgage for loans.

Participants of NSDL

NSDL performs its functions through its participants. The following are some of the important NSDL participants:

IIT Trust, Corporation Services, Global Trust Bank, HDFC Bank, City Bank Custodial services, Morgan Stanley Custodial Services, Reliance Share and Stock brocking, Janata Sahakari Bank, Industrial Development Bank of India, State Bank of India, Standard Chartered National Securities Clearing Corporation, Deutsche Bank.

Legal aspects of NSDL

NSDL was established by passing of the Depositories Act, 1996, but with retrospective effect from September 1995. Companies Act and Securities Contact Regulation Act were amended suitably to facilitate the operations of NSDL.

Section 22A of the Indian Securities Contract Regulations Act dealing with restrictions on transfer of shares was deleted. Sections 108 and 111 of the Indian Companies Act were amended to dispense with transfer forms and other formalities relating to the physical transfer of shares. The statements issued by the depository are considered valid documents of title.

On the basis of the depository’s statement, transfers are effected by book entries in the pass book. Transactions in Demat are not subject to stamp duty.

Transactions of the NDSL

As we have seen already, the transactions of the stock market are divided into two categories namely,

• New issues
• Secondary market transactions.

1. New issues

Generally, the investor has the option to receive the shares either in physical form or in the electronic mode. When shares are allotted to the investor, he should specify his choice clearly. If he wishes to hold securities in the electronic form, he should specify the depository participant to which, the allotted shares are to be delivered.

Shares will be allotted according to SEBIs guidelines but the dispatch of shares to the depository participant will take place according to the instructions of the investor. Nowadays, SEBI has made it mandatory for the companies to have new issues in the dematerialised form.

2. Secondary market

The trading procedures for the secondary market transactions are the same but the settlement and clearing procedures are different. It may so happen that the seller opts to deliver the shares from the depository while the buyer wishes to take delivery in the physical form and vice versa.

That is, the seller has the shares in the physical mode while the buyer prefers the electronic mode. When both, the buyer and the seller prefer the electronic mode, the transaction would be smooth.