CHAPTER INTRODUCTION

Transcription

1 CHAPTER I INTRODUCTION In line with developments in the securities industry worldwide and in the wake of the increasing trading volume on the local bourses, there is a need to replace the existing clearing and settlement system which involves physical movement of scrip with the Depository System or a scripless trading system. -Recommendation of the Group of Thirty (G 30) for demat system

2 2 INTRODUCTION Financial sector reforms started in India in While earlier reforms facilitated faster growth, the later one concentrated on strengthening the functioning and operations of the Capital Market. Depository services are the product of secondary market reforms in India. The electronic technological revolution has brought about a number of changes in the functioning of Indian Capital Market. The most revolutionary change that was brought in the entire history of Indian capital market is the depository system. Depositories have helped in smooth transition to the electronic movement of securities. They work as custodians and inter link investors with primary and secondary market. Dictionary meaning of depository is A place for safe- keeping of things, which may be funds or securities Thus it can be equivalent to a bank but not a banker of money but of securities. Depository is an important intermediary in the securities market that is scrip-less or moving towards such a state. 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 the sub-section (IA) of section 12 of the Securities and Exchange Board of India Act, 1992 *. The principle function of a depository is to dematerialise securities and enable their transactions in book-entry form. The securities are transferred by debiting the transferor s demat account and crediting the transferee s demat account only at the instructions of account holder. All securities of a company in the depositories are identifiable and interchangeable as they do not bear any distinguish numbers. The ownership records of securities are maintained in an electronic form and the transfer of ownership takes place on instructions of investors who are the customers in this system and are known as beneficial owners (BOs).This rids the capital market of the danger and risks of handling huge volume of papers. A depository can provide any service connected with recording of allotment or transfer of ownership of securities in the record of a depository through its Depository Participants. Operational Framework of Depository System All the operational procedures and functions of depository system are regulated by Business Rules of depositories. As per the NSDL Bye Laws (2.1-3), Business Rules include such manuals, *NSDL Depository Operations Module-1, page 13

3 3 notices, circulars containing the practices, procedures and administrative requirements relating to the operations and functions of the depository system as may be notified from time to time by the Board of Directors of the depository. In simple terms, Operational framework of depository system is concerned with conversion of securities from physical to electronic form (dematerialisation), settlement of trades in electronic segment (rolling segment), transfer of ownership of shares (in case of Transmission and Nomination) and electronic custody (safe-keeping of securities on investors behalf) of securities. Pledge and Hypothecation of electronic securities, Stock Lending and Borrowing, Initial Public Offers (IPO) and non-monetary Corporate Actions in already issued securities also come in the boundary of operational framework of depository. All operations under depository system are performed by Depository with the help of its constituents. In that manner we can say that depository system is an amalgam of various depositories and their business partners who include Depository Participants ( DPs), Issuing companies and their Registrars and Transfer Agents (RTAs), Clearing Corporations / Clearing Houses of Stock Exchanges. Depository is electronically linked to each of these business partners via satellite links. Role of SEBI regarding Demat System SEBI is the regulatory body regarding all matters concerning depository system. In exercise of the powers conferred by section 30 of the SEBI Act, 1992 read with section 25 of the Depositories Act, SEBI has issued (Depositories and Participants) Regulation, 1996 to carry out the purposes of the Depositories Act. The Regulations of SEBI provide for eligibility criteria for depositories and depository participants(dps), process of their registration, commencement of business, rights, obligations and functions. The regulation also specify the records, communication systems, and the control mechanism to be maintained by the depositories and participants*. Before commencing operations, all depositories should obtain a certificate of registration and a certificate of commencement of business from SEBI. * Vijay K. Gaba, Depository Participants Law and Practice published by Taxmann Allied Services private Ltd., Delhi, p. 4

4 4 All the operations of the depository system are primarily governed by the Depositories Act, 1996, SEBI (D&P) Regulations, 1996, Bye-laws approved by SEBI and Business Rules framed in accordance with the Regulations and Bye-laws. Only a company registered under the Companies Acr,1956 and sponsored by the specified categories of institutions can set up a depository in India. The Depository Act, 1996 The Depository Act, 1996 was passed to provide for the establishment of depositories in securities with the objective of ensuring free transferability of securities with speed, accuracy and security by (a) making securities of public limited companies freely transferable subject to certain exceptions; (b) dematerializing the securities in the depository mode; and (c) providing for maintenance of ownership records in a book entry form. In order to streamline the stages of settlement process, the Act envisages transfer of ownership of securities electronically by book entry without making the securities move from person to person. The Act has made the securities of all public limited companies freely transferable, restricting the company s right to use discretion in effecting the transfer of securities the transfer deed and other procedural requirements under the Companies Act have been dispensed with. The operations of the depositaries are carried out in accordance with the regulations made by SEBI in this behalf and the be- laws and business rules framed by the depository as per the powers given under the Depositories Act. The central govt, also has the power to make rules for carrying out the provisions of depositories. Basically, in terms of the provisions of the depositories Act, 1996, holding of securities in dematerialized from is at the option of the holder of securities. But by virtue of the powers vested in the Central Govt, and SEBI, this has become illusory and securities in listed companies have to be compulsory held in dematerialized form as delivery in such form only is recognized in stock exchanges. Eligible securities for Depository In general the following securities are eligible for dematerialisation: (a) Shares, scrips, stock, bonds, debentures, debentures stock or other marketable securities of like nature in or of any incorporated company or other body corporate. (b) Units of mutual funds, rights under collective investment schemes and venture capital funds, commercial paper, certificates of deposit, securitised debt, money market instruments,

5 5 government securities and unlisted securities. Thus, besides listed securities, all government securities, units of mutual funds, and most importantly, all unlisted securities which include securities of private limited companies, are eligible to be dealt by a depository. Origin of Depository System in India Since the beginning of liberalisation process in 1991, the size of Indian capital market expanded manifold. The traditional system of settlement through physical transfer of securities failed to cope up with the requirements of growing capital market and hindered further growth of the market. Minimization of settlement risks and shortening of settlement cycles were the basic requirement for greater depth and expansion of markets by upgrading the existing trading system into a modern internationally competitive one. Inability of clearing and settlement infrastructure to efficiently manage the flow of paper work made it difficult for the exchanges to shorten the settlement cycles and move to rolling settlement. The Depositories System has paved the way for instituting an insfratructure for eliminating various risks associated with capital market transactions and increased the efficiency of clearance and settlement systems. *. Prior to introduction of this system so many operational in efficiencies were breeding into the Indian Capital Market due to traditional paper-based trading and settlement system. It was a market lacking in transparency, and which offered brokerage and commissions that enriched intermediaries.** Following is the list of some of the disease areas in physical form of securities: (a) Fake and mutilated securities (b) Bad and improper deliveries of securities (c) Delays in registration and transfer of scripts (d) Fake signatures and signatures mismatches (e) Delays in receipts of funds orders and allotment letters (f) Large settlement period for trade done in exchanges (g) Less liquidity *Economic Reforms in India, from First to Second Generation and Beyond, Deep & Deep Publication,2003, p.324 **Portfolio Organiser, August 2004, p. 45

6 6 (h) Low volume of trade due to hurdles of post trading operations (i) Problem of selling and buying of odd lots These problems were the root-cause for the introduction of Depository System in India. Basically introduction of demat system was an answer to all those entry barriers which restrained investors to participate in secondary market operations. Features of Indian Depository System The depository system in every country is designed keeping in view its specific legal and business environment. Indian depository system has the following features: (i) Multi-Depository system- The Depository model in India is a Competitive Multi Depository system. There can be various entities providing depository services. The aim behind having multiple depositories is to encourage a healthy competition among the depositories, which would benefit the users of the depository system. (ii) Inter Depository Transfer- Transfer of securities from an account in one depository to an account to another depository is termed as an inter-depository transfer. As per SEBI Regulations, 1996, the depositories in India must be inter-connected to enable inter-depository transfers for those securities that are available for dematerialisation on both the depositories. (iii) Dematerialization as against immobilization- The model provides only for dematerialisation of securities wherein the securities are cancelled as against the system of immobillisation in which securities are kept in custody in physical form. Dematerialisation is a significant step in the direction of achieving a completely paper-free securities market. (iv) Depository services through DPs-A depository cannot directly open accounts and provide services to its clients i.e investors. DPs are the intermediaries between the depositories and investors. They are the agents of Depository who provide all depository related services. (v) Fungibility- The securities held in dematerialised form are fungible. They do not bear any distinguishable features like distinctive number, folio number or certificate number. Once the securities are dematerialised.' Title to the securities owned is in terms of number of securities and not in terms of distinctive numbers.. (vi) Registered owner/ beneficial owner (BO)- Depository is registered owner of dematerialised securities while investors are the beneficial owners of the dematerialised securities. The actual owners of securities (BOs) retain the right to receive all the benefits arising out of the securities.

7 7 (vii) Free transferability of securities- In demat system, all transfers are effected without any interference of the issuer company. These features are basic concepts of Indian depository system. Constituents of Depository System There are five constituents of the depository system. These constituents are also termed as Business Partners or Players of depository. These are- 1. Depository 2. Depository Participants (DPs) 3. Companies (Issuers / RTAs) 4. Clearing House/ Clearing Corporation and Clearing Members 5. Investors or demat accountholders or BOs 1. Depository Depository is the main contributing factor in the whole system of the depository. It acts as a tunnel through which each and every service and activity of depository system passes through. The depository registers investors or the shareholders as the beneficial owners of the securities held by it and registers all transfers, transmission and other actions with the help of its DPs network all over the country. Depository is linked to each partner of depository system through electronic linkage. 2. Depository Participants (DPs) DPs act as intermediaries between the investors and the depository. Investors have no direct access to the depository and they are always represented by their DPs who act as agents of Depositories. Such participant, (as per the provisions of the Depository Act), can be only the banks, financial institutions or the corporate brokerage firms which have credibility and standing to act as fiduciary for investors. All transfers and transactions in demat accounts are affected only through the DPs. They are, in fact, depository interfaces for investors and provide numerous services related with electronic securities. These services are provided to investors in relation to their private securities investment portfolio management. The services are that of electronic custody of securities and in form of entries regarding registration of transfer of securities to or from depository accounts of investors only on receipt of instructions from the investors. Only those securities, which are formally admitted to the depository system to enable the

8 8 Depository to provide its services to the investors are eligible securities under demat system. 3. Companies (Issuers / RTAs) The issuer who intend to offer a demat facility to his shareholders has to establish a connectivity directly or through its Registrar & Transfer Agent (RTA). RTA provides electronic connectivity between the depository and the issuer company. After the company joins the depository, the dematerialisation of shares is done by registrar on behalf of the company and Resistrar keeps the electronic data of beneficiary owners. The Issuer Company shares the maximum benefits of the depository system as it is relived of keeping individual accounts of each shareholder with distinctive numbers. The books of the Issuer Company depict the depository as the registered holder of the issued securities and the company deals with the depository alone. 4, Clearing House/ Clearing Corporation and Clearing Members A Clearing Corporation or Clearing House of a Stock exchange may be admitted as a user under Depository subject to its entering into an agreement as laid down in the Bye-laws of Depository. Although technically, CC/CH is not a Participant of the Depository yet it acts like the one for limited purpose of settling trades done on respected stock exchanges. It ensures payment against delivery or guarantees settlement. It also co-operates depositories at all times to redress the grievances of the clients and participants in respect of their operations relating to Depository. Clearing Members are the persons admitted as members by a Clearing Corporation that has been admitted as a user by the depository. They are important contributors in the system as without them settlement of trade done in electronic segment is not possible. They facilitate setting off the trades done in securities with the help of clearing house. To avail the facilities of a depository, Stock Exchange in India needs to approach either NSDL or CDSL and to become a DP in the category of Clearing House or the Clearing Corporation. Then the members of that particular stock exchange which is registered with the depository open an account with the same depository in their trade names. These members are called as Clearing Members in the depository segment and depository accounts opened by them to facilitate electronic transactions are called as Clearing Members Accounts(CMs). These accounts can only be used for carrying out the clearing and settlement business of the brokers clients. These

9 9 accounts are called as transit accounts where securities move just for settlement purposes. These CMs accounts can never be used by them for their private investment portfolios. CMs are identified in the system through their CM-BP ID. All pay-in and pay-out transactions are carried out through their accounts opened with different DPs. 6. Investors or Demat Accountholders or BOs Investors are main constituent of depository system and they carry all the benefits as holders of securities originally available to them as the shareholders of a company viz. right to vote, right to receive the dividend or interest income on the securities lying in their demat accounts with the DPs. They have the right to pledge the securities in the safe custody of the depository or to dispose of these holdings as and when they desire so. They deal with the depository through the agents known as participants (DPs) and have no direct dealings with the Issuer Company. Their rights and privileges remain the same under depository system as they were having with physical securities in their hands. An investor who intends to hold his scrips in depository system, has to first open an account with any DP of his choice to get these services. Account holders of depository services are termed as beneficial owners (BOs) of securities while the Depository attains the status of registered owner of securities in the books of the Issuer Company. As per the Depositories Act, 1996, BOs are the members of the company and will continue to be entitled to all rights of members as prescribed by the Company Act, Existing Depositories in India India has adopted competitive multi- Depository System. At present, there exists two depositories in India. (1) NSDL ( National Securities Depository Limited) - NSDL was formed and Registered under the Companies Act, 1956 during December 1995 and commenced Operations during November NSDL is the first depository in India and has the infrastructure of international standards and handles a major portion of the trading and settlement in dematerialised form in Indian Capital Market. It is promoted by IDBI - the largest development bank of India, UTI- the largest mutual fund in India and NSE- the largest stock exchange in India. (2) CDSL ( Central Depository Services Limited) -CDSL commenced operations during February CDSL was promoted by Stock Exchange, Mumbai in association with Bank of

10 10 Baroda, State Bank of India and HDFC Bank. It is second depository in India which was promoted with an object of accelerate growth of demat system and also to compete with NSDL. Following table presents a picture of both the depositories: Table 1.1 Existing Depositories at a Glance Particulars NSDL CSDL Establishment Set up in Nov, 1996 with 3 DPs and 3 Companies Set up in August, 1998 Objective To give birth to depository system To accelerate growth of scripless trading in India Initial promoters IDBI, UTI and NSE were original sponsors BSE, Bank of India, Bank of Baroda, and SBI were original sponsors Regulator SEBI SEBI Number of investors accounts as on lakh lakh No. of DPs with their 223 DPs with 3017 branches 322 DPs Branches as on No. of Companies joining the system as on Quantity of shares crore 2797 Crore dematerialized as on Newsletter published Nest Update (monthly bulletin) CDSL Infoline (quarterly) Address of web-site www. nsdl.co.in www. cdslindia.coin Address of Regional office at Delhi 409/410, Ashoka Estate 26, Barakhamba Road Connaught Palace, New Delhi Tel.: , Northern Region Office 514, New Delhi House, 5th floor 27, Barakhma Road, New Delhi Source: Annual reports of NSDL and Nest Updates and CDSL Infoline for the relevant periods The above particulars throw light on important information about both the existing Indian

11 11 depositories. Rationale for the Study The nature and frequencies of studies in India concerning operational framework of any system is extremely limited. The present study is an attempt to provide useful insights into the various operations conducted by an investor in depository environment. Investors are indeed the kingpins of the security market. The health of the economy is dependent largely on the investors. There have been no studies about the impact of operations of depositaries on the ordinary or retail investors. This study attempts to fill this gap and pinpoints the plus and minus of exiting operational processes and procedures of depository system. The study also recommends some operational amendments to manage the operations of demat system for the betterment of all the constituents of depository system, especially in favour of retail investors. This study presents empirical analysis. Multidimensional introduction of depository system to commodity market, taxation, saving certificates scheme has made the present study a very timely one. Objectives of the Study The basic objective of the present study is to present a detailed picture on investors viewpoints on various aspects of the working of the depository system. Within the framework of this overall objective, following issues have been identified for the current study: (1) To analyze and search that how effectively the new system is implemented and accepted by Investors, DPs and Issuers/ RTAs of securities. (2) To investigate whether the services provided mainly to retail Investors have improved due to the increased comfort level of intermediaries in dealing with this latest concept and procedure of Depository. (3) A desire to search as to how far increased automation in operations of Securities Market due to establishment of Depositories has accelerated level of awareness among investors. (4) To analyze the cost aspect of demat system as compared to old system of transfer and transmission of physical securities. (5) To analyze whether the system has proved efficient and effective in dealing with the earlier problems of fake and forged share certificates, bad deliveries, share transfer delays, fake signatures, signature mismatches, duplication and multilation of shares certificates, non-

12 12 receipts of refund orders and delay in receipts of securities after allotment by the companies. (6) To prescribe an Investors Charter of Rights-for demat accountholders to be observed by Depository Participants (DPs). The study is based upon these objectives. Scope of the Study Though depository system is a nation-wide system, the study covers geographical area of Delhi and Faridabad assuming that they are the best representatives of all categories of investors of the country. Also as investors are exclusive domains in any Capital Market, main emphasis have been laid on concerns relating to retail investors. Institutional investors are outside the scope of this study as their concerns are different from the concerns of common or retail investors who put their hard-earned savings in risky Capital Market. Operational framework of Depository is concerned with practices regarding conversion of securities from physical to electronic form (like account opening, dematerialization), settlement of trade in electronic segment, charges paid by small investors and special services offered by depository like corporate entitlements or benefits, pledge and hypothecation and stock lending and borrowing etc. The study explains various precautions and concerned matters which should be taken care by Depository, DPs and investors while operating in depository environment. The hub of the study is issues revolving around investors and effecting them directly and indirectly retail investors. As the study is concerned with operations and all demat procedures and processes are same for all categories of investors irrespective of their investment portfolios, preferences, behavior, habits or choices, so no differentiation as been made to divide the investors on any of the basis. Study Period The study has been carried out for a period of ten years with effect from to which indicates that infant age up-to childhood age of demat system in India has been covered. Best possible efforts have been made to compile all the information available under both the depositories.

13 13 Sources of Data The study is based mainly on primary data collected through well-designed Questionnaires and Personal Interviews. Use of secondary data has been made wherever it was available and necessary. All depositories operations are performed by depositories with the help of its constituents who are also known its business partners, therefore, data has been collected from all the five constituents of depositories to have a complete picture of all aspects of operations under demat system. (i) Primary Data: Separate questionnaires were prepared for common investors, DPs and Depositories to get their response on different matters regarding demat system. Personal Interview method was adopted for Clearing Members and Issuer/ RTAs to get their valuable suggestions and opinions about their outlook regarding matters concerning individual investors. A pilot study was conducted to ascertain the suitability of questions and the topics covered in the questionnaires. In pilot study 10 investors, 3 DPs and 2 clearing members were selected as sample representatives. Then the questions were refined and reframed with the help of many valuable suggestions received from investors, professionals, DPs and clearing members. Following table represents the data base for primary data for the current study: Table 1.2 Data Base for Primary Data Participants of Research Instrument Applied Depository System Investors Questionnaire No.l- Investor s experiences regarding operational framework of depository system Depositories Questionnaire No. 2 - DPs / Depositories experiences regarding operational framework of Depository System DPs Questionnaire No. 2 - DPs / Depositories experiences regarding operational framework of Depository System Design of Research Instruments Total No. of Questions 26 open ended questions 4 closed questions 22 Total No. of questions 17 open-ended questions 3 closed questions 14 Total No. of questions 15 open-ended questions 3 closed questions 12

14 14 Issuers/ RTAs Structured or Standardized Personal Interview having a combination of open-ended questions and fixed alternative Total No. of questions 11 open-ended questions 5 fixed alternative questions 6 questions Clearing Members Structured or Standardized Personal Interview having a Total No. of questions 11 open-ended questions 5 combination of open-ended fixed alternative questions 6 questions and fixed alternative questions Sample Size Following table clearly represents the data bank of the present study: Table 1.3 Table Presenting Data Bank of the Study Constituent of Questionnaires Questionnaires Questionnaires Sample Depository System Printed Distributed Collected Size Investors DPs Depositories 5 4 =40 Issuers/ RTAs Personal interviews Clearing Members Personal interviews =24 Note : (1) Total sample size = = 358 (2) DPs, Depositories, issuers/rtas mean persons working in these offices and havingpratical experiences regarding demat operations Out of the total sample size, approximately 70% of samples have been taken from Delhi and remaining 30% have been selected from Faridabad (Haryana). Results of the survey have been clubbed for the DPs & Depositories and for Issuers/RTAs & Clearing Members. NSDL and CDSL have their branch offices in Delhi and 100% data collection has been made from the persons working in these offices but their opinions have been clubbed with the DPs to avoid any unnecessary official involvement. As the format of structured Persnol Interview was same except two questions relating with special operations of RTAs and CMs,

15 15 therefore, for the point of view of simplicity they have been treated combined in all tables. Methodology adopted to conduct Survey Detailed interviews through telephone and in India have limited possibilities. Due to this factor, in this study, printed questionnaires have been administrated personally on one- toone basis with the help of friends, professionals, colleagues, known employees working in different companies. The services of the sub-trading members (TM) were also utilized for randomly distributing the questionnaires to investors scattered in different parts of Delhi and Faridabad cities. While collecting back the questionnaires, the response was very poor. After that each person was approached again and again to get the filled questionnaire. Sample investors can be summarised as follows: (a) Professional (Chartered Accountants and Company Secretaries engaged in primary and secondary market for their private investment portfolios ) 72 (b) Persons working in different companies and organisations and engaged in securities trading in the capacity of investors for their private investments 75 (c) Persons working with DPs and Trading Members (TMs) as employees and also engaged in their private investment portfolios in securities market 41 (d) Investors scattered in different part of the cities and in the habit of going to their sub- Trading Members offices personally during trading hours ofnse and BSE 102 (e) Investors present in IDMs organised by NSDL 4 Regarding the questionnaires for DPs and Depositories, they were contacted personally in their offices and after a specific time span, the questionnaires were collected back from them. DP Directory published by NSDL has been a useful instrument in providing details of addresses and phone numbers of different Depository Participants and their branch offices. As all DPs follow same procedures with regard to demat operations and safety level is same with regard to all DPs, convenience sampling has been adopted and no differentiation has been made regarding Banks as DPs, Brokers as DPs, Non banking finance company as DP or RTA as DP. All of them has been given equal weightage. Regarding depositories, branch offices of both the depositories situated at Cannaught Place, New Delhi has been approached. There are total five persons working in these offices and all of them were contacted and data could be collected from only four persons.

16 16 Personal interviews were held with Clearing Members/ Trading Members and RTAs in their offices located at different places in Delhi and Faridabad. Some interviews with Clearing Members were conducted in IDM held in Delhi on 7th May, 2005 during Investors Education and Awareness Program conducted by BSE at Hotel Magpie, Faridabad in July, (ii) Secondary Data: In this study, secondary data has limited presence. Secondary data has been collected from monthly electronic bulletin of NSDL(Nest Updates for relevant periods), CDSL Infoline and audited annual reports of NSDL for the period of its inception till 31st March,2006. Study material distributed during seminars and Investors- Depository Meets (IDMs) organised by NSDL in Delhi and Faridabad has been other source of information. Investor education & awareness programes conducted by National Stock Exchange,Delhi and Bombay Stock Exchange Ltd. have been other sources of collection of published material. While visiting the officers of DPs and Clearing Members, some guidance material issued to them by Depositories have also been collected. Some published research papers on securities market and research work of Society for Capital Market Research and Development, Delhi have also been considered while framing this study. Library of National Institute of Financial Management, Faridabad has been a significant source of collection of treasure of knowledge concerning this subject. Other libraries visited include Ratan Tata Library at Delhi School of Economics, University Library of Jamia Millia University. Research Centre of ICSI (Indian Institute of Company Secretary of India). Research Tools The study presents an empirical analysis of the functioning of demat system in India. In a study on operationalism, quantitative measures of the concepts like functional benefits, drawbacks, comforts, implementation, awareness etc. is not possible. The only question that arises is that how much a particular concept has been accepted by people. As the study is related with inherently unmeasurable concepts, main concern has been laid on hypothetical entitles or common essences. On the basis of hypothesis, the questionnaires and Personal Interviews were framed in this study. The results of the survey have been complied and interpretation has been made keeping in view both the aspects of the results. Why a particular percentage of respondents have accepted a particular statement while remaining percentage is not accepting that statement, it has been analyzed in detail. On the basis of the majority of percentage recommending or not- recommending a particular statement, conclusions have been

17 17 drawn. The analysis is based on presentation of sample data in percentage terms. Use of simple averages has been made in some tables to draw conclusion. Most of our analysis is based on primary data collected through questionnaires as well as personal interviews with clearing members and Issuers/ RTAs. Use of the secondary data has been made to indicate trends of growth, implementation and acceptance of the depository system by investors, DPs and Issuer companies. After collection and editing of data collected on the basis of the survey from different constituents of depository system, tabulation, diagrammatic and graphic presentation of data have also been done. Use of bar charts and pie charts have been made to show the research results in an easy to refer manner, without using too much jargon. Hypotheses of the Study Hypothesis means to set up a hypothesis or assumption. All the questionnaires have been designed on the basis of the following chronology of hypotheses in present study: 1. Dematerialisation has benefited the securities market as a whole and investors in particular. Services provided to investors have improved drastically and been simplified due to the concept of dematerialisation. 2. The investors having demat accounts are well versed with the framework of depository system. 3. The depository system has been effective and efficient in eradicating the irritations of investors (associated with physical form of securities). 4. The demat system has resulted in increased comfort level to all its users. 5. There is bulky, non-comparable and confusing Demat Charge Structures of all DPs having hidden costs for investors. 6. There is lack of desired acceptance of the demat system among investors. Eduaction and Awareness Programmes conducted by NSDL and CDSL are not successful. Investors Depository Meets (IDMs) conducted by NSDL suffer with certain diseases. There is urgent need of Investors education and awareness about the demat system to drag those investors into the system who are still outside the scope of demat system. 7. Common investors find it difficult to get the existing law(s) enforced to manage the risk of fraud or any negligence by the DPs. There should be a simple and clear Investors Charter

18 18 of Rights to be observed by the DPs for investors and it should be enforced by the law. 8. As the operations of demat system are same irrespective of age, income, preferences, outlooks and size of private investment portfolios of investors in securities market and are also independent of size and location of DPs & their franchises, equal weightage has been provided to each and every unit of sample investor, DP, broker or CM. 9. The implementation of demat system has been effective and the system has been accepted and welcomed by all its constituents like investors, DPs and CMs and issuer companies/ RTAs. 10. No differentiation has been made among different categories of DPs as the study is based on operational framework and operations of demat system are same for all categories of DPs. All these hypothesis have been the base of primary data collected through questionnaires. Strength of the Study The subject of operating efficiency is certainly one of the most complicated and controversial topics in the present world yet of the deepest interest to everyone. In this study, best possible efforts have been made to ensure maximum possible genuineness of data as well as a highly randomized sample. While the data cannot be claimed as absolutely perfect in view of several inherent difficulties in a survey of this kind, yet they are more like an x-ray picture appearing somewhat hazy but clearing pinpointing the strength and disease areas of demat operational framework. Demat is a nation wide system and its operations are going on smoothly among all investors. Best efforts have been made to compile the observations and suggestions of common investors, professionals like Chartered Accountants and Company Secretaries, persons handling demat operations as Heads and tails of DPs and CMs. All the chapters have some observations pinpointing towards weaknesses of the present system along with the suggestions to remove those shortcomings. General precautions that should be taken by common investors, regarding all demat operations have been mentioned in each chapter. Involvement of all the demat constituents is must for each operation, therefore all statements have been evaluated from point of view of all partners but giving weightage to the issues concerned with retail investors. Limitations of the Study Following are the limitations of the current study on operational framework of demat system:

19 19 1. All the limitations associated with collection and use of primary and secondary data are applicable to the present study as well. 2. The study is confined to investors scattered in geographical territory of Delhi and Faridabad (including Palwal and Ballabhgarh). 3. Probability sampling was not possible regarding field investigations, therefore, convenience sampling has been used in the survey and in Personal Interviews. 4. The study covers only those investors who are already users of depository system and are well versed with operational framework of depository system. Investors who have not joined the depository system have remained outside the scope of the study. 5. The spotlight of this study is on retail on common investors who invest their hard-earned savings in capital market. Institutional investors are outside the scope of the study as their concerns are different from the concerns of retail investors. 6. While choosing samples from investors, their portfolio for investment in securities market has been ignored because operational procedure is same for all sizes of portfolios of securities in demat system. However, those investors have been selected who have much experience of dealing in securities market and are well versed with the technological terminology of the securities market. 7. NSDL & CDSL application software has been kept outside the scope of study to avoid unnecessary technical complications. 8. Securities mean all types of shares, debentures, certificates of deposits, Govt. Securities,] Commercial Papers etc that can be held in demat form. Operational framework of Depositories regarding Warehouse Receipts, PAN card services, Tax Information Network and Online Tax Accounting System have been outside the scope of the current study. 9. Although all the plus and minus of the Depository System are tangible but they cannot be quantified or measured in digital form. So most of the study is based on empirical hypotheses. 10. Nature, procedures and processes are similar for both Depositories (NSDL and CDSL), so no separate differentiation regarding operations of both has been made in the thesis. 11. Data collected from different constituents of Depository system include views of the persons practically involved in depository operations in these constituents. Views expressed by them are not officially views of these constituents but are the experienced views of intellectuals

20 20 involved in demat operations for investors. 12. All the analysis has been made in percentage form for the point of simplicity of the data and to provide a more comprehensive approach to the issue discussed in table. Percentages have been rounded off to the nearest ones for more clarity and to avoid unnecessary complexity. 13. Introduction of Depositories Act has implications on many other related laws like Companies] Act, Income Tax Act, Service Tax Act, Securities Contracts (Regulations) Act etc. Impact on Laws due to Depository Act, 1996 has not been considered. 14. All technical issues and computer software applications have been kept outside the study. 15. Regarding growth of dematerialisation and acceptance of the demat system among retail investors, DPs and companies under both the depositories, growth rates have not been calculated as there are outside factors like SEBI s regulations for compulsory demat trading and volatility in stock market which have direct effect on growing acceptance of the system among all its users. 16. All the operations under demat system are totally independent of size, frequencies and amount of transactions. Even the age, income, habits, preferences, length of experiences, occupations, type and size of investments in private portfolios of investors do not effect any of the demat operation in any manner, therefore, application of research tools like correlation analysis, x2 (Chi-square) test etc. is not possible in this type of study. The data presented in the study is in percentage form and do not really form any Contingency table which further rules out the possibility of application of any type of non-parametric test available in statistics. Therefore, study attempts to present a fuller account of investors views on all important practical and functional aspects of depository operations. The above limitations have been basis of the current study.