Business Partners of NSDL

Business partners of NSDL (National Securities Depository Limited) are Issuing Companies, Investors, Depository Participants (DPs), Registrars and Share Transfer Agents, Brokers, and Clearing Corporations/Houses of the Stock Exchanges. They carry out different functions/services for investors and clearing members. The business partners (BPs) have to be integrated in the depository system of NSDL to execute the assigned functions. For instance, a Depository Participant (DP) provides depository services to an investor. Thus, firstly, an investor has to open a depository account with a DP.

In this post we will discuss about features and types of business partners of NSDL, and frequently asked questions.

Features of NSDL Business Partners

Here are the features:

1) Demographic Details

• A clearing member can settle trades done through stock exchanges after opening a special account with the NSDL depository system.
• This clearing account allows the clearing member to receive securities from client for delivery as pay-in from Clearing Corporation/House.
• The clearing members is able to distribute the pay-out to client received from Clearing House/Corporation, through this account.
• It is mandatory for clearing corporations/houses of stock exchanges to link to depository, electronically.
• After linking both, corporations can receive securities delivered electronically by clearing members to pay-in.
• Towards pay-out, clearing corporations can provide securities to the clearing members.
• By signing an agreement with NSDL, the issuer can permit shareholder to dematerialize.
• After signing of the agreement, an electronic link is formed between the issuer or its R&T agent and NSDL.
• National Securities Depository Limited is then linked to each of its business partners.
• To become a business partner, one has to make an application for NSDL as per specific procedures according to the BP functions.

2) Investor

Investors are entities or people who invest in financial instruments. They need to submit required documents to NSDL to open a beneficial account with a Depository Participant.

3) Registrar and Transfer (R&T) Agent

The issuer can create and extinguish securities in the NSDL depository system. The person can do so for securities held in demat form. He/she may use DPM-SHR, which is a computer facility borrowed or built-in from the R&T agent, to create or extinguish securities.

• Create Security: The security can be created either through dematerialization (converting physical securities to demat form), or by giving instructions to credit securities to eligible beneficial owners according to their entitlements.
• Extinguish Security: Similarly, the securities can be extinguished through rematerialization (converting security in demat form to physical certificate), or by giving instruction to debit securities from eligible beneficial owners according to their entitlements.

Here is the method by which an R&T agent is appointed at National Securities Depository Limited:

• Write and submit an introduction letter to NSDL
• Submit Form B and install the required software and hardware
• Provide the procurement fee for DPM-SHR software
• Give training to the personnel who will manage the equipment operation
• To check the working and response of the configured software system, pilot testing is necessary
• R&T Agent status is confirmed when NSDL activates the business partner as a share registrar

4) Issuer

The eligibility criterion of an issuer at NSDL is that the entity must provide dematerialization services to shareholders. They have to maintain electronic connectivity and verify the certificates. Security issuer can dematerialize the NSDL authorized security in depository after entering into an agreement. Here is the procedure to appoint an issuer:

• Documents that the issuer has to submit to NSDL includes audited financials of the recent 2 years, letter of intent, etc.
• The R&T agent then receive a blank Tripartite Agreement from National Securities Depository Limited
• The issuer and R&T agent sign an agreement, which is sent back to NSDL.

5) Broker

Brokers must have a clearing account with a Depository Participant. They share an important link between associated Clearing House/Corporation and investor. The clearing account of a broker can be used to receive and transfer shares from and to the relevant Clearing House/Corporation. Remember that the broker does not share ownership rights for shares that move in and out of his/her account.

6) Clearing Corporation/House

The Clearing House acts as a mediator between buyers and sellers of financial instruments. It takes care of clearing trades, settling trading accounts, maintaining or collecting margin money, reporting trading data, and regulating delivery. A Clearing Corporation/House is necessary for any stock exchange that requires settlement of demat shares. The same should have a SEBI-approved mechanism for a complete and operational settlement guarantee. To qualification criteria of a Clearing House in respect to investments and expenses are same as that of a DP.

Here are the basic functions/requirements of a Clearing Corporation:

• NSDL should be satisfied with the operational expertise of a Clearing Corporation. It should be convinced about Clearing House’s ability to service and settle transactions of securities in demat form.
• The entity makes sure that the payment for delivery is done in a timely and effortless manner.
• It must be equipped with hardware and software tools/systems for interaction without delay with the Depository.
• The Clearing House must look for grievance redressal (regarding depository) of clients and participants.

Frequently Asked Questions about NSDL Business Partners

Here are the FAQs for business partners of NSDL: