Indian Stock Market and Depository Systems

An intermediary account is used in stock lending and borrowing operations. These accounts facilitate the temporary transfer of securities between parties, with the intermediary acting as a facilitator. Settlement of trades, ALBM (Automated Lending and Borrowing Mechanism), and Pledge/Hypothecation are different functions.

As per SEBI (Securities and Exchange Board of India) regulations, brokers must deliver shares to investors within 48 hours of pay-out. This is part of the settlement cycle regulations to ensure timely delivery of securities to investors.

As per SEBI guidelines, foreign entities cannot hold more than 20% of the equity capital of a depository, whether individually or collectively as sponsors or depository participants. This cap ensures that depositories remain predominantly Indian-owned and controlled.

A clearing corporation or clearing house is the entity responsible for clearing and settlement of trades on stock exchanges. It acts as an intermediary between buyers and sellers, ensuring smooth transaction completion. Settlement Guarantee Association provides guarantees but doesn't handle clearing, while Clearing Member is a participant who trades through the clearing house.

Electronic shares can be converted back to physical form through rematerialisation. The Rematerialisation Request Form must be submitted to the depository participant, who processes it. Transmission form is for ownership transfer due to death, while rematerialisation is not done directly with the issuer.

When an investor opts for dematerialisation of securities already sent for transfer, they must submit the Dematerialisation Request Form (DRF) along with the original option letter provided by the Issuer or its Registrar and Transfer (R&T) Agent.

In a quote-driven system, market makers provide bid and ask prices, allowing customers to compare and find the best price. Order-driven systems match orders directly, while insider trading is illegal. Gala trading is not a standard market system.

In rolling settlement, auction trading for shortages occurs on T+1 day after settlement day (the first day after settlement). This allows the clearing house to procure shares to meet delivery obligations. The settlement day itself is for regular settlement, not auction.

To answer this question, we need to understand the concept of dematerialisation.

Dematerialisation is the process of converting physical share certificates into electronic form. It allows investors to hold and trade shares in electronic form, eliminating the need for physical certificates.

Let's go through each option to understand why it is correct or incorrect:

Option A) NSDL doesn't charge its depository participants for dematerialisation - This statement is true. NSDL (National Securities Depository Limited) is one of the two depositories in India, and it does not charge its depository participants (DPs) for the process of dematerialisation. However, DPs may charge their clients for the dematerialisation process.

Option B) Odd lot shares can be dematerialised - This statement is true. Odd lot shares, which are shares in quantities other than the standard market lot, can be dematerialised. Dematerialisation of odd lot shares helps in facilitating trading and settlement of these shares.

Option C) Investor has to pay stamp duty for dematerialisation of shares - This statement is false. Stamp duty is not applicable for the dematerialisation of shares. Stamp duty is typically applicable when transferring shares, but not for the process of dematerialisation.

Option D) Shares not registered in the name of the concerned account holder (street name shares) can't be dematerialised - This statement is true. Shares that are not registered in the name of the concerned account holder, also known as street name shares, cannot be directly dematerialised. These shares need to be registered in the name of the account holder before they can be dematerialised.

Therefore, the false statement regarding dematerialisation is Option C) Investor has to pay stamp duty for dematerialisation of shares.

The correct answer is C.

For shares held in demat form, the issuing company declares dividends. The depository participant only holds the shares in demat form, while NSDL is the depository infrastructure and SEBI is the regulator. The dividend comes from the issuer regardless of holding form.

CM-BP-Id (Clearing Member-Broker Participant Id) is allotted by NSDL to the Clearing Member for identification in the clearing and settlement system. It's not allocated by depository participants to clients, nor by Clearing Corporation.

Corporate benefits for pledged securities flow to the pledgor (original owner), not the pledgee. The pledgee only has a charge on the shares, not ownership rights. The discretion of parties or issuing company doesn't override this default position.

Once a beneficial owner account is opened, the name and type of account cannot be changed. These are fundamental account details established at opening. For any changes to name or account type, a new account would need to be opened.

The beneficial owner enjoys all rights and benefits of securities held in depository and bears all liabilities. The depository participant is an intermediary, depository is the infrastructure, and registered owner is the legal title holder. The beneficial owner is the real owner in economic terms.

Partnership firms cannot open depository accounts because the Companies Act restricts share ownership to companies. The issue is not about SEBI regulations, memorandum of association, or technical limitations in entering names in DPM. It's a legal restriction on who can hold shares.

For public offers where shares are applied in demat form, the allotment advice or refund warrant is sent by the issuer/registrar and transfer agents. The depository participant only facilitates holding shares in demat, while NSDL is the infrastructure provider and SEBI is the regulator.