Stock Trading System - An Indian Perspective


S. Shankari
B.E., MBA, PGDHRM, Mphil
Faculty in Finance
R.L. Institute of Management Studies
TVR Nagar, Aruppukottai Road, Madurai-625022

Trading means buying & selling of shares in open market with the help of stock brokers. Before going for trading of securities thru stock brokers in a stock exchange, we should be having the following items:

1. Bank Account
2. PAN card(Permanent Account Number)
3. Demat account opening with Depository participant
4.  Trading account opening with Broker.

In this paper, we will discuss the dematerialisation and trading processes in a detailed manner.


* The process of converting the physical shares into electronic format is known as dematerialisation.The key persons involved here are

1) Depository
2) Depository Participants
3) Registrar & Transfer agent


* A depository will hold the securities in electronic form on behalf of the clients thru Depository participants. Depository will regulate & control the various activities of the Depository Participants.

* There are 2 Depositories in India

a) NSDL(National  Securities & Depositories  Limited)
b) CDSL(Central Depositories  Securities Ltd)

I.2)Depository Participant

* A Depositary Participant is the representative for the depository & it acts as a interface between the clients & depository.

* DP maintains the securities account balances & intimation is given to the client on the basis of holdings from time to time

I.2.1.Functions of a DP

* Account opening
* Processing delivery Instruction Slip
* Dematerialisation
* Accounts statement
* Pledging
* Rematerialsation
* Change in address
* Bank account details(for dividend purpose)

I.3) Registrar & Transfer agents (R&T Agents)

* There are 2 categories of  R&T agents

Category I->Doing both Registrar activities & share transfer activities

Category II-> Doing either share transfer activities or registrar activities

I.3.1.Functions of Registrar:-

* keeping a proper record of applications & money received from investors

* Assisting issuing companies in determining the basis of allotment of securities, dispatching allotment letters, dispatching of refund order, shares etc

I.3.2.Functions of a share transfer agents:-

* maintaining a record of holders of securities on behalf of the company , handling all matters related to transfer & redemption of securities of the company

I.3.3.SEBI role on R& T agents:-

* SEBI will undertake inspection of books of accounts,records & documents of R&T agents. SEBI can suspend the R&T Agent in the cirumstances of any defaults or violation of SEBI act

I.4.Beneficiary Account

* A demat account (Beneficiary account) is an account opened by the investor with a DP (Depositary Participant)of his choice to hold shares in electronic form.

* Every beneficiary account holder will be having unique ID.

* In NSDL, beneficiary ID will be in 8 digits and for CDSL, ID will be in 16 digits.

I.5.Demat Account

* This account is like our bank account, it shows the shares we have.

* Like cheque leaf in the bank, here we will be having Delivery instruction slip (DIS) to transfer our shares to some other persons.

* DP account should be opened with DP participant. The stock broker may be a DP Participant  also

* An investor will be having any number demat accounts  with different DP

I.6.Benefits of Depository services

* It is a safe & convenient way to hold the securities

* Offers immediate transfer of securities

* No stamp duty on transfer of securities

* Elimination of risk associated with the physical certificates  such as bad delivery, theft, fake securities

* Reduction in paper work in transfer of securities

* Reduction in transaction cost

* Change in address  recorded with DP gets registered with all companies in which investors hold securities electronically eliminating the need to correspond with each of them separately

I.6.Process involved in converting physical shares into demat:

The person should open one Demat account with any Depository Participant. He/she has to send DRF(Demat Request Form) to the Registrar  & Transfer Agent (R&T Agent)of the company  thru his DP along with the original share certificates. The R&T agent holds the details about the shares. He checks with signature of the applicant and process it and intimate about this to company & NSDL. And finally the investor will get the demat shares thru his/her DP.


* Fungible means the dematerialised securities do not have any distinctive numbers. It is represented only by the number of securities.

* For eg:If one person is having 50 shares of Infosys means ,in a Physical share certificate the following details will be available:

* Folio Number-25678

* Certificate Number-23476

* Distinctive  no-12451-12500

* In his beneficiary account,it shows as Infosys-50.


Rematerialisation is the process of converting the electronic form of shares into physical form(i.e share certificates)

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Source: E-mail December 22, 2010


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