The country’s largest depository, NSDL, has mooted that a committee be set up to look into the errors in the securities transfer process, due to which several investors and brokers had taken a hit last week. In a letter to the capital markets regulator, Sebi and depository, CDSL, it has recommended that the episode be probed, to prevent repeat of any such incidents in the future, a person familiar with the development said.

Delay in a few inter-depository transactions (between NSDL and CDSL) on Wednesday and Thursday last week, had prompted the stock exchanges to auction a few shares, resulting in losses to investors and brokerages. This incident had raised questions about the efficacy of the systems/software used at the two depositories, in particular NSDL, a depository that boasts of more than 80 lakh demat accounts of investors across the country.

NSDL sources confirmed that indeed such a letter had been shot off to Sebi and CDSL asking that representatives of the software vendors to the two depositories (CMC to CDSL and TCS to NSDL) and an expert from IIT Bombay jointly probe the episode.

So far it has been a blame game, with one depository going to the extent of issuing a press release saying that its systems were in place for the said two days. Experts feel that the collapse in the transfers could be either due to high volumes and overload or technical glitches in the software. It would not be out of place here, to mention that the exchanges, especially NSE, have seen a significant jump in its cash and derivatives turnover over the last few months.

It is learnt that officials from Sebi were keen to know the reasons behind the systems failure on two days. Hence, the decision to set up a committee was born. On the two days, the transfer of shares (from the investor’s CDSL account to a broker’s NSDL pool account) that usually takes less than two minutes, took over an hour, resulting in exchanges auctioning off the shares of several investors

-India Times

The Indian equity market may be one of the best performers in terms of returns. However, the so-called equity cult is yet to spread in the country as the number of equity investors is just 1 per cent of the total population. 
 
To make matters worse, less than 40 per cent (37.66 per cent) of the investors are in Maharashtra and Gujarat. The rest of the citizens and most of the states and Union territories are not affected directly by either boom or bust in the stock market. 
 
According to the data available from National Securities Depository (NSDL), the leading depository, nearly 62.8 per cent of the demat accounts are in the five states – Maharashtra, Gujarat, Delhi, Tamil Nadu and Karnataka. 
 
As of September 2007, NSDL had 6.57 million demat accounts. Since then, one lakh new accounts are being opened monthly. Central Depository Services (CDSL), the other depository, has 3.5 million demat accounts as of date. 
 
The state-wise demat accounts data indicate the spread of equity cult in the country. Both NSDL and CDSL jointly have approximately 1.10 crore demat accounts, of which around two-thirds are with NSDL and the rest with CDSL. 
 
Of the total demat accounts, the share of the five states is around 62 per cent. Maharashtra leads the number of demat accounts with 22 per cent share, followed by Gujarat with 18 per cent share. These are the only two states having more than a million accounts in NSDL. 
 
The data reveal some more interesting but shocking facts. Demat accounts in Union territories are even less than 1,000. In 16 states and Union territories, demat accounts number less than 1 lakh. 
 
Gujarat is considered to be the state with the highest number of investors. But if measured by the number of demat accounts, which is mandatory to invest in equities, Gujarat follows Maharashtra. 
 
In terms of incremental growth, Andhra Pradesh, Tamil Nadu and Karnataka have seen significant growth in demat accounts in the last two years. However, the growth in Gujarat and Maharashtra is negligible. 
 
NSDL Managing Director C B Bhave said, “Because of the booming capital market, the number of demat accounts are also growing at a fast pace. Every month, on an average, 1 lakh demat accounts are being opened with NSDL.” 
 
According to Nikhil Daxini, executive director, business development, Angel Broking, “The main reasons for many states not participating in the equity market are lack of awareness, low level of income and education.” Angel is one of the largest brokerage houses and has more than 7,000 terminals across the country. 
 
He said in Gujarat a majority of demat accounts were in Ahmedabad and Surat and in the Saurashtra region and the Kutch district. 

-Business Standard

It has been 11 years since the demat account system was launched, but many of us are still either ignorant about it or don’t know how best to operate it. For instance, do you know why some brokers don’t transfer shares to a client’s demat account from the company’s pool account? Demat, or dematerialization, is an electronic system of preserving share certificates to make trading easier and faster for investors. Shares first come to a broker’s pool account from where it is transferred to the client’s account. A pool account works as a central account for brokers to facilitate purchase and sale of shares.

Broker can avoid NSDL and CDSL charges

One of the ways brokers can avoid paying charges to the National Securities Depository Ltd (NSDL) or Central Depository Services (India) Ltd (CDSL), the two nodal agencies that register the participants and maintain the electronic database, is by not transferring shares to the client’s demat account. Otherwise, for every transaction, brokers pay Re1-Rs5 per transaction to NSDL or CDSL, depending on the volume of the transaction. “It is unethical if a broker doesn’t credit shares to the client’s demat account,” says Gaurang Shah, head of research at Geojit Financial Services Ltd. “It is mandatory for a broker to credit the shares to the client’s demat account for any share for which a broker has received payment. The broker can utilize shares for unauthorized profits for which he can also be sued. There is a need for a mechanism to resolve the issue.”

Broker can keep your dividend income

Companies announce dividends periodically and if you are not a full-time market tracker, you may not get the dividend. This is because if your shares have not been transferred to the demat account, you are not treated as a company shareholder. The dividend gets credited in the pool’s account and a broker may or may not credit it to your account.

When you are not a shareholder in the books of the company, you also don’t receive the company’s annual report, which details the financial health of the company. Should you wish to avoid these pitfalls, it is important to get your shares transferred to your demat account.

Broker can make unauthorized profits

If shares are not credited to your demat account, your broker can operate your account without any authorization from you. Once shares are transferred to a demat account, a broker needs to obtain your written permission every time before selling a stock. The debit instruction slip (DIS) has to be filled every time the investor sells or transfers the shares. Just like your chequebook, the DIS booklet has a serial number and every broker has to provide you with it. “If the broker sells shares without a client’s permission, the investor can stand to lose money should the share price appreciate,” says Shah.

You can, however, also extend a power of attorney (PoA) to your broker that would authorize him to issue debit/credit instructions from your demat account. Some brokers could misuse such authority. In addition, some brokers with PoA also include clauses where they don’t need to issue DIS to the account holder. But there is one catch—brokers say most of the shares get auctioned because on the DIS, either the signatures of the client don’t match or they lack the required information. So while writing out a DIS, always make sure to put your signature down correctly as well as provide the required information.

Source:LiveMint

Market regulator Sebi on 20 December decided to permit all classes of investors — institutional and retail — to sell shares without owning them at the time of trade.“The stock exchanges would issue the necessary guidelines in this regard and will put in place systems to operationalise the mechanism of short-selling,” Sebi said in a circular here.

However, the system of “naked short selling” as is available in the US markets has not been allowed, and all investors must honour their obligation of delivering the securities at the time of settlement.

In order to provide for a mechanism for borrowing of securities to enable settlement of securities that are sold short, Sebi has decided to implement a full-fledged securities lending and borrowing scheme for market participants. Stock exchanges would issue guidelines in this respect as well.

Sebi advised stock exchanges and depositories to put necessary systems in place to distinguish between the lending and borrowing transactions executed for short selling from the normal market transactions in the demat system. The market regulator will intimate date of implementing short-selling later.

While retail investors were already allowed to short-sell, the decision to include institutional investors is likely to encourage these players in the stock market.

Sebi’s decision to allow short-selling and come out with broad framework in this direction is good for the market as it would create more liquidity, brokerage firm SMC Global vice-president Rajesh Jain said. Stock markets should welcome the news tomorrow, if global cues are also positive, he said.

As per the broad framework for short-selling issued by Sebi, no institutional investor would be allowed in day trading, which means squaring-off transactions intra-day.

Institutional investors would disclose in advance at the time of placement of order whether the transaction is a short sale. However, retail investors would be permitted to make similar disclosure by the end of the trading hours.

Securities in the futures and options segment will be eligible for short-selling and Sebi may review the list of stocks eligible for such transactions from time to time.

Brokers will be asked to collect the details on scrip-wise short sell positions, collate the data and upload it to the stock exchanges before the commencement of trading on the following trading day. The stock exchange would then consolidate such information and disseminate them on their websites for the information of the public on a weekly basis.

For short-selling, a scheme of lending and borrowing securities is essential. To begin with, this borrowing and lending programme would be operated through clearing corporation, and clearing house of stock exchanges having nation-wide terminals who will be registered as Approved Intermediaries (AIs).

Initially, the securities traded in F&O segment would be eligible for lending and borrowing under the scheme. To start with, contracts with tenure of seven trading days may be direct agreement between the lender and the borrower, Sebi said.

Imagine this. You want to buy a home and you apply for a home loan to a bank where you have your salary account. You have a decent monthly income which is more than enough to service the equated monthly installments on your loan. But still the bank declines your application saying that you are a risky borrower.

How on earth can your lender decide that you are a risky borrower? It may not have been possible for banks earlier to measure the risk associated with a borrower. But it’s a thing of the past now.

The Credit Information Bureau of India, CIBIL, in collaboration with TransUnion has announced the development of the CIBIL TransUnion credit score. This generic credit score has a range of 300-900 points. If a borrower has a score of 300 then s/he will be considered as a risky borrower. And a borrower having a credit score of 900 will be considered the safest.

“The product is a generic one and is valid and applicable across all products and for all lenders,” said the outgoing Chairman of CIBIL, Mr Santhanakrishnan. The CIBIL TransUnion credit score was launched on November 27 and already members are asking for the credit profile of borrowers,” he added.

This generic credit score is developed by taking five parameters into consideration, explains Mr Santhanakrishnan. They are: Credit utilisation, frequent defaults by borrowers, frequent loan enquiries made to a number of financial institutions, and attributes of the trade, like, the age of the credit history and lastly the product mix of your borrowings.

Let us discuss these five parameters. If you have a credit card limit of Rs 20,000 and if you use it all up every month or use most of it every month before paying your dues then it will lead to a low credit score. It sends a signal that you are not a spendthrift.

“You must utilise your credit limit optimally if you want a good credit score,” emphasises Mr Santhanakrishnan. If you often default on your home loan or personal loan EMIs or often miss your credit card due date then this also leads to a bad credit score.

Also, if you don’t intend to take a loan then you must not often enquire about it. Take care that you don’t go to too many banks/housing loan institutions asking for a loan. It creates an impression that you are not a serious borrower. Or your lender believes that you want to avail of loans from various lenders.

The age of your credit history is also considered while determining your credit score. For instance, if you have been using a credit card for the last two years and have never been late on your outstanding then it stands you in good stead. However, if you have been good with your card payment but have missed a few of your home loan EMIs regularly then again it bodes ill for your credit score.

How to cope with your home loan EMIs

Finally, you should not have borrowed money to buy a home, taken a personal loan to buy a costly gift for your girlfriend or spouse or used your credit card all too often to avoid being termed as a bad borrower.

You may wonder here as to how CIBIL gets this information. Here’s how it works.

At the top is CIBIL which collects all the data from various sources including banks, housing finance companies, non-banking finance companies and other lenders where you apply for a loan or make enquiries for a number of financial products. The data is then collated based on the five parameters discussed above and later disseminated to members based on their enquiries online.

“There’s a rule, however, which states that banks or CIBIL members cannot access the CIBIL database unless they have a customer who has applied for a loan and this data can’t be used by members for marketing the data to corporates,” avers Mr Santhanakrishnan allaying fears of data misuse.

The law stipulates that if there is leakage of data from banks for commercial purposes other than assessing a borrower’s credit rating then the guilty party can face punitive actions like a hefty fine or suspension of their license. “The Reserve Bank of India [Get Quote], the banking regulator, takes a final decision in such matters, if ever such an incident comes to light,” informs Mr Santhanakrishnan.

Don’t borrow on your credit card! Here’s why

RBI, says he, was instrumental in the formation of CIBIL. “As the number of retail borrowers increased it necessitated pooling off of information in the form of a centralised database. RBI did not want to have ‘information asymmetry’ in the market,” he says.

Here are some tips from Mr Santhanakrishnan to all borrowers to improve their credit scores:

~ Be optimal with your credit utilisation. Use only as much credit as you need. Don’t buy that LCD on impulse. Use your credit very meaningfully. Please distinguish between your needs and wants.

~ Pay your bills, EMIs in time. Don’t ever be late on your credit card dues. Always try to pay them in the full to have a good credit score.

~ Enquire for credit (home loan, personal loan etc) only if you are in serious need of money. Be sure that if you go with an enquiry and if sanctioned a loan you are going to utilise the same. If you do it regularly then it creates a bad impression on your lender about your credit profile. Take loans that are in proportion to your income. Don’t ever over leverage yourself.

Almost every money transaction demands the use of a PAN. These include:

~ When you get a job

~ When you file an income tax return

~ When you open a bank account

~ When you deposit cash of Rs 50,000 or more in a bank

~ When you open a bank fixed deposit of Rs 50,000 or more

~ When you open a post office deposit of Rs 50,000 or more

~ When you buy/ sell shares and mutual funds

~ When you buy/ sell property

~ When you buy a vehicle

~ When you take a loan: home/ personal/ other

~ When you install a telephone (or buy a cell phone)

~ When you pay in cash to hotels and restaurants against bills for an amount exceeding Rs 25,000 at a time

~ You also need to mention it in every transaction you have with the tax officials.

We often hear glamorous stories about people making millions at the stock market.But a serious stock market player will also admit to burning his fingers at some time or the other. Three of our readers wrote in with the mistakes they committed. 

My mistake: I sold too soon!
Enamored by other people’s success in the stock market, I wanted a share of that pie as well. I was smart enough not to put in my entire earnings in the market, I began with only Rs 5,000. I made a profit, but my biggest mistake was not to hold on to my investments. Had I remained invested, I would have reaped in big gains. Here are a few examples of my foolishness.

Patience is a virtue in the market. In the long term, stocks give the highest return, more than any other form of investment. Don’t be greedy and sell immediately. The little you gain will be even less after you pay brokerage and tax. If you wait longer, you will get a better price. Moreover, if you sell after a year, you pay no tax on the profit when you sell your shares.

My mistake: Not buying when the market slumped
Buy low, sell high.
A stock trader will probably recite this in his sleep. All investors will swear by this strategy. However, when fear strikes, all the gyaan drummed into your head flies out the window. Post September 11, 2001, the markets plunged as everyone thought doomsday was approaching. Had I bought my favourite stocks the very next day, I would have been rich. Even if I bought just one share of each of the companies mentioned below, I would have paid a total of Rs 2,142. Had I sold them on June 2, 2005, I would have earned Rs 8,261.

What kept me back? Fear that I would be the only one to override the prevailing sentiment. Never let fear rule your judgement in the market. There are two instances where fear may creep in: when market sentiment turns low and prices come tumbling down, investors panic and sell out of fear. This is the wrong time to sell. The stock market is cyclical and it will swing back. It is time to hold on! This is the right time to buy all those shares you wanted really cheap. Unfortunately, fear sets in here, too. After all, you are afraid to go against the tide (like I was).

My mistake: Buying when the market peaked

I made one resolution this year: invest. Which translated into investing in shares. And, true to my resolution, I began instantly. I bought shares on January 3, 2005. At the time, the Sensex was hovering around 6600, and predictions stated that it would go upto 8000. Unfortunately, the prices of some of the stocks has since dipped slightly, while others have increased marginally. Now, I will have to wait for the markets to rise substantially to make a good profit.  Take a look at my portfolio:

On second thoughts, I was aware that equity is a long-term game when I bought the shares. So I am mentally prepared to hold on for a few years to make profits. But my advice to others is: avoid buying when everyone is flocking to the market, and when the only conversation at social dos is which stock everyone is betting on. When the greed quotient is at its peak (during a bull run), stay away.

- Rediff