NSDL which is a securities depository holding more than 80% of the dematerialised securities in India has established a Central Recordkeeping Agency (CRA) for the New Pension System (NPS) on behalf of the Pension Fund Regulatory and Development Authority (PFRDA). Honourable Union Finance Minister Shri P. Chidambaram launched this system today, August 29, 2008 in the presence of Shri D. Swarup, Chairman, PFRDA, Shri C. B. Bhave, Chairman, SEBI, and Dr. R. H. Patil, Chairman, NSDL.

NPS was introduced by Government of India for its new employees (except the Armed Forces) w.e.f. January 1, 2004. The CRA is a first of its kind of venture in India and is critical to the successful operationalization of the NPS. Under the NPS, each new government employee will open an account with CRA which will be identified through unique Permanent Retirement Account Number (PRAN). In this system, deductions will be made from employee’s salary on monthly basis and equal amount of contribution will be made by the Government. The amount will get invested through PFRDA appointed Pension Fund Managers (PFMs). The accumulated amount will be reflected in employee’s Permanent Retirement Account while employee is working and shall use the accumulations at retirement to procure a pension for the rest of the life. Subscribers in this system shall enjoy certain facilities and rights including portability across jobs and locations, choices of selection of Pension Funds and investment schemes, freedom to switch between service providers and nationwide access.

CRA, as envisaged in NPS, will play a crucial role in ensuring the operational efficiency of the system.

The main functions and responsibilities of the CRA include:

• Recordkeeping, administration and customer service functions for all subscribers of the NPS.

• Issue of unique PRAN to each subscriber, maintaining a database of all PRANs issued and recording transactions relating to each subscriber’s PRAN.

• Acting as an operational interface between PFRDA and other NPS intermediaries such as Pension Funds, Trustee Bank, Annuity Service Providers etc.

CRA will monitor Subscriber contributions and instructions and transmit the information to the relevant Pension Funds and schemes as per the guidelines laid down by PFRDA. CRA will provide annual consolidated Statement of Transactions to each Subscriber and discharge such other duties and functions as may be determined by the guidelines, directions and regulations issued by the PFRDA from time to time. Being centralised in nature, CRA shall harness the benefits of lower transaction costs by centralizing the administration process and economies of scale with a large base of Subscribers. The NPS Subscribers will be able to interact with the CRA through the internet and toll free telephone. Internet or telephone access to CRA will be protected by issuance of a password (I-PIN for internet access and a T-PIN for access through telephone) by CRA to each Subscriber.

CRA is also providing electronic interconnectivity to PFRDA, other linked entities like Trustee Bank, Pension Funds and Annuity Providers. CRA will strive for a seamless and error-free system enabling the Subscriber to have a nation-wide access to the system.

Margin Account: A brokerage account in which the broker lends the customer cash to purchase securities. The loan in the account is collateralized by the securities and cash. If the value of the stock drops sufficiently, the account holder will be required to deposit more cash or sell a portion of the stock.

Normally to buy and sell shares, you need to have the money to pay for your purchase and shares in your demat account to deliver for your sale. However as you do not have the full amount to make good for your purchases or shares to deliver for your sale you have to cover (square) your purchase/sale transaction by a sale/purchase transaction before the close of the settlement cycle. In case the price during the course of the settlement cycle moves in your favor (risen in case of purchase done earlier and fallen in case of a sale done earlier) you will make a profit and you receive the payment from the exchange. In case the price movement is adverse, you will make a loss and you will have to make the payment to the exchange. Margins are thus collected to safeguard against any adverse price movement. Margins are quoted as a percentage of the value of the transaction.
Buying/selling on margin refers to building a leveraged position at the beginning of the settlement cycle and squaring off the trade before the settlement comes to end. As the trade is squared off before the settlement cycle is over, there is no need to borrow money or shares.

Buying On Margin : Suppose you have Rs. 1,00,000 with you in your Bank account. You can use this amount to buy 10 shares of Infosys Ltd. at Rs 10,000. In the normal course, you will pay for the shares on the settlement day to the exchange and receive 10 shares from the exchange which will get credited to your demat account. Alternatively you could use this money as margin and suppose the applicable margin rate is 25%. You can now buy upto 40 shares of Infosys Ltd. at Rs 10,000 value Rs 4,00,000, the margin for which at 25% i.e. Rs 1,00,000. Now as you do not have the money to take delivery of 40 shares of Infosys Ltd. you have to cover (square) your purchase transaction by placing a sell order by end of the settlement cycle. Now suppose the price of Infosys Ltd rises to Rs. 11000 before end of the settlement cycle. In this case your profit is Rs 40,000 which is much higher than on the 10 shares if you had bought with the intent to take delivery. The risk is that if the price falls during the settlement cycle, you will still be forced to cover (square) the transaction and the loss would be adjusted against your margin amount.
Selling On Margin : You do not have shares in your demat account and you want to sell as you expect the prices of share to go down. You can sell the shares and give the margin to your broker at the applicable rate. As you do not have the shares to deliver you will have to cover (square) your sell transaction by placing a buy order before the end of the settlement cycle. Just like buying on margin, in case the price moves in your favor (falls) you will make profit. In case price goes up, you will make loss and it will be adjusted against the margin amount.

Types Of Orders:

There are various types of orders, which can be placed on the exchanges:

Limit Order : The order refers to a buy or sell order with a limit price. Suppose, you check the quote of Reliance Industries Ltd.(RIL) as Rs. 251 (Ask). You place a buy order for RIL with a limit price of Rs 250. This puts a cap on your purchase price. In this case as the current price is greater than your limit price, order will remain pending and will be executed as soon as the price falls to Rs. 250 or below. In case the actual price of RIL on the exchange was Rs 248, your order will be executed at the best price offered on the exchange, say Rs 249. Thus you may get an execution below your limit price but in no case will exceed the limit buy price. Similarly for a limit sell order in no case the execution price will be below the limit sell price.

Market Order : Generally a market order is used by investors, who expect the price of share to move sharply and are yet keen on buying and selling the share regardless of price. Suppose, the last quote of RIL is Rs 251 and you place a market buy order. The execution will be at the best offer price on the exchange, which could be above Rs 251 or below Rs 251. The risk is that the execution price could be substantially different from the last quote you saw.