CDSL
Also written Central Depository Services (India) Limited
Central Depository Services (India) Limited — one of India's two depositories, promoted by leading Indian banks and the Bombay Stock Exchange, registered in February 1999 and operational from 22 March 1999.
In plain language
India runs a multi-depository system. That means more than one company is licensed to hold securities electronically and settle transfers between investor accounts. There are exactly two such companies today.
The first was NSDL. The second is CDSL — Central Depository Services (India) Limited. It was promoted by leading Indian banks together with the Bombay Stock Exchange, the exchange now known simply as BSE.
CDSL was registered in February 1999 and began operating on 22 March 1999, a little over three years after NSDL started.
How it works
CDSL is a company incorporated under the Companies Act, and, like any depository, it needed a certificate of registration and a certificate of commencement of business from SEBI before it could function, along with a minimum net worth of Rs 100 crore.
CDSL and NSDL run parallel systems, and the workbook flags dozens of small operational differences between them: CDSL uses the terms easi and easiest for its internet-based facilities, where NSDL uses IDeAS and SPEED-e; CDSL prescribes a stockbroker-DP net worth of Rs 5 crore, against NSDL's Rs 3 crore; CDSL does not use the term hypothecation, only pledge; and CDSL has no concept of a transit account for corporate actions.
CDSL is connected to NSDL for inter-depository transfers, so a security eligible for dematalisation on both can move between a CDSL account and an NSDL account, subject to the deadlines and forms the two depositories' interconnection agreement sets out.
A worked example
An investor, Mr Bhatt, holds 300 shares of a company in a demat account with a CDSL-registered DP. His broker's clearing member account is with NSDL. When Mr Bhatt sells his shares, the transaction has to move as an inter-depository transfer, from his CDSL account to the broker's NSDL CM Pool Account, subject to the deadline of 9:30 pm on weekdays for DPs to release such instructions.
Had Mr Bhatt opened his demat account with an NSDL-registered DP to begin with, his 300 shares — worth, say, Rs 1,14,000 at Rs 380 each — would have settled entirely within NSDL, with no inter-depository step at all.
Why NISM asks about it
Chapter 2, section 2.3.1, gives CDSL's incorporation and commencement dates alongside NSDL's, in the workbook's account of the two-depository system the Depositories Act, 1996 made possible. Every later chapter that distinguishes NSDL practice from CDSL practice — and there are dozens of such contrasts across the paper — rests on this two-depository structure.
Expect a straight recall question on CDSL's promoters and its 1999 dates, and expect several NSDL-versus-CDSL contrast questions elsewhere in the paper to hinge on knowing which depository is which.
Common exam traps
- NSDL started first (1996), CDSL second (1999) — a simple ordering fact that is easy to reverse under exam pressure.
- CDSL was promoted by banks and the BSE; NSDL was promoted by IDBI, UTI and the NSE. The exchange-promoter pairing (BSE with CDSL, NSE with NSDL) is a common source of confusion, though both depositories in fact serve both exchanges today.
- CDSL and NSDL are not interchangeable in workbook terminology. "Hypothecation", "transit account" and certain form numbers are NSDL-only concepts; "easi"/"easiest" are CDSL-only facility names.
Check yourself
1.When securities are pledged or hypothecated, how do NSDL and CDSL differ?
- a)In NSDL the securities are transferred to a segregated or collateral account, while in CDSL they continue to lie in the BO's own account until invocation or closure
- b)In CDSL the securities are transferred to a segregated or collateral account, while in NSDL they remain in the BO's account
- c)Both transfer the securities to a segregated account
- d)Neither transfers the securities; both merely record a flag against the holding
Show the answer
Answer: (a) In NSDL the securities are transferred to a segregated or collateral account, while in CDSL they continue to lie in the BO's own account until invocation or closure
The workbook draws the distinction explicitly. The securities pledged/hypothecated are transferred to a segregated or collateral account through book entries in the records of NSDL. In case of CDSL, the securities pledged/hypothecated are not transferred to a segregated or collateral account through book entries in their records. The pledged/hypothecated securities continue to lie in the depository account of the BO (Pledgor/Hypothecator), until invocation or closure of pledge/hypothecation.
Option B is the same fact with the names swapped, which is exactly how this question is usually set — so read the depository names before the mechanics.
What is common to both is the purpose: securities held with the depository may be used as collateral to secure loans and other credits by the clients, and doing it through the depository makes the process very simple and cost effective. The economics are identical; only the bookkeeping differs.
2.Why does the Depositories Act, 1996 enable the setting up of multiple depositories in the country?
- a)So that each stock exchange can own exactly one depository
- b)So that equity shares and debt securities are held in separate depositories
- c)So that SEBI can assign each state to a different depository
- d)To ensure that there is competition in the depository services and more than one depository is in operation
Show the answer
Answer: (d) To ensure that there is competition in the depository services and more than one depository is in operation
Section 2.3.1 states: "The Depositories Act enables the setting up of multiple depositories in the country. This was to ensure that there is competition in the depository services and more than one depository is in operation." Section 2.1.1 lists it as a key feature: "The Depositories Act, 1996 provides for a multi-depository system. There can be various entities providing depository services."
The result is the two depositories, NSDL and CDSL. The Act "facilitated the establishment of the two depositories in India".
Why the other options are wrong:
- "One depository per stock exchange" — the Act has no such rule. The stated purpose is competition, not tying depositories to exchanges.
- "Separate depositories for equity and debt" — both depositories hold every eligible class of security. Nothing splits them by instrument.
- "Each state assigned to a depository" — invented. An investor can choose any DP of either depository.
3.Within what time must a DP scan a used DIS and upload the scanned image, tagged to the correct DIS serial number, into the NSDL/CDSL system?
- a)On the same day, without exception
- b)Immediately, but not later than two days
- c)Within seven days
- d)Within one month
Show the answer
Answer: (b) Immediately, but not later than two days
Under SEBI Circular No. CIR/MRD/DP/01/2014 dated January 07, 2014, DPs must scan the DIS and tag it to the correct DIS serial number while uploading the scanned image in the NSDL/CDSL system immediately but not later than two days.
The depository issues a report listing DIS used for transactions whose scanned image was never uploaded, and failure to scan and upload within the prescribed time attracts a penalty as per a pre-defined penalty structure.
These guidelines are effective from October 1, 2014 — a separate date the exam sometimes asks for on its own.
Where this is taught
Free preparation for NISM Series VIRelated terms
- Certificate of registrationThe SEBI registration without which a depository cannot deal in securities, no entity may act as a DP, and no FPI may invest. It is valid unless SEBI suspends or cancels it.
- Depository participantThe SEBI-registered agent through whom an investor reaches a depository — NSDL and CDSL cannot open investor accounts themselves, so every demat account is opened and operated through a DP.
- Certificate of commencement of businessThe second SEBI approval a depository needs before it can operate — granted within a year of registration, only once SEBI is satisfied the depository's systems, safeguards and Rs 100 crore net worth are adequate.
- easiCDSL's internet facility for viewing a demat account — real-time holdings, instruction status, past transactions and daily portfolio valuation — with no ability to submit debit or credit instructions.
- easiestCDSL's internet facility (Electronic Access to Securities Information and Execution of Secured Transaction) through which BOs and CMs submit debits, credits, freezes, pledges and confiscations.
- IDeASInternet-based Demat Account Statement: NSDL's viewing facility, launched January 1, 2004, showing demat balances and transactions online, not real time, with a delay of at most 30 minutes.
- Inter-depository transferA transfer of securities from an account in one depository (NSDL or CDSL) to an account in the other, possible because SEBI regulations require the two depositories to be inter-connected.
- Multi-depository systemThe Depositories Act, 1996 arrangement under which more than one depository can operate in India, so that no single depository holds a monopoly over the market — currently NSDL and CDSL.
- NSDLNational Securities Depository Limited, India's first depository, incorporated on 12 December 1995 by IDBI, UTI and the NSE, and one of the two depositories the Depositories Act, 1996 has produced.
- Multilingual CASCDSL's Consolidated Account Statement made available in multiple Indian languages, aimed at wider accessibility for retail investors in rural and semi-urban areas.