Issuer
The company or body corporate that issued the securities — one of the institutions in the depository system, and the party that signs the tripartite agreement admitting its securities for dematerialisation.
In plain language
Every security in a demat account was created by somebody. The workbook calls that somebody the Issuer.
Chapter 2 lists the parts of the depository system. They are depositories, stock exchanges, clearing corporations, depository participants, issuers, and registrars and transfer agents. An issuer is not just a name on a certificate. It has real duties. It must tell the depository about dividends, book closures and other corporate actions. It also stands behind the securities it puts into the system.
An issuer wants its securities to be dematerialised. First it must make them eligible. That takes a formal agreement with the depository.
How it works
From Chapter 3, section 3.3:
Eligible securities. Shares, debentures, bonds and similar marketable securities, mutual fund units, InvIT units, CIS and VCF units, commercial paper, certificates of deposit, securitised debt, money market instruments and government securities can all be made eligible for dematerialisation.
Before demat starts, the Issuer (and its R&T Agent, if any) must:
- undertake to co-operate in redressing client and DP grievances;
- have adequate hardware and software to interact with the depository;
- sign the tripartite agreement as per the depository's Bye-Laws.
These conditions do not apply where the Central or State Government is the issuer.
Removal from the eligible list. A depository may refuse or remove a security if the Issuer/R&T Agent loses operational capability, breaches the agreement, or the depository's Board (or Securities Committee, for CDSL) decides removal is necessary in investors' interest.
Ongoing obligations. The Issuer warrants that securities admitted to the depository validly exist and that it has authority to transfer them. It must give the depository timely information on book closures, record dates, dividend/interest dates, AGM dates, redemption and conversion dates. The Issuer/R&T Agent also reconciles its own records with the depository's, and indemnifies the depository for loss caused by incorrect information it furnishes.
A worked example
Konkan Textiles Ltd wants its equity shares available in demat form. Before any investor can dematerialise a single share:
| Step | Who acts |
|---|---|
| Sign tripartite agreement | Konkan Textiles (Issuer), its R&T Agent, the depository |
| Confirm hardware/software connectivity | Issuer/R&T Agent |
| Depository allots ISIN | Depository |
| Securities added to eligible list | Depository's Executive/Securities Committee |
Once this is done, a shareholder holding 500 shares at Rs 340 can submit a DRF to dematerialise Rs 1,70,000 worth of holding.
Suppose Konkan Textiles later fails to inform the depository of its AGM record date in time, and the depository suffers a loss processing corporate benefits incorrectly. Under the tripartite agreement, Konkan Textiles indemnifies the depository for that loss — the obligation runs from issuer to depository, not the other way round, when the fault is the issuer's.
Why NISM asks about it
Chapter 2 (section 2.1.2) names the Issuer as one of the institutions of the depository system; Chapter 3 (section 3.3) sets out eligibility, admission and the Issuer's ongoing obligations in detail. Expect a question on which categories of securities are eligible, and on what happens when the Government is the issuer (the usual pre-conditions do not apply).
Common exam traps
- The Issuer signs the tripartite agreement along with the R&T Agent and the depository — not with SEBI, and not alone unless there is no R&T Agent.
- Government issuers are exempt from the usual eligibility pre-conditions.
- The Issuer indemnifies the depository for its own incorrect information; the depository indemnifies the Issuer/R&T Agent for incorrect information it supplies about a client.
- A security can be removed from the eligible list, not only added — loss of operational capability or breach of the agreement are both grounds.
Check yourself
1.In which circumstances may an Issuer or its R&T Agent distribute corporate benefits that are in the form of securities through the depository?
- a)In all cases, since the depository holds the beneficial owner records
- b)Only where the newly created security is an eligible security and the concerned client has consented to receive the benefits through the depository
- c)Only where the benefit is a bonus issue
- d)Only with the prior approval of SEBI in each case
Show the answer
Answer: (b) Only where the newly created security is an eligible security and the concerned client has consented to receive the benefits through the depository
Both conditions must hold. The Issuer/R&T Agent may, if the benefits are in the form of securities, distribute such benefits to the clients through the depositories in the following cases: the newly created security is an eligible security; and the concerned client has consented to receive the benefits through the depository.
Option A ignores the client's consent, which is the more easily forgotten of the two.
Option C is too narrow, though it points at a related idea worth knowing: in certain cases, such as split of shares, consolidation of shares, mergers, demergers and bonus shares, corporate action is executed automatically as per the fixed ratio defined by the Issuer/R&T Agent through the depository system. This feature is called Auto Corporate Action.
And distinguish the treatment of money. The Issuer/R&T Agent distributes dividend, interest or other monetary benefits directly to the eligible beneficial owners on the basis of the list provided by the depository — though the corporate benefits can be distributed through the depository also, with its concurrence.
2.How often must a DP get an internal audit of its depository operations done, and by whom?
- a)Annually, by a practising chartered accountant only
- b)Half-yearly, by a practising chartered accountant, a company secretary or a cost accountant
- c)Quarterly, by the depository's own audit team
- d)Half-yearly, by a SEBI-empanelled auditor only
Show the answer
Answer: (b) Half-yearly, by a practising chartered accountant, a company secretary or a cost accountant
As per the Bye-Laws, a DP has to get an internal audit done of the depository operations on a half-yearly basis by a practising chartered accountant or a company secretary or a cost accountant.
All three professions qualify — option A wrongly narrows it to chartered accountants, and option D invents an empanelment requirement.
Option C confuses this with the depository's own inspection rights. The depository may carry out an inspection of the applicant's office and facilities at the admission stage, and may authorise persons to enter the premises of an Issuer or R&T Agent during regular business hours, but the internal audit is the DP's own obligation, procured from an outside professional.
Related obligations to hold alongside it: the DP should reconcile its records with its depository on a daily basis, and the Compliance Officer must submit a Compliance Certificate at half-yearly intervals.
3.Under the tripartite agreement, within what periods must dematerialisation and rematerialisation requests be processed?
- a)7 days and 15 days respectively
- b)15 days and 30 days respectively
- c)21 days and 30 days respectively
- d)30 days and 60 days respectively
Show the answer
Answer: (b) 15 days and 30 days respectively
The Issuer and its R&T Agent undertake that the dematerialisation and rematerialisation requests are processed within 15 and 30 days respectively.
The workbook adds a relaxation worth remembering: the period may be relaxed by the depositories in case of bulk dematerialisation requests.
Option A is built from two other real figures in the chain — the DP forwards the RRF to the Issuer or R&T Agent within 7 days of accepting the request from the client, and a rejected demat request must be intimated to the depository within 15 days. Option C borrows the 21 days in which grievances of BOs must be resolved under the NSDL tripartite agreement.
Every number in this cluster is genuine. The exam tests whether you have attached each one to the right party and the right act.
Where this is taught
Free preparation for NISM Series VIRelated terms
- DematerialisationConverting securities held as physical certificates into book-entry holdings: the certificates are defaced, mutilated and surrendered to the issuer, and an equivalent quantity is credited to the holder's demat account.
- Registrar and Transfer AgentThe SEBI-registered agency that keeps the investor records of a mutual fund — processing purchases and redemptions, updating folios and unit capital, and issuing account statements.
- 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.
- ISINThe 12-character code (ISO 6166) that identifies one specific security in the depository system — country prefix, nine-character basic number and a check digit, as in INE475C01012.
- Tripartite agreementThe agreement signed by the depository, the issuer and the issuer's R&T Agent before that issuer's securities can be admitted for dematerialisation — it is the contract that makes a scrip demat-eligible.
- Pari passuThe date from which new shares — from conversions, further issues or call payments — rank equally with a company's existing shares, reported to the depository the day it tells the stock exchanges.