NSDL
Also written National Securities Depository Limited
National 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.
In plain language
NSDL is where India's depository system began. It was set up by three well-known institutions — IDBI, UTI and the National Stock Exchange of India — and was the first depository the Depositories Act, 1996 made possible.
The workbook treats NSDL and its rival CDSL as parallel but not identical systems. Where they differ — a net worth threshold, a form name, whether a facility even exists — the workbook is careful to say which depository the rule belongs to, and exam questions follow the same pattern.
How it works
From Chapter 2, footnote 3: NSDL was incorporated on 12 December 1995 and commenced operations on 8 November 1996. CDSL, by contrast, was registered in February 1999 and commenced operations on 22 March 1999 — so NSDL predates CDSL by roughly three years.
Through the rest of the workbook, NSDL-specific rules recur: a stockbroker-DP's net worth threshold of Rs 3 crore (against CDSL's Rs 5 crore), the Limited Participant admission route for a stockbroker between Rs 1 crore and Rs 3 crore, the term "hypothecation" (used only in NSDL), Auto Delivery-out for clearing members (an NSDL-only automation), and the SPEED-e internet facility for submitting instructions.
A worked example
An investor opening a demat account is told her DP operates under NSDL. Over the life of the account this affects several things she will encounter:
| Situation | What NSDL specifically does |
|---|---|
| Her broker wants to lend against her shares with only her consent required to act at default | The transaction can be called a pledge or a hypothecation |
| Her broker is a stockbroker-DP | Needs Rs 3 crore net worth (Rs 1–3 crore admits it as a Limited Participant) |
| She wants to submit delivery instructions over the internet | She can register for SPEED-e |
Had she opened the account with a CDSL DP instead, the net worth threshold for her broker would be Rs 5 crore, "hypothecation" would not apply, and she would use easi/easiest rather than SPEED-e.
Why NISM asks about it
Chapter 2 introduces NSDL as one of the two depositories created under the Depositories Act, 1996, in section 2.3.1. Expect the incorporation date, the promoting institutions, and NSDL-specific terms and thresholds tested against their CDSL counterparts throughout the paper.
Common exam traps
- NSDL was incorporated 12 December 1995 and commenced operations 8 November 1996 — two different dates for two different milestones.
- NSDL was promoted by IDBI, UTI and the NSE — not by SEBI, and not by banks (that description fits CDSL, promoted by leading banks and BSE).
- "Hypothecation" and "Auto Delivery-out" are NSDL-only terms/facilities. CDSL has no equivalent for either.
- A depository cannot open investor accounts directly — NSDL, like CDSL, provides services only through Depository Participants.
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
- Auto Delivery-outNSDL delivery-out instructions the Clearing Corporation generates automatically for authorised clearing members, based on net delivery obligations, so the member need not submit a manual DO form for pay-in.
- 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.
- CDSLCentral 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.
- HypothecationA charge over demat securities where the lender needs the borrower's concurrence to appropriate them — the same book entries as a pledge, with one extra confirmation, and a term used only in NSDL.
- 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.