The Hindu Business Line : NSDL: Non-cash corporate actions

These could be cash corporate actions such as dividends/interest payments or non-cash actions such as issue of bonus shares, splitting the face value, consolidation, merger, and so on, that result in change in the number of securities held by the shareholder or allotment of other securities to the shareholder.

This article looks at the procedure at the National Securities Depository Ltd (NSDL) for effecting non-cash corporate actions.

NSDL facilitates efficient and speedy distribution of securities arising out of non-cash corporate actions.

On announcement of corporate action by an issuer, the issuer or its registrar and transfer agent (R&T agent) informs NSDL about the details of the proposed corporate action.

On receiving such information, NSDL informs all its depository participants (DPs) about the corporate action and DPs are asked to take the following steps:

Update the changes in tax status, bank details, address, and so on, in the beneficial owners' accounts well in advance of the book closure or record date for the corporate action.

All balances in the CM pool accounts to be transferred to the relevant beneficiary accounts well in advance of the book closure or record date for the corporate action.

On the basis of an electronic request placed in the NSDL system by the issuer or its R&T agent, NSDL electronically downloads the beneficial position details as of book closure or record date for the corporate action to the issuer or its R&T agent.

The details provided by NSDL include particulars such as name, address, bank details, and so on, of the beneficial owner.

The issuer allots the securities and informs NSDL about allotment details of all beneficial owners who have opted to receive securities in electronic form. On receipt of these details, credits are effected in the accounts of the beneficial owners on the execution date requested by the issuer.

If the details of accounts to which the issuer has made all allotments do not match with those maintained at NSDL, such records are rejected.

Automatic corporate action

Credit of securities corresponding to non-cash corporate actions, which are based on a pre-determined formula or ratio (example, bonus shares, split of shares, consolidation of shares, securities issued as a part of mergers or de-mergers or amalgamation scheme, and o on) are highly automated in the NSDL system.

In an automated corporate action, the issuer or its R&T agents set up the ratio of entitlements in the NSDL system, based on which additional entitlements are automatically credited to the shareholder's demat account on the `execution date'.

Non-cash corporate benefits

To issuers:

Complete audit trail for the credit of securities.

Savings in cost from not printing paper certificates and dispatching by registered post.

Elimination of post dispatch correspondence and investor grievances.

Trading of securities can commence faster, since the receipt of shares in the hands of the shareholders is faster.

Book closure period is reduced.

To investors:

Automatic credit to the investor's account — no need to follow-up with the company.

Loss of share certificates in-transit is eliminated.

Transaction statement will reflect the details of credit related to corporate actions.

No-delivery period is reduced.