27 th - PowerPoint Presentation

Slide1

27

th June 2016

Internal Audit of Share Transfer Agent (STA)

Ideate | Innovate | IntegrateSlide2

Introduction-

Share Transfer Agents (STA) are the Intermediaries that maintain detailed records of the transactions of investors for the convenience of mutual fund houses and body corporates. Investors' transactions like buying/ selling of securities, processing of mails and related information, changes in personal data, etc occur periodically/frequently and have to be recorded.

 STA have skilled expertise for maintenance of such data on a professional basis, thereby contributing to saving costs and time involved in keeping detailed accurate records of the investor transactions.

Functions of Transfer agents:

Issue and cancel certificates to reflect changes in ownership. For example, when a company declares a stock dividend or stock split, the transfer agent issues new shares. Transfer agents keep records of who owns a company’s stocks and bonds and how those stocks and bonds are held. They also keep records of how many shares or bonds each investor owns.

Act as an intermediary for the company

. A transfer agent may also serve as the company’s paying agent to pay out interest, cash and stock dividends, or other distributions to stock and bondholders.Handle lost, destroyed, or stolen certificates

. Transfer agents help shareholders and bondholders when a stock or bond certificate has been lost, destroyed, or stolenSlide3

Scope of Audit-

STA undertakes the following key activities which are subject to audit:Agreements between STA and Client CompaniesDematerialization of SecuritiesRematerialization

of SecuritiesTransfer of SecuritiesMaintenance of repository Signature of investor of Client Companies

Issuance of Duplicate Share CertificatesTransmission of shares

Corporate Actions-Distribution of DividendsCorporate Actions-Other than Dividends

Tripartite Agreements between STA, Client Companies and DepositoriesInvestor Grievance RedressalSlide4

Scope of Audit-(Contd.)

Agreements between STA and Client Companies-SEBI regulations require all STAs to enter into legally valid agreements with body corporate for which purpose SEBI has also evolved models of such agreements and further requires that the STA should observe the spirit behind the various clauses contained in the agreement. As directed in the regulation, the

MoUs were framed and worded as per SEBI model agreements, except that the clauses were interchanged and numbered differently.

Dematerialization of securities-

Process of dematerialization undertaken by STA is given below:Depository Participant (DP) generates a DRN number for every

demat request and forwards the Demat

Request Form (DRF) along with certificate(s) of security to the RTI/STA. The STA on receipt of DRN and DRF documents from the DP, shall verify if the

demat request satisfies all conditions as stipulated in the regulations. Verification includes holder signature, share certificate etc. In case the certificate of security lodged does not satisfy any of the stipulated conditions, STA shall reject the demat request and return the certificates of security along with the DRF to the respective DP informing the reason(s) thereofSlide5

Scope of Audit- (Contd.)

Rematerialization of SecuritiesSTA shall, if the electronic request and the Rematerialization Request Form (RRF) are in order:

transfer the security from the name of the depository to the security holder’s name,

update the Register of Members (ROM ),

generate a new folio, assign new certificate numbers record the address of the security holder as recorded in the RRF,

scan / store the signature of the security holder print the certificate(s) of security

 STA shall dispatch the security certificates to the security holder at his registered address by registered post / speed post / special delivery. STA shall dispatch the security certificates within 30 days from the date of receipt of RRF. Further, STA shall verify the electronic request with the

Remat Request Form (RRF) and in case it observes for any discrepancies viz. variation in signature of investor, incorrect share certificate, share certificate not accompanied along with RRF etc., then STA shall reject the request and return the same to the DP. The process of Remat rejection is done within 30 days from the receipt of

Remat request. Slide6

Scope of Audit- (Contd.)

Transfer of Securities-Transfer of securities by STA involves the following processes:The documents are physically verified for ensuring whether all the enclosures are received as per the covering letter if any from the investor.

The scrutiny of documents includes Seller Folio No., No. of Shares, Buyer Name & Address details, Consideration Amount, Stamp Duty affixed, Date of Receipt, Buyer Signature, Seller Signature etc.A summary of Memorandum of Transfers (MOT Summary) will be forwarded to the Client Company for approval/authentication.

On receipt of approval/authentication from Client Company, the share certificate is dispatched to the transferee within 15 days from the date of receipt of documents/TD.

Where transfer of securities are rejected on account of mismatch in signature of Transferor or for any other reason, the original transfer deed along with the objection memo and share certificate is returned to transferor within 15 days from the receipt of documents.. Slide7

Scope of Audit- (Contd.)

Maintenance of repository Signature of investor of Client Companies –The specimen signatures of the shareholders of all the client companies are scanned and maintained in soft form only. Signature of investor is verified before acting on any request received from the client i.e. change of address, transfer of shares, dematerialization of shares, unclaimed dividend request etc.

Issuance of Duplicate Share Certificates-

STA receives complaints from the investor wherein the claim to have lost/misplaced, STA issues duplicate share certificates after scrutiny of documents viz. Name of the Transferee / No. of Shares / Distinctive nos. / Certificate

nos, Indemnity Bond for transfer duly notarized, Affidavit duly notarized, Transferee identity proof (PAN/Driving License/Pass Port), Copy of FIR, Surety Forms etc.

An intimation letter confirming that duplicate share certificates will be issued within 45 days is forwarded to the registered holder. After receipt of copy of advertisement from the Secretarial Department of the Company, the copy of the same is forwarded to Stock Exchanges where the shares are listed, for intimation.

A list containing details of shares are prepared and forwarded to the Company for necessary approval.

After the approval from the Client Company, share certificates are printed and sent to the investors within 6 weeks from the receipt of all documentsSlide8

Scope of Audit- (Contd.)

Transmission of Shares–The procedure for Transmission is based on guidelines given by SEBI. On receipt of transmission request of securities, following documents viz., Original Share Certificate, Notarized Copy of Death Certificate, Succession Certificate/ Probate/ Legal Heir etc. are sought for and verified.

A list containing the below mentioned details of shares are prepared and forwarded to the Company for necessary approvals

After the approval from the Client Company, share certificates are printed and sent to the investors within 21 days from the receipt of all documents.Slide9

Scope of Audit- (Contd.)

Corporate Actions-Distribution of Dividends–The procedure for Transmission is based on guideline given by SEBI. As has been mandated by SEBI, dividend is disbursed through Electronic Clearing Service/ National Electronic Fund Transfer etc.

Benpos i.e. Beneficiary Position (details of beneficiary holders of shares of a particular Company which is distributing dividend) is downloaded from both the depositories, at the end of the Record Date or Book Closure announced for that purpose.

The total holdings of the beneficiary accounts in both the depositories as well as the number of shares held in the physical form are summed up which is compared with the total issued/paid up capital of the Company and capital is tallied.

Then, a dividend master is generated which gives break-up of dividend payable on shares held in dematerialized form out of which those beneficiaries who are entitled to receive dividend through ECS/NEFT, dividend for those share holders who hold shares in physical form but have given mandates to receive dividends through ECS/NEFT and dividend to be paid by means of physical dividend warrants are arrived at.

The said dividend master is sent to the Company for arranging transfer of funds to the account of the dividend paying banker.

Letters are issued to the banker requesting them to give effect the ECS transfer on behalf of the Company. Simultaneously, physical dividend warrants are printed and dispatched to those shareholders falling in that group..Slide10

Scope of Audit- (Contd.)

Corporate Actions-Other than Dividends–Corporate Actions other than payment of dividend include issuance of bonus shares, split in face value, consolidation, issuance of share pursuant to merger/demerger, etc. The scope of the work for the Registrar and Share Transfer agent encompass issuance of physical certificates as well as effecting depository credit / debits, as the case may be.

In certain cases regarding split in face value, STA has to send letters to the shareholders who held shares in physical form, seeking surrender of their original share certificates for replacement with share certificates with reduced / consolidated value, as the case may be.

Upon surrender of the original share certificates by the shareholders, STA issues fresh share certificates in such cases.

While the aforesaid practice is being followed with regard to shares held in physical form, a debit corporate action is effected for deletion of the old shares from the beneficiary accounts of the shareholders followed by a credit corporate action that is effected for crediting the fresh shares issued by the Company.Slide11

Scope of Audit- (Contd.)

Tripartite Agreements between STA, Client Companies and Depositories–As per Regulation 29(2) of the SEBI (Depositories and Participants) Regulations- 1996 (DP Regulations), Depository shall enter into a tripartite agreement with the Issuer and Share Transfer Agent, as the case may be, in respect of the securities to be held in dematerialized form.

 All listed companies where the securities are held in dematerialized form, there should be tripartite agreements.

Investor Grievance Redressal-

All the correspondences / complaints received through all modes of dispatch, are captured by the STA with an Inward No. along with scanned copies of the inward letters.

There should be proper system in place to make a distinction between normal correspondences and complaints, so as to bestow special attention to investors’ complaints to know whether the complaint has been resolved or not.All the queries/ complaints should be replied to within regulatory timeline of 30 days from the date of receipt of query/ complaint.Slide12