What is a Depository

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What is a depository?
A depository is an organization where the securities of an investor are held in electronic form, at the request of the investor through the medium of a Depository Participant. A Depository can be compared to a bank for shares. Just as a bank holds cash in your account and provides all services related to transaction of cash, a depository holds securities in electronic form and provides all services related to transaction of shares / debt instruments. A depository interacts with clients through a Depository Participant (DP) with whom the client has to maintain a Demat Account. Thus an investor who wishes to avail of all Depository Services has to open a Demat Account with a DP.

How many Depositories in India?
There are two depositories in India


National Securities Depository Ltd. (NSDL) The National Securities Depository Limited (NSDL) is an organisation established to provide electronic depository facility for securities traded in the equity and the debt market and is promoted by the Industrial Development Bank of India (IDBI), Unit Trust of India (UTI) and the National Stock Exchange Limited (NSE). Subsequently State Bank of India has also acquired a stake in NSDL. NSDL has been registered by Securities Exchange Board of India (SEBI) on June 7, 1996 as India's first Depository to facilitate settlement of securities in dematerialised form. NSDL had commenced its operations on November 6, 1996. Central Depositories Services of India Ltd. (CDSL) Central Depositories Services of (India) Ltd. was the second depository to be granted the commencement certificate by SEBI on 8 February1999. Inaugurated on 15 July 1999, it is promoted by the Bombay Stock Exchange, in association with Bank of India (BOI), Bank of



Baroda (BOB), HDFC Bank, and State Bank of India (SBI).

Who is a DP?
In India, a Depository Participant (DP) is described as an agent of the depository. They are the intermediaries between the depository and the investors. The relationship between the DPs and the depository is governed by an agreement made between the two under the Depositories Act. In a strictly legal sense, a DP is an entity who is registered as such with SEBI under the provisions of the SEBI Act. As per the provisions of this Act, a DP can offer depository-related services only after obtaining a certificate of registration from SEBI. SEBI (D&P) Regulations, 1996 prescribe a minimum net worth of Rs. 50 lakh for stockbrokers, R&T agents and non-banking finance companies (NBFC), for granting them a certificate of registration to act as DPs. If a stockbroker seeks to act as a DP in more than one depository, he should comply with the specified net worth criterion separately for each such depository. No minimum net worth criterion has been prescribed for other categories of DPs; however, depositories can fix a higher net worth criterion for their DPs. NSDL requires a minimum net worth of Rs. 100 lakh to be eligible to become a DP as against Rs. 50 lakh prescribed by SEBI (D&P) Regulations.

The DPs charge for certain items like
I.

Account opening charges

II.

Demat charges,

III.

Remat charges,

IV.

Transaction charges, etc.

Investors should carefully choose a DP after evaluating various factors like
1. 2. 3. 4. Quantum of charges Quality of services offered Convenience of dealing Their overall reputation etc.

How do Depository operate
Depository interacts with its clients / investors through its agents, called Depository Participants normally known as DPs. For any investor / client, to avail the services provided by the Depository, has to open Depository account, known as Demat A/c, with any of the DPs.

Demat Account Opening
A demat account is opened on the same lines as that of a Bank Account. Prescribed Account opening forms are available with the DP, needs to be filled in. Standard Agreements are to be signed by the Client and the DP, which details the rights and obligations of both parties. Along with the form the client requires to attach Photographs of Account holder, Attested copies of proof of residence and proof of identity needs to be submitted along with the account opening form. In case of Corporate clients, additional attachments required are - true copy of the resolution for Demat a/c opening along with signatories to operate the

account and true copy of the Memorandum and Articles of Association is to be attached.

Benefits of Depository
$ Bad delivery eliminated

$ Immediate transfer of shares

$ No stamp duty on such transfers

$ Elimination of risks that are normally associated in dealing with Physical certificates - loss / theft / mutilation due to careless handling / forgery / etc.

$ Reduced transaction cost

Services provided by Depository
Dematerialisation (usually known as demat) is converting physical certificates to electronic form.

Rematerialisation, known as remat, is reverse of demat, i.e. getting physical certificates from the electronic securities.

Transfer of securities, change of beneficial ownership.

Settlement of trades done on exchange connected to the Depository.

What are the services offered by CDSL?
CDSL offers the following services to investors through its DPs $ Dematerialisation i.e. converting physical securities into electronic form $ Rematerialistion i.e. converting electronic securities balances in the account back into physical securities $ Effect settlement of securities traded on the stock exchanges $ Effect settlement of trades not done on the stock exchanges i.e. off-market trades $ Enables pledge of dematerailised securities $ Enables receipt of electronic credits into the securities account in case of Public Issues and Non-

cash Corporate action benefits like Bonus and Rights $ Maintain holdings in the electronic form $ Facilitate Securities Lending and Borrowing

Depository System
Share Trading Systems:The traditional system of script based dealing in shares involves enormous paper work and is time consuming. The process begins with buying share certificates in paper form and ends with getting the certificates endorsed in the buyer's name. It also involves problems like bad deliveries, forgery and fake certificates, tearing / mutilation due to bad handling, loss of certificates, delay in receipt due to huge volumes being handled by postal department, etc. The Depository System aims at facilitating script less trading and settlement of securities in dematerialised form. It eliminates the problems associated with physical securities and enables

faster settlement / transfer and reduction in transaction costs like brokerage, postage, etc. There is no stamp duty to be paid by the buyer. Depository System is prevalent in many advanced markets and has been playing significant role in development of integration of the markets.

Main Features of Dematerialisation are
For each different combination of names a separate Demat Account is required to be opened. Dematerialised shares can also be pledged as security for obtaining loan / advance. Lock - in of Demated securities is also possible. The marketable lot for transaction in depository mode has been fixed as one share. Therefore, the problem of odd lots is totally eliminated. Once an account is opened with the DP, the

same can be utilised by you for transacting securities of all the Companies which are part of the depository system.

Benefits of the Depository System:
Unique Account Number is allotted for each client/investor. Electronic transaction of securities eliminates the problems and delays arising out of paper based system. There is no scope for any risk of loss, theft, or fraud with regard to the physical share certificates. Bad deliveries are almost eliminated There is no need for filling in transfer deeds and lodging / dispatching the transfer documents with the Company, thus avoiding a lot of paper work. No waiting for the shares to be transferred in your name and delays on account of processing

time. When shares are bought in depository mode, the same can be credited to your Demat Account within a few days’ time after the payment. Similarly, when shares are sold in electronic form, payments are received much faster. Hence the settlement cycles are very fast.

Investors save on stamp duty @ 0.25% of the market value of shares and although he incurs some cost towards DP's service charges, it could still lead to some saving. This, however, needs to be evaluated by the individual investor as may applicable to him based on his investment / trading pattern. Investment is highly liquid at all times as there is shorter waiting period for realizing money. Internet based trading is possible only with dematerialised shares. ECS for receipt of Dividend option is available for Demated shares as well as physical shares. In fact it applies to all the shares held under one Demat Account. Nomination facility is available with Depository. Lock in facility is also made available by the DPs.

Constituents of the Depository System Depository

Depository Participant (DP)

Company / Registrar

Investor

Dematerialisation Process

Rematerialisation Process

Rights of depositories and beneficial owner
Notwithstanding anything contained in any other law for the time being in force, a depository shall be deemed to be the registered owner for the purposes of effecting transfer of ownership of security on behalf of a beneficial owner. Save as otherwise provided in sub-section the depository as a registered owner shall not have any voting rights or any other rights in respect of securities held by it.

The beneficial owner shall be entitled to all the rights and benefits and be subjected to all the liabilities in respect of his securities held by a depository.

Diffrence b/w Bank & Depository

DEPOSITORY
Hold securities in an account

BANK
Holds Funds in an Account

Transfers securities between accounts on the instruction of the account holder Facilitates transfers of ownership without having to handle securities Facilitates safekeeping of shares

Transfers Funds between accounts on the instruction of the account holder. Facilitates transfers without having to handle money Facilitates safekeeping of money

Karan.A.Dedhia---------------------010 Ankit.P.Malde-------------------------029 Abbas.H.Barodawala---------Kevin.J.Roadrics--------------Pratik.D.Rajguru--------------Submit To:Anil Morya Sir

Role Of Depository

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