DEPOSITORY
SYSTEM
DEPOSITORY
A "Depository" is a facility for holding securities, which
enables securities transactions to be processed by book entry.
To achieve this purpose, the depository may immobilize the
securities or dematerialise them (so that they exist only as
electronic records).
In India, a depository is an organisation, which holds the
beneficial owner's securities in electronic form, through a
registered Depository Participant (DP).
A depository functions somewhat similar to a commercial
bank. To avail of the services offered by a depository, the
investor has to open an account with a registered DP.
What is dematerialisation?
"Dematerialisation" is a process by which physical
certificates are converted into
electronic form.
Who is a Beneficial Owner (BO)?
"Beneficial Owner" is a person in whose name a demat
account is opened with CDSL for the purpose of holding
securities in the electronic form and whose name is recorded
as such with CDSL.
Who is a Depository Participant (DP)?
A "Depository Participant" (DP) is an agent of the depository
who is authorised to offer depository services to investors.
Financial institutions, banks, custodians and stockbrokers
complying with the requirements prescribed by SEBI/
Depositories can be registered as DP.
SERVICES PROVIDED BY DP
Dematerialisation, i.e. getting physical securities converted
into electronic form.
Rematerialisation, i.e. getting electronic securities balances
held in a Beneficial Owner (BO) account converted into
physical form.
To maintain record of holdings in the electronic form.
Settlement of trades by delivering / receiving underlying
securities from / in BO accounts.
Settlement of off-market trades i.e. transactions between BO’s
entered outside the Stock Exchange.
Cont…
Providing electronic credit in respect of securities allotted by
issuers under IPO or otherwise.
Receiving on behalf of demat account holders non-cash
corporate benefits, such as, allotment of bonus and rights
shares in electronic form or securities resulting upon
consolidation, stock split or merger / amalgamation of
companies.
Pledging of dematerialised securities & facilitating loans
against shares.
Freezing of the demat account for debits, credits, or both.
Internet facilities "easi" and "easiest", if the DP is registered
for the same with CDSL.
Central Securities Depository
A Central Securities Depository (CSD) is an organization
holding securities either in certificated or uncertificated
(dematerialized) form, to enable book entry transfer of
securities.
In some cases these organizations also carry out centralized
comparison, and transaction processing such as clearing and
settlement of securities.
The physical securities may be immobilised by the depository,
or securities may be dematerialised (so that they exist only as
electronic records).
FUNCTIONS OF DEPOSITORY SYSTEM
Safekeeping:
Securities may be in dematerialized form, book-entry only form
(with one or more "global" certificates), or in physical form
immobilized within the CSD.
Deposit and Withdrawal:
Supporting deposits and withdrawals involves the relationship
between the transfer agent and/or issuers and the CSD. It also
covers the CSD's role within the underwriting process or listing
of new issues in a market.
Cont…
Dividend, interest, and principal processing, as well as
corporate actions including proxy voting:
Paying and transfer agents, as well as issuers are involved in
these processes, depending on the level of services provided
by the CSD and its relationship with these entities.
Other services: CSD's offer additional services aside from
those considered core services. These services include
Securities Lending and Borrowing, Matching, and Repo
Settlement.
Cont…
Pledge:
Central depositories provide pledging of share and securities.
Every country require to provide legal framework to protect
the interest of the pledgor and pledgee.
BENEFITS OF DEPOSITORY SYSTEM
Elimination of bad deliveries.
Elimination of all risks associated with physical certificates.
No stamp duty.
Immediate transfer and registration of securities.
Faster settlement cycle.
Faster disbursement of non cash corporate benefits like rights,
bonus, etc.
Reduction in brokerage by many brokers for trading in
dematerialised securities.
Cont…
Reduction in handling of huge volumes of paper.
periodic status reports.
Elimination of problems related to change of address of
investor.
Elimination of problems related to transmission of demat
shares.
Elimination of problems related to selling securities on behalf
of a minor.
Ease in portfolio monitoring.
