What is a Depository (3)

8/4/2019 What is a Depository (3)

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Avneet Sachdeva

Krishna Gopal Mazumdar

Jitender Sahani

Prateek MazumdarSourav Choudhary

Suman Kumar



WHAT is a DEPOSITORY ?

A depository is an organization where the securities of aninvestor are held in electronic form, at the request of the investorthrough the medium of a Depository Participant.

If an investor wants to utilize the services offered by a depository,he has to open an account with the depository through its DepositoryParticipant. This is similar to opening an account with any of thebranches of a bank in order to utilize the services of that bank.



WHO is a DEPOSITORY PARTICIPANT

A DP is an interface between customers and thedepository

A customer opens an account with a DP and commencesoperations

Balances are maintained with the depository and are

available through the DP

DP intimates customers’ status of holdings ortransactions from time to time



WHO can be a DEPOSITORY PARTICIPA

A Depository Participant (DP) is an agent of the depository and isauthorized to offer depository services to investors

In terms of the Depositories Act, 1996, only the following entities

are eligible to become a Depository Participant.

1. Financial Institutions,

2. Banks, including approved foreign banks,

3. Recognized stock exchange

4. A non-banking finance company,

5. A custodian of securities approved by Government of India,



DIFFERENCE BETWEEN BANK & DEPOSITO

BANK

Holds Funds in an Account

Transfers Funds between accountson the instruction of the account holder.

Facilitates transfers without havingto handle money

Facilitates safe-keeping of money

DEPOSITORY

Hold securities in an account

Transfers securities betweenaccounts on the instruction of the account holderFacilitates transfers of ownership without having tohandle securities

Facilitates safekeeping of shares



DEPOSITORY SERVICES IN INDIA

NSDL :National Securities Depository Limited• First and largest depository in India, established in August 1996.

• National Stock Exchange is linked directly to NSDL.

•

PROMOTERS OF NSDL - Industrial Development Bank of IndiaLimited, Unit Trust of India ,National Stock Exchange of India

Limited

• SHARE-HOLDERS OF NSDL -State Bank of India, Oriental Bank

of Commerce, Citibank, Standard Chartered Bank, HDFC Bank

Limited,The Hongkong and Shanghai Banking Corporation Limited,

Deutsche Bank, Dena Bank , Canara Bank, Union Bank of India.

Securities and Exchange Board of India (SEBI) is the regulating authority.



CDSL : Central Depository Services Limited

• This is the second depository in India. This was formed and registered in 1999.

• Bombay Stock Exchange are linked directly to CDSL.

• PROMOTERS OF CDSL - Bombay Stock Exchange Limited , Bank of India,

Bank of Baroda, State Bank of India and HDFC Bank

• SHAREHOLDERS OF CDSL - Standard Chartered Bank Centurion ,Bank of

Punjab Ltd . ,Canara Bank , Union Bank of India , Bank of Maharashtra , Jammu

and Kashmir Bank Limited , The Calcutta Stock Exchange Association Limited.



Settlement of market trade• Seller gives delivery instructions

to DP to move securities to broker’s account

• Securities are transferred toclearing corporation frombrokers account

• On pay out securities are movedfrom Clearing corporation to

buying broker’s account

• Buying broker credits buyer’saccount

Buyer

Broker

Seller

Broker

ClearingCorporation



Off market trade• Seller gives Delivery

Instruction to his DP

• Securities are transferredfrom seller’s DP to Buyer’sDP

• Buyer gets creditautomatically into hisaccount

Buyer

DP1

Seller

DP2

Depository



BENEFITS of Depository Services• A safe, convenient way to hold securities• Instant transfer of securities;• Stamp duty is not required on transfer of securities;• Elimination of risks associated with physical certificates such as bad delivery fake

securities, Delays, thefts etc.;• Reduction in paperwork involved in transfer of securities;•

Reduction in the cost of transaction,• No odd lot problem, even one share can be sold;• Facility of nomination;• Change in address recorded with DP gets registered with all companies in which

investor holds securities electronically eliminating the need to correspond with

each of them separately;• Transmission of securities is done by DP eliminating correspondence with

companies;• Credited automatically into Demat account of shares, arising out-of bonus or split or

consolidation or merger etc.



Services offered by a Depository Participa

Account Opening & Maintenance

Dematerialization of Securities

Rematerialisation of Securities

Transfer of Securities

Pledging of Securities

An investor who wishes to avail of all Depository Services hasto open a Demat Account with a DP.



DEMAT ACCOUNT• Dematerialization is the process by which physical certificates

of an investor are converted into electronic form.• Demat account is necessary for

• Investing in IPO i.e. Primary Market

• Investing in Secondary Market

DEMAT PROCESS :

1. Shareholder with physical certificates.

2. Makes a Demat request form with certificates.

3. Forward Demat request.

4. Shares are credit to the beneficiary owner’s account

Share Holder

Depository Participants

A/C Opening

DEMAT request form

Depository

Dematerialisation

credit to the beneficiaryowner a/c of the investor



Who can open a demat account?

• Individuals, NRIs, Minors, HUFs, Trusts (Regd),Corporates can open demat account.

• Proprietary firms, partnership firms and unregisteredtrusts cannot open a demat account as the CompaniesAct,1956 prohibits these entities from becomingshareholders of companies



Basic documents for account opening• Registration form

• Photograph/s with signatures across it

• PAN Card

• Proof of residence- Passport, Voter’s ID card, Driving license,Ration card

•

Proof of identity- Passport, Voter’s ID card, Driving license,PAN card

• Bank Account Proof-Bank statement, cancelled cheque



Advantages of DepositoryFree from worries of bad delivery, loss of shares, delivery of

stolen shares etc.

Transfer is faster.

Safety in transactions, as freezing of account is permitted.

Option of rematerialising dematerialised shares.

There is no need to fill a transfer form for transfer of shares andaffix share transfer stamps.



Disadvantages of Depository Lack of control: Trading in securities may become uncontrolled in case of

dematerialized securities.

Need for greater supervision: It is incumbent upon the capital market regulator

to keep a close watch on the trading in dematerialized securities and see to it thattrading does not act as a detriment to investors. The role of key market players incase of dematerialized securities, such as stock brokers, needs to be supervised asthey have the capability of manipulating the market.

Current regulations prohibit multiple bids or applications by a single person. Butinvestors open multiple demat accounts and make multiple applications to subscribeto IPOs in the hope of getting allotment of shares.

What is a Depository (3)

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