DEPOSITORY SYSTEM

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 MEANING
• The term depository is defined as “a central location
for keeping securities on deposit”. It is also defined as
“a facility for holding securities, either in certificated
or uncertificated form to enable book entry transfer of
securities”.
• It is understood from the above two definitions that
the depository is a place where securities are stored,
recorded in the books on behalf of the investors.
• Therefore, a depository can be defined as, “an
institution which transfers the ownership of securities
in electronic mode on behalf of its members”.
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 NSDL - Bank -- An Analogy

BANK NSDL

➨Holds funds in ➨Holds securities in

accounts
➨Transfers funds
between accounts
➨Transfers without
handling cash
➨Safekeeping of money
accounts
➨Transfers securities
between accounts
➨Transfers without
handling physical
securities
➨Safekeeping of securities

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 OBJECTIVES
• Reduce the time for transfer of securities.
• Avoid the risk of settlement of securities.
• Enhance liquidity and efficiency.
• Reduce cost of transaction for the investor.
• Create a system for the central handling of all
securities.
• Promote the country’s competitiveness by
complying with global standards.
• Provide service infrastructure in a capital
market.

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 ACTIVITIES
• Accepting deposit of securities for custody.
• Making computerized book entry deliveries of
securities which are immobilized in its custody.
• Creating computerized book entry pledges of
securities in its custody.
• Providing for withdrawals of securities.
• Undertaking corporate actions like distribution
of dividend and interest.
• Redemption of securities on maturity.

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 BENEFITS TO INVESTORS
• This system will eliminate paper work as the book entry
system does not need physical movement of certificates
for transfer process.
• The risk of bad deliveries, fraud and misplaced and lost
share certificates will not exist.
• The electronic media will shorten settlement time and
hence the investor can save time and increase the
velocity of security movement.
• Investor will be able to change portfolio more
frequently.
• The distribution of dividend, interest and other benefits
will be speedier as the ownership can be easily
identifiable.
• The cost of transfer is less as the share transfers are
exempt from stamp duty.
• Faster payment in case of sale of shares.
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 BENEFITS TO COMPANIES
• The companies will be able to know the
particular of beneficial owners and their
holding periodically.
• At the time of declaration of dividends,
bonus etc. there will not be any rush for
transfer related activities for the
companies.

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 SCREEN BASED TRADING SYSTEM
• The information technology has brought out
revolutionary changes in the operations of stock
exchanges in India. The traditional methods of
trading without the use of technology was time
consuming and inefficient. Further, it imposed
limits on trading volumes and efficiency. To
overcome those defects and to provide efficient
and transparent services, the NSE has introduced a
nation-wide on line fully automated screen based
trading system (SBTS). Now, other stock
exchange have been forced to adopt SBTS and
today India can boast that almost 100% trading
take place through electronic order matching.

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• Under SBTS, a member can punch into the
computers quantities of securities and the
prices at which he likes to transact the
transaction. It is executed as soon as it finds
a matching sale or buy order from a counter
party. Thus, technology is used to carry the
trading platform from the trading hall of the
exchanges to the premises of the brokers.

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