DEPOSITORY SYSTEM IN INDIA

AN OVERVIEW

WHAT IS A DEPOSITORY??
A depository is an organisation Holds securities (like shares, debentures, bonds, government securities, mutual fund units etc.) of investors In electronic form At the request of the investors through a registered Depository Participant. It also provides services related to transactions in securities.

BANK-DEPOSITORY: AN ANALOGY
BANK Holds funds in an Account DEPOSITORY Holds securities in an account

Transfers funds between accounts on the instruction of the account holder

Transfers securities between accounts on the instruction of the BO account holder

Facilitates transfer of ownership without having to handle securities

Facilitates transfer without having to handle money

Facilitates safekeeping of money

Facilitates safekeeping of securities

WHO IS A DEPOSITORY PARTICIPANT??

A Depository Participant (DP) is an agent of the depository through which it interfaces with the investor and provides depository services. Public financial institutions, scheduled commercial banks, foreign banks operating in India with the approval of the Reserve Bank of India, state financial corporations, custodians, stock-brokers, clearing corporations /clearing houses, NBFCs and Registrar to an Issue or Share Transfer Agent complying with the requirements prescribed by SEBI can be registered as DP.

BENEFITS OF DEPOSITORY SERVICES

A safe and convenient way to hold securities; Immediate transfer of securities; No stamp duty 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 transaction cost; No odd lot problem, even one share can be traded;

BENEFITS OF DEPOSITORY SERVICES (CONT)

Nomination facility; 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; Automatic credit into demat account of shares, arising out of bonus/split/consolidation/merger etc. Holding investments in equity and debt instruments in a single account.

CONSTITUENTS OF DEPOSITORY SYSTEM

Depository NSDL CDSL Depository participants (DP) Banks, including foreign banks. Financial institutions Stock brokers R&T Agents Custodians Clearing Corporations Non Banking financial companies Issuer / R&T Agent. Beneficial owners.

DEMATERIALIZATION PROCESS
1. DRF with certificates BO 7. Statement of holding DP

3. DRF with certificates

6. Credits In BOs A/c

2.Electronic request

5.Confirms E-request.
Issuer/ RTA 4. Forwards Demat request Depository (NSDL/CDSL)

REMATERIALIZATION PROCESS

1. RRF in duplicate BO 3. RRF with other Doc.s, if any. DP

6.Dispatch -es certificate

5.Debits in BOs A/c

2. Enters Details in system

4.Confirms E-request. Issuer/ RTA

Depository (NSDL/CDSL)

INITIAL PUBLIC OFFER PROCESS

2. BOs verification Issuer / RTA 3. Verification Report 4. Details of allotment. Depository (NSDL/CDSL)

5.Credit securities

6. Intimation of allotment BO 1.Application for allotment

TRADING & SETTLEMENTS PROCESS

Transfer of securities in/ out of the Demat A/c can arise in the following instances:

For execution of Off Market Transactions. For settling On Market Transactions.

OFF MARKET TRANSACTIONS

Transaction done on person to person basis without going through stock exchange mechanism. Pre-requisites: Transfer of securities from one BO A/c to another BO A/c. Both A/cs are with same Depository though with different DPs. Neither buyers A/c nor sellers A/c is with clearing house/ clearing corporation.

OFF MARKET TRANSACTIONS

1. Filled delivery instruction slip (DIS) Seller BO

DP
4. Debits Securities. 2.Enters Off mkt. Transaction In depositorys System.

5.Credits Securities.

3.Transaction ID generated

Buyer BO

Depository (NSDL/CDSL)

6.Generates Trade ID

ON MARKET TRANSACTION
Trades done by investors through stock exchange mechanism and settled using same stock exchange mechanism. seller as well as buyer account is with CH/CC

PROGRESS SO FAR.
Particulars CDSL NSDL

Companies Depository participants DP service centers Investors A/cs (excl.Closed accounts)

6313 480
6474 59,21,904

7847 282
9725 1,00,33,692

LOOKING FORWARD.
Depository services to consolidate further. All scrip to be issued, held, traded and settled in Demat form. Banks would evince interest in extending loan against Demat securities. Improved infrastructure. Simplification of operations & removal of barriers. Government securities admitted to NSDL.

CONCLUSION

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