Depository system

An effective and fully developed depository

system is essential for maintaining and
enhancing the efficiency of a mature capital
market.
 Before introduction of depository system, the
problems faced by investors and corporates
in handling large volume of paper were as
follows:
Bad deliveries
Fake certificates
Loss of certificates in transit
Mutilation of certificates
Delays in transfer
Long settlement cycles
Mismatch of signatures
Delay in refund and remission of dividend etc
History

The first depository was set up way back in

1947 in Germany
In India it is a relatively new concept

introduced in 1996 with enactment of

depository act 1996
Their operations are carried out in
accordance with regulation made by SEBI,
by-laws and rules of depository Act and SEBI
(depository and Participants) Regulation on
1996.
Meaning
The term Depository means a place where a
deposit of money, securities, property etc is
deposited for safe keeping under the terms of
depository agreement.
A depository is an organisation , which assists
in the allotment and transfer of securities
lending.
The share here are held in the form of
electronics accounts i.e dematerialised form
and the depository system revolves around the
concept of paper-less or scrip-less trading.
 It holds the securities of the investors in the
form of electronics book entries avoiding
risks associated with paper.
It is not mandatory and is left to the

investor to decide.
Depository carry out its operations through

various functionaries called business

partners.
Legal framework for a
Depository
A system is governed by the follwing acts
SEBI Act 1992
Bye-Laws of depository
Business rules of depository
The companies Act 1956
Depository in India
There are two depositories working in india:
National Securities Depository Limited

(NSDL)

It was registered by the SEBI on June 7 1996

as India's first Depository to facilitate
trading and settlement of securities in the
demat form. It is promoted by IDBI, UTI, NSE
 Central Depository Services (India) limited
(CSDL)
It commenced its operations during feb

1999 and was prompted by Stock Exchange

Mumbai in association with Bank of Baroda,
Bank of India, SBI and HDFC Bank
 At presents 10 Stock Exchange are
connected to the Depositories
NSE
The SE, Mumbai
Calcutta SE
Delhi SE
Ludhiana SE
Bangalore SE
OTCEI
Madras SE
Inter connected SE
Ahmedabad SE
 Market trade: trade done settled through a
SE and clearing corporations.
Off market trades: trades done privately

without involvement of stock brokers and SE

Again investor may either choose to invest

privately, through SB or DP
Procedure
First open a demat a/c or security a/c with any DP of
investors choice.
Obtain a/c no from his DP
A Dematerialised request form (DRF) to be submitted
to the DP who intimates depository of the request
DP then submits the certificates along with the DRF
to the registrar who confirm the demat request
Registrar validates the request, updates records,
destroys the certificates and informs depositary who
in turn credits the DP a/c
Depository participants updates the investors a/c and
informs the investors