DEPOSITORY SYSTEM

SHARE TRADING SYSTEMS

1. The traditional system of script based dealing in
shares involves enormous paper work. The
process begins with buying share certificates in
paper form and ends with getting the certificates
endorsed in the buyer's name. It also involves
problems like bad deliveries, forgery and fake
certificates & trade certificates, tearing / mutilation
due to bad handling, loss of certificates, etc.
2. The Depository System aims at facilitating script
less trading and settlement of securities in
dematerialised form. It eliminates the problems
associated with physical securities and enables
faster settlement / transfer and reduction in
transaction costs like brokerage, postage, etc.
There is no stamp duty to be paid by the buyer.

Tradition system is time consuming
Risk of theft, fake transfers etc.
Costlier settlement
NEED FOR DEPOSITARY SYSTEM
The Depositories Act, 1996, defines a depository to mean "a
company formed and registered under the Companies Act,
1956 and which has been granted a certificate of
registration under sub-section (IA) of section 12 of the
Securities and Exchange Board of India Act, 1992.
A depository is an organization, which assists in the
allotment and transfer of securities and securities lending.
The principal function of a depository is to dematerialize
securities and enable their transactions in book-entry form
The shares here are held in the form of electronic accounts
i.e dematerialized form and the depository system revolves
around the concept of paper-less or scrip-less trading.

DEPOSITORY SYSTEM IN INDIA
A depository system is governed by the following
acts:
1. Securities & Exchange Board of India Act 1992
2. The SEBI(Depositories and Participants)
Regulations, 1996
3. Bye laws of depository
4. Business rules of depository
5. The Companies Act 1956
LEGAL FRAMEWORK FOR A DEPOSITORY
Presently there are two Depositories working
in India:
National Securities Depository Limited
(NSDL)

Central Depository Services (India) Limited
(CDSL)

DEPOSITORIES IN INDIA
1. Depository : A Depository is an organization where the
Securities of a shareholder are held in the Electronic form
at the request of the shareholder through a `Depository
Participant. There are two depository in India. These are
a) National Securities Depository Limited (NSDL)
b) Central Depository Service [India] Limited [CDSL]

CONSTITUENTS OF THE DEPOSITORY SYSTEM
NSDL is a first depositary to be set up in India. NSDL is
depository promoted by National Stock Exchange of
India Limited, IDBI,UTI,SBI and other financial
institutions.
NSDL is the first depository to be set up in India. It was
registered by SEBI on June 7,1996. NSDL has minimum
net worth of Rs 100 crores.
DP has to pay an admission fee of Rs 25000 to NSDL, &
deposit Rs 10 Lakh as a security with NSDL.
In addition to main services of electronic custody & trade
settlement services, NSDL provides special services like
pledge, automatic delivery of securities to clearing
corporations, etc.
NSDL has over 288 DPs across the country (as per
2012)


NSDL
PROMOTERS OF NSDL
1. Industrial Development Bank of India Limited
2. Unit Trust of India
3. National Stock Exchange of India Limited
SHAREHOLDERS 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
CDSL is a depository promoted by the Stock Exchange,
Mumbai jointly with SBI, Bank Of India , HDFC Bank and
other financial institutions.
CDSL commenced its operations in July 15
th
1999. CDSL
was set up with the objective of providing convenient,
dependable & secure depository services at affordable cost
to all the market participants
CSDL has over 563 DPs across the country (as per 2012)
CDSL DEPOSITARY SERVICES LTD.
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
Others

1. Multi-Depository System
2. Dematerialization as against immobilization
3. Depository services through depository
participants
4. Fungibility
5. Registered Owner/ Beneficial Owner
6. Free Transferability of shares
KEY FEATURES OF THE DEPOSITORY SYSTEM
IN INDIA
1. Multi-Depository System: The depository model adopted in India
provides for a competitive multi-depository system. There can be various
entities providing depository services.
2. Dematerialisation as against immobilization: The model adopted in
India provides only for dematerialisation of securities. This is a significant
step in the direction of achieving a completely paper-free securities market
Dematerialisation of securities occurs when securities, issued in physical
form, are destroyed and an equivalent number of securities are credited
into thee beneficiary owners account. Many of the developed countries
have opted either for immobilization (e.g., Japan) of
securities.Immobilisation of securities is done by storing or lodging the
physical security certificates with an organization that acts as a custodian -
a securities depository. All subsequent transactions in such immobilized
securities take place through book entries.
3. Depository services through depository participants: The depositories
can provide their services to investors through their agents called
depository participants. These agents are appointed subject to the
conditions prescribed under Securities and Exchange Board of India
(Depositories and Participants) Regulations, 1996 and other applicable
conditions.

4. Fungibility - In the depository system, the securities
dematerialized are not identified by distinctive numbers
or certificate numbers as in the physical environment.
Thus all securities in the same class are identical and
interchangeable. For example, all equity shares in the
class of fully paid up shares are interchangeable.
5. Registered Owner/ Beneficial Owner - In the
depository system, the ownership of securities
dematerialized is bifurcated between Registered
Owner and Beneficial Owner. For the securities
dematerialized, NSDL is the Registered Owner in the
books of the issuer; but ownership rights and liabilities
rest with Beneficial Owner. All the rights, duties and
liabilities underlying the security are on the beneficial
owner of the security.
6. Free Transferability of shares: Transfer of shares held
in dematerialized form takes place freely through
electronic book-entry system.

FUNCTIONS OF DEPOSITORY
Dematerialization & rematerialization of securities
Maintaining investors holding in electronic form
Effects settlement of securities traded on stock
exchange
Transfer of securities
Pledging of dematerialized securities
Electronic credit of securities allotted in public
issues, rights issue

BENEFITS OF DEPOSITORY
1. A safe and convenient way to hold securities;
2. Immediate transfer of securities;
3. No stamp duty on transfer of securities;
4. Elimination of risks associated with physical certificates
such as bad delivery , fake securities, delays, thefts
etc.;
5. Reduction in paperwork involved in transfer of
securities;
6. Reduction in transaction cost;
7. No odd lot problem, even one share can be sold;
8. Nomination facility;
9. Periodic status reports
10. Convenient consolidation of accounts

1. Records of securities dematerialized and rematerialized.
2. The names of the transferor, transferee, and the dates of
transfer of securities.
3. A register and an index of beneficial owners.
4. Details of the holdings of the securities of beneficial
owners as at the end of each day.
5. Records of instructions received from, and sent to
issuers, issuers' agents and beneficial owners.
6. Records of approval, notice, entry and cancellation of
pledge or hypothecation.
7. Details of securities declared to be eligible for
dematerialization in the depository.
8. Such other records as may be specified by SEBI for
carrying on the activities as a depository.

RECORDS TO BE MAINTAINED BY DEPOSITORY
Bank Depositary
1. Holds Funds in accounts Holds Securities in accounts
2. Transfer funds between accounts Transfer securities between accounts
3.Transfers without handling cash Transfers without handling physical securities
4.Safekeeping of money Safekeeping of securities
5.Either of the holder can sign
instructions
All the joint holders to sign instructions

6. Nomination is kept confidential Signature & Photograph of nominee to be
provided
DEPOSITARY BANK DIFFERENCE
2. Depository Participant
(DP) is described as an agent of the depository.
They are the intermediaries between the depository and the
investors.
The relationship between the DPs and the depository is
governed by an agreement made between the two under the
Depositories Act. In a strictly legal sense, a DP is an entity
who is registered as such with SEBI under the provisions of
the SEBI Act.
As per the provisions of this Act, a DP can offer depository-
related services only after obtaining a certificate of
registration from SEBI.
List of DPs are: ICICI Bank, HDFC bank ,Canara Bank, SBI,
IDBI, CitiBank etc., Financial Institutions, stockbrokers, a
clearing corporation or a clearing house of a stock exchange
, a non-banking finance company, a registrar to an issue or
share transfer agent

A DP is just like a Branch of a Bank.

3. ISSUERS AND R&T AGENTS: R&T(registrar &
Transfer) Agents form an important link between the
investors and issuers in the securities market. A
company, whose securities are issued and traded in the
market, is known as the Issuer. The R&T Agent is
appointed by the Issuer to act on its behalf to service the
investors in respect of all corporate actions like sending
out notices and other communications to the investors as
well as dispatch of dividends and other non-cash
benefits. R&T Agents perform an equally important role in
the depository system as well.
4. CLEARING CORPORATION\CLEARING HOUSE
(CC\CH): This term applies to an entity responsible for
clearing and settlement of trades done by clearing
members on a recognized stock exchange. A Clearing
Corporation / Clearing House of a stock exchange is
admitted to the depository system for clearing and
settlement of securities traded on their respective stock
exchanges. For electronic settlement of securities in
demat form, the concerned CC/CH of the stock exchange
needs to have electronic connectivity with the depository
NSDL.
5. Investor : The Investor or the Shareholder who is
holding shares in the Company as beneficial owner.




Issuer
Exchange
(CH/CC)
NSDL
DP
DP
Broker
Broker
Investor
Investor
Electronic Link
Electronic Link

Electronic Link

ELECTRONIC LINKAGE
1. Dematerialisation (usually known as demat) is
converting physical certificates to electronic form
2. Rematerialisation, known as remat, is reverse of demat,
i.e. getting physical certificates from the electronic
securities
3. Transfer of securities, change of beneficial ownership
4. Settlement of trades done on exchange connected to
the Depository

SERVICES PROVIDED BY DEPOSITORY

WHAT IS DEMATERIALIZATION?
Dematerialization is the process by which
physical certificates of securities of an investor
are converted to an equivalent number of
securities in electronic form and credited into the
investors account with his/her DP.

It is to be noted that an investor can hold shares
in physical form but for the purpose of trading in
stock exchanges shares should be in electronic
form.
PROCESS OF DEMATERIALISATION
An investor intending to dematerialise its securities needs to
have an account with a DP.

The client (registered owner) will submit a request to the DP in the
Dematerialisation Request Form for dematerialisation, along with the
certificates of securities to be dematerialised. Before submission, the
client has to deface the certificates by writing "SURRENDERED
FOR DEMATERIALISATION".
The DP will verify that the form is duly filled in and the number
of certificates, number of securities and the security type (equity,
debenture etc.) are as given in the DRF. If the form and security
count is in order, the DP will issue an acknowledgement slip duly
signed and stamped, to the client.
After intimating NSDL electronically, the DP sends the securities
to the concerned Issuer/ R&T agent. NSDL in turn informs the
Issuer/ R&T agent electronically, using NSDL Depository system,
about the request for dematerialisation. If the Issuer/ R&T agent
finds the certificates in order, it registers NSDL as the holder of
the securities (the investor will be the beneficial owner) and
communicates to NSDL the confirmation of request electronically.
On receiving such confirmation, NSDL credits the securities in the
depository account of the investor with the DP.
This procedure takes 15to 30 days.
DEMATERIALIZATION PROCESS
BO DP
Depository
(NSDL/CDSL)
Issuer/ RTA
1. DRF with certificates
2.Electronic
request
3. DRF with
certificates
4. Forwards Demat
request
5.Confirms E-request.
6. Credits
In BOs
A/c
7. Statement of holding
REMATERIALISATION
Rematerialisation is the process by which a client can get
his electronic holdings converted into physical certificates.
A client can rematerialise his dematerialised holdings at
any point of time.
The rematerialisation process is completed within 30 days.
The securities sent for rematerialisation cannot be traded.


PROCEDURE OF REMATERIALISATION
The client has to submit the rematerialisation request to the DP with
whom he has an account.
The DP enters the request in its system which blocks the client's
holdings to that extent automatically.
The DP releases the request to NSDL and sends the request form to
the Issuer/ R&T agent.
The Issuer/ R&T agent then prints the certificates, dispatches the
same to the client and simultaneously electronically confirms the
acceptance of the request to NSDL.
Thereafter, the clients blocked balance are debited.

REMATERIALIZATION PROCESS
BO DP
Depository
(NSDL/CDSL)

Issuer/ RTA
1. RRF in duplicate
4.Confirms E-request.
3. RRF with
other Doc.s,
if any.
2. Enters
details
in system
5.Debits
in BOs
A/c
6.Dispatch
-es
certificate