Depository

Systems

Introduction

What is Depository?
An organization where the securities of an investor are held in
electronic form at the request of the investor and which carries out
the securities transactions by book entry through the medium of a
depository participant.

What is a Depository System?

A system whereby transfer of securities takes place by means of
book entry on the ledgers of the Depository without physical
movement of scripts.

Legal framework

Depositories Act ,1996 provides for the establishment of single or

multiple depositories.

Each depository must be formed and registered as a company

under the Companies Act,1956.

The Depositories Act provides for detailed regulations to be framed

by SEBI and detailed bye-laws to be framed by depositories with the
approval of SEBI.

Mechanism of Depository System

The Depositories Act envisages that each depository will have its
agents to be known as depository participants (DPs), who shall be
a crucial link between the investors and the depository.

As per SEBI guidelines, financial institutions, banks, stock brokers

etc, can become DPs after following the norms prescribed under
SEBI(Depositories and Participants) Regulations, 1996 and other
applicable conditions.

ACCOUNT OPENING
Open a DEMAT ACCOUNT with a depository participant
(DP) of any depository
DP selection by investor done on the basis of fee payable,
proximity, service levels etc.
Fill up account opening form i.e. supported by POI and
POA(anyone approved document i.e. specified by SEBI)
Verification of original documents by an authorized official
of the DP
Sign an agreement with DP (Depository prescribed format)
that details rights and duties of investor and DP
DP should provide the investor with a copy of agreement
and schedule charges for his future reference
Account number of DP =BOID (Beneficiary Owner
Identification Number)

 In a circular (28/01/2005) ,SEBI removed three charges to rationalize cost

structure :o Account opening charges
o Transaction charges for credit of securities
o Custody charges
One can open 1+ account with same name, DP
Ownership Pattern(Securities in the physical form) should be taken into
consideration while opening DEMAT account
In case of share certifications having same combination of names (different
sequence) then only one DEMAT account is opened (one with different
combinations is to be lodged for dematerialization in the same account +
Transportation cum DEMAT form is filled to effect change in the order of names )
DEMAT account cant be opened in the name of partnership firm for its not a legal
entity but can be opened in the name of partners

Dematerialisation (DEMAT)

It is the process by which physical certificate of securities of an

investor are converted to an equivalent no. of securities in an
electronic form and credited into investors account with his/her
depository participant(DP)

Only share registered in the name of a/c holder are accepted for
dematerialisation at the depository.

It is 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.

Procedure for dematerialisation

First open a DEMAT a/c or security a/c with any DP(depository participant) of
investors choice.
Obtain a/c no. from his DP.
A dematerialisation request form(DRF) to be submitted to the DP who intimates the
depository of the request.
DP then submits the certificates along with the DRF to the registrar who confirm the
DEMAT request.
Registrar validate the request,update records,destroys the certificates and inform
the depository who in turn credits the DP a/c.
DP updates the investors a/c and informs the investors.
Once the company is admitted into Depository System,an ISIN(International
Security Identification Number) is alloted by the depository.This no. is unique for
each security of the company that is admitted in the depository
The entire process takes about 15 days time.
However when large no. of certificates are submitted from institutions,it takes upto
30 days for DEMAT.

Procedure for buying and selling

dematerialised shares
Investor transacts with another person dealt with depository after
providing details of his account with Depository Participant.
Sale : Delivery Instruction Slip sent to DP, signed, containing details
Purchase : Receipt Instruction Slip sent to DP, signed, containing
details
Information electronically conveyed by DP to Depository, registers
security and debits the account of the transferor.
DP makes appropriate book entries to record transfer and purchase,
provide statement of accounts(quarterly) and update(within15 days)
at regular intervals .

Other Special Features

Dematerialization of securities is not compulsory

Securities shall be fungible
Securities would become freely transferable
No Stamp Duty

Benefits of Depository Systems

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Share transfer transactions can be effected immediately.

No stamp duty is payable on transfer of securities.
Need to post/carry shares to different locations for settlement purposes or for
registration is eliminated.
Risk of bad deliveries is eliminated.
Bonus/Right shares will be credited by the company directly to shareholders
depository account.
The process of transmission is more convenient.
No need to keep manual accounts of the securities held and of transactions
therein as they are received from Depository Participant(DP).
The requirement of maintaining bank vaults for safe custody of physical
certificates and frequent stock taking is eliminated.
Change of address recorded with the Depository Participant(DP) gets
registered with all companies in which investor holds securities electronically
eliminating the need to correspond with each of them separately.

Thank you!