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What is a Depository

What is a Depository

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Published by: Jigar_Dedhia_8946 on Sep 16, 2011
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10/30/2012

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What is a depository?
A depository is an organization where the securities of an investor are held in electronic form, at the requestof the investor through the medium of a DepositoryParticipant. A Depository can be compared to a bankfor shares. Just as a bank holds cash in your accountand provides all services related to transaction of cash,a depository holds securities in electronic form andprovides all services related to transaction of shares /debt instruments. A depository interacts with clientsthrough a Depository Participant (DP) with whom theclient has to maintain a Demat Account. Thus aninvestor who wishes to avail of all Depository Serviceshas to open a Demat Account with a DP.
 
How many Depositories inIndia?
There are two depositories in India
National Securities Depository Ltd. (NSDL)The National Securities Depository Limited(NSDL) is an organisation established toprovide electronic depository facility forsecurities traded in the equity and the debtmarket and is promoted by the IndustrialDevelopment Bank of India (IDBI), Unit Trustof India (UTI) and the National Stock ExchangeLimited (NSE). Subsequently State Bank of India has also acquired a stake in NSDL. NSDLhas been registered by Securities ExchangeBoard of India (SEBI) on June 7, 1996 asIndia's first Depository to facilitate settlementof securities in dematerialised form. NSDL hadcommenced its operations on November 6,1996.
Central Depositories Services of India Ltd.(CDSL)Central Depositories Services of (India) Ltd.was the second depository to be granted thecommencement certificate by SEBI on 8February1999. Inaugurated on 15 July 1999, itis promoted by the Bombay Stock Exchange, inassociation with Bank of India (BOI), Bank of 
 
Baroda (BOB), HDFC Bank, and State Bank of India (SBI).
Who is a DP?
InIndia, a
Depository Participant
(DP) isdescribed as anagentof the depository. They are theintermediaries between the depository and the investors.The relationship between the DPs and the depository isgoverned by an agreement made between the two underthe Depositories Act. In a strictly legal sense, a DP is anentity who is registered as such with SEBI under theprovisions of the SEBI Act. As per the provisions of thisAct, a DP can offer depository-related services only afterobtaining a certificate of registration from SEBI.SEBI (D&P) Regulations, 1996 prescribe aminimum net worth of Rs. 50 lakh for stockbrokers, R&Tagents and non-banking finance companies (NBFC), forgranting them a certificate of registration to act as DPs.If a stockbroker seeks to act as a DP in more than onedepository, he should comply with the specified net worthcriterion separately for each such depository. Nominimum net worth criterion has been prescribed forother categories of DPs; however, depositories can fix ahigher net worth criterion for their DPs. NSDL requires aminimum net worth of Rs. 100 lakh to be eligible tobecome a DP as against Rs. 50 lakh prescribed by SEBI(D&P) Regulations.

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