DEPOSITORY SYSTEM

This system came in to force with effect from September 20, 1995.

What Is Scrip Based System?
y Scrip based system of securities

involves enormous paper certificates and transfer deeds. y Simply, securities are held in physical form.

transactions work involving

Feature of scrip based system:
1.

There is physical movement of certificates along with transfer deeds. Registration with the company.

securities

2.

Problems with scrip based system:
1. 2. 3. 4. 5. 6. 7.

Time consuming (processing time by co.) Bad deliveries due to signature difference Mistakes in completion of transfer deeds Tearing and mutilation of certificates Fake certificates Cost of transfer : stamp duty Postal delays and charges etc.

What is depository system
y A system in which securities of an investor are

held by depository on behalf, and at the request, of an investor in an Electronic Form. y This system is also know as Scrip Less Trading system.

Features of Depository system
y In the depository system, securities are held in

depository accounts, which is more or less similar to holding funds in bank accounts. y Transfer of ownership of securities is done through simple account transfers. y This method does away with all the risks and hassles normally associated with paperwork. y Consequently, the cost of transacting in a depository environment is considerably lower as compared to transacting in certificates.

Whole system of Depository

Constituents of depository system
There are basically four participant: y The Depository y The Depository Participant y The Issuing Company y The Investor

Who is depository?
y Depository facilitates holding of securities in the

electronic form and enables securities transactions to be processed by book entry by a Depository Participant (DP), who as an agent of the depository, offers depository services to investors

Features of depository system in India
1. 2. 3. 4. 5.

In the depository system, the apex body is the Depository.. A depository can be compared with a bank Depository services through depository participants. Fungibility Registered Owner/ Beneficial Owner (two types of owner)

Who can be a depository:
Depository Act, 1996 provides that Depository means: y A company formed and registered under the companies Act, 1956, and y Which has got a Certificate of Registration from the SEBI.

Depositories in India
y The depository model adopted in India provides for a

competitive multi-depository system. There can be various entities providing depository services. Such system is known as Multi-Depository System. y At present two Depositories are registered with SEBI.

NATIONAL SECURITIES DEPOSITORIES LIMITED
y NSDL is

the first and largest depository in India, and established in August 1996 y It has 267 depository Participants (as on 13.12.08) y Address:
Trade World, a Wing, 4th &5th Floors Kamala Mills Compound Lower Parel Mumbai 400013 website: nsdl.co.in

PROMOTERS OF NSDL
1. 2. 3.

Industrial Development Bank of India Limited Unit Trust of India National Stock Exchange of India Limited

SHAREHOLDERS OF NSDL
y State Bank of India y Oriental Bank of Commerce y Citibank y Standard Chartered Bank y HDFC Bank Limited y The Hongkong and Shanghai Banking Corporation y y y y

Limited Deutsche Bank Dena Bank Canara Bank Union Bank of India

CENTRAL DEPOSITORY SERVICES (INDIA) LIMITED
y This is the second depository in India. y This was formed and registered in 1999. y It has 455 DPs as on 4.08.08 y Address:

Phiroz Jeejeebhoy Towers 16th Floor, Dalal Street Mumbai website: www.cdslindia.com

PROMOTERS OF CDSL
y Bombay Stock Exchange Limited y Bank of India, y Bank of Baroda, y State Bank of India and y HDFC Bank

SHAREHOLDERS OF CDSL
y Standard Chartered Bank y Centurion Bank of Punjab Ltd y Canara Bank y Union Bank of India y Bank of Maharashtra y Jammu and Kashmir Bank Limited y The Calcutta Stock Exchange Association

Limited y Others

A Bank-Depository Analogy
Bank
1.Holds funds in an account on behalf of a customer 2.Transfer funds between accounts on the instruction of the account holder. 3.Physical handling of funds is avoided. 4.Provides safe custody of fund

Depository
1.Holds securities in an account on behalf of an investor. 2.Transfer securities between accounts on the instruction of the account holder. 3.Physical handling of securities is avoided. 4.Provides safe custody of securities.

Who Is Depository Participant:
y A Depository Participant (DP) is an agent of the

depository through which it interfaces with an investor. y A DP can offer depository services only after it gets proper registration from SEBI. y A DP is just like a Branch of a Bank.

Who can be Depository Participant?
In terms of the Depositories Act, 1996, SEBI (Depositories & Participants) Regulations,1996, only the following entities are eligible to become a Depository Participant: Financial Institutions, anks, including approved oreign bank Custodians, Stockbrokers, A clearing corporation or a clearing house of a stock exchange A non-banking finance company, nonA registrar to an issue or share transfer agent

y y y y y y y

Types of ownership
In the depository system, the ownership of securities dematerialized is bifurcated in to:

REGISTERED OWNER

BENEFICIAL OWNER

Who is registered owner
y The registered owner is that person whose

name is registered in the register of members of the company (issuer) y For the securities dematerialized, NSDL/CDSL is the Registered Owner in the books of the issuer. y But Registered Owner does not enjoy any right and liability attached with the security.

Who is the Beneficial owner
y Beneficial owner is that person who enjoys all

rights, duties, and liabilities attached with the security. y It means voting right, dividend right, bonus share right , right share right etc are all exercised by the Beneficial owner.

Benefits of depository system/holding securities in dematerialized form
Depository system provides benefits to: y The investors, and y The issuers.

Benefits to investors:
1. 2. 3.

4. 5. 6. y

The transactions in electronic mode eliminated the risk and problems o delays. The risk o bad deliveries is totally eliminated There is no requisite o illing up the trans er deeds, payment o trans er stamp duty and a lot o other paper ork at the end o the investor. It totally eliminates the risk associated ith raudulent interception o certi icates in postages or transits.. Trans er o o nership o securities is immediate in case o depository mode. The investment, automatically, becomes more liquid. contd.

Contd.
The problem of odd lot is also eliminated, as the depository mode does not have any concept of market lot. 8. Holding investments in equity and debt in a single account. 9. 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. 10. Transmission of securities is done by DP eliminating correspondence with companies. 11. Nomination facility.
7.

Benefits to the issuing company:
1. 2.

3.

4.

The company saves a lot of paper work which otherwise is required in the physical mode. The company saves a postal cost for the dispatch of right shares, bonus shares or share certificates after affecting the transfer. By offering depository services to its shareholders, a company may send a positive sign to its shareholders about its concern for their welfare. Depository services adds liquidity to the security thus fund raising capacity of the company.

How can services of Depository availed by an investor?
y
1.

ACCOUNT OPENING:
In order to avail o depository acilities, an investor has to open a bene iciary account ith a depository participant o his choice.This is similar to opening a bank account to use the banking services. Just as one can hold unds in a bank account and trans er unds across accounts ithout actually handling cash;one can hold securities in a depository account and trans er securities across depository accounts ithout actually handling share certi icates.

y

contd.

Contd.
y The account holder is called 'beneficial owner' in a

depository system and the account is known as 'beneficiary account'.

Features of Beneficiary Account
Features of Beneficiary Account No minimum balance is required to be retained in a beneficiary account. An investor can close a beneficiary account with one DP and open an account with another DP. To dematerialise existing physical holdings, the beneficiary account must be opened in the same ownership pattern in which the securities are held in the physical form e.g: If one certificate is in individual name and another certificate is jointly held by X & Y, two different accounts should be opened

Procedure of Opening An Account:
Investor will choose a DP for the purposes of opening beneficiary account. The choice of the investor may be based on convenience, comfort, services offered, cost or any other reason. The investor will obtain the relevant account opening form from the chosen DP. contd.

Contd.
y

For the purpose of verification, investor has to submit the following documents along with the prescribed account opening form.
Proof of Identity(POI) (voter card, pan card, driving license etc.) Proof of Address (POA) (ration card, ank pass book copy voter id card etc.) Passport-size photograph

1. 2. 3.

Contd.
y Copy of PAN card y The DP will also provide a copy of the DP-Client

agreement.

Some other aspects:
y

y

The demat account cannot be operated on "either or survivor" basis like the bank account. In case of the joint account for the beneficial owners, all the joint holders have to sign the account opening form. The investor will submit to his DP the duly filled in account opening form & DP-client agreement along with the documents. On successful opening of the account, the DP will give: Client Id - an eight digit number to be used along with DP Id for any future transactions. Delivery Instruction slip book.

y 1. 2.

Some other aspects

contd.
y More than one demat account can be opened in the similar /

identical name and order ith the same or di erent s. y A periodical statement o holdings and transactions is provided by . This can also be asked or rom the

What is dematerialisation?
y Dematerialisation 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 investor¶s account with his/her DP.
y 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
y An investor intending to dematerialise its securities needs to

have an account with a DP.
y The client (registered o ner)

ill submit a request to the in the ematerialisation Request Form or dematerialisation, along ith the certi icates o securities to be dematerialised. e ore submission, the client has to de ace the certi icates by riting "SURREN ERE FOR EMATERIALISATION". y 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.

Contd.
y A ter intimating NS L electronically, the

sends the securities to the concerned Issuer/ R&T agent. NS L in turn in orms the Issuer/ R&T agent electronically, using NS L epository system, about the request or dematerialisation. I the Issuer/ R&T agent inds the certi icates in order, it registers NS L as the holder o the securities (the investor ill be the bene icial o ner) and communicates to NS L the con irmation o request electronically. On receiving such con irmation, NS L credits the securities in the depository account o the investor ith the . y This procedure takes 15to 30 days.

Rematerialisation
y Rematerialisation is the process by

hich a client can get his electronic holdings converted into physical certi icates. y A client can rematerialise his dematerialised holdings at any point o time. y The rematerialisation process is completed ithin 30 days. y The securities sent or rematerialisation cannot be traded.

Procedure of rematerialisation
y The client has to submit the rematerialisation request to the y y y

ith

y

hom he has an account. The enters the request in its system hich blocks the client's holdings to that extent automatically. The releases the request to NS L and sends the request orm to the Issuer/ R&T agent. The Issuer/ R&T agent then prints the certi icates, dispatches the same to the client and simultaneously electronically con irms the acceptance o the request to NS L. Therea ter, the client¶s blocked balance are debited.

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