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Depositories Act 1996

A depository is an organization where the securities of security holders are kept at the request of
investor in the Demat form [electronic form] and the transfers are made in book entry form.

There are two depositories in India:
 NSDL - National Securities Depository Ltd.
 CDSL - Central Depository securities Ltd.

Depository system:

 It is just like banking system. The depository holds securities on behalf of its client at their
request just like the bank holds money on behalf of the customer.
 The banks transfer the funds between the accounts where as the depositories transfer
securities between demat account’s.
 There is transfer of funds or securities without actual handling of the same.
 Both are accountable for the safe keeping of the funds or securities.

Requirements of Registration as a depository:

 Any company or institution to work as a depository should be formed and registered as a
company and must obtained registration from SEBI.
 It must have one or more participants [stock broker] and adequate system and must company
with depository act 1996.
Advantages of Depository System

 The risk associated with the physical certificates has been taken care off.
 Initially the transfer of shares used to take a long time. For eg: 15 days or more in the present
scenario the transfer is immediately debited or credited in the demat account hence it is faster
and no loss of time.
 The needs for maintaining the number of documents and paper work has been reduced with
the introduction of demat system.
 The cost of handling the paper work has been reduced and hence it has benefited the
investors in paying less cost in terms of brokerage and other fees.
 Exemption from stamp duty cost.
 Faster payment on sale of shares.
 There is a direct credit of non-cash benefits such as right shares bonus shares etc. including
dividend.





Dematerialization

It is a process in which the shares in physical form & equal number of shares are credited in the
demat account with the help of depository. The transactions take place with the help of book entry
system and the actual owner has the right to withdraw shares from the demat account as and when
required.

Fungibility

Section 9 of depository act 1996 states that all the securities held in the depository are fumble
[interchangeable] which means the investor loose his right to obtain exactly the same share
certificates which he surrendered at the time of opening a Demat account.
For eg: - the money is deposited in the bank and the person withdrawing shall not get the same
currency notes which he deposited in the bank.

Process of Dematerialization

 The investors opens a demat account with depository participant [Broker].
 He files demat request forms [DRF] along with the share certificates and required fee.
 The depository participant intimates the depository via/through scanning the documents and
sending it online.
 The depository intimates the register.
 After the confirmation received from registrar the depository participant.
 Shall send share certificate and DRF in physical form to registrar.
 The registrar shall confirm the DEMAT to the depository.
 The depository confirms the dematerialization to DP.
 The DP credits the shares in the investors Demat account.

Process of Rematerialization

 The clients submit the Remat request form to DP.
 The DP intimates depository of such request electronically.
 The depository shall intimate the registrar of the company.
 After the intimation to the registrar the DP shall sent Remat request form to the registrar of
company.
 The depository updates its account and intimates DP.
 The registrar shall print the share certificates and send it to the investor.
 The registrar shall confirm the Remat to the depository
 The investors account with DP shall be debited.









Pledge/ Hypothecation
A beneficial owner may with the previous approval of depository be able to create a pledge or
hypothecation in respect of security owned by him through a depository. The borrowed is the owner of
shares but hypothetically it is control by lender.

Audit
 Secretarial audit: every issuer shall submit an audit report on a quarterly basis to the
concerned stock exchange audited by a practicing company secretary on a qualified CA.
This audit is done for the purpose of the reconciliation of total issued capital listed capital and
capital held by depository in the demat form. This report has to be submitted on a quarter
basis.
 Internal audit: NSDL and CDSL has allowed a practicing CS from 1999 to undertake in
internal audit of the operation of depository participant. This audit insure the following :
- That the operations of depository participant are in compliance with depository act 1996 &
SEBI Act 1992.
- That the operations of business are not under threat system are in place and adequate
measures have been taken to ensure that the records are neither loss nor tampered with.
- That the capacity of computer system staff strength and interned procedures are enough to
continue the operations on a daily basis.
 Concurrent audit: Since 2006 the process of demat account operating and delivery
instruction slip is subject to concurrent audit & the depository participants have been advise to
appoint a firm of qualified CA or CS for conducting concurrent audit.
The DIS checking validates date and time stamping verification of transactions above 5,
00,000

EDIFAR

It is used to electronically file time sensitive corporate information by a listed company for the purpose
of distributing or sharing information to the customer.
It centralizes the information through online filling and enables information to be used by wide range
of persons thereby enhancing transpire or the level of disclosure amongst shareholders.
It includes the details like annual account audit reports dividend history corporate governance report
etc.
Updates: SEBI closed edifier on 1
st
April/10 and started CFDS [corporate filling and dissemination
system].

Difference between depository and custodian
Depository Custodian
It holds securities in demat form It holds securities in physical form
It reduces paper work Its main function is to maintain paper work
It can legality transfer the ownership It can not transfer the ownership




Basic Service Demat Account (BSDA)
With a view to achieve financial inclusion encouraging holding of demat account & to reduce the cost
of holding demat accounts and to reduce the cost of maintaining the securities in demat account for
retail individual investors, SEBI introduced the concept of Basic Service Demat Account.
BSDA offers limited services and reduced costs in comparison to the usual Demat Account.
Eligible Investor
 The “Basic Service Demat Account” promises to provide limited services at reduced costs to
retail investors. All individuals who currently have one account or plan to open a demat
account & being the sole first holder in the existing accounts can open a Basic Service Demat
Account.
 The value of BSDA shall not be more than Rs. 2 lakhs at any given point of time.
 Such an account can be opened across all the Depositories Participant.
Charges
The charges as applicable on BSDA account shall be as per the pre-determined slabs.
However, the annual maintenance charges shall differ on BSDA as:-
 If the value of holding (shares held in demat account) is less than or equal to Rs.50,000 –
then there shall be no charges applicable.
 If the value of holding (shares held in demat account) is between Rs.50,001 to Rs.2,00,000 –
then an AMC (Annual Maintenance Charges) can be charged up to Rs.100 as applicable.
 However, if the value of holding exceeds, then DPs are permitted to charge the same as they
charge on regular demat accounts.
Valuation of Holdings
 The value of holdings shall be determined on the basis of daily closing price or Net Asset
Value of the securities or units of Mutual Funds.
 Where such price is not available the last traded price may be taken into account & for
unlisted securities other than units of mutual funds, face value may be taken in to account.
Statements
1. Transaction Statement
 Transaction Statement shall be sent to account holder at the end of each quarter. If
there are no transactions in any quarter, no transaction statement may be sent for
that quarter.



 If there are no transactions and no security balance in an account, then no further
transaction statement needs to be provided.
 Transaction statement shall be required to be provided for the quarter in which the
account became a zero balance account.

2. Holding Statement
 One annual physical statement of holding shall be sent to the stated address of the
account holder in respect of accounts with no transaction and nil balance.
 One annual physical statement of holding shall be sent in respect of remaining
accounts in physical or electronic form as opted for by the account holder.

Note: The electronic statements shall be provided free of costs. However, for physical statements,
DPs have to provide two statements free of costs to the account holder during the billing cycle. But
additional statements will be charged a fee, which cannot be more than Rs.25.