Module 4

Depositories
Definition
⚫ Location for keeping securities
⚫ It is held on behalf of investors
⚫ They are recorded in the books of
investors in electronic form.
⚫ Fully automated
⚫ Helps in script less or demat transaction
⚫ They hold securities through a registered
depository participant
Objectives
⚫ Duplicate share certificates, and bad
deliveries are avoided as it is demat
⚫ Easy transfer, quick liquidity.
⚫ Fast transfer of securities.
⚫ It reduces the cost of a transaction for the
investors.
⚫ Easy.
⚫ Perfect record of the holdings for an
investor. This is because all the details are
stored in electronic form.
⚫ Technology advancement, complying to
global standards, it attracts foreign
Activities
⚫ Accept deposit of securities
⚫ Book entry
⚫ Transfer of securities
⚫ Distribution of interest and dividend
⚫ Redemption
Depository system -
participants
⚫ Issuer
⚫ Owner
⚫ Depository participant
⚫ Main Depository
4 players
⚫ The issuer is the company which issues the security maintains
a register for recording the names of the registered owners of
securities. These issuers send a list of shareholders, who opt
for the depository system, to the depositories.
⚫ A beneficial owner is the real owner of the securities who has
lodged his securities with the depository in the form of book
entry. He has all the rights and liabilities associated with the
securities.
⚫ A participant is an agent of the depository. He functions as a
bridge between the depository and the beneficial owners. He
maintains the ownership records of every beneficial owner in
book entry form. Both the depository and the participant
have to be registered with the Securities and Exchange Board
of India. The investor obtains Depository Services through a
DP. A
⚫ DP can be a bank, financial institution, a custodian, a broker,
or any entity eligible as per SEBI (Depositories and
Participants) Regulations, 2018.
⚫ The SEBI regulations and NSDL/CDSL bye laws lay down the
criteria for any of these categories to become a DP.
⚫ Just as one opens a bank account in order to avail of the
services of a bank, an investor opens a depository account
Main Depository
NSDL
⚫ NSDL, one of the largest Depositories in the
World, established in August 1996.
⚫ Has a state-of-the-art infrastructure that
handles most of the securities held and settled
in dematerialized form in the Indian capital
market.
⚫ The capital market is more than a century old
and the paper-based settlement of trades
caused substantial problems like bad delivery
and delayed transfer of title, etc.
⚫ The enactment of Depositories Act in August
1996 paved the way for establishment of
NSDL.
⚫ Though NSDL commenced operations with
just three DPs, Depository Participant Services
are now available in most of the major cities
NSDL Functions
⚫ NSDL works to support the investors and brokers
in the capital market.
⚫ NSDL aims at ensuring the safety and soundness
of Indian marketplaces by developing settlement
solutions that increase efficiency, minimize risk
and reduce costs.
⚫ NSDL, plays a central role in developing products
and services that will continue to nurture the
growing needs of the financial services industry.
⚫ In the depository system, securities are held in
depository accounts, which is more or less similar
to holding funds in bank accounts.
⚫ Transfer of ownership of securities is done
through simple account transfers. This method
does away with all the risks and hassles normally
associated with paperwork.
⚫ The cost of transacting in a depository
environment is considerably lower as compared to
CDSL
⚫ Central Depository Services Limited
(“CDSL”) was found in 1999 to fulfil one
goal: Convenient, Dependable and secured
depository services.
⚫ Dematerialisation of various asset classes,
e-services – have all been in support of
that singular goal, at an affordable cost.
Clearing and settlement
⚫ The clearing corporations/stock exchanges
have to be electronically linked to the
depository in order to facilitate the
settlement of the trades done on the stock
exchanges for dematerialised shares.
⚫ At present, all the major clearing
corporations/houses of stock exchanges are
electronically connected to NSDL or CDSL
T+2 Buy
⚫ T day 1: Buy- money + brokerage debited
from the buyer account
⚫ T+1 day 2: the money required to purchase
the shares is collected by the exchange
along with exchange transaction charges
and Security transaction tax.
⚫ T+2 day 3: around 11 AM shares are debited
from the person who sold the shares and
credited to the brokerage with whom
trading was done, who will in turn credit it
to buyer’s DEMAT account by the end of
the day.
⚫ Similarly, money that was debited from
buyer is credited to the person who sold
Sale
⚫ The day a person sells the stocks is called
the trading day, represented as ‘T Day’.
⚫ The moment he sells the stock from his
DEMAT account, the stock gets blocked.
⚫ Before the T+2 day, the blocked shares are
given to the exchange.
⚫ On T+2 day he would receive the funds
from the sale which will be credited to his
trading account after deduction of all
applicable charges.
Thank You