Depository System

DEPOSITORY
SYSTEM
DEPOSITORY
 A "Depository" is a facility for holding securities, which
enables securities transactions to be processed by book entry.
 To achieve this purpose, the depository may immobilize the
securities or dematerialise them (so that they exist only as
electronic records).
 In India, a depository is an organisation, which holds the
beneficial owner's securities in electronic form, through a
registered Depository Participant (DP).
 A depository functions somewhat similar to a commercial
bank. To avail of the services offered by a depository, the
investor has to open an account with a registered DP.
What is dematerialisation?
 "Dematerialisation" is a process by which physical

certificates are converted into
electronic form.
Who is a Beneficial Owner (BO)?
 "Beneficial Owner" is a person in whose name a demat

account is opened with CDSL for the purpose of holding
securities in the electronic form and whose name is recorded
as such with CDSL.
Who is a Depository Participant (DP)?
 A "Depository Participant" (DP) is an agent of the depository

who is authorised to offer depository services to investors.
 Financial institutions, banks, custodians and stockbrokers

complying with the requirements prescribed by SEBI/
Depositories can be registered as DP.
SERVICES PROVIDED BY DP
 Dematerialisation, i.e. getting physical securities converted
into electronic form.
 Rematerialisation, i.e. getting electronic securities balances
held in a Beneficial Owner (BO) account converted into
physical form.
 To maintain record of holdings in the electronic form.
 Settlement of trades by delivering / receiving underlying
securities from / in BO accounts.
 Settlement of off-market trades i.e. transactions between BO’s
entered outside the Stock Exchange.
Cont…
 Providing electronic credit in respect of securities allotted by
issuers under IPO or otherwise.
 Receiving on behalf of demat account holders non-cash
corporate benefits, such as, allotment of bonus and rights
shares in electronic form or securities resulting upon
consolidation, stock split or merger / amalgamation of
companies.
 Pledging of dematerialised securities & facilitating loans
against shares.
 Freezing of the demat account for debits, credits, or both.
 Internet facilities "easi" and "easiest", if the DP is registered
for the same with CDSL.
Central Securities Depository
 A Central Securities Depository (CSD) is an organization
holding securities either in certificated or uncertificated
(dematerialized) form, to enable book entry transfer of
securities.
 In some cases these organizations also carry out centralized
comparison, and transaction processing such as clearing and
settlement of securities.
 The physical securities may be immobilised by the depository,
or securities may be dematerialised (so that they exist only as
electronic records).
FUNCTIONS OF DEPOSITORY SYSTEM
 Safekeeping:
Securities may be in dematerialized form, book-entry only form
(with one or more "global" certificates), or in physical form
immobilized within the CSD.
 Deposit and Withdrawal:

Supporting deposits and withdrawals involves the relationship
between the transfer agent and/or issuers and the CSD. It also
covers the CSD's role within the underwriting process or listing
of new issues in a market.
Cont…
 Dividend, interest, and principal processing, as well as
corporate actions including proxy voting:
Paying and transfer agents, as well as issuers are involved in
these processes, depending on the level of services provided
by the CSD and its relationship with these entities.
 Other services: CSD's offer additional services aside from

those considered core services. These services include
Securities Lending and Borrowing, Matching, and Repo
Settlement.
Cont…
 Pledge:
Central depositories provide pledging of share and securities.
Every country require to provide legal framework to protect
the interest of the pledgor and pledgee.
BENEFITS OF DEPOSITORY SYSTEM
 Elimination of bad deliveries.

 Elimination of all risks associated with physical certificates.
 No stamp duty.
 Immediate transfer and registration of securities.
 Faster settlement cycle.
 Faster disbursement of non cash corporate benefits like rights,
bonus, etc.
 Reduction in brokerage by many brokers for trading in
dematerialised securities.
Cont…
 Reduction in handling of huge volumes of paper.
 periodic status reports.
 Elimination of problems related to change of address of
investor.
 Elimination of problems related to transmission of demat
shares.
 Elimination of problems related to selling securities on behalf
of a minor.
 Ease in portfolio monitoring.

Depository System

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DEPOSITORY

 "Dematerialisation" is a process by which physical

 "Beneficial Owner" is a person in whose name a demat

 A "Depository Participant" (DP) is an agent of the depository

 Financial institutions, banks, custodians and stockbrokers

 Deposit and Withdrawal:

 Other services: CSD's offer additional services aside from

 Elimination of bad deliveries.

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