Depository system in India
In India the need for setting up a depository
was realized after the large scale of
irregularities in securities transactions of 1992
exposed the limitations of the prevailing
Therefore, the need for depository
system was realised for the growth of
primary market, which would reduce
the time between the allotment of
shares and transfer of entitlements
arising out of each allotment.
The idea of setting up of a depository
and the introduction of scripless
trading and settlement for improving
the efficiency and eliminating the
various problems associated with
dealings in physical certificates.
A depository system benefits the
investing public, the issuers of
securities, the intermediaries and the
nation as a whole. The depository
system in our country was initiated by
the Stock Holding Corporation of India
Limited (SHCIL) in July,1992.
The Depositories Act was passed by
the parliament in the August,1996.
Which lays down the legislative frame
dematerialisation and book entry
transfer of securities in a depository.
The Act provides that a
depository, which is required to be a
company under the Companies
Act,1956, and depository participant i.e.
agents of the depository need to be
registered with Stock Exchange Board
of India (SEBI).
The depository shall carry out the
dematerialization of securities and the
transfer of beneficial ownership through
electronic book entry.
however, have the option to hold securities
in physical or dematerialized form, or to
rematerialize securities previously held in
SEBI has notified the regulations in
May,1996, with regard to norms for
registration of depositories and
participants, the eligibility criteria for
admission of securities to a depository.
The National Securities Depository
Limited (NSDL), the first depository in
India which has been promoted by
IDBI, UTI and NSE. It has commenced
its operation from November 8,1996.
To begin with only the capital market
segment of NSE has been associated with
the NDSL as only the NSE has a clearing
corporation (NSCCL), which guarantees
performance of trade obligations and has
been admitted into the depository.
DEPOSITORY SYSTEM – The depository
system functions like banking system. A
bank holds funds in accounts whereas a
depository holds securities in accounts for
its clients. A depository transfers securities
on the written instruction of client.
DEMATERLISATION is a process by which
the physical share certificates of an
investor are taken back by the company
and an equivalent number of securities are
credited to his account in electronic form
at the request of the investor.
An investor will have to first open an
account with a Depository Participant and
then request for the dematerialisation of
his/her/their securities (share certificate)
through the DP so that the dematerialised
holdings can be credited into that a/c.
DEPOSITORY FUNCTIONS – ACCOUNT
REMATERIALISATION, SETTLEMENT, INITIAL
PUBLIC OFFER FOR CORPORATE BENEFITS,
DEPOSITORY PARTICIPANT (DP) is the
representative of the investor in the
depository system providing the link
between the Company and investor
through the Depository.
LINKAGE – ISSUER & DEPOSITORY
AND DP & INVESTOR
Benefits of depository system – Elimination
of bad deliveries, elimination of risks
associated with physical certificates,
Immediate transfer & registration of
Faster disbursement of non cash benefits
rights, bonus etc. Reduction in brokerage,
Reduction in handling of paper & periodic
reports to investor
Elimination of problems related to change
of address of investor, transmission etc.