what is depositiory,its function,who can be depositior,depositiories operates in india currently , how to open DEMAT A/C ?

1. DEPOSITORY SYSTEM
BY :INDERPAL SAINI

2. INTRODUCTION
 What is Depository?
An organization where the securities of an investor are held in
electronic form at the request of the investor and which carries out
the securities transactions by book entry through the medium of a
depository participant.
 What is a Depository System?
A system whereby transfer of securities takes place by means of
book entry on the ledgers of the Depository without physical
movement of scripts.

3. FOLLOWING PROBLEMS RESULTED IN
FORMATION OF DEPOSITORY
 Before introduction of Depository system, the problems
faced by investors and corporates in handling large volume
of paper were as follows:
 Bad deliveries
 Fake certificates
 Loss of certificates in transit
 Mutilation of certificates
 Delays in transfer
 Long settlement cycles
 Mismatch of signatures
 Delay in refund and remission of dividend etc

4. HISTORY
 The first depository was set up way back in 1947 in
Germany.
 In India it is a relatively new concept introduced in
1996 with the enactment of Depositories Act 1996
 Their operations are carried out in accordance with
regulations made by SEBI ,bye-laws and rules of
Depositories Act and SEBI (Depositories and
Participants) Regulations Act 1996

5. MEANING
 The term Depository means a place where a
deposit of money, securities, property etc is
deposited for safekeeping under the terms of
depository agreement
 A depository is an organisation, which assists in the
allotment and transfer of securities and securities
lending.
 The shares here are held in the form of electronic
accounts i.e dematerialised form and the
depository system revolves around the concept of
paper-less or scrip-less trading.

6.  It holds the securities of the investors in the
form of electronic book entries avoiding risks
associated with paper
 It is not mandatory and is left to the investor
to decide
 Depositories carry out its operations through
various functionaries called business
partners

7. LEGAL FRAMEWORK FOR A DEPOSITORY
 A depository system is governed by the
following acts
 Securities & Exchange Board of India Act
1992
 The SEBI(Depositories and Participants)
Regulations, 1996
 Bye –laws of depository
 Business rules of depository
 The Companies Act 1956

8. FEATURES OF DEPOSITORY SYSTEM
 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.
 Consequently, the cost of transacting in a
depository environment is considerably lower
as compared to transacting in certificates.

9. WHO CAN BE A DEPOSITORY:
Depository Act, 1996 provides that -
Depository means:
 A company formed and registered under the
companies Act, 1956, and
 Which has got a Certificate of Registration
from the SEBI.

10. MECHANISM OF DEPOSITORY SYSTEM
 The Depositories Act envisages that each depository will have its
agents to be known as ‘depository participants’ (DPs), who shall be
a crucial link between the investors and the depository.
 As per SEBI guidelines, financial institutions, banks, stock brokers
etc, can become DPs after following the norms prescribed under
SEBI(Depositories and Participants) Regulations, 1996 and other
applicable conditions.

11. CONSTITUENTS OF DEPOSITORY
SYSTEM
There are basically four
participant:
 The Depository
 The Depository Participant
 The Issuing Company
 The Investor

12. DEPOSITORIES IN INDIA
 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.
 At present two Depositories are registered
with SEBI.
 NSDL & CDSL

13. DEPOSITORIES IN INDIA
 Presently there are two Depositories working in
India:
 National Securities Depository Limited (NSDL)
 NSDL was formed and registered under the
Companies’ Act 1956 during December 1995 and
commenced operations during november1996.
 NSDL was promoted by Industrial Development
Bank of India (IDBI)-the largest development bank in
India, Unit trust of India (UTI)-the largest mutual
fund in India and National stock exchange (NSE)-
the largest stock exchange in India.
 Some of the prominent banks in the country also
have a stake in NSDL.

14. CDSL
 Central Depository Services (India) Limited
(CSDL)
 Central Depository services (India) limited
which commenced operations during
February 1999.
 CSDL was promoted by Stock Exchange,
Mumbai in association with Bank of Baroda,
Bank of India, State Bank of India and HDFC
Bank.

15. DP
 DP : DP is an agent of the depository and
functions as the interacting medium between
the depository and the investor
 He should be registered with the SEBI
 Must possess requisite qualifications
prescribed by the concerned depository of
which he is a participant
 He is responsible for maintaining the
investors’ securities a/c with the depository
and handles them as per the investors written
instructions
 He is linked to a broker who trades on behalf
of investors

16.  To avail their services an account similar to a
bank a/c has to be opened with the DP
 As per SEBI Regulations , financial
institutions, banks, custodians, stock brokers
etc can become DP’s
 However investors may choose DP’s of their
choice and also deal with 1 or more DP;s at
a time

17. INVESTORS [BENEFICIAL OWNER]
 Individual
 Partnership Firm
 HUF
 Company
“Beneficial Owner” is a person in whose name a
demat account is opened with Depository for the
purpose of holding securities in the electronic
form

18. RIGHTS AND OBLIGATIONS
 The rights and obligations of depositories,
depository participants, issuers and beneficial
owners are spelt out clearly in the Depositories Act
1996.
 As per the Act :
 • Section 4: DP is an agent of the Depository: A
DP is an agent of the depository, who provides
various services of the depository to investors.
The DP has to enter into an agreement with the
depository to this effect. Any investor who would
like to avail the services of a depository has to
enter into an agreement with any DP of his choice.
The DP will then make the depository services
available to the investor.
 • Section 7: Free Transferability : The securities
held by an investor in the depository are freely
transferable from one beneficial owner to another.

19.  Section 8: Option to hold securities in demat form : In the
depository system, every investor subscribing to securities
offered by an issuer has an option to receive the same in
physical form or dematerialised form. If an investor opts for
receiving the securities in dematerialised form, the issuer
intimates the depository the details of allotment of security. On
receipt of this information, the depository enters the name of
the allottee as the beneficial owner of that security in its
record.
 • Section 9: Securities held in a depository are fungible :
All securities held by the depository are in dematerialised and
fungible form.
 • Section 10: Registered Owner and Beneficial Owner :
The depository is deemed to be the registered owner for the
purpose of effecting transfer of ownership of security on
behalf of a beneficial owner. But as a registered owner, it does
not have any voting rights or any other rights in respect of
those securities. The beneficial owner is entitled to all rights
and benefits as well as subject to all liabilities in respect of his
securities held in the depository.

20.  Section 14: Option to opt out of
depository : A beneficial owner may opt
out of a depository in respect of any
security by requisite intimation to the
depository.
 • Section 16: Depository to indemnify
losses : A depository shall indemnify a
beneficial owner, any loss caused due to
negligence of the depository or its
participant.

21. ELIGIBILITY CRITERIA FOR A DEPOSITORY
 Any of the following may promote a
depository:
 1. A public financial Institution as defined in section
4A of the Companies Act, 1956;
 2. A bank included in the Second Schedule to the
Reserve Bank of India Act, 1934;
 3. A foreign bank operating in India with the
approval of the Reserve Bank of India;
 4. A recognised stock exchange;
 5. An institution engaged in providing financial
services where not less than 75% of the equity is
held jointly or severally by these institutions;
 6. A custodian of securities approved by
Government of India, and
 7. A foreign financial services institution approved
by Government of India.

22.  The promoters of a depository are also known as
its sponsors.
 A depository company must have a minimum net
worth of Rs. 100 crore.
 The sponsor(s) of the depository have to hold at
least 51% of the equity capital of the depository
company. Participants of that depository, if any,
can hold the balance of the equity capital.
 However, no single participant can hold, at any
point of time, more than 5% of the equity capital.
No foreign entity, individually or collectively either
as a sponsor or as a DP, or as a sponsor and DP
together, can hold more than 20% of the equity
capital of the depository.

23. BENEFITS OF DEPOSITORY SYSYEM
 No risks associated with physical certificates such as
loss of share certificate, Fake securities, Etc.
 No bad delivery.
 Faster settlement cycles.
 Low transaction cost for purchase and sale of
securities compared to physical mode.
 Increase liquidity of securities
 Reduction of paper work
 Allotment of IPO, Bonus, Rights shares etc. in
electronic form
 Wavier of stamp duty on transfer of securities
 Intimation like change of address, bank mandate,
nomination, request of transmission, required to be
given only to Depository Participant (DP) Irrespective
of the number of companies in which shares held.

24. DOCUMENTS REQUIRED FOR OPENING DEMAT
ACCOUNT
 Demat account opening form duly filled
 Address proof
 Photograph
 Identity proof

25.  Opening of depository system: SEBI has made
compulsory trading of shares of all the companies
listed in stock exchanges in demat form w.e.f 2nd
jan 2002
 Hence if the investor wants to trade in respect of
the companies which have established connectivity
with NSDL & CSDL, he may have to open a
beneficiary a/c

26.  Once a demat a/c is opened investor must sign an
agreement with the DP and the investor will be
allotted an account no. called as client identity
 No minimum balance is required
 The investor is provided with a transaction
statement by his DP at regular intervals based on
which the investor will know his security balances

27. DEMATERIALIZATION
 Dematerialization is the process of
conversion of shares or other securities held
in physical form into electronic form.

28. DEMATERIALISATION
 Introduced in India through the enactment of
the Depositories Act, 1996
 It is not mandatory
 One may keep its holding partly in physical
form and partly in Demat form
 A select list of securities announced by SEBI
can be delivered only in demat form in the
stock exchanges connected to NSDL

29.  Open an account with DP
 Fill up the Dematerialization Request Form and
submit together with share certificate which is to
be demat.
 The DP upon receipt of the shares and the DRF,
will issue an acknowledgement and will send an
electronic request to the Company/Registrars and
Transfer Agents of the Company through the
Depository for confirmation of demat.
 DP ,then issues an acknowledgement to the
investor and afterwards follows the following
procedure :
 (a) Defaces the Share Certificates by putting a
rubber stamp "Surrendered for Dematerialization“
and by punching two holes on the name of the
company on the Share Certificate.
DEMATERIALISATION PROCESS

30.  (b)Generates a Demat Request Number(DRN)
through his Depository Participant Module (DPM)
and fills the same in DRF at the appropriate place.
 (c)Sends an electronic communication to
Depository viz. NSDL or CDSL, as the case
maybe, to the effect that so many shares of this
company (Identified by ISIN (International Security
Identification Number) have been received for
dematerialization.
 (d)Sends the DRF and Share Certificates to the
company by courier. The role of DP comes to an
end with this but he must send a reminder incase
credit of shares is not received in demat account of
investors within a month.
 The depository electronically downloads the
particulars of demat request, received from DP and
sends to the electronic Registrar of the company so
that these shares could be dematerialized.

31.  Separate folios should be created in computer in the names of NSDL
and CDSL to which dematerialized shares will be transferred.
 The particulars mentioned in DRF should be checked from Share
Certificates. This is very much similar to scrutiny of Share Certificates
and Transfer Deed in case of Transfer of shares. However, special
attention should be given that the pattern of holding written on DRF is
the same as the endorsement on Share Certificates.
 Signatures or shareholders on DRF should be verified from the
specimen signatures as per records of the company. All the joint
holders should sign the DRF.
 The ISIN should be mentioned in the DRF. This, to a certain extent,
ensures that the security mentioned in the DRF is the one, which the
investor intends to dematerialize.
 The data of all demat requests received viz. DRN, DP-Id, Client-Id,
Distinctive Nos. of Shares are entered in computer.
 After completion of data entry, a checklist containing all the demat
requests is generated which should be checked thoroughly to ensure
that only those shares for which Share Certificates have been received
are dematerialized.

33. PROCEDURE OF DEMAT- FOR AN
INVESTOR
 Fill DRF(Demat Request
Form) available with DP
 Deface the share
certificate(s) one wants
to dematerialise by
writing across
“Surrendered for
Dematerialisation”
 Submit the DRF and
Share Certificates to DP
 DP would forward them to
the issuer/their Registrar
& Transfer Agent
 Investor’s depository a/c
would be credited with
the dematerialised
securities

34. REMATERIALISATION
 The process of getting the securities in an
electronic form, converted back into the
physical form is known as Rematerialisation.
An investor can rematerialize his shares by
filling in a Remat Request Form (RRF).

35. REMATERIALIZATION PROCESS
 The client will submit a request to the DP for rematerialisation of holdings
in its account.
 On receipt of the request form, the DP will verify that the form is duly filled
in and issue to the client, an acknowledgement slip, signed and stamped.
 The DP will verify the signature of the client as on the form with the
specimen available in its records.
 If the signatures are different the DP will ensure the identity of the client.
 • If the form is in order the DP will enter the request details in its DPM
(software provided by NSDL to the DP). While entering the details, if it is
found that the clients account does not have enough balance, the DP will
not entertain the request.
 The DP will intimate the client that the request cannot be entertained
since the client does not have sufficient balance.
 If there is sufficient balance in the clients account, the DP will enter the
request in the DPM and the DPM will generate a Rematerialisation
Request Number (RRN).

36.  The RRN so generated is entered in the space provided for the
purpose in the rematerialisation request form.
 Details recorded for the RRN should be verified by a person other than
the person who entered the data. The request is then released to the
DM by the DP.
 The DM forwards the request to the Issuer/ R&T agent electronically.•
The DP will fill the authorization portion of the request form.
 While processing the request, the Issuer/ R&T agent may report some
objections. Depending on the nature of objection, the Issuer/ R&T
agent may reject the request or process it partially, seeking rectification
for the remaining, and send an objection memo to the DP.
 The Issuer/ R&T agent accepts the request for rematerialisation prints
and dispatches the certificates to the client and sends electronic
confirmation to the DM.
 The DM downloads this information to the DPM and the status of the
rematerialisation request is updated in the DPM.
 The DP must inform the client about the changes in the client account
following the acceptance of the request.

39. THANK U