The document discusses the depository system in India. It notes that the need for a depository system was realized after irregularities in securities transactions in 1992 exposed limitations of the existing physical system. A depository system benefits investors, issuers, intermediaries, and the nation by reducing time between allotment and transfer of shares, improving efficiency, and eliminating problems of physical certificates. The Depositories Act of 1996 established the legislative framework and requires depositories and participants to register with SEBI. The National Securities Depository Limited commenced operations in 1996 as the first depository in India.

1. Depository system in India
In India the need for setting up a
depository was realised after the large
scale of irregularities in securities
transactions of 1992 exposed the
limitations of the prevailing system.

2. 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.

3. 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.

4. 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.

5. The Depositories Act was passed by
the parliament in the August,1996.
Which lays down the legislative frame
work for facilitating the
dematerialisation and book entry
transfer of securities in a depository.

6. 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).

7. The depository shall carry out the
dematerialisation of securities and the
transfer of beneficial ownership
through electronic book entry. The
investors, however, have the option to
hold securities in physical or
dematerialised form, or to remater-ise
securities previously held in
demateialised form.

8. 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.

9. 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.

10. 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.

11. 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.

12. 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.

13. 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.

14. DEPOSITORY FUNCTIONS – ACCOUNT
OPENING, DEMATER-IALISATION,
REMATERIALISATION, SETTLEMENT,
INITIAL PUBLIC OFFER FOR
CORPORATE BENEFITS, PLEDGING

15. DEPOSITORY PARTICIPANT (DP) is the
representative of the investor in the
depository system providing the link
between the Company and investor
through the Depository.

16. LINKAGE – ISSUER & DEPOSITORY
AND DP & INVESTOR

17. Benefits of depository system –
Elimination of bad
deliveries, elimination of risks
associated with physical
certificates, Immediate transfer &
registration of securities

18. Faster disbursement of non cash
benefits rights, bonus etc. Reduction in
brokerage, Reduction in handling of
paper & periodic reports to investor

19. Elimination of problems related to
change of address of investor,
transmission etc.