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
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.
Depositories Act ,1996 provides for the establishment of single or
Each depository must be formed and registered as a company
under the Companies Act,1956.
The Depositories Act provides for detailed regulations to be framed
by SEBI and detailed bye-laws to be framed by depositories with the
approval of SEBI.
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
•Open a “DEMAT ACCOUNT” with a depository participant
(DP) of any depository
•DP selection by investor done on the basis of fee payable,
proximity, service levels etc.
•Fill up account opening form i.e. supported by POI and
POA(anyone approved document i.e. specified by SEBI)
•Verification of original documents by an authorized official
of the DP
•Sign an agreement with DP (Depository prescribed format)
that details rights and duties of investor and DP
•DP should provide the investor with a copy of agreement
and schedule charges for his future reference
•Account number of DP =BOID (Beneficiary Owner
In a circular (28/01/2005) ,SEBI removed three charges to
rationalize cost structure :o Account opening charges
o Transaction charges for credit of securities
o Custody charges
• One can open 1+ account with same name, DP
• Ownership Pattern(Securities in the physical form) should be taken
into consideration while opening DEMAT account
• In case of share certifications having same combination of names
(different sequence) then only one DEMAT account is opened (one
with different combinations is to be lodged for dematerialization in
the same account + “Transportation cum DEMAT” form is filled to
effect change in the order of names )
• DEMAT account can’t be opened in the name of partnership firm for
it’s not a legal entity but can be opened in the name of partners
It is the process by which physical certificate of securities of an
investor are converted to an equivalent no. of securities in an
electronic form and credited into investors account with his/her
Only share registered in the name of a/c holder are accepted for
dematerialisation at the depository.
It is noted that an investor can hold shares in physical form but for
the purpose of trading in stock exchanges shares should be in
Procedure for dematerialisation
First open a DEMAT a/c or security a/c with any DP(depository participant)
of investors choice.
Obtain a/c no. from his DP.
A dematerialisation request form(DRF) to be submitted to the DP who
intimates the depository of the request.
DP then submits the certificates along with the DRF to the registrar who
confirm the DEMAT request.
Registrar validate the request,update records,destroys the certificates and
inform the depository who in turn credits the DP a/c.
DP updates the investors a/c and informs the investors.
Once the company is admitted into Depository System,an ISIN(International
Security Identification Number) is alloted by the depository.This no. is
unique for each security of the company that is admitted in the depository
The entire process takes about 15 days time.
However when large no. of certificates are submitted from institutions,it
takes upto 30 days for DEMAT.
Procedure for buying and selling
• Investor transacts with another person dealt with depository after
providing details of his account with Depository Participant.
• Sale : Delivery Instruction Slip sent to DP, signed, containing details
• Purchase : Receipt Instruction Slip sent to DP, signed, containing
• Information electronically conveyed by DP to Depository, registers
security and debits the account of the transferor.
• DP makes appropriate book entries to record transfer and purchase,
provide statement of accounts(quarterly) and update(within15 days)
at regular intervals .
Other Special Features
Dematerialization of securities is not compulsory
Securities shall be fungible
Securities would become freely transferable
No Stamp Duty
Benefits of Depository Systems
Share transfer transactions can be effected immediately.
No stamp duty is payable on transfer of securities.
Need to post/carry shares to different locations for settlement purposes or
for registration is eliminated.
Risk of bad deliveries is eliminated.
Bonus/Right shares will be credited by the company directly to
shareholder’s depository account.
The process of transmission is more convenient.
No need to keep manual accounts of the securities held and of
transactions therein as they are received from Depository Participant(DP).
The requirement of maintaining bank vaults for safe custody of physical
certificates and frequent stock taking is eliminated.
Change of address recorded with the Depository Participant(DP) gets
registered with all companies in which investor holds securities
electronically eliminating the need to correspond with each of them