Depository system in IndiaIn 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.

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 work for facilitating the 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 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.

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 OPENING, DEMATER-IALISATION, REMATERIALISATION, SETTLEMENT, INITIAL PUBLIC OFFER FOR CORPORATE BENEFITS, PLEDGING

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 securities

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.