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What is a depository???
It is an Organization that holds securities of an investor in electronic
format through a registered Depository Participant.
A depository in very simple terms is a pool of pre-verified shares held in
electronic mode
It offers settlement of transactions in an efficient and effective way.
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BANK DEPOSITORYHolds Funds in an Account Hold securities in an account
Transfers Funds between
accounts
Transfers securities between accounts
Facilitates transfers without
having to handle money
Facilitates transfers of ownership
without having to handle securities
Facilitates safekeeping of
money
Facilitates safekeeping of shares
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Why did depositories comeinto existence?? Large volume of paper work
Paper based trading, clearing and settlement
Fake and stolen shares
Fake signatures and signature mismatch
Duplication and mutilation of shares
Transfer problems
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History First depository- 1947 Germany
In India- 1996 (DEPOSITRIES ACT,1996)
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NSDL
National Securities Depository Limited
Registered by SEBI on June 7 1996
First Depository to trade in Demat form
Promoted by IDBI,UTI,NSE NSDL has 359 DPs registered with SEBI
CDSL
Central Depository Services Limited
Commenced during Feb 1999
Promoted by Stock Exchange Mumbai CDSL has 619 DPs registered with SEBI
Depositories in India
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Legal framework for adepository
A depository system is governed by:
SEBI ACT,1992
The SEBI(Depositories and Participants) Regulations
1996
Byelaws of depository
Business rules of depository The Companies Act 1956
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At present 10 Stock Exchanges are connected to the
Depositories:1. NSE
2. The SE , Mumbai
3. Calcutta Stock Exchange
4. Delhi SE5. Ludhiana SE
6. Bangalore SE
7. Over the counter exchange of India
8. Madras SE
9. Inter connected SE
10. Ahmedabad SE
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Depositorysystem
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CONSTITUENTS
OF DEPOSITORY
SYSTEM
DEPOSITORY
PARTICIPANT
(DP)
BANKINGSYSTEM
INVESTOR
DEPOSITORY
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Facilities offered
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Dematerialisation
Conversion of the physical certificates into dematerialized holdings
Only shares registered in the name of the a/c holder are accepted
An investor may demat a part of his holdings and hold the balance in
physical mode
Demat shares are fungible.
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Rematerialisation
It is the exact opposite of Dematerialisation
It means conversion of demat holdings back into certificates
To get the securities in physical form, the investor has to request DP
for remat
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Trading
The Investor can purchase securities through his broker or DP
He can even sell his securities
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Opening an Account Foropening demat a/c, the following documents are required:
Demat opening form duly filled
Address proof
Photograph
Once a demat a/c is opened investor must sign an agreement with the DP
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
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Account transfer Transfers resulting from settlement of shares
Transactions between various beneficial owners
Other transactions like:
Buying of securities Selling of securities
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PledgingDepositories allow the securities placed with them to be
used as collateral to secure loans and other credits
Pledging demat securities is easierBoth borrower (pledger) and lender (pledgee) must have
depository a/cs
Pledgee should confirm the request through his DP
After the loan is repaid, the borrower can request for aclosure of pledge by instructing his DP
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Some other facilities are:
Redemption or Repurchase
Nomination
Demat of debt instruments
Dealing in Govt. Securities etc.
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Safety features indepositories
DP cannot effect any debit or credit in the demat a/c without the
consent of the investor
Regular reconciliation between DP and depositories
Periodic inspection by depositories of the office of DP
All investors receive their statement of a/cs periodically from the DP
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Benefits of depositories To the nation:
Growing and more liquid markets
Increase in competitiveness in the international market
Minimises the settlement risks and frauds in transactions
Helps to reduce delay in trading practices
Improved prospects for privatization
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To the inves t or
Reduces risks involved in holding physical certificates
Ensures transfer settlements and reduces delay in
registration of shares
Ensures faster communication to investors
Helps avoid bad delivery problem
Ensures faster payment on sale of shares
It provides more acceptability and liquidity of
securities
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To the brokers Reduces risk of delayed settlement
Ensures greater profit due to increase in volume
of trading
Eliminates chances of forgerybad delivery
Increases overall trading and profitability
Increases confidence in investors
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CREDITS HITEN BALANI 07 VASISHT GOPALKA 17
SAMYAK JAIN 27
PRANOTI PURO 37
ASHWINI SHAH 47
HARSH THARIANI 57