A Presentation On Depository

Sr. No.NameRoll No. 1Richita Modi5028 2Grishma Joshi5097 3Avani Patel5118 4Mansi Sanghvi5131 Group 12

 Technology has changed the face of the Indian stock markets in the post liberalization era. Competition amongst the stock exchanges has led to increase in the volume of activity.  The traditional settlement and clearing system proved to be inadequate due to operational inefficiencies. Hence, there emerged a need to place this traditional system with a new system called the ‘Depository System’.  Depository in very simple terms means a place where something is deposited for safe keeping. A depository is an organization which holds securities of a shareholder in an electronic form and facilitates the transfer of ownership of securities on the settlement dates.  According to section 2(e) of the Depositories Act, 1996, Depository means a company formed and registered under the Companies Act 1956 and which has been granted a certificate of registration under section 12 (1A) of the Securities and Exchange Board of India Act, 1992.

Need for setting up a Depository in India: This need was realized in the 1990s due to various reasons. 1.Large scale irregularities in the securities scam of 1992 exposed the limitations of the prevailing settlement system. 2. A lot of time was consumed in the process of allotment and transfer of shares, impeding the healthy growth of the capital market. 3.There were various problems associated with dealing in physical shares such as, (a) problems of theft, fake transfers. (b) share transfer delays particularly due to signature mismatches and (c) paper work involved in buying, selling and transfer leading to cost of transportation, and other back office costs.

 To overcome these problems, the government of India in 1996 enacted the Depositories Act, 1996 to start depository service in India.  Depository can be in two forms – dematerialized or immobilized.  In dematerialization, paper certificates are totally eliminated after verification by the custodians. In immobilization, initial paper certificates are preserved in safe vaults by custodians and further movement of papers are frozen.

Regulations of Depository Act  No depository shall act as a depository unless it obtains a certificate of commencement of business from SEBI.  The Act provides for establishment of one or more depositories. Every depository is required to be registered with the Securities and Exchange Board of India (SEBI) and will have to obtain a Certificate for commencement of business.  Investors opting to join the system will be required to be registered with one or more participants who will be the agents for the depository.  Every depository must have adequate mechanisms for reviewing, monitoring and evaluating the depository’s controls, systems, procedures and safeguards.

Benefits of depository system Depository system provides benefit to  The investors  The issuers

Benefits to investors Elimination of risks associated with physical certificates. The risk of bad deliveries is totally eliminated. Immediate trnsfer of ownership of securities. No stamp duty on transfer of securities. Loan against the pledge demat shares at low cost. Holding investments in equity and debt in a single account. Transmission of securities is done by DP eliminating correspondence with companies.

Benefits to the issuing company The company saves a lot of paper work which otherwise is required in the physical mode. The company saves a postal cost for the dispatch of right shares, bonus shares or share certificates. By offering depository services to its shareholders, a company may send a positive sigh to its shareholders about its concerns for their welfare.

Constitutes of depository system  The depository  The depository participant  The issuing company  The investor

Depositories A depository is an organisaion which holds the securities of an investors in an electronic form and facilitates the transfer of ownership of securities on a settlement dates. According to the sec.2(e) of depository Act,1996 Depository: A company formed and registered under the companies Act, 1956, and which has granted certificate of registration from the SEBI.

Depositories in India 1. National securities depository Ltd. (NSDL)

2. Central Depository Services (India) Ltd. (CSDL)

National Securities Depository Ltd. (NSDL) NSDL, the first and largest depository in india and established in august It has 95 crore demat A/C as on DPs in india Promoters of NSDL: o Industrial develpoment bank of india limited o Unit trust of india o National stock exchange of india limited

Central Depository Services (India) Ltd. (CSDL) This is the second depository in india and it was formed and registered in It has 65 lakhs demat A/C as on DPs in india Promoters of CSDL: o Bombay Stock Exchange Limited o Bank of Baroda o State Bank of India o HDFC Bank

Functions of depositories  Dematerialization. i.e. converting physical certificates in to their electronic form.  Rematerialization. i.e. converting securities in Demat form in to physical certificates.  Electronic settlement of trades in stock exchanges connected to NSDL.  Pledging or hypothecation of the dematerialized securities against loan.  Allocation in electronic form in case of initial public offering.

 Receipt of non-cash corporate benefits such as bonus, in electronic form.  services related to change of address.  Effective transmission of securities.  Freezing of Demat account to avoid debits from the account.  Other facilities such as holding debt instruments in same account.

Comparison of a Depository with a bank DepositoryBank Hold securities in an accountHold funds in an account Transfer securities between accounts on the instruction of the account holder Transfer funds between accounts on the instruction of the account holder Facilitators safekeeping of shares Facilitates safekeeping of money Physical handling of securities are avoided Physical handling of funds are avoided.

Depositories participants  A depository participant (DP) is an agent of the depository through which it interfaces with an investor.  DPs are appointed by depositories after an approval from SEBI.  Depository services only after it gets proper registration from SEBI.  The relationship between the DPs and the depository is governed by an agreement made between the two under the depositories act. DEPOSITORIES D.P. INVESTORS

Following entities are eligible to become a Depository participant:  Financial institutions.  Banks, including approved foreign bank.  Custodians.  Stock brokers.  A non-banking finance company.  State financial corporations.  Clearing corporation or clearing house of a stock exchanges.

Types Of Ownership In the depository system, the ownership of securities dematerialized is divided into: 1. Registered Owner 2. Beneficial Owner

Registered Owner The Registered Owner is that person whose name is registered in the register of member of the company. (issuer) For the securities dematerialized, NSDL/CDSL is the registered owner in the books of the issuer. But registered owner does not enjoy any right and liability attached with the security.

Beneficial Owner Beneficial owner is that person who enjoys all rights, duties and liabilities attached with the security. It means voting right, dividend right, bonus share right, right share right etc. are all exercised by the beneficial owner.

The Depository Process Opening An Account: An investor who wants to avail of the services will have to open account with the depository through DP Dematerialization: To convert physical holding of securities into dematerialized form by making an application to the DP in a DRF(Dematerialization Request Form)

Rematerialization: Withdrawal of security balances with the depository, investor makes an application in RRF (Rematerialization Request Form) Distributing Dividend: The company distribute dividend, interest and other monetary benefits directly to the investors on the basis of list provided by the depository. Closing An Account: An investor can close their accounts by making an application to the DP.

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