Advantages of the Depository System

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1. Investor must submit request form and share certificate to DP.2. DP will check whether security is available for Demat. Investor must

deface the share certificate by stamping surrendered for

dematerialization and DP will punch two holes on the name of the

company and will draw two parallel lines across the face of the

certificate.

3. DP enters the Demat request in their system to be sent to thedepository. DP dispatches the physical certificates along with the

DRF to the RTA/ Company.

4. Depository records the details of the system and forwards the requestto Registrar and transfer agent or issuer i.e. the company whose

shares are sought to be dematerialized.

5. RTA Company on receiving the physical documents verifies requestand check them. Once the RTA/Company finds that shares are in

order, dematerialization of the concerned securities iselectronically confirmed to the depository

6. Depository credits the dematerialized securities to the beneficiaryaccount of the investor and intimates the DP electronically. The DP

issues a statement of transaction to the client.

Advantages of the Depository System

The advantages of dematerialization of securities are as follows:

Share certificates, on dematerialization, are cancelled and the same will not

be sent back to the investor. The shares, represented by dematerialized


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Some disadvantages were about thedepository systemwere known

beforehand. But since the advantages outweighed the shortcomings

of dematerialisation, the depository system was given the go-ahead.

Lack of control: Trading in securities may become uncontrolled in case of

dematerialized securities.

Need for greater supervision: It is incumbent upon the capital market

regulator to keep a close watch on the trading in dematerialized securities

and see to it that trading does not act as a detriment to investors. The role

of key market players in case of dematerialized securities, such as stock

brokers, needs to be supervised as they have the capability of manipulating

the market.

Complexity of the system: Multiple regulatory frameworks have to be

confirmed to, including theDepositories Act, Regulations and the various

Bye Laws of various depositories. Additionally, agreements are entered at

various levels in the process of dematerialization. These may cause anxietyto the investor desirous of simplicity in terms of transactions in

dematerialized securities.

Besides the above mentioned disadvantages, some other problems

with the system have been discovered subsequently. With new

regulations people are finding more and more loopholes in the

system. Some examples of the malpractices and fraudulentactivities that take place are:
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Current regulations prohibit multiple bids or applications by a single

person. But investors open multiple demat accounts and make multiple

applications to subscribe to IPOs in the hope of getting allotment of shares.

Some listed companies had obtained duplicate shares after the originals

were pledged with banks and then sold the duplicates in the secondary

market to make a profit.

Promoters of some companies dematerialised shares in excess of the

companys issued capital.

Certain investors pledged shares with banks and got the same shares

reissued as duplicates.

There is an undue delay in the settlement of complaints by investors

against depository participants. This is because there is no single body that

is in chargeof ensuring full compliance by these companies.

Depositories

Depository is an organization where the securities of the shareholders are held

in electronic form at the request of the shareholder through the medium of a


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Depository Participant. In the following article we are going to learn more about

depository and depository participant.

Definition of Depository: Depository means a company formed and registered under

the companies act, 1956 and it has been granted a certificate of registration under

section 12(1A) of SEBI Act, 1992.

Two Depositories are regulated in India:

1. National Securities Depository limited (NSDL)

2. The Central Depository Services (India) Limited (CDS)

Functions of Depository:

1. Services to investors

2. Services to Participants in the capital market such as clearing

members, stock exchanges , investment institution, banks and issuing corporate

3. Account opening

4. Dematerialization

5. Rematerialization

6. Settlement of trades

7. Advanced facilities like pledging, distribution of non- cash corporate actions,

distribution of securities to allot tees in case of public issues etc.

Benefits of Depository System:

1. This system will eliminate paper work as the book entry system does not need

physical movement of certificates for transfer process.

2. The risk of bad deliveries, fraud and misplaced, mutilated and lost share

certificates will not exist.

3. The electronic media will shorten settlement time and hence the investor can

save time and increase the velocity ofsecurity movement.

4. Investors will be able to change portfolio more frequently.

5. The capital market will be more transparent as the trading, clearing and

settlement mechanism have to be highly automated and interlinked with the depository

among themselves.6. The market will be highly automated and efficient due to the usage of computing

and telecommunication technology for the back office activities for all the capital

market players.

Difference between Depository and Custodian :

Function It a part from keeping the It function is merely safe


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shares in e-form , manages

the shares on behalf of

investor

keepingof shares. It handle

Huge paper work.

Position It is a institution or can becalled as an organization

itself.

It is an in term diary.

CT There is a separate Act i.e.Depositories Act1956, a

art from SEBI

(depositories and

articipant ) Reg . 1996

There is no separate Act

and it is regulated by SEBI

(Custodian of Securities)

Reg. 1996

Models of Depository :1. Dematerialization: It is a process of conversion of physical share certificate

into electronic form . So, when a shareholder uses the dematerialization facility,

company take back the shares, through depository system and equal number of

shares are credited in his account in e-form.

2. Immobilisation: It is a process of storing of physical share certificates, with

depository for safe custody. In this model the original share certificates, can be

withdrawn, as it is lodged in depository method.

Meaning of Depository Participant and its characteristics:Depository Participant (DP): is the representative or agent of the investor in the

depository system providing the link between the Company and investor through the

Depository

Character istics of depository participant:

1. Acts as an Agent of Depository

2. Directly deal with customer

3. Functions like Securities Bank

4. Account opening5. Facilitates dematerialization

6. Instant transfer on pay out

7. Credits to investor in IPO, rights, bonus

8. Settles trades in electronic segment

Dif ference between demater ial ization and remater iaisation :


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Difference Dematerialisation RematerialisationDefinition It is a process of conversion

of physical shares

certificates into electronic

orm. So, under

dematerialization facility,

company take back the

shares, through depository

system and equal number of

shares are credited in

account in e-form.

It is a process of conversion

of electronic shares into

hysical shares. When a

beneficialowner opt out

of a depository, he will

inform about it, to the

company, through

depository. The company

will issue fresh share

certificate to the beneficial

owner, within 30 days

rom the date of request.Conversion In this, physical share

certificates converted into e-records.

In this, e- records are

converted into physicalshares certificate.

Sequence Firstly shares aredematerialize, so it is

rimary and principal

Firstly shares are

dematerialize then it is

rematerialize, so it is

secondary and supporting

se of form In this process it requires

Dematerialization Request

Form

In this process it requires

Rematerialisation Request

orm (RRF)

Rights and Obligations of Depositories and its constituents :

1. Every depository has to enter into an agreement with the issuer in respect of

securities to become eligible to held the securities in demat form.

2. Every depository is to maintain the following records and documents :

(a) Records of securities dematerialised and rematerialised

(b) Names of the transferor, transferee, and the dates of transfer of securities

(c) A register and an index of beneficial owners

(d) Details of holding of the securities of the beneficial owners as at the end of every

day.

(e) Records of instruction received from and sent to participants, issuersagents

and beneficial owners,


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Charges commission/ service

charges.

Provides interest to the account

holders.

statement of holding and statement

of transactions.

Depository Participant charges:

o Account opening and

closing fee

o Demat and Remat fee

o Transaction fee (buy, sell,

off market)

o Custody charges

In future, through stock lending, it

will be possible to earn income on

Depository Account.

Dematerialization Process

Physical Securities Electronic Form.


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Pre-requisites:

Demat Account with any DP of the Depository.

ISIN for the securities available with the Depository.

Investor should be registered holder for the securities in the books of the company.

Rematerialization

Rematerialization or remat is a compiler optimization which saves time by recomputing a value

instead of loading it from memory. It is typically tightly integrated with register allocation,

where it is used as an alternative to spilling registers to memory. It was conceived by Preston

Briggs, Keith D. Cooper, and Linda Torczon in 1992.Rematerialization works by keeping track

of the expression used to compute each variable, using the concept of available expressions.

Sometimes the variables used to compute a value are modified, and so can no longer be used to

rematerialize that value. The expression is then said to no longer be available. Other criteria must

also be fulfilled, for example a maximum complexity on the expression used to rematerialize the

value; it would do no good to rematerialize a value using a complex computation that takes more

time than a load. Usally the expression must also have no effects.

Rematerialization process

Electronic Form Physical Securities
http://en.wikipedia.org/wiki/Compiler_optimizationhttp://en.wikipedia.org/wiki/Register_allocationhttp://en.wikipedia.org/w/index.php?title=Preston_Briggs&action=edit&redlink=1http://en.wikipedia.org/w/index.php?title=Preston_Briggs&action=edit&redlink=1http://en.wikipedia.org/w/index.php?title=Keith_D._Cooper&action=edit&redlink=1http://en.wikipedia.org/w/index.php?title=Linda_Torczon&action=edit&redlink=1http://en.wikipedia.org/wiki/Available_expressionhttp://en.wikipedia.org/wiki/Available_expressionhttp://en.wikipedia.org/w/index.php?title=Linda_Torczon&action=edit&redlink=1http://en.wikipedia.org/w/index.php?title=Keith_D._Cooper&action=edit&redlink=1http://en.wikipedia.org/w/index.php?title=Preston_Briggs&action=edit&redlink=1http://en.wikipedia.org/w/index.php?title=Preston_Briggs&action=edit&redlink=1http://en.wikipedia.org/wiki/Register_allocationhttp://en.wikipedia.org/wiki/Compiler_optimization


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Initial public offers

An initial public stock offering (IPO) referred to simply as an "offering" or "flotation," is

when a company (called the issuer) issues common stockorshares to the public for the first time.

They are often issued by smaller, younger companies seeking capital to expand, but can also be

done by large privately-owned companies looking to become publicly traded.

In an IPO the issuer may obtain the assistance of an underwriting firm, which helps it

determine what type ofsecurity to issue (common orpreferred), best offering price and time to

bring it to market.

An IPO can be a risky investment. For the individual investor, it is tough to predict what the

stock or shares will do on its initial day of trading and in the near future since there is often little

historical data with which to analyze the company. Also, most IPOs are of companies going

through a transitory growth period, and they are therefore subject to additional uncertainty

regarding their future value.
http://en.wikipedia.org/wiki/Common_stockhttp://en.wikipedia.org/wiki/Share_(finance)http://en.wikipedia.org/wiki/Financial_capitalhttp://en.wikipedia.org/wiki/Privately_held_companyhttp://en.wikipedia.org/wiki/Public_companyhttp://en.wikipedia.org/wiki/Underwritinghttp://en.wikipedia.org/wiki/Security_(finance)http://en.wikipedia.org/wiki/Preferred_stockhttp://en.wikipedia.org/wiki/Investmenthttp://en.wikipedia.org/wiki/Investmenthttp://en.wikipedia.org/wiki/Preferred_stockhttp://en.wikipedia.org/wiki/Security_(finance)http://en.wikipedia.org/wiki/Underwritinghttp://en.wikipedia.org/wiki/Public_companyhttp://en.wikipedia.org/wiki/Privately_held_companyhttp://en.wikipedia.org/wiki/Financial_capitalhttp://en.wikipedia.org/wiki/Share_(finance)http://en.wikipedia.org/wiki/Common_stock


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The first sale of stock by a private company to the public. IPOs are often issued by

smaller, younger companies seeking the capital to expand, but can also be done by large

privately owned companies looking to become publicly traded. In an IPO, the issuer obtains the

assistance of an underwriting firm, which helps it determine what type of security to issue

(common or preferred), the best offering price and the time to bring it to market.Also referred to

as a "public offering".

IPOs can be a risky investment. For the individual investor, it is tough to predict what the

stock will do on its initial day of trading and in the near future because there is often little

historical data with which to analyze the company. Also, most IPOs are of companies going

through a transitory growth period, which are subject to additional uncertainty regarding their

future values.

Initial public offers process


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Trading & settlements

Transfer of securities in/ out of the Demat A/c can arise in the following instances:

For execution of Off Market Transactions.

For settling On Market Transactions.

For Inter depository transactions.

Off Market TransactionsTransaction done on person to person basis without going through stock exchange mechanism.

Pre-requisites:

Transfer of securities from one BO A/c to another BO A/c.

Both A/cs are with same Depository though with differentDPs.

Neither buyers A/c nor sellers A/c is with clearing house/clearing corporation.

Off market transaction process


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On Market Transaction

Trades done by investors through stock exchange mechanism and settled using same stockexchange mechanism.

seller as well as buyer account is with CH/CC

Inter Depository Transactions.

SEBI (Depository and participants) Regulations, 1996 requires depositories to be interconnected.

Securities available for dematerialization on both depositories.

Debit/ credit instructions have to given on inter-depository delivery or receipts forms tothe DPs of seller and the buyer.

These instructions are exchanged online for each day between the depositories

Advantages of the Depository System

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