Depository Lecture

8/3/2019 Depository Lecture

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DEPOSITORYSYSTEM


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What Is Scrip Based System?

Scrip based system of securities transactions

involves enormous paper work involvingcertificates and transfer deeds.

There is physical movement of securitiescertificates along with transfer .

Simply, securities are held in physical form.


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Problems with scrip based

system:

1. Time consuming (processing time by co.)

2. Bad deliveries due to signature difference3. Mistakes in completion of transfer deeds

4. Tearing and mutilation of certificates

5. Fake certificates6. Cost of transfer : stamp duty

7. Postal delays and charges etc.


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Dematerialization

Process by which physical certificates of an

investor are converted to an equivalentnumber of securities in electronic form andcredited in to the investors account with

his/her DP


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Rematerialization

Converting securities from electronic form to

physical form.


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DEPOSITORY

An Organisation thatholds securities of

investor in electronicformat at the request ofthe investor through aregistered DepositoryParticipant.


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DEPOSITORY PARTICIPANT

An agent of the depository through which itinterfaces with the investor. A DP can offer

depository services only after it getsregistration from SEBI.


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Who can be Depository

Participant?

In terms of the Depositories Act, 1996, SEBI(Depositories & Participants) Regulations,1996, only thefollowing entities are eligible to become a DepositoryParticipant:

Financial Institutions,

Banks, including approved foreign bank

Custodians,

Stockbrokers,

A clearing corporation or a clearing house of a stock exchange

A non-banking finance company,

A registrar to an issue or share transfer agent


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A Bank-Depository Analogy

Bank Depository1.Holds funds in an account

on behalf of a customer

1.Holds securities in an

account on behalf of aninvestor.

2.Transfer funds between

accounts on the instruction

of the account holder.

2.Transfer securities between

accounts on the instruction

of the account holder.3.Physical handling of funds

is avoided.

3.Physical handling of

securities is avoided.

4.Provides safe custody of

fund

4.Provides safe custody of

securities.


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What is depository system

A system in which securities of an investor

are held by depository on behalf, and at therequest, of an investor in an Electronic Form.

This system is also know as Scrip LessTrading system.


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Types of ownership

REGISTEREDOWNER

BENEFICIALOWNER

In the depository system, the ownership of securities

dematerialized is bifurcated in to:


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Who can be a depository:

Depository Act, 1996 provides that -

Depository means:

A company formed and registered under thecompanies Act, 1956, and

Which has got a Certificate of Registration from theSEBI.


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Constituents of depository system

There are basically four participant:

The Depository The Depository Participant

The Issuing Company

The Investor


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Features of Depository system

In the depository system, securities are held in

depository accounts, which is more or less similar toholding funds in bank accounts.

Transfer of ownership of securities is done throughsimple account transfers.

This method does away with all the risks and hasslesnormally associated with paperwork.

Consequently, the cost of transacting in a depositoryenvironment is considerably lower as compared to

transacting in certificates.


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Features of depository system in

India

1. In the depository system, the apex body is the

Depository..2. A depository can be compared with a bank

3. Depository services through depository

participants.4. Fungibility

5. Registered Owner/ Beneficial Owner (two typesof owner)


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Benefits to investors:

1. The transactions in electronic mode eliminated the risk andproblems of delays.

2. The risk of bad deliveries is totally eliminated

3. There is no requisite of filling up the transfer deeds, payment oftransfer stamp duty and a lot of other paper work at the end ofthe investor.

4. It totally eliminates the risk associated with fraudulentinterception of certificates in postages or transits..

5. Transfer of ownership of securities is immediate in case ofdepository mode.

6. The investment, automatically, becomes more liquid.

contd.


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Contd.

7. The problem of odd lot is also eliminated, as thedepository mode does not have any concept of market lot.

8. Holding investments in equity and debt in a singleaccount.

9. Transmission of securities is done by DP eliminatingcorrespondence with companies.

10. Nomination facility.


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Benefits to the issuing company:

1. The company saves a lot of paper work which otherwiseis required in the physical mode.

2. The company saves a postal cost for the dispatch of rightshares, bonus shares or share certificates after affectingthe transfer.

3. By offering depository services to its shareholders, acompany may send a positive sign to its shareholdersabout its concern for their welfare.

4. Depository services adds liquidity to the security thus fundraising capacity of the company.


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Benefits of availing depository

services

Safe & convenient

Immediate transfer of securities

No stamp duty for transfer of securities

Elimination of risks with physical certificates

Reduction in paper work & transaction cost

Nomination facility

Change in address gets automatically updates withall companies

Automatic credit in demat accounts


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Depositories in India

The depository model adopted in India provides for

a competitive multi-depository system. There canbe various entities providing depository services.Such system is known as Multi-DepositorySystem.

At present two Depositories are registered withSEBI.


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No. of Depositories registered with

SEBI

National Securities Depository Limited (NSDL):-thelargest depository of Indian stocks.

Trades done is NSE - National Stock Exchange arelinked directly to NSDL.

Central Depository Services Limited (CSDL)-Bombay

Stock Exchange are linked directly to CDSL.


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NATIONAL SECURITIESDEPOSITORIES LIMITED

NSDL is the first and largest depository in India,

and established in 1996 It has 287 depository Participants

Public company with paid up capital of Rs. 104 Cr.

Paperless trading in little over 3yrs.

More than 1 Cr. Investor a/cs making it secondlargest depository in the world.


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PROMOTERS OF NSDL

1. Industrial Development Bank of India Limited2. Unit Trust of India

3. National Stock Exchange of India Limited


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SHAREHOLDERS OF NSDL

State Bank of India

Oriental Bank of Commerce Citibank

Standard Chartered Bank

HDFC Bank Limited

Canara Bank Union Bank of India


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CENTRAL DEPOSITORY SERVICES(INDIA) LIMITED

This is the second depository in India.

This was formed and registered in 1999. It has 517 DPs

Net worth of Rs.104 Cr.


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PROMOTERS OF CDSL

Bombay Stock Exchange Limited

Bank of India,

Bank of Baroda,

State Bank of India and

HDFC Bank


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SHAREHOLDERS OF CDSL

Standard Chartered Bank

Centurion Bank of Punjab Ltd

Canara Bank

Union Bank of India

Bank of Maharashtra

Jammu and Kashmir Bank Limited The Calcutta Stock Exchange Association

Limited

Others

Depository Lecture

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