A bank or company which holds funds or securities deposited  by  others,  and  where exchanges of  these securities take place.

Depository

• India has adopted the depository system for securities trading in which book entry is done electronically and no paper is involved.

• Before the introduction of the depository system through the Depository Act, 1996, the process of sale, purchase and transfer of securities was a huge problem, and there was no safety at all.

Evolution of Depository

Key Features of the Depository System in India

1. Multi-Depository System2. Depository services

through depository participants

3. Dematerialization4. Fungibility5. Registered Owner/

Beneficial Owner6. Free Transferability of

shares

Merits of Depository• The shares, represented by dematerialized share certificates are fungible and, therefore, certificate numbers and distinctive numbers are cancelled and become non-operative.• Transfer of dematerialized securities is immediate.• The investor is also relieved of problems like bad delivery, fake certificates, shares under litigation, signature difference of transferor and the like.• The threat of loss of certificates or fraudulent interception of certificates in transit that causes anxiety to the investors, are eliminated.

Demerits of the Depository System

•Lack of control•Need for greater supervision•Complexity of the system

Dematerialization

Dematerialization refers to the substitution of paper-form securities by book entry securities.

Process of Dematerialization • Fill up a dematerialization request form,

which is available with your DP;• Submit your share certificates• Receive credit for the dematerialized

shares into your account in 15 days.

NSDL• National Securities Depository Limited (NSDL) is the

first central securities depository in India based in Mumbai. • It was founded in November 1996. • NSDL is promoted by IDBI, UTI and NSE.

CDSL

• Central Depository Services Limited (CDSL) is the second Indian central securities depository based in Mumbai.

• It was founded in 1999.

• CDSL is promoted by Bombay Stock Exchange Limited (BSE) jointly with State Bank of India, Bank of India, Bank of Baroda, HDFC Bank, Standard Chartered Bank and Union Bank of India.