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SECURITY LAW - DEPOSITORY SYSTEM

Simranjeet Singh (Proprietor at S Simranjeet & Associates Company Secretaries) (4396 Points)

27 July 2010

Hello everyone i want to know that in the depository system of maintaining securities why securities are required to be kept in fungible form. what is the purpose behind the same???

and one more thing what is the concept of fungibility of securities.

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6 Replies

Ankur Garg (Company Secretary and Compliance Officer) (114773 Points)
Replied 27 July 2010

Hello,

Please find attached herewith a very useful file on Depository System. Hope this file would be off some help.

Regards

Attached File : 45 13020048 depository system.pdf downloaded: 377 times

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Simranjeet Singh (Proprietor at S Simranjeet & Associates Company Secretaries) (4396 Points)
Replied 27 July 2010

Thanks Ankur sir for the above file but i want to know why it is kept in fungible form. pls explain in brief what is the purpose of doing so ??? as it is not in the file

Rahul Bansal (Finalist) (35929 Points)
Replied 27 July 2010

As per Section 9 of the DEPOSITORY ACT 1996, Securities in depositories shall be in fungible form.

Here, Fungibility means " EASILY INTERCHANGEABILITY OF SECURITIES", held in depository form.

As we are aware that shares in physical form carry a distinctive number, to distingusih one share from another shares like we see on "currency notes".

But , when the physical shares r dematerialized, it results into lost of their distinctive identity number and that is called "FUNGIBILTY".

In fungibilty, investor has no right to obtain the exact certificate, he has surrendered at the time of entry into depository.

So fungibility, add more liquidity to securities and they become "INTERCHANGEABLE".

And that's the reason, In the depository system of maintaining securities ,S ecurities are required to be kept in fungible form.

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Rahul Bansal (Finalist) (35929 Points)
Replied 27 July 2010

For CS Executive Exams

Simranjeet Singh (Proprietor at S Simranjeet & Associates Company Secretaries) (4396 Points)
Replied 27 July 2010

Originally posted by : Rahul Bansal
	As per Section 9 of the DEPOSITORY ACT 1996, Securities in depositories shall be in fungible form. Here, Fungibility means " EASILY INTERCHANGEABILITY OF SECURITIES", held in depository form. As we are aware that shares in physical form carry a distinctive number, to distingusih one share from another shares like we see on "currency notes". But , when the physical shares r dematerialized, it results into lost of their distinctive identity number and that is called "FUNGIBILTY". In fungibilty, investor has no right to obtain the exact certificate, he has surrendered at the time of entry into depository. So fungibility, add more liquidity to securities and they become "INTERCHANGEABLE". And that's the reason, In the depository system of maintaining securities ,S ecurities are required to be kept in fungible form.