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What is depository system ?

Gaurav Mohnani (OWNER) (536 Points)

28 June 2013

WHAT IS DEPOSITORY SYSTEM ? IS IT IMPORTANT FOR EXAM PONT OF VIEW ?

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Dhruvi N suthar (Account Executive) (303 Points)
Replied 29 June 2013

A depository is an organisation which holds securities (like shares,debentures, bonds, government securities, mutual fund units etc.)of investors in electronic form at the request of the investorsthrough a registered Depository Participant.
It also provides services related to transactions in securities. At present two Depositories viz. National Securities Depository Limited (NSDL) and Central Depository Services (India) Limited (CDSL) are registered with SEBI.
The minimum networth stipulated by SEBI for a depository is Rs 100 crore. A Depository Participant (DP) is an agent of the depository through which it interfaces with the investor and providesdepository services.
Public financial institutions, scheduled commercial banks, foreign banks operating in India with the approval of the Reserve Bank of India, state financial corporations, custodians, stock-brokers, clearing corporations /clearing houses, NBFCs and Registrar to an Issue or Share Transfer Agent complying with the requirements prescribed by SEBI can be registered as DP.
Banking services can be availed through a branch whereas depository services can be availed through a DP. As per the available statistics at BSE and NSE, 99.9 per cent transactions take place indematerialised mode only. Therefore, in view of the convenience of trading in dematerialised mode,
it is advisable to have a beneficial owner (BO) account for trading at the exchanges.

However to facilitate trading by small investors (Maximum 500 shares, irrespective of their value)

in physical mode the stock exchanges provide an additional trading window, which gives one time

facility for small investors to sell physical shares which are in compulsory demat list. The buyer of

these shares has to demat such shares before further selling.

First an investor has to approach a DP and fill up an account opening form.

The account openingform must be supported by copies of any one of the approved documents which serve as proof of identity (POI) and proof of address (POA) as specified by SEBI. Apart from these PAN card has to be shown in original at the time of Account Opening.