Depositories in India

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INDEX
SR.NO.| TOPIC|
1.| What is Depository|
2.| Why are Depositories needed|
3.| History of Depository|
4.| Registration & Commencement of Business|
5.| Depositories in India|
6.| Constituents of Depository System|
7.| Dematerialized Account|
8.| Facilities offered by Depsitories|
9.| Features of Depository System|
10.| Benefits of Depositories|
11.| Reference & Credits|

WHAT IS DEPOSITORY
Shares and bonds are being issued by companies for quite some time. Ten years back, all these were issued in the form of physical certificates that the investor had to keep safe and then forward to the buyer once sold. This process was highly time consuming and gave rise to issues like fake securities and bad deliveries. All these reasons and the improvement in technology gave rise to depositories and the electronic mode of holding securities. The term Depository means a place where a deposit of money, securities, property etc is deposited for safekeeping under the terms of depository agreement. A depository resembles a bank; however in case of a depository the deposits are securities, such as shares, debentures, bonds and government securities, in electronic form. A depository functions as a bank- both are common houses that hold assets of the participating members and provide services to clients. A depository is an organization, which assists in the allotment and transfer of securities and securities lending. The shares here are held in the form of electronic accounts i.e. dematerialized form and the depository system revolves around the concept of paper-less or scrip-less trading. It holds the securities of the investors in the form of electronic book entries avoiding risks associated with paper. It is not mandatory and is left to the investor to decide. Depositories carry out its operations through various functionaries called business partners

BANK | DEPOSITORY |
Holds Funds in an Account| Hold securities in an account| Transfers Funds between accounts | Transfers securities between accounts| Facilitates transfers without having to handle money| Facilitates transfers of ownership without having to handle securities| Facilitates safekeeping of money| Facilitates safekeeping of shares|

WHY DEPOSITORIES WERE NEEDED
A Depository facilitates holding of securities in electronic form and enables securities transactions to be processed by a Depository Participant (DP) who, as an agent of the depository, offers services to investors. The DP provides the investor a statement of account at regular intervals that gives the details of the securities holdings and transactions. Earlier, the depository system dealt with paper-based certificates. This process was prone to fake and counterfeit dealings. Moreover, investors had to travel to their DP’s office to obtain updated account information and status of transactions. Every time an investor wanted to issue transaction instructions, he/she would have to physically be present to submit the relevant instruction slip(s) to the DP for further processing. The DP would have to verify the instructions and process them further. This process led to delivery and service hiccups.

Before introduction of Depository system, the problems faced by investors and corporate in handling large volume of paper were as follows: 1)
2) Bad deliveries
3) Fake certificates
4) Loss of certificates in transit
5) Mutilation of certificates
6) Delays in transfer
7) Long settlement cycles
8) Mismatch of signatures
9) Delay in refund and remission of dividend etc

All this added to costs and delays in settlement, restricted liquidity and made investors upset. There were also structural problems like lack of rolling settlement periods, fragmented market, and absence of adequate hedging options. The need was to have an efficient and instantaneous transfer of securities. CDSL...
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