A STUDY ON DEMAT AND ONLINE TRADING IN
Introduction of DMAT and net trading has revolutionized the Capital market. Internet Trading has made the process of buying and selling of shares much faster and easier than physical brokers. It provides integration of Bank, Broker, Stock exchange and depository participants. This eliminates the rigorous process of investing in stock exchange.
Online Trading has given customer a real time access to account information, stock quotes, elaborated market research and interactive trading.
Dematerialisation or "Demat" is a process whereby the investors securities like shares, debentures etc, are converted into electronic data and stored in computers by a Depository. Securities registered in the investors name are surrendered to depository participant (DP) and these are sent to the respective companies who will cancel them after "Dematerialisation" and credit investor’s depository account with the DP. Depository functions like a securities bank, where the Dematerialised physical securities are traded and held in custody. This facilitates faster, risk free and low cost settlement. Depository is much like a bank and performs many activities that are similar to a bank.
DEPOSITORY SERVICES IN INDIA
India has two depository service providers. The National Securities Depository Limited (NSDL) was incorporated on 8th November 1996, and The Central Depository Services Limited (CSDL) was incorporated in 1996 as the second depository, to provide depository services to the investors. The depositories are required to operate within the legal framework of: • Depository Act 1996
• SEBI (Depository and Participants) Regulation, 1996
• SEBI’s guidelines issued from time to time
• Business Rules
The bye-law and business rules are designed by the depository based on the above to govern its functioning and operational procedures, and also that of it business partners. The procedures of NSDL and CSDL’s procedures are not significantly different from as it has to follow the same legal framework to operate. NATIONAL SECURITIES DEPOSITORY LIMITED (NSDL)
At present there are two depositories in India, National Securities Depository Limited (NSDL) and Central Depository Services (CDS). NSDL is the first Indian depository; it was inaugurated in November 1996. NSDL was set up with an initial capital of US$28mn, promoted by Industrial Development Bank of India (IDBI), Unit Trust of India (UTI) and National Stock Exchange of India Ltd. (NSEIL). Later, State Bank of India (SBI) also became a shareholder. NSDL has since its inception built a network of its business partners and 10 stock exchanges are now trading in securities in the Demat form. NSDL carries out its activities through various functionaries called business partners who include Depository Participants (DPs), Issuing corporates and their Registrars and Transfer Agents, Clearing corporations/ Clearing Houses etc. NSDL is electronically linked to each of these business partners via a satellite link through Very Small Aperture Terminals (VSATs). The investor interacts with the depository through a depository participant of NSDL. A DP can be a bank, financial institution, a custodian or a broker.
CENTRAL DEPOSITORY SERVICES (CDS)
The other depository is Central Depository Services (CDS). It is still in the process of linking with the stock exchanges. It has registered around 20 DPs and has signed up with 40 companies. It had received a certificate of commencement of business from SEBI on February 8, 1999. These depositories have appointed different Depository Participants (DP) for them. An investor can open an account with any of the Depositories’ Participant (DP). But transfers arising out of trades on the stock exchanges can take place only amongst account-holders with NSDL's DPs. This...
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