DEPOSITORY SYSTEM

This system came in to force

with effect from September
20, 1995.
What Is Scrip Based System?
securities are held in physical form.
Scrip based system of securities
transactions involves enormous paper
work involving certificates and transfer
deeds.
Problems with scrip based
system:
1.Time consuming (processing time by co.)
2.Bad deliveries due to signature difference
3.Mistakes in completion of transfer deeds
4.Tearing and mutilation of certificates

5.Fake certificates

6.Cost of transfer : stamp duty

7.Postal delays and charges etc.

What is depository system
A system in which securities of an investor are
held by depository on behalf, and carries out
the transactions of securities by means of book
keeping entry, at the request, of an investor in
an Electronic Form.
This system is also know as Scrip Less

Trading system.
A firm where in the securities of an investor are
held in an electronic form is called Depository
Constituents of depository system
Depository
Depository Participant (DP)

Securities, Issuers and Registrars and Share

Transfer Agents
Stock Exchanges and Stock Brokers

Clearing Corporation/ Clearing House and

Clearing Members
Banking system

Investors
 Who is depository?
Depository facilitates holding of
securities in the electronic form and
enables securities transactions to be
processed by book entry by a Depository
Participant (DP), who as an agent of the
depository, who offers depository services
to investors
 Who can be a depository:
Depository Act, 1996 provides that -
Depository means:
A company formed and registered under the
companies Act, 1956, and
Which has got a Certificate of Registration from
the SEBI.
 Depositories in India
The depository model adopted in India
provides for a competitive multi-depository
system. There can be various entities providing
depository services. Such system is known as
Multi-Depository System.
At present two Depositories are registered
with SEBI.
 NATIONAL SECURITIES
DEPOSITORIES LIMITED
NSDL is the first and largest depository in India, and
established in August 1996
It has 267 depository Participants (as on 13.12.08)

Address:
Trade World, a Wing, 4th &5th Floors
Kamala Mills Compound
Lower Parel
Mumbai 400013 website: nsdl.co.in
 PROMOTERS OF NSDL
1.Industrial Development Bank of India Limited
2.Unit Trust of India
3.National Stock Exchange of India Limited
SHAREHOLDERS OF NSDL
State Bank of India
Oriental Bank of Commerce

Citibank
Standard Chartered Bank

HDFC Bank Limited

The Hongkong and Shanghai Banking Corporation

Limited
Deutsche Bank

Dena Bank

Canara Bank
Union Bank of India
 CENTRAL DEPOSITORY
SERVICES (INDIA) LIMITED
This is the second depository in India.
This was formed and registered in 1999.
It has 455 DPs as on 4.08.08
Address:

Phiroz Jeejeebhoy Towers

16th Floor, Dalal Street
Mumbai website: www.cdslindia.com
 PROMOTERS OF CDSL
Bombay Stock Exchange Limited
Bank of India,
Bank of Baroda,
State Bank of India and

HDFC Bank
 SHAREHOLDERS OF CDSL
Standard Chartered Bank
Centurion Bank of Punjab Ltd
Canara Bank
Union Bank of India
Bank of Maharashtra
Jammu and Kashmir Bank Limited
The Calcutta Stock Exchange Association
Limited
Others
A Bank-Depository Analogy
Bank
1.Holds funds in an account
on behalf of a customer
2.Transfer funds between
accounts on the instruction
of the account holder.
3.Physical handling of funds
is avoided.
4.Provides safe custody of
fund
Depository
1.Holds securities in an
account on behalf of an
investor.
2.Transfer securities between
accounts on the instruction
of the account holder.
3.Physical handling of
securities is avoided.
4.Provides safe custody of
securities.
 Who Is Depository Participant:
A Depository Participant (DP) is an agent of
the depository through which it interfaces with
an investor.
A DP can offer depository services only after
it gets proper registration from SEBI.
A DP is just like a Branch of a Bank.
 Who can be Depository
Participant?
In terms of the Depositories Act, 1996, SEBI
(Depositories & Participants) Regulations,1996, only the
following entities are eligible to become a Depository
Participant:
Financial Institutions,
Banks, including approved foreign bank
Custodians,
Stockbrokers,
A clearing corporation or a clearing house of a stock exchange
A non-banking finance company,
A registrar to an issue or share transfer agent
 Types of ownership
In the depository system, the ownership of securities
dematerialized is bifurcated in to:

REGISTERED BENEFICIAL
OWNER OWNER
Who is registered owner
The registered owner is that person whose
name is registered in the register of members
of the company (issuer)
For the securities dematerialized, NSDL/CDSL

is the Registered Owner in the books of the

issuer.
But Registered Owner does not enjoy any right
and liability attached with the security.
Who is the Beneficial owner
Beneficial owner is that person who
enjoys all rights, duties, and liabilities
attached with the security.
It means voting right, dividend right,
bonus share right , right share right etc
are all exercised by the Beneficial owner.
 Benefits of depository system/ holding
securities in dematerialized form

Depository system provides benefits to:

The investors, and

The issuers.
 Benefits to investors:
1.The transactions in electronic mode eliminated the risk and
problems of delays.
2.The risk of bad deliveries is totally eliminated
3.There is no requisite of filling up the transfer deeds, payment of
transfer stamp duty and a lot of other paper work at the end of the
investor.
4.It totally eliminates the risk associated with fraudulent interception
of certificates in postages or transits..
5.Transfer of ownership of securities is immediate in case of
depository mode.
6.The investment, automatically, becomes more liquid.
contd.
 Contd.
1.The problem of odd lot is also eliminated, as the depository
mode does not have any concept of market lot.
2.Holding investments in equity and debt in a single account.

3.Change in address recorded with DP gets registered with all

companies in which investor holds securities electronically
eliminating the need to correspond with each of them
separately.
4.Transmission of securities is done by DP eliminating
correspondence with companies.
5.Nomination facility.
 Benefits to the issuing company:

1.The company saves a lot of paper work which

otherwise is required in the physical mode.
2.The company saves a postal cost for the dispatch of
right shares, bonus shares or share certificates after
affecting the transfer.
3.By offering depository services to its shareholders, a
company may send a positive sign to its shareholders
about its concern for their welfare.
4.Depository services adds liquidity to the security
thus fund raising capacity of the company.
 Objective of Depository
System
lEliminating counterfeiting risks resulting from the circulation of the
physical securi-ties certificates.
lFaster & easier trading of securities in the capital market.

lEnhance liquidity & efficiency

lAvoid the risk of settlement of securities

lReduce cost of transaction for investor

lEstablishing an integrated database of shareholders accounts for all

issuers regis-tered in the depository system.

lEstablishing an integrated database of all securities registered in the

deposi-tory system.
lPromote the country's competitiveness by Adopting international

standards.
 Activities/Services of
Depository
lDematerialisation i.e., conversion of physical holdings to
electronic form.
lRematerialisation, i.e, conversion of securities held in

electronic form into physical certificates.

lTransfer of securities.

lMaintenance of holdings in electronic form.

lSettlement of market trades done in the depository

segment of stock exchanges(On market trades).

lSettlement of Off market trades.

lFacilitate Pledge/hypothecation of Dematerialised

securities.
lElectronic credit in public offerings of companies.

lReceipt of non-cash corporate benefits such as bonus,

rights in electronic form.

lSends SMS regarding transactions and modifications
Clearing & Settlement process
 Clearing & Settlement process

l1.Trade details from Exchange to NSCCL (real-time and end

of day trade file).
l2. NSCCL notifies the consummated trade details to clearing

members/custodians who affirm back. Based on the

affirmation, NSCCL applies multilateral netting and
determines obligations.
l3. Download of obligation and pay-in advice of

funds/securities.
l4. Instructions to clearing banks to make funds available by

pay-in time.
l5. Instructions to depositories to make securities available by

pay-in time.
l6. Pay-in of securities (NSCCL advises depository to debit

pool account of custodians/CMs and credit its account and

 Clearing & Settlement process
l7.Pay-in of funds (NSCCL advises Clearing Banks to debit
account of custodians/CMs and credit its account and
clearing bank does it).
l8. Pay-out of securities (NSCCL advises depository to credit

pool account of custodians/CMs and debit its account and

depository does it).
l9. Pay-out of funds (NSCCL advises Clearing Banks to credit

account of custodians/CMs and debit its account and

clearing bank does it).
l10. Depository informs custodians/CMs through DPs.

l11. Clearing Banks inform custodians/CMs.

SECURITIES AND EXCHANGE BOARD OF
INDIA
(DEPOSITORIES AND PARTICIPANTS)
REGULATIONS, 1996
 Regulations relating to Depositories

Registration of depository
lApplication for grant of certificate of registration.

lshall be made to the Board by the sponsor, accompanied by

the fee in the manner specified along with the draft bye-laws.
lApplication to conform to the requirements.

lFurnishing of information, clarification and personal

representation.
lConsideration of application for grant of certificate of registration.

lsponsor belongs to one of the following categories, namely a

public financial institution, bank, foreign bank, reconginsed

stock exchange,body corporate engaged in providing financial
services,an institution engaged in providing financial services
established outside India and approved by the Central
Government.
 Regulations relating to Depositories

lCriteria for fit and proper person.

lEvery depository, its sponsor, shareholder and participant shall
satisfy the fit and proper criteria at all times.
lIf shareholding by investor exceeds two percent. of the paid up
equity share capital of a depository, shall seek approval of the Board
within fifteen days of the acquisition. If not approved they have to
divest it.
lGrant of certificate of registration.

lif the Board is satisfied, it may grant a certificate of registration

subject to the following
l(a) the depository shall pay the registration fee, within fifteen

days of receipt of intimation from the Board;

l(b) the depository shall comply with the provisions of the Act,

l(c) the depository shall not carry on any activity other than that of

a depository unless the activity is incidental to the activity of the

depository
Regulations relating to Depositories

l(d) the sponsor shall, at all times, hold at least fifty-one per cent of the
equity share capital of the depository
l(e) no participant shall at any time, hold more than five per cent of the

equity capital of the depository;

l(f) if any information previously submitted by the depository or the

sponsor to the Board is found to be false or misleading in any material

particular, or if there is any change in such information, the depository
shall forthwith inform the Board in writing;
l(g) the depository shall redress the grievances of the participants and

the beneficial owners within thirty days of the date of receipt of any
complaint and keep the Board informed
l(h) the depository shall make an application for commencement of

business under regulation 14 within one year from the date of grant of
certificate of registration under this regulation; and the depository shall
amend its bye-laws from time to time as may be directed by the Board;
 Regulations relating to Depositories

lPayment of annual fee.

lPayment of annual charge.

lApplication fees payable by sponsor : 5,00,000. Application

fees payable by participant 15,000, Registration fees payable
by depository 1,00,00,000, Registration fees payable by
participant 2,00,000, Annual fees payable by depository
50,00,000, Annual fees payable by participant 1,000.
lAnnual charges payable by depository is % of annual custody
charges collected by depositories from issuers
l Procedure where certificate of registration is not granted.

lBoard shall reject the application after giving the applicant an

opportunity of being heard, stating the grounds on which the
application has been rejected
 Regulations relating to Depositories
lCERTIFICATE OF COMMENCEMENT OF BUSINESS
lApplication for grant of certificate of commencement of business.

lWithin one year from the date of issue of such certificate

sponsor make an application to the Board for commencement
of business
lApplication to conform to the requirements.

lAny application which is not complete in all respects and does

not conform to instructions specified therein shall be rejected
lFurnishing of information, clarification and personal

representation.
 Regulations relating to Depositories

Consideration of application for grant of certificate of commencement of

l

business.
l(a) the depository has a net worth of not less than rupees one hundred
crores;
l(b) the bye-laws of the depository have been approved by the Board;
l(c) the automatic data processing systems of the depository have been
protected against unauthorised access, alteration, destruction, disclosure or
dissemination of records and data
l(d) the network through which continuous electronic means of
communications are established
l(e) the depository has established standard transmission and encryption
formats for electronic ommunications of data between the depository,
participants, issuers and issuers agents;
l(f) the physical or electronic access to the premises, facilities, automatic
data processing systems, data storage sites and facilities including back up
sites and facilities and to the electronic data communication network
connecting the depository, participants, issuers and issuers agents is
controlled, monitored and recorded;
 Regulations relating to Depositories

l(g) the depository has a detailed operations manual explaining all

aspects of its functioning, including the interface and method of
transmission of information between the depository, issuers, issuers
agents, participants and beneficial owners;
l(h) the depository has established adequate procedures and facilities to

ensure that its records are protected against loss or destruction and
arrangements have been made for maintaining back up facilities at a
location different from that of the depository;
l(i) the depository has made adequate arrangements including insurance

for indemnifying the beneficial owners for any loss that may be caused to
such beneficial owners by the wrongful act, negligence or default of the
depository or its participants or of any employee of the depository or
participant; and
l(j) the grant of certificate of commencement of business is in the interest

of investors in the securities market.

 Regulations relating to Depositories

l14. Grant of certificate of commencement of business.

lAfter considering the application with reference to the
matters specified and making physical verification & if the
Board is satisfied that the depository is eligible to
commence business as a depository, shall grant a
certificate of commencement of business.
l15. Procedure where certificate of commencement of

business is not granted

la) direct the depository to conform to the matters
specified in regulation (or)
l(b) reject the application after giving the applicant an
opportunity of being heard.
 Regulations relating to Depositories

lREGISTRATION OF PARTICIPANT
lApplication for grant of certificate of initial registration.

lApplication to conform to the requirements.

lFurnishing information, clarification and personal representation.

lConsideration of application for grant of certificate of initial

registration.
lA public financial institution, a bank, a foreign bank, state

financial corporation, an financial institution, custodian of

securities, a clearing corporation, a stock broker, an R&T
agents
lthe applicant has adequate infrastructure, systems,

safeguards and trained staff to carry on activity as a

participant
lthe grant of certificate of registration is in the interests of
 Regulations relating to Depositories

lGrant of certificate of [initial] registration

lGrant of certificate of permanent registration.

lThree months before the expiry of the period of certificate of

initial registration, make an application for grant of a certificate
of permanent registration, through the depository in which it is
a participant.
lParticipants to abide by code of conduct.

lActing as participant in more than one depository.

lparticipant who desires to act as a participant of another

depository shall apply to such other depository for approval in
the manner as specified by the Board
RIGHTS AND OBLIGATIONS OF
l

DEPOSITORIES & PARTICIPANTS

1. Agreement between Depository and Participant:

A depository shall enter into an agreement with one or more participants
as its agent in the prescribed form (Sec. 4).
2. Services of Depository:
Any person, through a participant, may enter into an agreement, in the
specified form with any depository for availing its services (Sec. 5)
l3. Surrender of Certificate of Security:

la) Any person who has entered into an agreement with the depository

will have to surrender the certificate of security, for which he seeks to

avail the services of a depository, to the issuer; (b) The issuer, on receipt
of certificate of security shall cancel the certificate of security and
substitute in its records the name of the depository as a registered owner
in respect of that security and inform the depository accordingly; and (c)
the depository, thereafter will enter the name of that person in its records,
as the beneficial owner (Sec. 6).
RIGHTS AND OBLIGATIONS OF
l

DEPOSITORIES & PARTICIPANTS

lObligations on inspection by the Board.
lduty of every director, officer or employee of the depository, a

participant, a beneficial owner, an issuer or its agent to give to the

inspecting officer all assistance in connection with the inspection,
which the inspecting officer may reasonably require.
lSubmission of report to the Board.

lAction on inspection or investigation report.

lAppointment of Auditor.

lBoard to recover the expenses.

lApplication of Chapter.

lNothing contained in this Chapter shall be applicable to the State or

the Central Government where it is the issuer of the Government

securities.
PROCEDURE FOR ACTION IN CASE OF DEFAULT
Liability for action in case of default,shall be dealt with in the manner
provided under 92 Chapter V of SEBI Regulations, 2008.
 RIGHTS AND OBLIGATIONS OF
DEPOSITORIES & PARTICIPANTS

4. Registration of Transfer of Securities with Depository:

Every depository shall, on receipt of intimation from a participant, register the
transfer of security in the name of the transferee. Further, if a beneficial owner or
a transferee of any security seeks to have custody of such security, the
depository shall inform the issuer accordingly (Sec. 7).
5. Options to Receive Security Certificate or Hold Securities with
Depository:
Every person subscribing to securities offered by an issuer shall have the option
either to receive the security certificates or hold securities with a depository (Sec.
8).
6. Securities in Depositories to be in Fungible Form:
ADVERTISEMENTS:
All securities held by a depository shall be dematerialised and shall be in a
fungible form (Sec. 9).
RIGHTS AND OBLIGATIONS OF
DEPOSITORIES & PARTICIPANTS
7. Rights of Depositories and Beneficial Owner:
A depository shall be deemed to be the registered owner for the purposes of
effecting transfer of ownership of security on behalf of a beneficial owner. The
depository as a registered owner shall not have any voting rights or any other
rights in respect of securities held by it. The beneficial owner shall be entitled to
all the rights and benefits and be subjected to all the liabilities in respect of his
securities held by a depository (Sec. 10).
8. Register of Beneficial Owner:
Every depository shall maintain a register and an index of beneficial owners in
the manner provided in Section 150, Section 151 and Section 152 of the
Companies Act, 1956 (Sec. 11).
9. Pledge or Hypothecation of Securities Held in a Depository:
A beneficial owner may with the previous approval of the depository, create a
pledge or hypothecation in respect of a security owned by him through a
depository.
RIGHTS AND OBLIGATIONS OF
DEPOSITORIES & PARTICIPANTS
10. Furnishing of Information and Records by Depository and Issuer:
Every depository is required to furnish to the issuer information about the transfer
of securities in the name of beneficial owners at such intervals and in such
manner as may be specified by the bye-laws. Every issuer also has to make
available to the depository copies of the relevant records in respect of securities
held by such depository (Sec. 13).
11. Option to opt out in Respect of any Security:
If a beneficial owner seeks to opt out of a depository in respect of any security,
he shall inform the depository accordingly who will make appropriate entries in its
records and shall inform the issuer (Sec. 14).
12. Depositories to Indemnify Loss in Certain Cases:
The depository shall have to indemnify any loss caused to the beneficial owner
due to its negligence or of the participant. Where the loss due to the negligence
of the participant is indemnified by the depository, the depository shall have the
right to recover the same from such participant.
RIGHTS AND OBLIGATIONS OF
DEPOSITORIES & PARTICIPANTS

13. Systems and Procedures:

Every depository shall have systems and procedures which will enable it to co-
ordinate with the issuer or its agent, and the participants, to reconcile the records
of ownership of securities with the issuer or its agent, as the case may be, and
with participants, on a daily basis. (Regulation 30 of SEBI)
14. Internal monitoring, review and evaluation of systems and controls:
Every depository shall have adequate mechanisms for the purposes of reviewing,
monitoring and evaluating the depositorys controls, systems, procedures and
safeguards.
15. External monitoring, review and evaluation of systems and controls:
Every depository shall cause an inspection of its controls, systems, procedures
and safeguards to be carried out annually and forward a copy of the report to the
SEBI.
 Custodial services

lIt is one of the financial services in which a brokerage or other financial

institution holds and manages a client's securities or other assets on their
behalf.
lA custodian provides an investor a place to store assets with little risk.

This reduces the risk of the client losing their assets or having them stolen.
They are also available to sell through the brokerage at the client's
demand.
lThe custody business provides a range of security services, like safekeeping

and settlement, dividends collection and distribution, proxy voting, tax

reclaim services, fund administration and providing market news and
information.
 Stock holding corporation India
ltd
l StockHolding was incorporated as a Public Limited Company in
1986.
lIt has been jointly promoted by leading Banks and Financial

Institutions like LIC, GIC, IFCI Ltd., UTI, NIA, NIC, UIC, and
TOICL.
lStockHolding is a subsidiary of IFCI Limited.

lStockHolding began by offering custodial and post trading

services, adding depository services and other services to its

portfolio over a period of time.
lIt's a countrys premier Custodian and Depository Participant,

StockHolding is also the largest Professional Clearing Member

lThey process arounf 40% of market transaction

lIt presently holds USD 185 Billion of Assets under custody, thus

making it the largest custodian in India

 Stock holding corporation india
Ltd
lStockHolding also provides Derivatives clearing, PF fund
accounting, distribution of mutual funds and other capital market
instruments, besides distribution of life and non-life insurance
policies.
lOther offerings added to the bouquet are online net trading, loan

against shares, Western Union Money Transfer & E-stamping.

lNew Issue services i.e. handling IPO applications, allotments,

open offers, buy-backs, ADR/GDR, etc..

lCorporate Actions viz. Calculation of entitlements, benefit

collections, Cheque/Warrant deposits, reconciliation and follow-

ups.
Thank you