Depository System: Objectives, activities, interacting systems, role of depositories and their services, Advantages of depository system – NSDL and CDSL. The process of clearing and settlement through Depositories, Depository Participants. Regulations relating to Depositories-SEBI (Depositories and Participants) Regulations 1996- Registration of depository and participant- Rights and Obligations of depositories and participants- Recent amendments Custodial services- The Stock Holding Corporation of India Limited Depository System The term depository is defined as „a central location for keeping securities on deposit‟. It is also defined as „a facility for holding securities, either in certified or uncertified form to enable book entry transfer of securities. It is understood from the above two definitions that the depository is a place where securities are stored, recorded in the books on behalf of the investors. A system in which securities of an investor are held by depository on behalf, and at the request, of an investor in an Electronic Form. This system is also know as Scrip Less Trading system. The Need and Objective of Depository System in India: The old trading system /Traditional Scrip Based System was affected by a lot of problems such as: Enormous paperwork Time consuming/longer settlement cycles Poor infrastructure Bad deliveries due to signature difference, mistake in completing details in transfer deeds, litigation in respect of shares purchased, fake certificates, tearing/mutilation of certificates, postal delays, processing time taken by companies. Huge transaction cost Functions of a Depository: 1. Account Opening: An investor wishing to avail depository services must first open an account with a depository participant registered with a depository. The process of opening a demat account is very similar to that of a bank account. The account opening form must be supported by copies of any one of the approved documents which serve as proof of identity and proof of address as specified by SEBI. Apart from these PAN card has to be shown in original at the time of account opening W.E.F April 01, 2006. 2. Dematerialization: One of the primary functions of a depository is to eliminateorminimizethe movement of physical securities in the market.ThisisachievedthroughDematerialization.Dematerialisation or demat is the process of converting the securities held in physical form intoan electronic record form or to directly allot securities in electronic record form. These electronicrecords of securities are shown as “electronic balances” in the demat accounts of investors. 3.Rematerialisation: is the process by which a client can get his electronic holdings converted into physical certificates. 4.Transfer of Securities: The depository gives effects to all transfers resulting from thesettlement of tradandothertransactions between various beneficial owners by recordingentries in the account of such beneficial owners. 5 Corporate Actions: is a process by which a company gives benefits to the investors who are holding securities of the company. Types of corporate actions corporate actions are classified ito two main categories. Cash and Non-cash corporate actions. Cash corporate action results in,investors getting benefits in form of cash. Examples of cash corporate actions are payment of interest / dividend. Non cash corporate actions result in the investors getting benefits in form of securities. Examples of non-cash corporate action are bonus, rights, etc. 5. Cash Corporate Actions: The Issuer/R&T agent will distribute dividend, interest and other monetary benefits directly to the beneficial owners on the basis of list provided by Depository. Non-cash Corporate Actions: ∑ Depository will provide the details of the beneficial owners and their holding to issuer/RTA. ∑ The Issuer / RTA then submit an allotment file to Depository containing the details of allotments to BOs. ∑ Based on the said allotment file the securities are credited to the demat accounts of the BOs. 6. Pledge and Hypothecation: The securities held with the depository may be used as collateralto secure loans and other credits by the clients. Both pledgee and pledger are required to have ademat account. The pledged securities are blocked in favour of pledgee /lender, who can releasethe pledge once the loan is repaid by the borrower. In case of default by the pledgor or any otherreason agreed by pledgor and pledgee, the pledgee , as per the terms of the agreement, mayinstruct his DP to invoke the pledge. The pledgee BO has to submit an “Invocation RequestForm” (IRF). On execution of this instruction, the securities are transferred into the pledgee‟saccount. 7. Account freezing: Account freezing means suspending any further transaction fro depository account till the account is unfrozen. An investor, by issuing instructions to depository, in which he is maintaining demat account, can get his account frozen till further instructions. 8. Transmission : The word “transmission” means devolution of title to shares, for example, devolution by death, lunacy, bankruptcy, winding-up (in case of corporate) etc. The claimant should submit to the concerned DP an application with Transmission Request Form (TRF) along with documents like death certificate, Succession certificate, Probate of the will, Letter of administration. The major advantage in case of dematerialized holdings is that the transmission formalities for all securities held in a demat account can be completed just by interaction with the DP alone. Role of depositories The role of depository participants in stock market is very important. Now a days all kinds of trading works in stock market are being executed through internet and the basis of most part of the entire infrastructure of a depository is constituted in electronic form. In this article I will try to give all outcanenjoy while trading in stock market. Advantages o f depository system Benefits to investor ∑ This system will eliminate paper work ∑ The risk of bad deliveries, fraud and misplaced, mutilated ∑ The electronic media will shorter settlement time. ∑ Investors will change portfolio more frequently. ∑ The distribution of dividends, interest and other benefits will be speedier. ∑ Cost of transfer is less as the share transfer ∑ Faster payment in case of sale of shares.