THE DEPOSITORY SYSTEM OF SHAREHOLDING: HOW TO OPEN A DEMAT ACCOUNT

Share certificates abolished from stock exchanges 1. Shares in the form of paper certificates cannot be traded on Indian stock exchanges for the last several years. Trading is now in demat (i.e. dematerialised) form only. Hence, investors who hold paper certificates have to open an account with a Depository. Such account is in electronic mode. The paper certificates have thus been dematerialised, i.e. changed into demat accounts. Also, if you want to apply for any IPO (initial public offer) of shares, you need to have an account with a depository because IPO allotment is now only in demat form. Depository Participants (DPs) 2. India has two competing depositories, viz; the National Securities Depository Ltd (NSDL) and Central Depository Services Ltd (CDSL). The investor does not deal directly with the Depository but only with its agents who are called Depository Participants (DPs). The DPs are spread over many cities/towns across the country. The DPs operate within the framework of the particular Depository as regards systems to be followed. Banks as DPs vs. Brokers as DPs 3. Some banks also operate as DPs but most of the DPs are stockbrokers. It needs to be understood that there are three distinct activities: (a) Buying and selling of shares has necessarily to be done through a stockbroker. (b) Payments involve the bank with which the investor has an account; and

(c) The recording of share transactions in the demat account has to be done by the DP. Hence, if your broker is also a DP, it simplifies the task somewhat in most cases. Opening a depository account 4. For opening an account with a DP, you will have to fill up an Account Opening Form and also sign an Agreement Form with the DP. Such agreement has to be on Stamp Paper. You will have to provide proof of your identity and also proof of address. Such proof can be any of the following: PAN card, Voter Identity Card, Passport, Ration card, Driving license, Electricity Bill, Landline Telephone bill, etc. The SEBI made the requirement of having a PAN Card mandatory for opening a demat account. In the case of joint holders, each joint holder is required to have a PAN card. Nomination Facility is also available in the depository system. This is to enable the nominee to receive the securities after the death of the holder of the demat account. The system of charges 6. Most DPs charge for account opening, account maintenance and transactions. These charges vary among the DPs. The SEBI rules prohibit the DPs from levying charges in case an investor closes his Demat Account with one DP and transfers to another DP. To an extent, the DPs compete among themselves. So do the two depositories. When you want to sell or buy shares, you have to place an order with your broker. The payments for purchases/sales of shares are made or received through the stock broker. You have also to instruct your DP so that he can make the necessary entries in your demat account. The DP will send you periodic statements of your share holdings and transactions.

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