Sai Surya Teja Maddikonda

I will cover in this presentation:

What is a Depository?
Necessity of a Depository
Services offered by Depository
Depository Participant
Depository System: How it works
Benefits of Depository System
What are the costs involved?

A depository can be defined as an institution where the investors

can keep their financial assets such as equities, bonds, mutual fund
units etc in the dematerialised form and transactions could be
effected on it.

Examples:

National Securities Depository Limited

Limited

Central Depository Services

An effective and fully developed depository system is essential for

maintaining and enhancing the efficiency of a mature capital
market.

Before introduction of Depository system, the problems faced by

investors and corporates in handling large volume of paper were
as follows:

Bad deliveries
Fake certificates
Loss of certificates in transit
Mutilation of certificates
Delays in transfer
Long settlement cycles
Mismatch of signatures
Delay in refund and remission of dividend etc

Through a system of paperless securities, depositories have made

the going easier to other institutions as well such as Stock
Exchanges and its clearing houses, stock broking firms, equity
issuing companies, share transfer agents etc.

Dematerialisation is a process where in securities certificates

held in physical form converted into electronic form and credited
to demat account of an investor opened with a depository
participants.

Maintenance of accounts of investors.

Dematerialisation and re-materialisation of shares.

Settlement of market transaction through the release and receipt

of securities in the investor's account.

Off market transfers.

Inter-depository transfers.

Distribution of non-financial benefits from corporates to its

shareholders.

Nomination facilities.

Transmission of shares.

Hypothecation of dematerialised securities for a bank loan.

Freezing of account to protect one's holdings when he is

temporarily out of the scene etc.

A Depository Participant (DP) is a registered agent of the

depository concerned and it is through the DP that an investor
gets the services of a depository.

To avail this service, one has to open a Depository Account (or

Beneficial Owner Account) with the DP and shares for
Dematerialisation have to be surrendered.

Banks, Non Banking Financial Companies (NBFC) and Stock

Brokers can act as Depository Participants after obtaining the
required approval from SEBI and also complying with other
statutory requirements.

The DP account links the investor to the Depository which in

turn has electronic links with the Stock Exchanges,
corporates and their Transfer agents etc as stated above.

This interface of the depository with various associates opens

up a lot of services to the investor through the DP account.

Examples:

Payment or receipt of shares towards his transactions via Stock

Exchanges,.
Receipt of bonus or right shares from the corporates in which he/she
is a share holder.
Registering of share transfer.
Dematerialisation etc.

A depository system carries out its activities through various

associates that include depository participants (DP), issuing
companies and their share transfer agents, clearing corporation of
Stock Exchanges etc.

The depository is electronically linked to each of these business

partners via satellite links or through leased lines.

This integrated system including the electronic links as stated

above and the software at NSDL and each business partners end
is called the National Electronic Settlement and Transfer System.
(NEST)

In the depository system, the ownership and transfer of securities

takes place by means of electronic book entries.

Bad deliveries could be eliminated since shares are registered in

the electronic form that can not be mutilated easily.

Elimination of all risks associated with physical certificates.

Dealing in physical securities has associated security risks of theft

of stocks, mutilation of certificates, and loss of certificates during
movements through and from the registrars etc. Such problems do
not arise in the depository environment.

No stamp duty for transfer of any kind of securities in the

depository.

This waiver extends to equity shares, debt instruments and units

of mutual funds etc in the depository. Thus, cost can be reduced.

Immediate transfer and registration of securities: In the

depository environment, once the securities are credited to the
investors account on pay out, he becomes the legal owner of the
securities. There is no further need to send it to the company's
registrar for registration. Else, having purchased securities in the
physical environment, the investor has to send it to the company's
registrar so that the change of ownership can be registered and
this usually takes many months.

Faster settlement cycle: The exclusive demat segments follow

rolling settlement cycle of T+2 i.e. the settlement of trades will be
on the 5th working day from the trade day. This will enable faster
turnover of stock and more liquidity with the investor.

Faster disbursement of non cash corporate benefits: NSDL

provides for direct credit of non cash corporate entitlements like
rights, bonus etc to an investor's account, thereby ensuring faster
disbursement and avoiding risk of loss of certificates in transit.

Low brokerage for trading in dematerialised securities:

Brokers provide this benefit to investors as dealing in
dematerialised securities reduces their back office cost of
handling paper and also

Eliminates the risk of being the introducing broker:

Elimination of problems related to address Change, Transmission
etc.

In case of change of address or transmission of demat shares,

investors are saved from undergoing the entire change procedure
with each company or registrar. Investors have to only inform their
DP with all relevant documents and the required changes are
effected in the database of all the companies, where the investor
is a registered holder of securities.

Elimination of problems related to selling securities on behalf of a

minor. A natural guardian is not required to take court approval for
selling demat securities on behalf of a minor.

There are 3 operations that can be done to the securities in the

depository:

Debit: Securities (such as shares) are debited to the Depository. (Similar to

selling off the securities)
Credit: Securities are credited to the Depository. (Similar to buying of
securities).
Custody: The securities idly reside in the depository.

The Depository charges the Depository participant only for the

debit transactions.

No matter how much is the volume of the transaction, the charge

per transaction is the same. (i.e. For a transaction of 10 shares or
1 million shares, the transaction cost is the same)

But the Depository does not charge anything for the credit or
custody of securities.

The Depository Participant in turn levies some add-ons to the

amount charged by the Depository and charges this cumulative
amount from the Individual.

The individuals have to select their Depository Participant to open

a demat account with, by considering various cost factors as
mentioned above.

Thank You