Depository Service

Depository Process in India

• The depository – custodian of his clients
• The depository participant – deemed agent of depository
• The beneficial owner – the real owner of security
• The issuer – the company which issue the security

Dematerialization Process:

• Stock exchange will notify through advertisement
• Open demat account with depository participant
• Application in a DRF along with share certificate
• Depository send it to RTA for confirmation
• RTA verifies and confirms to convert share certificate in to electronic form
• On the receipt of intimation depository causes the entry to be made in the account of the client at the DP

Withdrawal of Shares: For withdrawal investor makes an application to depository through DP in RFR

Benefits of Depository System

• To Investors

• – Eliminate paper work and no physical movement of certificates
• – Risk of bad deliveries, fraud and misplaced, mutilated and lost of share certificates will not exist
• – Shorten settlement time period and save and increase velocity
• – Possible to change portfolio with more frequency
• – Less cost
• – Faster paynt

• To Companies

• – Companies will able to know the particulars of beneficial owners and their holding
• – No rush for transfer at the time of dividend or bonus.
• – Less number of investors complaints about signature difference, time lapse during the transfer and mutilated certificates
• – Possible to send notices and annual reports without delay

• To Capital Market

• – More transparency in trading, clearing and settlement due to highly automated interlinked system.
• – Efficient back office due to highly atomized process
• – Investors confidence improved
• – Could invite foreign investors
• – Increase in volume by both number and value
• – Attract more number of retail and small investors directly or indirectly through mutual funds

Drawbacks of Depository Syestem

•      Multiple depositories – high cost

•      Clearing and Settlement Corporation

–     CC as a part of depository to have interface with the various stock exchanges is missing

•      Initially people had now shown there interest due to

–     Lack of awareness

–     Fear of being caught in the tax net

–     Initially compulsion was not there – optional

•      Initially problems related to dual rates