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1. Investor must submit request form and share certificate to DP.2. DP will check whether security is available for Demat. Investor must
deface the share certificate by stamping surrendered for
dematerialization and DP will punch two holes on the name of the
company and will draw two parallel lines across the face of the
certificate.
3. DP enters the Demat request in their system to be sent to thedepository. DP dispatches the physical certificates along with the
DRF to the RTA/ Company.
4. Depository records the details of the system and forwards the requestto Registrar and transfer agent or issuer i.e. the company whose
shares are sought to be dematerialized.
5. RTA Company on receiving the physical documents verifies requestand check them. Once the RTA/Company finds that shares are in
order, dematerialization of the concerned securities iselectronically confirmed to the depository
6. Depository credits the dematerialized securities to the beneficiaryaccount of the investor and intimates the DP electronically. The DP
issues a statement of transaction to the client.
Advantages of the Depository System
The advantages of dematerialization of securities are as follows:
Share certificates, on dematerialization, are cancelled and the same will not
be sent back to the investor. The shares, represented by dematerialized
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Some disadvantages were about thedepository systemwere known
beforehand. But since the advantages outweighed the shortcomings
of dematerialisation, the depository system was given the go-ahead.
Lack of control: Trading in securities may become uncontrolled in case of
dematerialized securities.
Need for greater supervision: It is incumbent upon the capital market
regulator to keep a close watch on the trading in dematerialized securities
and see to it that trading does not act as a detriment to investors. The role
of key market players in case of dematerialized securities, such as stock
brokers, needs to be supervised as they have the capability of manipulating
the market.
Complexity of the system: Multiple regulatory frameworks have to be
confirmed to, including theDepositories Act, Regulations and the various
Bye Laws of various depositories. Additionally, agreements are entered at
various levels in the process of dematerialization. These may cause anxietyto the investor desirous of simplicity in terms of transactions in
dematerialized securities.
Besides the above mentioned disadvantages, some other problems
with the system have been discovered subsequently. With new
regulations people are finding more and more loopholes in the
system. Some examples of the malpractices and fraudulentactivities that take place are:
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Current regulations prohibit multiple bids or applications by a single
person. But investors open multiple demat accounts and make multiple
applications to subscribe to IPOs in the hope of getting allotment of shares.
Some listed companies had obtained duplicate shares after the originals
were pledged with banks and then sold the duplicates in the secondary
market to make a profit.
Promoters of some companies dematerialised shares in excess of the
companys issued capital.
Certain investors pledged shares with banks and got the same shares
reissued as duplicates.
There is an undue delay in the settlement of complaints by investors
against depository participants. This is because there is no single body that
is in chargeof ensuring full compliance by these companies.
Depositories
Depository is an organization where the securities of the shareholders are held
in electronic form at the request of the shareholder through the medium of a
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Depository Participant. In the following article we are going to learn more about
depository and depository participant.
Definition of Depository: Depository means a company formed and registered under
the companies act, 1956 and it has been granted a certificate of registration under
section 12(1A) of SEBI Act, 1992.
Two Depositories are regulated in India:
1. National Securities Depository limited (NSDL)
2. The Central Depository Services (India) Limited (CDS)
Functions of Depository:
1. Services to investors
2. Services to Participants in the capital market such as clearing
members, stock exchanges , investment institution, banks and issuing corporate
3. Account opening
4. Dematerialization
5. Rematerialization
6. Settlement of trades
7. Advanced facilities like pledging, distribution of non- cash corporate actions,
distribution of securities to allot tees in case of public issues etc.
Benefits of Depository System:
1. This system will eliminate paper work as the book entry system does not need
physical movement of certificates for transfer process.
2. The risk of bad deliveries, fraud and misplaced, mutilated and lost share
certificates will not exist.
3. The electronic media will shorten settlement time and hence the investor can
save time and increase the velocity ofsecurity movement.
4. Investors will be able to change portfolio more frequently.
5. The capital market will be more transparent as the trading, clearing and
settlement mechanism have to be highly automated and interlinked with the depository
among themselves.6. The market will be highly automated and efficient due to the usage of computing
and telecommunication technology for the back office activities for all the capital
market players.
Difference between Depository and Custodian :
Function It a part from keeping the It function is merely safe
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shares in e-form , manages
the shares on behalf of
investor
keepingof shares. It handle
Huge paper work.
Position It is a institution or can becalled as an organization
itself.
It is an in term diary.
CT There is a separate Act i.e.Depositories Act1956, a
art from SEBI
(depositories and
articipant ) Reg . 1996
There is no separate Act
and it is regulated by SEBI
(Custodian of Securities)
Reg. 1996
Models of Depository :1. Dematerialization: It is a process of conversion of physical share certificate
into electronic form . So, when a shareholder uses the dematerialization facility,
company take back the shares, through depository system and equal number of
shares are credited in his account in e-form.
2. Immobilisation: It is a process of storing of physical share certificates, with
depository for safe custody. In this model the original share certificates, can be
withdrawn, as it is lodged in depository method.
Meaning of Depository Participant and its characteristics:Depository Participant (DP): is the representative or agent of the investor in the
depository system providing the link between the Company and investor through the
Depository
Character istics of depository participant:
1. Acts as an Agent of Depository
2. Directly deal with customer
3. Functions like Securities Bank
4. Account opening5. Facilitates dematerialization
6. Instant transfer on pay out
7. Credits to investor in IPO, rights, bonus
8. Settles trades in electronic segment
Dif ference between demater ial ization and remater iaisation :
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Difference Dematerialisation RematerialisationDefinition It is a process of conversion
of physical shares
certificates into electronic
orm. So, under
dematerialization facility,
company take back the
shares, through depository
system and equal number of
shares are credited in
account in e-form.
It is a process of conversion
of electronic shares into
hysical shares. When a
beneficialowner opt out
of a depository, he will
inform about it, to the
company, through
depository. The company
will issue fresh share
certificate to the beneficial
owner, within 30 days
rom the date of request.Conversion In this, physical share
certificates converted into e-records.
In this, e- records are
converted into physicalshares certificate.
Sequence Firstly shares aredematerialize, so it is
rimary and principal
Firstly shares are
dematerialize then it is
rematerialize, so it is
secondary and supporting
se of form In this process it requires
Dematerialization Request
Form
In this process it requires
Rematerialisation Request
orm (RRF)
Rights and Obligations of Depositories and its constituents :
1. Every depository has to enter into an agreement with the issuer in respect of
securities to become eligible to held the securities in demat form.
2. Every depository is to maintain the following records and documents :
(a) Records of securities dematerialised and rematerialised
(b) Names of the transferor, transferee, and the dates of transfer of securities
(c) A register and an index of beneficial owners
(d) Details of holding of the securities of the beneficial owners as at the end of every
day.
(e) Records of instruction received from and sent to participants, issuersagents
and beneficial owners,
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Charges commission/ service
charges.
Provides interest to the account
holders.
statement of holding and statement
of transactions.
Depository Participant charges:
o Account opening and
closing fee
o Demat and Remat fee
o Transaction fee (buy, sell,
off market)
o Custody charges
In future, through stock lending, it
will be possible to earn income on
Depository Account.
Dematerialization Process
Physical Securities Electronic Form.
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Pre-requisites:
Demat Account with any DP of the Depository.
ISIN for the securities available with the Depository.
Investor should be registered holder for the securities in the books of the company.
Rematerialization
Rematerialization or remat is a compiler optimization which saves time by recomputing a value
instead of loading it from memory. It is typically tightly integrated with register allocation,
where it is used as an alternative to spilling registers to memory. It was conceived by Preston
Briggs, Keith D. Cooper, and Linda Torczon in 1992.Rematerialization works by keeping track
of the expression used to compute each variable, using the concept of available expressions.
Sometimes the variables used to compute a value are modified, and so can no longer be used to
rematerialize that value. The expression is then said to no longer be available. Other criteria must
also be fulfilled, for example a maximum complexity on the expression used to rematerialize the
value; it would do no good to rematerialize a value using a complex computation that takes more
time than a load. Usally the expression must also have no effects.
Rematerialization process
Electronic Form Physical Securities
http://en.wikipedia.org/wiki/Compiler_optimizationhttp://en.wikipedia.org/wiki/Register_allocationhttp://en.wikipedia.org/w/index.php?title=Preston_Briggs&action=edit&redlink=1http://en.wikipedia.org/w/index.php?title=Preston_Briggs&action=edit&redlink=1http://en.wikipedia.org/w/index.php?title=Keith_D._Cooper&action=edit&redlink=1http://en.wikipedia.org/w/index.php?title=Linda_Torczon&action=edit&redlink=1http://en.wikipedia.org/wiki/Available_expressionhttp://en.wikipedia.org/wiki/Available_expressionhttp://en.wikipedia.org/w/index.php?title=Linda_Torczon&action=edit&redlink=1http://en.wikipedia.org/w/index.php?title=Keith_D._Cooper&action=edit&redlink=1http://en.wikipedia.org/w/index.php?title=Preston_Briggs&action=edit&redlink=1http://en.wikipedia.org/w/index.php?title=Preston_Briggs&action=edit&redlink=1http://en.wikipedia.org/wiki/Register_allocationhttp://en.wikipedia.org/wiki/Compiler_optimization7/30/2019 Advantages of the Depository System
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Initial public offers
An initial public stock offering (IPO) referred to simply as an "offering" or "flotation," is
when a company (called the issuer) issues common stockorshares to the public for the first time.
They are often issued by smaller, younger companies seeking capital to expand, but can also be
done by large privately-owned companies looking to become publicly traded.
In an IPO the issuer may obtain the assistance of an underwriting firm, which helps it
determine what type ofsecurity to issue (common orpreferred), best offering price and time to
bring it to market.
An IPO can be a risky investment. For the individual investor, it is tough to predict what the
stock or shares will do on its initial day of trading and in the near future since there is often little
historical data with which to analyze the company. Also, most IPOs are of companies going
through a transitory growth period, and they are therefore subject to additional uncertainty
regarding their future value.
http://en.wikipedia.org/wiki/Common_stockhttp://en.wikipedia.org/wiki/Share_(finance)http://en.wikipedia.org/wiki/Financial_capitalhttp://en.wikipedia.org/wiki/Privately_held_companyhttp://en.wikipedia.org/wiki/Public_companyhttp://en.wikipedia.org/wiki/Underwritinghttp://en.wikipedia.org/wiki/Security_(finance)http://en.wikipedia.org/wiki/Preferred_stockhttp://en.wikipedia.org/wiki/Investmenthttp://en.wikipedia.org/wiki/Investmenthttp://en.wikipedia.org/wiki/Preferred_stockhttp://en.wikipedia.org/wiki/Security_(finance)http://en.wikipedia.org/wiki/Underwritinghttp://en.wikipedia.org/wiki/Public_companyhttp://en.wikipedia.org/wiki/Privately_held_companyhttp://en.wikipedia.org/wiki/Financial_capitalhttp://en.wikipedia.org/wiki/Share_(finance)http://en.wikipedia.org/wiki/Common_stock7/30/2019 Advantages of the Depository System
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The first sale of stock by a private company to the public. IPOs are often issued by
smaller, younger companies seeking the capital to expand, but can also be done by large
privately owned companies looking to become publicly traded. In an IPO, the issuer obtains the
assistance of an underwriting firm, which helps it determine what type of security to issue
(common or preferred), the best offering price and the time to bring it to market.Also referred to
as a "public offering".
IPOs can be a risky investment. For the individual investor, it is tough to predict what the
stock will do on its initial day of trading and in the near future because there is often little
historical data with which to analyze the company. Also, most IPOs are of companies going
through a transitory growth period, which are subject to additional uncertainty regarding their
future values.
Initial public offers process
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Trading & settlements
Transfer of securities in/ out of the Demat A/c can arise in the following instances:
For execution of Off Market Transactions.
For settling On Market Transactions.
For Inter depository transactions.
Off Market TransactionsTransaction done on person to person basis without going through stock exchange mechanism.
Pre-requisites:
Transfer of securities from one BO A/c to another BO A/c.
Both A/cs are with same Depository though with differentDPs.
Neither buyers A/c nor sellers A/c is with clearing house/clearing corporation.
Off market transaction process
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On Market Transaction
Trades done by investors through stock exchange mechanism and settled using same stockexchange mechanism.
seller as well as buyer account is with CH/CC
Inter Depository Transactions.
SEBI (Depository and participants) Regulations, 1996 requires depositories to be interconnected.
Securities available for dematerialization on both depositories.
Debit/ credit instructions have to given on inter-depository delivery or receipts forms tothe DPs of seller and the buyer.
These instructions are exchanged online for each day between the depositories