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 dematerilased form and
transactions could be effected on it.In India,there are two
depositories namely,the National Securities Depository
Limited (NSDL) promoted primarily by IDBI,the Unit Trust of
India and the National Stock Exchange,and the Central
Depository promoted by the Stock Exchange,Mumbai.
Besides providing custodial facilities and ematerialisation,
depositories are offering various transactional services to its
clients to effect buying,selling, transfer of shares etc. Through
a system of paperless securities,depositories have made the
going more easier to other institutions as well such as Stock
Exchanges and its clearing houses, stock broking firms,equity
issuing companies,share transfer agents etc. |
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| Basic Services |
Basic services of a depository includes maintainance of
accounts of investors,dematerialisation and rematerialiosation
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. |
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| Depository System: How it works |
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 satelite links or through
leased lines.
In the case of NSDL, under which Geojit BNP Paribas Financial Services Limited
is a Depository Participant,the Depository is electronically
linked to DPs,clearing houses of Stock Exchanges, corporates
and share transfer agents that are registered under the
depository to avail its services etc through VSAT. 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) |
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| Depository Participant (DP) |
A Depository Participant is the registered agent of the
depository concerned(in our case,the NSDL) 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 with the DP
and shares for Dematerialisation have to be surrendered after
it have been duly transferred to his name.
Banks,financial institutions and stock brokers are acting
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 such as
payment or receipt of shares towards his transactions via
Stock Exchanges, receipt of bonus or right shares from the
corporates in which he is a share holder,registering of share
transfer, dematerialisation(means,converting physical shares
ie, share certificates, in to electronic book entries),
rematerialisation (that implies converting elctronic mode of
shares into its physical form) and many more. |
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| Benefits of Depository System |
In the depository system, the ownership and transfer of securities takes place by means of electronic book entries.It has its own merits.
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 have associated security risks of theft of stocks, mutilation of certificates, 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. |
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| 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. 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. So long as the shares are with the company or its agent for transfer,the investor could not sell it in the market even the price is very attractive and this increases his opportunity cost.To overcome this problem, investors used to keep shares without effecting ownership transfer but this is risky because they will not get their entitlements for dividend,bonus,rights etc,if any, and the share in question will become bad delivery if one book closure is missed. |
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| Trading Cycle |
| Trading is done under Rolling Settlement, where in each trading day is considered as a trading period and trades executed during the day are settled based on the net obligations for the day. Settlement is on a T+2 basis i.e. on the 2nd working day. For arriving at the settlement day all intervening holidays, which include bank holidays, NSE holidays, Saturdays and Sundays are excluded. Typically trades taking place on Monday are settled on Wednesday, Tuesday's trades settled on Thursday and so on. |
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| 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. |
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| 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 |
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| 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 securites on behalf of a minor. |
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FAQ |
| Is DP Account a Must? |
To some extent, it is a must and for the rest, it adds convenience.
An investor who buys securities from exchanges connected to NSDL may receive his delivery in the dematerialised form as dematerialised securities can be delivered in the physical segment at the option of the seller. Therefore, those investors who buy securities from these exchanges should necessarily open a depository account to take delivery of demat securities.
Also, SEBI has made it compulsory for all categories of investors to settle trades in demat form with respect to a select list of scrips since Jan 4, 1999. Therefore, investors trading in these scrips will necessarily need a depository account to settle their trades. The list of scrips is being continuously expanded by SEBI. Therefore, every investor who trades in securities may have to open a depository account. |
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| How the Depository Services could be Availed |
| A depository offers its services to the investors through its agents called Depository Participants (DPs). If the depository service has to be availed, the investor has to open an account with a DP. This is similar to opening an account with any branch of a bank in order to utilise the bank's services. |
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| Account Opening Procedure |
To open an account, you can approach any DP of your choice and fill up an account opening form. At the time of opening an account, you have to sign an agreement with DP in the Depository(in our case,the NSDL) prescribed standard agreement, which details the rights and duties of the investor and his/her DP. All investors have to submit their proof of identity and proof of address alongwith the prescribed account opening form.
Proof of Identity : Your signature and photograph must be authenticated by an existing demat account holder with the same DP or by a bank manager. Alternatively, you can submit a copy of Passport, Voters Id Card, Driving Licence or PAN card with photograph.
Proof of Address : You can submit a copy of Passport, Voters Id Card, Driving Licence, PAN card with photograph, Ration Card or Bank Passbook as proof of address.
Also, remember to have original documents to the DP for verification. Passport-size photograph. |
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| Any number of Accounts with any Number of DPs |
| There is no restriction as far as the number of accounts could be opened by an investor. One can open DP accounts with more than one Depository Participant. |
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| No Securities Required for Account Opening |
| An investor can open a DP account even if he does not have any shares or other securities in his name while the account is opening.Similarly, no account balance is mandatorily required even in due course. |
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| Account Opening when Shares are jointly held by two or more |
When the securities are held jointly by two or more persons, one may have to open more than one account and this depends upon the combination and sequence of names. For example, if one security is held by person A & person B while another security is in the name of A&C, two accounts have to be opened.If there is yet another security in which A is the sole holder,one more account has to be opened in the name of A alone.
When the combination of names are the same while the sequence is different in the case of different securities that are being held by two or more persons,then,two options are opened to the investors.One is transposition(that is,changing the sequence of the names)of shares before the securities are sent for dematerialisation and then you can maintain the holdings in a single account.For example,if A is the first holder and B is the second holder in one security and B is the first holder and A is the second holder in another,you have to sent either of these securities to the company concerned to effect tranposition and there by the sequence of names could be made the same in both the securities(either A the first holder or B the first holder in both the securities)Both the securities could be maintained in a single account after effecting the required changes as stated above.
The second option is to open two accounts,one in which A is the first holder and B the second holder and the other one in which B is the first holder. One may choose any of these options depending on convenience and cost of maintaining accounts. |
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| Transactions through Power of Attorney |
| In the absence of the account holder,a person authorised by the account holder to operate his account by executing a power of attorney and submitting the same to the Depository,only can operate the account of an investor. |
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| Standing Instruction |
| In a bank account, credit to the account is given only when a 'paying in' slip is submitted together with cash/cheque. Similarly, in a depository account 'Receipt in' form has to be submitted to receive securities in the account. However, for the convenience of investors, facility of 'standing instruction' is given. If you say 'Yes' for standing instruction, you need not submit 'Receipt in' slip everytime you buy securities. If you are particular that securities can be credited to your account only with your consent, then do not say 'yes' [or tick ?] to standing instruction in the application form. |
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| Nomination Facility |
Nomination can be made by individual holders who are maintaining single or joint accounts.Nomination facility is also available to NRIs.Facility for nomination is available on account basis and not by security basis.
No nomination facility is available to companies,trust etc.
A minor also,is restricted from nominating anyone by himself or through the guardian.
However, a minor can be a nominee and in such cases, the guardian should sign on behalf of the minor. Address and photographs of both the minor and the guardian should be sent to the Depository in such cases.
In the case of nomination, the nominee, that is the beneficiary, should be an individual and trust, companies etc should not be a nominee. At present, one nomination can be made for a depository account. |
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| NRI too can be a Nominee |
| An NRI could be nominated to a depository account and this must be in accordance to the exchange control regulations in force from time to time. |
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| Procedure for Nomination |
The nomination form duly filled-in should be submitted to the DP either at the time of account opening or later.
The account holder, nominee and two witnesses must sign this form and the name, address and photograph of the nominee must be submitted. |
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| Procedure for Transmission to Nominee |
| In case of the death of the sole holder or all the joint holders, the nominee must submit a duly filled-in transmission form and give the notarised copy of death certificate and an affidavit in the prescribed format. After verifying these documents, the DP will transmit the securities to the account of the nominee. |
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| Procedure for Dematerialisation |
Dematerialisation is the process by which physical certificates are converted to an equivalent number of securities in electronic form and credited in the investor's account with his DP.
As stated earlier,one can dematerialise securities which are duly trnsferred to his name.
In order to dematerialise certificates, an investor will have to first open an account with a DP and then request for the dematerialisation of certificates by filling up a Dematerialisation Request Form [DRF], which is available with DP and submitting the same along with the physical certificates. The investor has to ensure that before the certificates are handed over to the DP for demat, they are defaced by marking "Surrendered for Dematerialisation" on the face of the certificates.
Before defacing a share(by defacing,the share certificate loses the charecteristics such as certificate number,distinctive numbers etc that give the certificate a special identity)one should ensure whether the security is available for dematerialisation.In case,dematerialisation is not available for the said security,it should be sent to the company with a request to issue duplicate certificate and it can be brought back to its previous position. |
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| Dematerialisation with Ownership Transfer |
Dematerialisation is possible along with transfer of ownership under the Transfer and Demat Scheme, provided the company in question is offering this facility.
On completion of the process of registration of securities sent for transfer, the company or its R&T Agent will send an option letter to the investor, providing an option to dematerialise such securities. The investor may exercise this option by submitting demat request form together with the option letter to the DP. Then Company or its R&T Agent would confirm the demat request in the usual manner. |
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| Procedure for Rematerialisation |
The process of converting electronic forms of securities into physical form(share certificates) is called rematerialisation.
Those who wish to get back physical securities should make a request to the DP and the DP in turn will forward this request to the Depository.This will be intimated by the Depository to the registrar of the company in question and the certificates will be printed and despatched to the investor. |
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| Procedure for Selling Dematerialised Securities |
While selling dematerialised securities,the investor instructs his DP to debit his account by the number of securities sold by him and credit the broker's clearing account by the same number of securities.This delivery instruction has to be given to the DP using the delivery instruction booklet received from the DP when the account is opened.In simple terms,the procedure looks to be the following.
After the sale of securities in a Stock Exchange that has linked to the Depository,the investor gives instruction to his DP to debit his account and credit the broker's clearing member pool account with the same number of the security.
In the next stage,investor's broker gives instruction to his DP for delivery of the said securities to the clearing corporation before the pay-in day.
Subsequently,the broker receives payment from the Stock Exchange and the investor gets what is due to him from the broker. |
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| Execution Date |
| It is the date on which securities will be actually debited from the seller's account. If execution date is written on the delivery instruction, the DP will enter the same in the computer(DPM system )and securities will be debited from the account only on that date. |
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| Procedure for Buying Dematerialised Securities |
| The transactions relating to purchase of securities are as under.
Investor purchases securities in any of the stock exchanges connected to the Depository through a broker. |
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| Broker arranges payment to clearing corporation. |
| Broker receives credit of securities in his clearing account on the pay-out day.
Broker gives instructions to DP to debit clearing account and credit client's account.
Investor receives shares into its account. However, if standing instructions are not given at the time of opening the account, investor will give 'Receipt Instructions' to its DP for receiving credit.
The investor should ensure that the broker transfers the securities purchased from the clearing account of the broker to the investor's depository account, before the book closure. If the securities remain in the clearing account of the broker, the company may give corporate benefits to the broker. Therefore, the investor may collect benefits from its broker. |
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| Trading in Any Number of Securities |
| Under the dematerialised mode of trading,an investor can buy or sell even a single number of share and the market lot in its general sense is not applicable(like lots of 50,100 etc) |
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| Market Trade and Off market trade |
| Any trade done and settled through a clearing corporation of a Stock Exchange is termed as the Market Trade. The Off Market Trade is one which is settled directly between two parties without the involvement of stock exchange or broker. |
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| Depository Service Charges |
| There is no fee for opening a DP account with Geojit BNP Paribas Financial Services Limited. However, stamp paper charges as applicable need to be paid by the person desirous of opening a demat account. Click here to view the schedule of dp charges. |
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| Account Freezing |
| Depository Account of one investor could be freezed temporarily for debit or for both debit and credit.So long as the account is freezed from debiting,no securities could be debited from the account while the inflows like bonus,rights etc are credited.This is a safe mechanism to protect one's account from unscrupulous elements. |
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