Depository system and its role in stock market

DEPOSITORY SYSTEM AND ITS ROLE IN
STOCK MARKET
Submitted by:
Bibhu Kaibalya Manik
LLM, Roll No. 1685005
KIIT School of Law
Laws on Security and Financial Market

DEPOSITORY SYSTEM AND ITS ROLE IN STOCK MARKET
1
CONTENT
I. Abstract-------------------------------------------------------------------------------------3
1. Meaning of Depository-------------------------------------------------------------------4
1.1 Bank and Depository – Comparison-----------------------------------------------4
2. Who are the Depository Players? -------------------------------------------------------4
3. Types of Depository-----------------------------------------------------------------------5
3.1 National Securities Depository Limited (NSDL) ---------------------------------5
3.1.1 Role and Advantage of NSDL-----------------------------------------------5
3.2 Central Depository Services (India) Limited (CDSL) ---------------------------6
3.2.1 Role and Advantage of CDSL-----------------------------------------------6
4. Stock Exchanges Connected to Depositories------------------------------------------6
5. Issuer of the Company/Registrar--------------------------------------------------------6
5.1 Advantages of a Depository to the Company------------------------------------7
6. Depository Participant--------------------------------------------------------------------7
6.1 Services Offered by Depository Participant--------------------------------------8
7. Why should an investor join a depository? -------------------------------------------8
7.1Advantages Enjoyed by Investors---------------------------------------------------8
8. Broker/Clearing Members---------------------------------------------------------------9
8.1 Advantages to a Clearing Member-------------------------------------------------9
9. Clearing Corporation---------------------------------------------------------------------9
10. Demat (Beneficiary) Account---------------------------------------------------------9
11. Dematerialisation-----------------------------------------------------------------------10
11.1 Time limit for Dematerialisation------------------------------------------------11
11.2 Process of Dematerialisation-----------------------------------------------------11
11.3 Dematerialisation of other instruments-----------------------------------------11
12. Rematerialisation------------------------------------------------------------------------11

2
13. Trading in Demat Stocks----------------------------------------------------------------12
14. Facilities offered by Depository System-----------------------------------------------12
15. Kinds of Problem Solved After Introduction of Depository System---------------13
16. Trading and Settlement-------------------------------------------------------------------13
17. Law Relating Depository System-------------------------------------------------------14
18. Conclusion---------------------------------------------------------------------------------15

3
ABSTRACT
Depository system is concerned with conversion from physical to electronic form,
settlement of trades in electronic segment, transfer of ownership and electronic custody
of security. National Securities Depository Ltd. (NSDL) is the country’s first
depository which provides electronic depository facilities for securities traded in the
equity and debt markets. NSDL has established strict system and procedures and data
level and machine level backups to ensure safety of investor holding. NSDL and its
business partner use hardware, software and communication systems, which conform
to industry standard. After that Central Depository Services (India) Limited (CDSL) is
established in 1999 which facilitates book entry transfer of securities. The Depository
Act, 1996 defines depository as, an organization where the securities of a shareholder
are held in the form of electronic accounts in the same way as a bank holds money.
There are many benefits of trading and settlement under depository. The Investors and
as well as Companies gets certain benefits for Depository System. There are certain
time and cost benefit which accrues to the investors in depository mode. In depository
proper procedures are established to open client account with the help of depository
participants’ .Dematerialisationand rematerialisationof account plays important role in
depository by which the accounts which are in physical mode can be converted to
electronic mode and vise-verse. Trading and settlements corporate actions, demat
stocks are also made in depository system. By establishment of this system the
problems like 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 are solved. Depository plays vital role in
Stock market throughdepository investor can easily sale his share and the mutual funds,
Commercial papers, certificate of depositories etc also can be dealt in dematerialised
form.

4
The century old India capital market has been facing a lot of trouble in traditional
paper based settlement of trade. The depository system inconcerned withconversion of
securities from physical to electronic form, settlement of trades in electronic segment,
transfer of ownership and electronic custody of securities. In the depository system, the
ownership and transfer of securities takes place by electronic book entries.
1. Meaning of Depository
A depository is an organization which holds securities in electronic book entries at
the request of the shareholder through the medium of a depository participant.1 It
assists in the allotment and transfer of securities and securities lending under the terms
of depository agreement. To utilize the services offered by a depository, the investor is
required to open an account called ‘Demat Account’ with the depository. The
objective is to allow for the faster, convenient and easy mode of affecting the transfer of
securities. The depository Act, 1996 defines it is an organization where the securities
of a shareholder are held in an electronic form of accounts in the same way as a bank
holds money.2
1.1 Bank and Depository – Comparison
A depository can be compared to bank but both operate for deferent purposes.
There are certain differences between Bank and Depository.
 Account- Bank holds fund in an account but Depository holds securities in an
account.
 Transfer- Bank transfers funds between accounts on the instruction of the
account holder whereas; Depository transfers securities between accounts on
the instruction of the account holder.
 Handling- Bank facilitates transfers without having to handle money whereas;
Depository facilitates transfers without having to handle securities.
 Safekeeping- Bank facilitates safekeeping of money but Depository facilitates
safekeeping of securities.
 Customer Contract- In bank contracts are made directly with bank but in
depository contracts are made through depository participant.
2. Who are the DepositoryPlayers?
 NSDL/CDSL
 Issuer Companies/Registrars
 Depository Participants
 Investors
 Brokers
 Brokers/Clearing Members
1Dr. S Guruswami, Capital Market, Chapter-21,Page- 447,(2nd Edition 2009)
2:Sanjeev Agarwal,Guideto Indian Capital Market,Chapter-14, Page-432 ,(1st Edition 2000)

5
 Clearing Corporation
3. Types of Depository
There are two types of depository in India. They are National Securities
Depository Limited (NSDL) and Central Depository Services (India) Limited (CDSL).
3.1 National Securities Depository Limited (NSDL)
NSDL is the first depository established in India, registered by SEBI in 1996,
which ensures trading and settlement of securities in electronic form.It was promoted
by Industrial Development Bank of India (IDBI), Unit Trust of India (UTI), the largest
Mutual Fund in India and National Stock Exchange (NSE).
3.1.1 Role and Advantage of NSDL
 Advantage of good delivery: When investors convert their physical shares into
dematerialized form (Process of conversion of securities held in physical form
into electronic form), he also communicates with depository environment.
NSDL has provided a facility of providing good delivery. There are no
questions arising out of unsuccessful delivery.
 Does not charge Stamp Duty: NSDL does not charge stamp duty in any kind
of securities, which falls under the depository or are listed in stock exchange.
The equity shares, units of Mutual Funds and Debt instruments are all included
in securities of depositories.
 Elimination of risks associated with physical certificates: Investor has to
take help of NSDL to eliminate problems like mutilation of certificates, theft of
stocks, and loss of certificates.
 Reduce Paperwork and Direct costs of record keeping: The depositories are
proven beneficial in reducing the paperwork of investors and direct costs of
physical handling, record keeping and movement or safekeeping of certificates.
 Portfolio Monitoring: NSDL provides an opportunity to easily inspect or
monitor the portfolio about the consolidated position of investments in all
instruments.
 Status reports: NSDL has provided a periodic status reports about the holdings
of transactions to their investors. It leads to better control on any fraudulent
occurrences.
 Faster Settlements: The NSDL completes their settlements in a short period of
time. it provides an opportunity of faster settlements and provide more liquidity
to their investors.
 Elimination of problems related to address alteration, transmission etc:
When an investor wants to alter their address or transmission in their securities,
then he has to go and inform to NSDL , where he is registered their securities,

6
with all important documents instead of changing address in according to the
different procedure with each company or registrar.
3.2 Central Depository Services (India) Limited (CDSL)
CDSL is the second largest depository in India, registered bySEBI in 1999 which
facilitated book entry transfer of securities. CDSL was promoted by The Stock
Exchange, Mumbai (BSE) jointly with leading banks suchas State Bank of India, Bank
of Baroda, HDFC Bank, Standard Chartered Bank, and Union Bank of India and
Centurion Bank. Objective of CDSL is providing convenient, dependable and secure
depository services at affordable cost to all market.
3.2.1 Role and Advantage of CDSL
 Wide DP Network: CDSL has over 200 DPs spread around 114 cities/towns
across the country, offering convenience for an investors to select a DP based
on his location.
 On Line DP Services: The branches of DP can also be directly connected to
CDSL thereby providing on-line and efficient Depository service to investors.
 Wide Spectrum of Securities Available for Demat: An investor can hold
almost all his securities in one account with CDSL such as bonds, debentures,
commercial paper, government securities, and certificates of deposits. CDSL
has kept its tariff very competitive to provide affordable Depository services to
investors.
 Dependability: CDSL’s system is based on centralized database architecture;
DPs can thus provide on-line depositoryservices with to the minute status of the
investor’s account. The entire database of investors is stored centrally at CDSL.
If there is any system-related issues at DPs end, the investor is not affected, as
the entire data is available at CDSL.
4. Stock Exchange Connectedto Depository
At present 10 Stock Exchanges are connected to the Depositories which are
National Stock exchange, The Stock Exchange Mumbai, Delhi Stock Exchange,
Ludhiana Stock Exchange, Bangalore Stock Exchange, over the counter exchange of
India, Madras Stock Exchange, Inter connected Stock Exchange, Ahmadabad Stock
Exchange.
5. IssuerCompanies/Registrars
 A Company joins a depository by establishing connectivity with NSDL/CDSL
either directly by investing in the hardware and software. It signs an agreement
with NSDL/CDSL.

7
 Alternatively, it may establish connectivity with NSDL/CDSL through a
Registrar who has made the necessary investment in the hardware and software.
 When a company joins NSDL/CDSL through a registrar, it signs a tripartite
agreement with the registrar and NSDL/CDSL as per the format specified by
NSDL/CDSL
 A company may appoint a Registrar only for electronic connectivity and
maintain share department for transfer in house.
5.1 Advantages of a Depository to the Company
 It reduces the risk of loss of securities and, at the same time, reduces the
fraudulent activities;
 It avoids the checking of shares, deeds and various papers,
 No share certificate is issued as the securities are divisible;
 It reduces the various costs which require secretarial help;
 It supplies better communication facilities
 Easy availability of data and information (i.e. issue of bonus share, right share,
dividend declaration, etc.) are available which helps the shareholder to take
decisions.
6. DepositoryParticipant(DP)
• It is not possible for Depository to provide services directly to the investors. DP
is an agent of the depository and functions as the interacting medium between
the depository and the investor.
• A DP should be registered with the SEBI, which is based on the
recommendation from NSDL and SEBI’s own independent evaluation.
• DP Must possess requisite qualifications prescribed by the concerned
depository of which he is a participant
• It is responsible for maintaining the investors’ securities a/c with the depository
and handles them as per the investors written instructions
• He is linked to a broker who trades on behalf of investors
• To avail their services an account similar to a bank a/c has to be opened with the
DP
• As per SEBI Regulations , financial institutions, banks, custodians, stock
brokers etc can become DP’s
• However investors may choose DP’s of their choice and also deals with 1 or
more DP's at a time.
• One should visit DPs, If any discrepancy in transaction statement. DP will
rectify that issue. If DPs doesn’t rectify problem, one can complain to
Depository (NSDL/CDSL) .
• DP takes one time charge for opening of account under Depository participant.
Depository charges the DP who in turn charges investors .

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6.1 Services Offered by Depository Participant
The services offered by DP’s are as under:3
 Conversion of holdings from physical to electronic form(referred to as
dematerialisation of securities)
 Conversion of holding from electronic to book entry form(referred to as
rematerialisation of securities)
 Maintenance of holding in electronic form
 Settlement of market trades in electronic or book entry segment
 Settlement of off-market trades
 Facilitating pledge of securities
 Electronic credit of new share allotments suchas rights, bonus, public issue, etc.
7. Why should an Investor join a depository?
The present system of trading revolves around movement of paper at all stages,
be it purchases, sales or transfer and sales with the normal risks like delays, loss in
transit and bad deliveries at every stage. The only solution to these problems is trading
by the advent of the depository. Three things basically considered by Investor while
joining Depository which are Cost, Comfort, Convenience.
7.1 Advantages Enjoyed by Investors:
• Faster Transfer of transaction - Transaction take place much faster in electronic
form trading compared to a 30-60 days settlement cycle that usually takes place
in the case of physical transfer of securities.
• Elimination of Bad Deliveries and all risks associated with physical certificate
such as loss, theft, mutilation, forgery etc.
• Easy and Enhanced Liquidity
• No Stamp Duty on transfer
• No Postage/Courier Charges
• Faster Disbursement of corporate benefit like rights, bonus, etc.
• Facilities of Creating Charges on dematerialized shares for granting loans and
advances against shares.
• No Delay in Transfer of Securities
• Lower Interest on Loans Against Demat Shares
• Nomination Facilities at The Time of Account Opening
• Much Faster Payment on Sale of Shares
• Minimum Handling of Paper
• No Scope for Forgery/Damage of Share Certificate
• Investors are not required to open multiple accounts just because they have
spelled their names differently in different companies so long as signature is
consistent.
3 Sanjeev Agarwal,Guideto Indian Capital Market,Chapter-14, Page- 446,447(1st Edition 2000)

9
8. Broker/Clearing Members
All trades in the book entry segment are settled through the depository. The
broker has to open a clearing account with a DP for settlement of trades one in the book
entry segment of the NSE/other stock exchange.
8.1 Advantages to a Clearing Member
• Enhanced liquidity, safety and turnover on stock market.
• Opportunity for development of retail brokerage business.
• Ability to arrange pledges without movement of physical scrip and further
increase overall level of trading activity liquidity and profits.
• Improved protection of shareholder’s rights resulting from more timely
communications from the issuer.
• Reduced transactions costs through greater efficiency.
• Elimination of forgery and counterfeit with attendant reduction in settlement
risk from bad deliveries.
• Provide automation to post trade processing.
• Standardisation of procedures.
• Bringing efficiency to the market place.
• Improved cash flow
9. Clearing Corporation
The clearing corporationsettles the trades done on the book entrysegment of the
stock exchange as in the physical segment. All deliveries due from the brokers for a
settlement is given by NSDL to the clearing corporation and all deliveries receivable
for a settlement are received by NSDL from the clearing corporation.
10. Demat (Beneficiary)Account
Beneficiary a/c is an account opened by the investor or a broker with a DP of his
choice to hold shares in Demats form and undertakes scrip less trading. For opening
Demat a/c, the following procedure is required:4
 DP will make available the Account Opening Form and a Copy of the
agreement in duplicate to be signed with the client. This is the agreement
between the DP and the individual seeking to open an account with the
Depository Participant. A Specimen Signature card will also be provided. The
details that the prospective individual with have to fill in the Application Form
are :
 Name of the beneficiary
4Sanjeev Agarwal,Guide to Indian Capital Market,Chapter-14,Page-439,440(1st Edition 2000)

10
 Date of birth(in case of minor)
 Occupation of Beneficiary
 Local Address, Telephone No., Fax No.
 Status Code, Sub-Status Code
 Bank account particulars such as name of the bank and its branch,
Current account/Saving Account number, PAN/GIR Number.
 Signature of authorized signatories.
 In case of NRI, Foreign address and RBI Ref. No. and approval date.
 Nominee’s Name and address
 Signature of Beneficiary.
 In specimen signature-Card, signature of beneficiary and passport size
photograph.
 The prospective individual will furnish the account opening form duly filled
along with the account opening charges.
 The prospective individual along with the application form will also be required
to submit the agreement signed in duplicate.
 Verification of document if not found in order, the same shall be returned for
rectification, stating reason thereof.
 If document are found in order, DP will accept the form and provide the client
with an acknowledgment slip duly signed and stamped.
 On completing above, DP will proceed to open the account. A client Account
Number will be granted and recorded in the account opening form. The
individual will be informed of the same.
 DP will also record the specimen signature-Card for the purpose of checking
authorized in the future.
Once a demat a/c is opened investor must sign an agreement with the DP and
the investor will be allotted an account no. called as client identity. No minimum
balance is required. The investor is provided with a transaction statement by his DP at
regular intervals based on which the investor will know his security balances.
Partnership Firms, HUF, Minors cannot be the legal entity of Demat a/c but the Partners,
Karta of HUF, Guardian of Minor can be the legal entity.
11. Dematerialisation
It means conversion of the physical certificates into Dematerialised holdings at
the request of the investor. The physical certificates are taken back by the registrar and
destroyed and an equivalent number of securities are credited in the electronic holdings
of that investor this is done at the request of investor. Only shares registered in the name
of the a/c holder are accepted for Dematerialisation at the depository.

11
11.1 Time limit for Dematerialisation
The time limit permitted to the registrar by SEBI for Dematerialisation is 30 days
from the date of receipt of the physical request from the DP. The time limit of30 days is
reckoned from the date of receipt of physical request by the registrar from the DP.
11.2 Process of Dematerialisation
In order to dematerialise physical securities one has to fill in a DRF (Demat
Request Form) which is available with the DP and submit the same along with physical
certificates that are to be Dematerialised. Separate DRF has to be filled for each ISIN5.
The complete process of Dematerialisation is outlined below:6
 Surrender certificates for Dematerialisation to your DP.
 DP intimates to the Depository regarding the request through the system.
 DP submits the certificates to the registrar of the Issuer Company.
 Registrar confirms the Dematerialisation request from depository.
 After Dematerialising the certificates, Registrar updates accounts and informs
depository regarding completion of Dematerialisation.
 Depository updates its accounts and informs the DP.
 DP updates the Demat account of the investor.
11.3 Dematerialisation of other instruments
There are number of instruments which can be issued and can be held as
dematerialized form. Other than equity shares the instruments like debenture,
bonds,PCDs,NCDs,CPs,CDs can be issued and held in demat form . Mutual Funds can
be held as dematerialized form also. The mutual fund unit which are in the physical
form can be dematerialized to the demat account.
12. Rematerialisation
The process is called Rematerialisation. If one wishes to get back his securities
in the physical form he has to fill in the RRF (Remat Request Form) and request his DP
for Rematerialisation of the balances in his securities account. The process of
Rematerialisation is outlined below:7
 Make a request for Rematerialisation.
5ISIN (International Securities Identification Number) is a unique 12 digit alpha-numeric identification
number allotted for a security (E.g.-INE383C01018) ,See: Securities Exchange Board of India,
Frequently asked question on Dematerialisation, no.29 ,http://www.sebi.gov.in/faq/faqdemat.html
6 Securities Exchange Board of India, Frequently asked question on Dematerialisation, Q No.
28 ,http://www.sebi.gov.in/faq/faqdemat.html
7 Securities Exchange Board of India, Frequently asked question on Dematerialisation, Q No.32 ,
http://www.sebi.gov.in/faq/faqdemat.html

12
 Depository participant intimates depository regarding the request through the
system.
 Depository confirms Rematerialisation request to the registrar.
 Registrar updates accounts and prints certificates.
 Depository updates accounts and downloads details to depository participant.
 Registrar dispatches certificates to investor.
13. Trading in Demat Stocks
The biggest benefit to the investor who sells dematerialized shares will be that the
brokers have no fear of bad delivery on selling dematerialized shares. An Investor can
also receive his bonus and rights directly in his depository account as a direct credit,
thus, eliminating risk of loss in transit. He can also expect lower interest charges for
loans taken against demat shares compared to the interest for loan against physical
shares.
I. Facilities offeredby DepositorySystem
Opening of depository system offers certain facilities like opening of Demat
Account, Dematerialisation, Rematerialisation, settlement of trades in dematerialized
securities, dealing in government securities, Stock lending and borrowing, redemption
etc. But along with that there are certain facilities which are also provided by
Depository which are:
Transmission- The claimant will have to fill a transmission request form (TRF),
supported by documents like death certificate, succession certificate, etc. The major
advantage in transmission of dematerialized holdings is that the transmission
formalities for all securities held with DP can be completed in a single stage.
Transposition- Share sent for transposition canbe dematerialized. The investor can get
the securities dematerialized in the same account if the names appearing on the
certificates match with the names in which the Demat account has been opened are in a
different order, by submitting the security certificates along with the transposition form
and the dematerialized request form to the DP.
Nomination – Shares held in electronic form also can be nominated. Nomination can
be made only by individuals holding beneficiary accounts on their own behalf either
singly or jointly. The investor must fill in and submit by the account holder by filing up
the revised nomination form and submitting the same to the DP. The account holder,
nominee and two witnesses must sign this form and the name, address and photograph
of the nominee must also be submitted.
Account freezing – An investor can freeze/lock his account for any given period of
time if he so desires. It is possible for a client to issue instructions requesting for the will
then be allowed to the account to be frozen until any further instructions.
Single Window Services- The DP enjoys the benefits of a broker-cum-DP wherein the
client gets the benefit of single window services. The broker-DP interface offers clients

13
the benefit of operating the depository account at the broker end thus eliminating
multiple agencies and contact points.
Pledging – Pledging dematerialized securities is easier and more advantageous as
compared to pledging physical securities. For that both Borrower and Lender have
depository account.
J. Kinds of Problem Solved After Introduction of DepositorySystem
• 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.
16. Trading and Settlement
The procedure for buying and selling dematerialised securities is similar to the
procedure for buying and selling physical securities. The difference lies in the process
of delivery (in case of sale) and receipt (in case of purchase) of securities.
In case of purchase:-
 The broker will receive the securities in his account on the payout day.
 The broker will give instruction to its DP to debit his account and credit BO's
account.
 BO will give ‘Receipt Instruction’ to DP for receiving credit by filling
appropriate form. However BO can give standing instruction for credit to his
account that will obviate the need of giving Receipt Instruction every time.
In case of sale:-
BO will give delivery instruction through DeliveryInstruction Slip (DIS) to DP
to debit his account and credit the broker’s account. Such instruction should reach the
DP’s office at least 24 hours before the pay-in, failing which; DP will accept the
instruction only at the BO’s risk.
IPO
It is possible to get securities allotted to in Public Offerings directly in the
electronic form. In the public issue application form, there is a provision to indicate the
manner in which an investor wants the securities to be allotted. He has to mention the
BO ID, name and DP ID on the application form. Any allotment made will be credited
into the BO account.

14
17. Law Relating DepositorySystem
The depository is the registered owner. It is only having the custody for the
purpose of being a registered owner in the eyes of law for the issuer.A depository
system is governed by certain acts which are:
 The SEBI(Depositories and Participants) Regulations, 1996
 Business rules of depository
 Depository Act,1996
Depository Act, 1996
 “Depository “means a company formed and registered under the Companies
Act, 1956, and which has been granted a certificate of registration under
sub-section (1A) of section 12 of the SEBI Act, 1992.8
 “Participant “means a person registered as such under sub-section(1A) of
section 12 of SEBI act,19929
 “Beneficial Owner” means a person whose name is recorded as such with a
depository.10
 This act also deals with Rights and Obligation of DP, Issuers, Beneficial
Owners11 Enquiry and Inspections(Powers of Board and Penalties in Default)12
SEBI (Depositories and Participants) Regulations, 1996
• This Regulation gave a perfect shape to Depository system in India .
• NSDL and CSDL are established under the SEBI guidelines
• It also defines about Rights and Obligations of Depositories, Participants,
Issuers, Manner of Surrender of Certificate of Security and Creation of Pledge
or Hypothecation.13
• Registration of Depository and Depository Participant is dealt by such
regulation.14
• The Procedure, Terms, Limitations, Renewal, Withdrawal, issue, Transfer,
Record of payments, Steps when default is made all is regulated by this
regulation.
• SEBI(Depositories and participants)Regulation is amended several times. Last
amendment was made in 2014 in which acting as participant in more than one
depository was introduced15
8Sec 2(1)(e) Depository Act,1996
9Sec 2(1)(g) Depository Act,1996
10Sec(1)(a) Depository Act,1996
11 Chapter III,Sec 4-17, Depository Act,1996
12 Chapter IV, Sec 18-19 J, Depository Act,1996
13 Chapter V , Sec 26-58 B , SEBI(Depositories and Participants) Regulations, 1996
14 Chapter IV, Sec 16-25,SEBI(Depositories and Participants) Regulations, 1996
15 Section 20AB of SEBI(Depositories and Participants)(Amendment) Regulations,2014

15
18. Conclusion
The Depository System is a well organized and properly planned systems by
which the speedy functioning and transparent transactions are getting possible. Like
other Asian countries India is growing economy and such depository system is helping
in the objective of Nation. Depository is not only protecting the investors and
companies Under SEBI regulation but also fastening huge amount of functioning of
finance in a proper way. The Investors and Companies are getting so many benefits
from depositories.
But some disadvantages were about the depository system were known
beforehand. But since the advantages outweighed the shortcomings of
dematerialization, the depository system was given the go-ahead. The disadvantages
are like Lack of control, Complexity of the system. Trading in securities may become
uncontrolled in case of dematerialized securities. Multiple regulatory frameworks have
to be confirmed to, including the Depositories 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 anxiety to the investor desirous of
simplicity in terms of transactions in dematerialized securities. In my opinion
Depository needs a greater supervision because 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. The Depository System is not free from
snags. Some of them are, Number of frauds may be increased as there is no physical
checking, practically, to set up a single depository is not possible, MDS (Multiple
Depository System) invites the problems of coordination.
Although the Depository System is not free from snags, even then it is a boom to the
world of capital market. It, no doubt, proves an efficient transfer system and helps the
investors and the company in various forms. It overcomes the problems from bad
delivery, counterfeit certificates, etc. It also reduces various cost and expenses (i.e.
Registration cost).

16
REFERENCES
Bibliography
 Dr. S. Guruswamy , Capital Market , 2nd Edition(2009)
 Sanjiv Agarwal , Guide to Indian Capital Market, 1st Edition(2000)
Internet Sources
 www.sebi.gov.in,http://www.sebi.gov.in/sebiweb/
 www.youtube.com, https://www.youtube.com/watch?v=C-29kjvwgS4 ,
https://www.youtube.com/watch?v=uLfkLwGFKmI
 www.slideshare.net/,
 www..wikipedia.org
Acts Fallowed
 Depository Act, 1996
 SEBI (Depositories and Participants) Regulations, 1996
 SEBI(Depositories and Participants)(Amendment) Regulations,2014

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