Depository

A depository is an entity which holds securities of investors in electronic form at the request of the investors through a registered Depository participant. It also provides services related to transactions in securities based on instructions given by the investors to depository participant.

Depository system

A major weakness in the Indian stock market has been the lack of depository services on modern lines . Depositories provide for maintenance of ownership records in a book entry form. Before the Depositories Ordinance introduced the depositories system in India, every share transfer required to be accomplished by a physical movement of share certificates to, and the registration with the company concerned.

Who is a depository participant?

A depository participant is a person or entity, which is registered with depositories such as NSDL and/or CDSL as also with SEBI and who offers services of holding your shares and effecting transfer (accepting credits in your account as well transferring shares from your account to that of some one else based on your instructions). Thus a depository participant acts as a custodian of your securities held in dematerialized or fungible form and carries out your instruction to transfer the same.

The two models of the depository system are:

1. Dematerialization, wherein, by operation, there is no physical scrip in existence as neither the individual who owns the shares nor the depository keeps scrips. The depository maintains the electronic ledger of the securities under his control.
2. Immobilization, wherein the physical scrips are held in the depository vaults, supporting the book entry records kept on the computer.

Two types of ownership are contemplated under the depository system and can be briefly put forth as follows:

1. A registered owner is the depository who holds the securities in his name.
2. A beneficial owner is the person whose name is recorded as such with the depository. Though the securities are registered in the name of the depository actually holding them, the rights, benefits and liabilities in respect of the securities held by the depository vest in the beneficial owner.

The depository model is based on the deposit of securities by the owner of the securities with a certified depository. Subsequently, an entry is made in the name of the said owner, manifesting his ownership of the securities upon which the person depositing the securities becomes the beneficial owner in respect of the said securities. The service provided in relation to this by the depository is that of recording of allotment of securities or transfer of ownership of securities in the record of the depository .

How are transfers made by DP?

DPs issue Delivery Instruction Slips (or DIS) to all account holders. These are like cheque leaves. Whenever you want to transfer shares from your account to another account, you are required to fill the relevant details such as security identification number, number of shares you want to transfer, date of transfer, account to which shares need to be transferred etc. and submit this slip to your DP. The DP would then affect the transfer. You can give standing instructions to your DP for all credits to your account, whereby you need not give instructions to your DP each and every time for accepting credit to your account.