A STUDY ON DEPOSITORY SYSTEM - Docx New
A STUDY ON DEPOSITORY SYSTEM - Docx New
DEPOSITORY SYSTEM
Submitted to
IN
(2019-2020)
Submitted by
Tausef Khan
1
CERTIFICATE
DEPOSITORY SYSTEM
By
Miss. Vaijayanti B. Waswani
Tausef Khan
(Branch Manager)
2
LIST OF CONTENT
Sr. Page
Content
No. No.
Report Page 1
Certificate 2
List of content 3
Acknowledgement 4
Abstract 5
1 History of Depository System 6
2 What is Depository? 6
3 Need for Depository 7
4 Depository in India 7
5 Constituent of Depository system 8
6 What is Dematerialization? 10
7 What is ISIN 10
8 Dematerialization process 10
9 Rematerialization process 12
10 Market transfer 13
11 Benefit of Depository System 14
13 Reference 16
15 Conclusion 19
3
ACKNOWLEDGEMENT
4
ABSTRACT
5
History
The first depository was set up way back in 1947 in Germany.
In India it is relatively new concept introduced in 1996 with the
enactment of The Depositories Act, 1996.
Their operation are carried out in accordance with regulation made by
SEBI , bye-laws and rules of Depositories Act and SEBL ( Depositories
and participants ) Regulation Act , 1996
What is Depository?
A depository is an organization which holds securities (like shares,
debentures, bonds, government securities, mutual fund units etc.)
of investors in electronic format their quest of the investors
through a registered Depository Participant. It also provides
services related to transactions insecurities. (SEBI)
6
Need for Depository
Before introduction of depository system, the problem face by investor
and corporate in handling large volume of paper were as follow:
Bad deliveries
Fake certification
Loss of certificate in transit
Mutilation of certificates
Delays in transfer
Long settlement cycle
Mismatch of Signature
Delay in refund and remission of dividend etc.
Depository in India
At present there are two Depository are register with SEBI.
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Constituent of Depository System
There are basically four participants.
1. The Depository participant
2. The Depository
3. The Issuing Company
4. The Beneficial Owner
Depository participant
A Depository participant is the agent of the depository through
which it interfaces with the investor.
A DP can offer depository services only after it gets proper
registration from SEBI.
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Depository
A firm wherein the securities of an investor are held in electronic
form.
Function as a custodian of securities of its client.
Issuer
The company which issue security.
Agreement by issuer.
Beneficial Owner
A person whose name is recorded as such with a depository.
Real owner of the securities.
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What is dematerialization?
Dematerialization is the process by which physical certificates of an
investor are converted to an equivalent number of securities in
electronic form and credited into the BO’s account with his DP.
What is an ISIN?
ISIN (International Securities Identification Number) is a unique 12 digit
alpha-numeric identification number allotted for a security (E.g.-
INE383C01018). Equity-fully paid up equity-partly paid up, equity with
differential voting / dividend rights issued by the same issuer will have
different ISINs.
Dematerialization Process
Stock exchange will notify through advertisement
Open demat account with depository participant (DP)
Application in a DRF (Demat Request Form) along with share
certificate: To dematerialize physical securities, one must fill in a
DRF which is available with the DP and submit the same along
with physical certificates that are to be dematerialized. Separate
DRF must be filled for each ISIN.
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The complete process of dematerialization is outlined
below:
Surrender certificates for dematerialization to your DP.
DP intimates to the Depository regarding their quest through the
system.
DP submits the certificates to the registrar of the Issuer Company.
Registrar confirms the dematerialization request from depository.
After dematerializing the certificates, Registrar updates accounts
and informs depository regarding completion of
dematerialization.
Depository updates its accounts and informs the DP.
DP updates the demat account of the investor.
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Rematerialization Process
If one wishes to get back his securities in the physical form, he must fill
in the RRF (Remat Request Form) and request this DP for
Rematerialization of the balances in his securities account. The process
of Rematerialization is outlined below:
12
Market Transfer
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 (Depository Participant)
to debit his account and credit BO's (Beneficiary Owner) 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 Delivery Instruction 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.
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Benefits of Depository System
To Investors
Eliminate paper work and no physical movement of certificates
Risk of bad deliveries, fraud and misplaced, mutilated and loss of
share certificates will not exist
Shorten settlement time and save and increase velocity
Possible to change portfolio with more frequency
Less cost
Faster payment
To Companies
Companies will able to know the 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
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Drawbacks of Depository System
• 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 their 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
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References
Gordon, E., &Natarajan, K. (2016). FinancialMarketsandServices
(TenthReviseded.). Mumbai: HimalayaPublishingHousePvt.Ltd.
Pathak, B.V. (2014). TheIndianFinancialSystem: Markets,
InstitutionsandServices (N. RakshitEd.Fourthed.). Delhi, Cheannai:
DorlingKindersley (India)Pvt.Ltd,
licenseesofPearsonEducationinSouthAsia.
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MY LEARNING FROM SIP
I learned a great deal about the stock market and its
functioning during my two months of internship. Earlier I had
very little knowledge about the stock market and how it works.
I had no knowledge about how to invest in the stock market. I
was only aware about the existence of the Bombay Stock
Exchange, I was not even aware of the National Stock
Exchange i.e. Nifty.
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CONCLUSION
The two months that I have spent in my internship period
would be a golden period of my life in which I learned a great
deal about the stock market and its functioning. Earlier I had
very little knowledge about the stock market but now I can say
that I have fair knowledge about the company and the stock
market. I got fair knowledge about how to work in a corporate
environment and how to absorb pressure.
I learned things that are not found in books and those can only
be learned when you are out in the field, talking to people. I
believe this will help me in the future. The best part was the
training sessions that were taken by senior persons in the
company to let us know about the various products of the
company and how to approach the customers with these
products.
Overall, I would say that the two months of my internship was
full of learning and wonderful experience will I will always keep
in mind through my life.
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