The depository is an organization that holds securities (like share, Debentures, Bonds, Government Securities, Mutual Funds Units etc) 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.
In India there are two Depositories Central depository services limited (CDSL) & National securities depository limited (NSDL).
Scope of Business:
- Services Provided by a Depository
- The opening of DEMAT accounts
- Dematerialization (converting physical securities into electronic form)
- Rematerialisation (that is converting electronic securities into physical form)
- Maintaining records of securities held by the beneficial owner in electronic form.
- Settlement of trades by delivery or receipt of securities form/ in beneficiary account.
- Settlement of off-market transaction between beneficial owners.
- Receiving electronic credit respect of securities allotted by issuers under IPO or otherwise on behalf of DEMAT account holders;
- Receiving non-cash corporate benefits such as allotment of bonus and rights shares or any other non-cash corporate benefits given by the issuers in electronic form on behalf of its DEMAT account holders;
- Pledging of dematerialized securities & facilitating loans against shares;
- Freezing of the DEMAT account for debits, credits, or both
A Depository Participant is an agent of the depository through which it interfaces with the investor and provides depository services. They act as a mediator between investor and depository. You cannot interact with CDSL or NSDL. You need to be dependent with a Depository Participant to open and maintain your DEMAT account.
Public financial institutions, scheduled commercial banks, foreign banks operating in India with the approval of the Reserve Bank of India, state financial corporations, custodians, stock-brokers, clearing corporations/clearinghouses, NBFCs and registrar to an issue or share transfer agent complying with the requirements prescribed by SEBI can be registered as DP. Banking services can be availed through a bank branch whereas depository services can be availed through a Depository Participant.
Initial Registration of Depository Participant:
An application for the grant of a certificate of initial registration as a participant shall be made to the bond in Form E, through the depository in which the applicant proposes to act as a participant, shall be accompanied by the fee specified.
The depository shall forward to the Board (SEBI) the application in Form E as early as possible, but not later than thirty days along with its recommendations and certifying that the participant complies with the eligibility criteria including adequate infrastructure as provided for in these regulations and the bye-laws of the depository.