DEPOSITORY SYSTEM

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 The term depository is defined as “a central
location for keeping securities on deposit”. It is
also defined as “a facility for holding securities,
either in certificated or uncertificated form to
enable book entry transfer of securities”.
 It is understood from the above two definitions
that the depository is a place where securities
are stored, recorded in the books on behalf of
the investors.
 Therefore, a depository can be defined as, “an
institution which transfers the ownership of
securities in electronic mode on behalf of its
members”.
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 NSDL - Bank -- An Analogy

BANK
BANK NSDL
NSDL

 Holds funds in  Holds securities in

accounts accounts
 Transfers funds  Transfers securities
between accounts between accounts
 Transfers without  Transfers without
handling cash handling physical
securities
 Safekeeping of money  Safekeeping of securities

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 Reduce the time for transfer of securities.
 Avoid the risk of settlement of securities.
 Enhance liquidity and efficiency.
 Reduce cost of transaction for the investor.
 Create a system for the central handling of
all securities.
 Promote the country’s competitiveness by
complying with global standards.
 Provide service infrastructure in a capital
market.

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 Accepting deposit of securities for custody.
 Making computerized book entry deliveries
of securities which are immobilized in its
custody.
 Creating computerized book entry pledges
of securities in its custody.
 Providing for withdrawals of securities.
 Undertaking corporate actions like
distribution of dividend and interest.
 Redemption of securities on maturity.

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 This system will eliminate paper work as the book
entry system does not need physical movement of
certificates for transfer process.
 The risk of bad deliveries, fraud and misplaced and
lost share certificates will not exist.
 The electronic media will shorten settlement time
and hence the investor can save time and increase
the velocity of security movement.
 Investor will be able to change portfolio more
frequently.
 The distribution of dividend, interest and other
benefits will be speedier as the ownership can be
easily identifiable.
 The cost of transfer is less as the share transfers are
exempt from stamp duty.
 Faster payment in case of sale of shares.

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 The companies will be able to know the
particular of beneficial owners and their
holding periodically.
 At the time of declaration of dividends,
bonus etc. there will not be any rush for
transfer related activities for the companies.

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 The information technology has brought out
revolutionary changes in the operations of
stock exchanges in India. The traditional
methods of trading without the use of
technology was time consuming and
inefficient. Further, it imposed limits on
trading volumes and efficiency. To
overcome those defects and to provide
efficient and transparent services, the NSE
has introduced a nation-wide on line fully
automated screen based trading system
(SBTS). Now, other stock exchange have
been forced to adopt SBTS and today India
can boast that almost 100% trading take
place through electronic order matching.

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 Under SBTS, a member can punch into the
computers quantities of securities and the
prices at which he likes to transact the
transaction. It is executed as soon as it finds
a matching sale or buy order from a counter
party. Thus, technology is used to carry the
trading platform from the trading hall of the
exchanges to the premises of the brokers.

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