Depository participant
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In India, a Depository Participant (DP) is described as an agent of the depository. They are the intermediaries between the depository and the investors. The relationship between the DPs and the depository is governed by an agreement made between the two under the Depositories Act. In a strictly legal sense, a DP is an entity who is registered as such with SEBI under the provisions of the SEBI Act. As per the provisions of this Act, a DP can offer depository-related services only after obtaining a certificate of registration from SEBI.
SEBI (D&P) Regulations, 1996 prescribe a minimum net worth of Rs. 50 lakh for stockbrokers, R&T agents and non-banking finance companies (NBFC), for granting them a certificate of registration to act as DPs. If a stockbroker seeks to act as a DP in more than one depository, he should comply with the specified net worth criterion separately for each such depository. No minimum net worth criterion has been prescribed for other categories of DPs; however, depositories can fix a higher net worth criterion for their DPs. NSDL requires a minimum net worth of Rs. 100 lakh to be eligible to become a DP as against Rs. 50 lakh prescribed by SEBI (D&P) Regulations.
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[edit] Basics of Depository
Depository can in many ways be compared to a bank. Securities of the investors are held in electronic / book entry form by the Depository. Apart from holding the securities, Depository also provides services related to transactions in securities. Several consider the Depository to be another custodian. But the depository has an advantage over the custodian- the Depository can transfer the Beneficial Ownership of the Securities, legally, which a custodian cannot do.
[edit] Benefits of Depository
- Bad delivery eliminated
- Immediate transfer of shares
- No stamp duty on such transfers
- Elimination of risks that are normally associated in dealing with Physical certificates - loss / theft / mutilation due to careless handling / forgery / etc.
- Reduced transaction cost
[edit] How do Depository operate
Depository interacts with its clients / investors through its agents, called Depository Participants normally known as DPs.
For any investor / client, to avail the services provided by the Depository, has to open Depository account, known as Demat A/c, with any of the DPs.
[edit] Demat Account Opening:
A demat account are opened on the same lines as that of a Bank Account. Prescribed Account opening forms are available with the DP, needs to be filled in. Standard Agreements are to be signed by the Client and the DP, which details the rights and obligations of both parties. Along with the form the client requires to attach Photographs of Account holder, Attested copies of proof of residence and proof of identity needs to be submitted along with the account opening form.
In case of Corporate clients, additional attachments required are - true copy of the resolution for Demat a/c opening along with signatories to operate the account and true copy of the Memorandum and Articles of Association is to be attached.
[edit] Services provided by Depository
- Dematerialisation (usually known as demat) is converting physical certificates to electronic form
- Rematerialisation, known as remat, is reverse of demat, i.e. getting physical certificates from the electronic securities
- Transfer of securities, change of beneficial ownership
- Settlement of trades done on exchange connected to the Depository
- Pledge / Hypothecation of demat shares, viz. Loan against shares
- Electronic credit in public offering of the Companies
- Non - Cash corporate benefits, viz. Bonus / Rights - direct credit into electronic form
[edit] No. of Depository in the country
Currently there are two depositories operational in the country.
- National Securities Depository Ltd.
- Central Depository Services Ltd.
