DEPOSITORY SYSTEM AND ITS ROLE IN STOCK MARKET Submitted by: Bibhu Kaibalya Manik LLM, Roll

No. 1685005 KIIT School of Law Laws on Security and Financial Market DEPOSITORY SYSTEM AND ITS
ROLE IN STOCK MARKET 1 CONTENT I. Abstract----------------------------------------------------------------------------
---------3 1. Meaning of Depository-------------------------------------------------------------------4 1.1 Bank and
Depository – Comparison-----------------------------------------------4 2. Who are the Depository Players? --------
-----------------------------------------------4 3. Types of Depository-----------------------------------------------------------
------------5 3.1 National Securities Depository Limited (NSDL) ---------------------------------5 3.1.1 Role and
Advantage of NSDL-----------------------------------------------5 3.2 Central Depository Services (India) Limited
(CDSL) ---------------------------6 3.2.1 Role and Advantage of CDSL-----------------------------------------------6 4.
Stock Exchanges Connected to Depositories------------------------------------------6 5. Issuer of the
Company/Registrar--------------------------------------------------------6 5.1 Advantages of a Depository to the
Company------------------------------------7 6. Depository Participant-------------------------------------------------------
-------------7 6.1 Services Offered by Depository Participant--------------------------------------8 7. Why should
an investor join a depository? -------------------------------------------8 7.1Advantages Enjoyed by Investors-----
----------------------------------------------8 8. Broker/Clearing Members----------------------------------------------------
-----------9 8.1 Advantages to a Clearing Member-------------------------------------------------9 9. Clearing
Corporation---------------------------------------------------------------------9 10. Demat (Beneficiary) Account--------
-------------------------------------------------9 11. Dematerialisation-----------------------------------------------------------
------------10 11.1 Time limit for Dematerialisation------------------------------------------------11 11.2 Process of
Dematerialisation-----------------------------------------------------11 11.3 Dematerialisation of other
instruments-----------------------------------------11 12. Rematerialisation-------------------------------------------------
-----------------------11 DEPOSITORY SYSTEM AND ITS ROLE IN STOCK MARKET 2 13. Trading in Demat
Stocks----------------------------------------------------------------12 14. Facilities offered by Depository System------
-----------------------------------------12 15. Kinds of Problem Solved After Introduction of Depository System---
------------13 16. Trading and Settlement-------------------------------------------------------------------13 17. Law
Relating Depository System-------------------------------------------------------14 18. Conclusion------------------------
---------------------------------------------------------15 DEPOSITORY SYSTEM AND ITS ROLE IN STOCK MARKET 3
ABSTRACT Depository system is concerned with conversion from physical to electronic form, settlement
of trades in electronic segment, transfer of ownership and electronic custody of security. National
Securities Depository Ltd. (NSDL) is the country’s first depository which provides electronic depository
facilities for securities traded in the equity and debt markets. NSDL has established strict system and
procedures and data level and machine level backups to ensure safety of investor holding. NSDL and its
business partner use hardware, software and communication systems, which conform to industry
standard. After that Central Depository Services (India) Limited (CDSL) is established in 1999 which
facilitates book entry transfer of securities. The Depository Act, 1996 defines depository as, an
organization where the securities of a shareholder are held in the form of electronic accounts in the
same way as a bank holds money. There are many benefits of trading and settlement under depository.
The Investors and as well as Companies gets certain benefits for Depository System. There are certain
time and cost benefit which accrues to the investors in depository mode. In depository proper
procedures are established to open client account with the help of depository participants’
.Dematerialisation and rematerialisation of account plays important role in depository by which the
accounts which are in physical mode can be converted to electronic mode and vise-verse. Trading and
settlements corporate actions, demat stocks are also made in depository system. By establishment of
this system the problems like Bad deliveries Fake certificates, Loss of certificates in transit, Mutilation of
certificates, Delays in transfer, Long settlement cycles, Mismatch of signatures, Delay in refund and
remission of dividend etc are solved. Depository plays vital role in Stock market through depository
investor can easily sale his share and the mutual funds, Commercial papers, certificate of depositories
etc also can be dealt in dematerialised form. DEPOSITORY SYSTEM AND ITS ROLE IN STOCK MARKET 4
The century old India capital market has been facing a lot of trouble in traditional paper based
settlement of trade. The depository system in concerned with conversion of securities from physical to
electronic form, settlement of trades in electronic segment, transfer of ownership and electronic
custody of securities. In the depository system, the ownership and transfer of securities takes place by
electronic book entries. 1. Meaning of Depository A depository is an organization which holds securities
in electronic book entries at the request of the shareholder through the medium of a depository
participant. 1 It assists in the allotment and transfer of securities and securities lending under the terms
of depository agreement. To utilize the services offered by a depository, the investor is required to open
an account called ‘Demat Account’ with the depository. The objective is to allow for the faster,
convenient and easy mode of affecting the tra nsfer of securities. The depository Act, 1996 defines it is
an organization where the securities of a shareholder are held in an electronic form of accounts in the
same way as a bank holds money.2 1.1 Bank and Depository – Comparison A depository can be
compared to bank but both operate for deferent purposes. There are certain differences between Bank
and Depository.  Account- Bank holds fund in an account but Depository holds securities in an account.
 Transfer- Bank transfers funds between accounts on the instruction of the account holder whereas;
Depository transfers securities between accounts on the instruction of the account holder.  Handling-
Bank facilitates transfers without having to handle money whereas; Depository facilitates transfers
without having to handle securities.  Safekeeping- Bank facilitates safekeeping of money but
Depository facilitates safekeeping of securities.  Customer Contract- In bank contracts are made
directly with bank but in depository contracts are made through depository participant. 2. Who are the
Depository Players?  NSDL/CDSL  Issuer Companies/Registrars  Depository Participants  Investors 
Brokers  Brokers/Clearing Members 1Dr. S Guruswami, Capital Market, Chapter-21,Page- 447,(2nd
Edition 2009) 2 :Sanjeev Agarwal,Guide to Indian Capital Market, Chapter-14, Page-432 ,(1st Edition
2000) DEPOSITORY SYSTEM AND ITS ROLE IN STOCK MARKET 5  Clearing Corporation 3. Types of
Depository There are two types of depository in India. They are National Securities Depository Limited
(NSDL) and Central Depository Services (India) Limited (CDSL). 3.1 National Securities Depository Limited
(NSDL) NSDL is the first depository established in India, registered by SEBI in 1996, which ensures trading
and settlement of securities in electronic form.It was promoted by Industrial Development Bank of India
(IDBI), Unit Trust of India (UTI), the largest Mutual Fund in India and National Stock Exchange (NSE).
3.1.1 Role and Advantage of NSDL  Advantage of good delivery: When investors convert their physical
shares into dematerialized form (Process of conversion of securities held in physical form into electronic
form), he also communicates with depository environment. NSDL has provided a facility of providing
good delivery. There are no questions arising out of unsuccessful delivery.  Does not charge Stamp
Duty: NSDL does not charge stamp duty in any kind of securities, which falls under the depository or are
listed in stock exchange. The equity shares, units of Mutual Funds and Debt instruments are all included
in securities of depositories.  Elimination of risks associated with physical certificates: Investor has to
take help of NSDL to eliminate problems like mutilation of certificates, theft of stocks, and loss of
certificates.  Reduce Paperwork and Direct costs of record keeping: The depositories are proven
beneficial in reducing the paperwork of investors and direct costs of physical handling, record keeping
and movement or safekeeping of certificates.  Portfolio Monitoring: NSDL provides an opportunity to
easily inspect or monitor the portfolio about the consolidated position of investments in all instruments.
 Status reports: NSDL has provided a periodic status reports about the holdings of transactions to their
investors. It leads to better control on any fraudulent occurrences.  Faster Settlements: The NSDL
completes their settlements in a short period of time. it provides an opportunity of faster settlements
and provide more liquidity to their investors.  Elimination of problems related to address alteration,
transmission etc: When an investor wants to alter their address or transmission in their securities, then
he has to go and inform to NSDL , where he is registered their securities, DEPOSITORY SYSTEM AND ITS
ROLE IN STOCK MARKET 6 with all important documents instead of changing address in according to the
different procedure with each company or registrar. 3.2 Central Depository Services (India) Limited
(CDSL) CDSL is the second largest depository in India, registered by SEBI in 1999 which facilitated book
entry transfer of securities. CDSL was promoted by The Stock Exchange, Mumbai (BSE) jointly with
leading banks such as State Bank of India, Bank of Baroda, HDFC Bank, Standard Chartered Bank, and
Union Bank of India and Centurion Bank. Objective of CDSL is providing convenient, dependable and
secure depository services at affordable cost to all market. 3.2.1 Role and Advantage of CDSL  Wide DP
Network: CDSL has over 200 DPs spread around 114 cities/towns across the country, offering
convenience for an investors to select a DP based on his location.  On Line DP Services: The branches of
DP can also be directly connected to CDSL thereby providing on-line and efficient Depository service to
investors.  Wide Spectrum of Securities Available for Demat: An investor can hold almost all his
securities in one account with CDSL such as bonds, debentures, commercial paper, government
securities, and certificates of deposits. CDSL has kept its tariff very competitive to provide affordable
Depository services to investors.  Dependability: CDSL’s system is based on centralized database
architecture; DPs can thus provide on-line depository services with to the minute status of the investor’s
account. The entire database of investors is stored centrally at CDSL. If there is any system-related issues
at DPs end, the investor is not affected, as the entire data is available at CDSL. 4. Stock Exchange
Connected to Depository At present 10 Stock Exchanges are connected to the Depositories which are
National Stock exchange, The Stock Exchange Mumbai, Delhi Stock Exchange, Ludhiana Stock Exchange,
Bangalore Stock Exchange, over the counter exchange of India, Madras Stock Exchange, Inter connected
Stock Exchange, Ahmadabad Stock Exchange. 5. Issuer Companies/Registrars  A Company joins a
depository by establishing connectivity with NSDL/CDSL either directly by investing in the hardware and
software. It signs an agreement with NSDL/CDSL. DEPOSITORY SYSTEM AND ITS ROLE IN STOCK MARKET
7  Alternatively, it may establish connectivity with NSDL/CDSL through a Registrar who has made the
necessary investment in the hardware and software.  When a company joins NSDL/CDSL through a
registrar, it signs a tripartite agreement with the registrar and NSDL/CDSL as per the format specified by
NSDL/CDSL  A company may appoint a Registrar only for electronic connectivity and maintain share
department for transfer in house. 5.1 Advantages of a Depository to the Company  It reduces the risk of
loss of securities and, at the same time, reduces the fraudulent activities;  It avoids the checking of
shares, deeds and various papers,  No share certificate is issued as the securities are divisible;  It
reduces the various costs which require secretarial help;  It supplies better communication facilities 
Easy availability of data and information (i.e. issue of bonus share, right share, dividend declaration, etc.)
are available which helps the shareholder to take decisions. 6. Depository Participant (DP) • It is not
possible for Depository to provide services directly to the investors. DP is an agent of the depository and
functions as the interacting medium between the depository and the investor. • A DP should be
registered with the SEBI, which is based on the recommendation from NSDL and SEBI’s own
independent evaluation. • DP Must possess requisite qualifications prescribed by the concerned
depository of which he is a participant • It is responsible for maintaining the investors’ securities a/c
with the depository and handles them as per the investors written instructions • He is linked to a broker
who trades on behalf of investors • To avail their services an account similar to a bank a/c has to be
opened with the DP • As per SEBI Regulations , financial institutions, banks, custodians, stock brokers
etc can become DP’s • However investors may choose DP’s of their choice and also deals with 1 or more
DP's at a time. • One should visit DPs, If any discrepancy in transaction statement. DP will rectify that
issue. If DPs doesn’t rectify problem, one can complain to Depository (NSDL/CDSL) . • DP takes one time
charge for opening of account under Depository participant. Depository charges the DP who in turn
charges investors . DEPOSITORY SYSTEM AND ITS ROLE IN STOCK MARKET 8 6.1 Services Offered by
Depository Participant The services offered by DP’s are as under:3  Conversion of holdings from
physical to electronic form(referred to as dematerialisation of securities)  Conversion of holding from
electronic to book entry form(referred to as rematerialisation of securities)  Maintenance of holding in
electronic form  Settlement of market trades in electronic or book entry segment  Settlement of off-
market trades  Facilitating pledge of securities  Electronic credit of new share allotments such as
rights, bonus, public issue, etc. 7. Why should an Investor join a depository? The present system of
trading revolves around movement of paper at all stages, be it purchases, sales or transfer and sales
with the normal risks like delays, loss in transit and bad deliveries at every stage. The only solution to
these problems is trading by the advent of the depository. Three things basically considered by Investor
while joining Depository which are Cost, Comfort, Convenience. 7.1 Advantages Enjoyed by Investors: •
Faster Transfer of transaction - Transaction take place much faster in electronic form trading compared
to a 30-60 days settlement cycle that usually takes place in the case of physical transfer of securities. •
Elimination of Bad Deliveries and all risks associated with physical certificate such as loss, theft,
mutilation, forgery etc. • Easy and Enhanced Liquidity • No Stamp Duty on transfer • No
Postage/Courier Charges • Faster Disbursement of corporate benefit like rights, bonus, etc. • Facilities of
Creating Charges on dematerialized shares for granting loans and advances against shares. • No Delay in
Transfer of Securities • Lower Interest on Loans Against Demat Shares • Nomination Facilities at The
Time of Account Opening • Much Faster Payment on Sale of Shares • Minimum Handling of Paper • No
Scope for Forgery/Damage of Share Certificate • Investors are not required to open multiple accounts
just because they have spelled their names differently in different companies so long as signature is
consistent. 3 Sanjeev Agarwal,Guide to Indian Capital Market, Chapter-14, Page- 446,447(1st Edition
2000) DEPOSITORY SYSTEM AND ITS ROLE IN STOCK MARKET 9 8. Broker/Clearing Members All trades in
the book entry segment are settled through the depository. The broker has to open a clearing account
with a DP for settlement of trades one in the book entry segment of the NSE/other stock exchange. 8.1
Advantages to a Clearing Member • Enhanced liquidity, safety and turnover on stock market. •
Opportunity for development of retail brokerage business. • Ability to arrange pledges without
movement of physical scrip and further increase overall level of trading activity liquidity and profits. •
Improved protection of shareholder’s rights resulting from more timely communications from the issuer.
• Reduced transactions costs through greater efficiency. • Elimination of forgery and counterfeit with
attendant reduction in settlement risk from bad deliveries. • Provide automation to post trade
processing. • Standardisation of procedures. • Bringing efficiency to the market place. • Improved cash
flow 9. Clearing Corporation The clearing corporation settles the trades done on the book entry segment
of the stock exchange as in the physical segment. All deliveries due from the brokers for a settlement is
given by NSDL to the clearing corporation and all deliveries receivable for a settlement are received by
NSDL from the clearing corporation. 10. Demat (Beneficiary) Account Beneficiary a/c is an account
opened by the investor or a broker with a DP of his choice to hold shares in Demats form and
undertakes scrip less trading. For opening Demat a/c, the following procedure is required:4  DP will
make available the Account Opening Form and a Copy of the agreement in duplicate to be signed with
the client. This is the agreement between the DP and the individual seeking to open an account with the
Depository Participant. A Specimen Signature card will also be provided. The details that the prospective
individual with have to fill in the Application Form are :  Name of the beneficiary 4Sanjeev
Agarwal,Guide to Indian Capital Market, Chapter-14,Page-439,440(1st Edition 2000) DEPOSITORY
SYSTEM AND ITS ROLE IN STOCK MARKET 10  Date of birth(in case of minor)  Occupation of
Beneficiary  Local Address, Telephone No., Fax No.  Status Code, Sub-Status Code  Bank account
particulars such as name of the bank and its branch, Current account/Saving Account number, PAN/GIR
Number.  Signature of authorized signatories.  In case of NRI, Foreign address and RBI Ref. No. and
approval date.  Nominee’s Name and address  Signature of Beneficiary.  In specimen signature-
Card, signature of beneficiary and passport size photograph.  The prospective individual will furnish
the account opening form duly filled along with the account opening charges.  The prospective
individual along with the application form will also be required to submit the agreement signed in
duplicate.  Verification of document if not found in order, the same shall be returned for rectification,
stating reason thereof.  If document are found in order, DP will accept the form and provide the client
with an acknowledgment slip duly signed and stamped.  On completing above, DP will proceed to open
the account. A client Account Number will be granted and recorded in the account opening form. The
individual will be informed of the same.  DP will also record the specimen signature-Card for the
purpose of checking authorized in the future. Once a demat a/c is opened investor must sign an
agreement with the DP and the investor will be allotted an account no. called as client identity. No
minimum balance is required. The investor is provided with a transaction statement by his DP at regular
intervals based on which the investor will know his security balances. Partnership Firms, HUF, Minors
cannot be the legal entity of Demat a/c but the Partners, Karta of HUF, Guardian of Minor can be the
legal entity. 11. Dematerialisation It means conversion of the physical certificates into Dematerialised
holdings at the request of the investor. The physical certificates are taken back by the registrar and
destroyed and an equivalent number of securities are credited in the electronic holdings of that investor
this is done at the request of investor. Only shares registered in the name of the a/c holder are accepted
for Dematerialisation at the depository. DEPOSITORY SYSTEM AND ITS ROLE IN STOCK MARKET 11 11.1
Time limit for Dematerialisation The time limit permitted to the registrar by SEBI for Dematerialisation is
30 days from the date of receipt of the physical request from the DP. The time limit of 30 days is
reckoned from the date of receipt of physical request by the registrar from the DP. 11.2 Process of
Dematerialisation In order to dematerialise physical securities one has to fill in a DRF (Demat Request
Form) which is available with the DP and submit the same along with physical certificates that are to be
Dematerialised. Separate DRF has to be filled for each ISIN5 . The complete process of Dematerialisation
is outlined below:6  Surrender certificates for Dematerialisation to your DP.  DP intimates to the
Depository regarding the request through the system.  DP submits the certificates to the registrar of
the Issuer Company.  Registrar confirms the Dematerialisation request from depository.  After
Dematerialising the certificates, Registrar updates accounts and informs depository regarding
completion of Dematerialisation.  Depository updates its accounts and informs the DP.  DP updates
the Demat account of the investor. 11.3 Dematerialisation of other instruments There are number of
instruments which can be issued and can be held as dematerialized form. Other than equity shares the
instruments like debenture, bonds,PCDs,NCDs,CPs,CDs can be issued and held in demat form . Mutual
Funds can be held as dematerialized form also. The mutual fund unit which are in the physical form can
be dematerialized to the demat account. 12. Rematerialisation The process is called Rematerialisation. If
one wishes to get back his securities in the physical form he has to fill in the RRF (Remat Request Form)
and request his DP for Rematerialisation of the balances in his securities account. The process of
Rematerialisation is outlined below:7  Make a request for Rematerialisation. 5 ISIN (International
Securities Identification Number) is a unique 12 digit alpha-numeric identification number allotted for a
security (E.g.-INE383C01018) ,See: Securities Exchange Board of India, Frequently asked question on
Dematerialisation, no. 29 ,http://www.sebi.gov.in/faq/faqdemat.html 6 Securities Exchange Board of
India, Frequently asked question on Dematerialisation, Q No. 28
,http://www.sebi.gov.in/faq/faqdemat.html 7 Securities Exchange Board of India, Frequently asked
question on Dematerialisation, Q No.32 , http://www.sebi.gov.in/faq/faqdemat.html DEPOSITORY
SYSTEM AND ITS ROLE IN STOCK MARKET 12  Depository participant intimates depository regarding the
request through the system.  Depository confirms Rematerialisation request to the registrar. 
Registrar updates accounts and prints certificates.  Depository updates accounts and downloads details
to depository participant.  Registrar dispatches certificates to investor. 13. Trading in Demat Stocks The
biggest benefit to the investor who sells dematerialized shares will be that the brokers have no fear of
bad delivery on selling dematerialized shares. An Investor can also receive his bonus and rights directly
in his depository account as a direct credit, thus, eliminating risk of loss in transit. He can also expect
lower interest charges for loans taken against demat shares compared to the interest for loan against
physical shares. I. Facilities offered by Depository System Opening of depository system offers certain
facilities like opening of Demat Account, Dematerialisation, Rematerialisation, settlement of trades in
dematerialized securities, dealing in government securities, Stock lending and borrowing, redemption
etc. But along with that there are certain facilities which are also provided by Depository which are:
Transmission- The claimant will have to fill a transmission request form (TRF), supported by documents
like death certificate, succession certificate, etc. The major advantage in transmission of dematerialized
holdings is that the transmission formalities for all securities held with DP can be completed in a single
stage. Transposition- Share sent for transposition can be dematerialized. The investor can get the
securities dematerialized in the same account if the names appearing on the certificates match with the
names in which the Demat account has been opened are in a different order, by submitting the security
certificates along with the transposition form and the dematerialized request form to the DP.
Nomination – Shares held in electronic form also can be nominated. Nomination can be made only by
individuals holding beneficiary accounts on their own behalf either singly or jointly. The investor must fill
in and submit by the account holder by filing up the revised nomination form and submitting the same
to the DP. The account holder, nominee and two witnesses must sign this form and the name, address
and photograph of the nominee must also be submitted. Account freezing – An investor can freeze/lock
his account for any given period of time if he so desires. It is possible for a client to issue instructions
requesting for the will then be allowed to the account to be frozen until any further instructions. Single
Window Services- The DP enjoys the benefits of a broker-cum-DP wherein the client gets the benefit of
single window services. The broker-DP interface offers clients DEPOSITORY SYSTEM AND ITS ROLE IN
STOCK MARKET 13 the benefit of operating the depository account at the broker end thus eliminating
multiple agencies and contact points. Pledging – Pledging dematerialized securities is easier and more
advantageous as compared to pledging physical securities. For that both Borrower and Lender have
depository account. J. Kinds of Problem Solved After Introduction of Depository System • Bad deliveries
• Fake certificates • Loss of certificates in transit • Mutilation of certificates • Delays in transfer • Long
settlement cycles • Mismatch of signatures • Delay in refund and remission of dividend etc. 16. Trading
and Settlement The procedure for buying and selling dematerialised securities is similar to the
procedure for buying and selling physical securities. The difference lies in the process of delivery (in case
of sale) and receipt (in case of purchase) of securities. 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 to debit his
account and credit BO's 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. IPO It is possible to get securities allotted to in Public Offerings
directly in the electronic form. In the public issue application form, there is a provision to indicate the
manner in which an investor wants the securities to be allotted. He has to mention the BO ID, name and
DP ID on the application form. Any allotment made will be credited into the BO account. DEPOSITORY
SYSTEM AND ITS ROLE IN STOCK MARKET 14 17. Law Relating Depository System The depository is the
registered owner. It is only having the custody for the purpose of being a registered owner in the eyes of
law for the issuer.A depository system is governed by certain acts which are:  The SEBI(Depositories
and Participants) Regulations, 1996  Business rules of depository  Depository Act,1996 Depository
Act, 1996  “Depository “means a company formed and registered under the Companies Act, 1956, and
which has been granted a certificate of registration under sub-section (1A) of section 12 of the SEBI Act,
1992.8  “Participant “means a person registered as such under sub-section(1A) of section 12 of SEBI
act,19929  “Beneficial Owner” means a person whose name is recorded as such with a depository.10 
This act also deals with Rights and Obligation of DP, Issuers, Beneficial Owners11 Enquiry and
Inspections(Powers of Board and Penalties in Default)12 SEBI (Depositories and Participants)
Regulations, 1996 • This Regulation gave a perfect shape to Depository system in India . • NSDL and
CSDL are established under the SEBI guidelines • It also defines about Rights and Obligations of
Depositories, Participants, Issuers, Manner of Surrender of Certificate of Security and Creation of Pledge
or Hypothecation.13 • Registration of Depository and Depository Participant is dealt by such
regulation.14 • The Procedure, Terms, Limitations, Renewal, Withdrawal, issue, Transfer, Record of
payments, Steps when default is made all is regulated by this regulation. • SEBI(Depositories and
participants)Regulation is amended several times. Last amendment was made in 2014 in which acting as
participant in more than one depository was introduced15 8Sec 2(1)(e) Depository Act,1996 9Sec 2(1)(g)
Depository Act,1996 10Sec(1)(a) Depository Act,1996 11 Chapter III, Sec 4-17, Depository Act,1996 12
Chapter IV, Sec 18-19 J, Depository Act,1996 13 Chapter V , Sec 26-58 B , SEBI(Depositories and
Participants) Regulations, 1996 14 Chapter IV, Sec 16-25, SEBI(Depositories and Participants)
Regulations, 1996 15 Section 20AB of SEBI(Depositories and Participants)(Amendment)
Regulations,2014 DEPOSITORY SYSTEM AND ITS ROLE IN STOCK MARKET 15 18. Conclusion The
Depository System is a well organized and properly planned systems by which the speedy functioning
and transparent transactions are getting possible. Like other Asian countries India is growing economy
and such depository system is helping in the objective of Nation. Depository is not only protecting the
investors and companies Under SEBI regulation but also fastening huge amount of functioning of finance
in a proper way. The Investors and Companies are getting so many benefits from depositories. But some
disadvantages were about the depository system were known beforehand. But since the advantages
outweighed the shortcomings of dematerialization, the depository system was given the go-ahead. The
disadvantages are like Lack of control, Complexity of the system. Trading in securities may become
uncontrolled in case of dematerialized securities. Multiple regulatory frameworks have to be confirmed
to, including the Depositories Act, Regulations and the various Bye Laws of various depositories.
Additionally, agreements are entered at various levels in the process of dematerialization. These may
cause anxiety to the investor desirous of simplicity in terms of transactions in dematerialized securities.
In my opinion Depository needs a greater supervision because it is incumbent upon the capital market
regulator to keep a close watch on the trading in dematerialized securities and see to it that trading
does not act as a detriment to investors. The role of key market players in case of dematerialized
securities, such as stock brokers, needs to be supervised as they have the capability of manipulating the
market. The Depository System is not free from snags. Some of them are, Number of frauds may be
increased as there is no physical checking, practically, to set up a single depository is not possible, MDS
(Multiple Depository System) invites the problems of coordination. Although the Depository System is
not free from snags, even then it is a boom to the world of capital market. It, no doubt, proves an
efficient transfer system and helps the investors and the company in various forms. It overcomes the
problems from bad delivery, counterfeit certificates, etc. It also reduces various cost and expenses (i.e.
Registration cost). DEPOSITORY SYSTEM AND ITS ROLE IN STOCK MARKET 16 REFERENCES Bibliography 
Dr. S. Guruswamy , Capital Market , 2nd Edition(2009)  Sanjiv Agarwal , Guide to Indian Capital Market,
1st Edition(2000) Internet Sources  www.sebi.gov.in,http://www.sebi.gov.in/sebiweb/ 
www.youtube.com, https://www.youtube.com/watch?v=C-29kjvwgS4 ,
https://www.youtube.com/watch?v=uLfkLwGFKmI  www.slideshare.net/,  www..wikipedia.org Acts
Fallowed  Depository Act, 1996  SEBI (Depositories and Participants) Regulations, 1996 
SEBI(Depositories and Participants)(Amendment) Regulations,2014