The Indian Depository System

The Indian Depository System

Depository system is a system wherein the securities of investors are held in the electronic form with the depository at the request of the investors. In this system transfer of securities takes place by means of book entries on the ledger of the depository. The system is also called as the ‘SCRIPLESS TRADING SYSTEM‘ as the system dispenses with the securities and its movement in the physical form.

Depository System resembles with the Banking System in the following ways:

Depository System Bank
1 Safekeeping of securities Safekeeping of money
2 Holds securities in accounts Holds funds in accounts
3 Transfer securities between accounts Transfer funds between accounts
4 Transfers without handling physical securities Transfers without handling physical cash


Benefits of the Depository System : Company
  1. The depository system provides up-to-date knowledge of shareholder’s names and addresses to the company.
  2. There is savings in costs of new issues from reduction in printing and distribution costs.
  3. It may also lead to increased efficiency of registrar and transfer agent functions and better facilities for communication with shareholders, conveying benefits of corporate actions and information notices.
  4. The system enables a company to attract international investors without having to incur the expenditure of issuance in overseas markets.
  5. Bad deliveries are almost eliminated.
  6. The risks associated with physical certificates such as loss, theft, mutilation of certificates etc. are eliminated.
  7. It eliminates handling of huge volumes of paper work involved in filing the transfer deeds and lodging the transfer documents and share certificates with the company.
  8. There is immediate transfer and registration of the securities ( at the end of every settlement cycle, which is four working days i.e. T+3) and there is no delay on account of processing time.
  9. It leads to faster settlement cycle and faster realisation of sale proceeds so the fund of the investors is not tied up unnecessarily.
  10. The system facilitates a faster disbursement of security holding benefits like rights shares, bonus shares etc.
  11. The stamp duty on transfer of securities in physical form is not applicable through electronic mode.
  12. There is a reduction in rates of interest on loans granted against pledge of dematerialised securities by various banks.
  13. There is reduction in brokerage for trading in dematerialised securities.
  14. There is reduction in transaction costs in dematerialised securities as compared to physical securities.
  15. Availability of periodical status report to investors on their holding and transactions is disseminated by the depository.


Steps involved in transfer of securities under the Depository System 
(Through Stock Exchange)

Step 1: Seller gives delivery instructions to his DP to move securities from his account to his broker’s account.
Step 2: Securities are transferred from broker’s account to Clearing House of the Stock Exchange on the basis of the delivery instruction.
Step 3: On the pay out day, securities are moved from Clearing House to buying broker’s account.
Step 4: Buying broker gives instructions and securities move to the buyer’s account.

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