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Depository Services

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10 views2 pages

Depository Services

Uploaded by

prajeeshkumar9876
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Depository Services

Depository services are part of the financial infrastructure that supports the securities market. A
depository is an entity that holds financial securities such as shares, bonds, mutual fund units, and
debentures in electronic form, enabling secure and efficient transactions.

Functions of a Depository

1. Dematerialization and Rematerialization:

o Converts physical certificates into electronic form and vice versa.

2. Account Maintenance:

o Provides services for opening, maintaining, and closing demat accounts.

3. Settlement of Trades:

o Facilitates the transfer of securities upon the execution of a trade.

4. Corporate Action Support:

o Handles activities like dividend payouts, interest payments, and rights/bonus issues.

5. Pledging and Lending of Securities:

o Allows investors to pledge securities as collateral for loans or to lend them for
additional income.

Participants in a Depository System

1. Depository:

o Central entity that holds securities and ensures their safekeeping (e.g., NSDL and
CDSL in India).

2. Depository Participants (DPs):

o Act as intermediaries between the depository and investors. Examples include


banks, brokers, and financial institutions.

3. Beneficial Owner:

o The individual or entity that holds and benefits from the securities.

4. Issuers:

o Companies that issue securities for investors.

Benefits of Depository Services

1. Safety:

o Eliminates the risk of loss or theft associated with physical certificates.


2. Convenience:

o Simplifies the process of buying, selling, and transferring securities.

3. Cost-Effectiveness:

o Reduces costs related to stamp duty, handling, and storage of physical securities.

4. Faster Transactions:

o Enables real-time settlement of trades.

5. Transparency:

o Provides easy access to holdings and transaction history.

Relationship Between Merchant Banking and Depository Services

 Merchant banks often coordinate with depositories to facilitate issue management and
trading of securities.

 Depository services complement the merchant banking function by ensuring secure and
efficient handling of securities post-issuance.

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