DEPOSITORY SERVICES

Definition: A depository is an institution that offers the service of holding the securities of the investors in electronic form.
Role: The depository allows the investors to hold their securities in electronic rather than physical form and provides services related to transaction in securities.

Key Concepts

Dematerialisation: The process of converting physical securities into electronic form. The physical securities that are dematerialised are required to be destroyed by the R&T agent and a credit entry is made in the electronic records of the depository.
Constituents of Depository System: The services of the depository are provided in conjunction with the constituents of the system, namely the Issuing Company/R&T agent and the depository participants.
Depository Participants (DPs): The investor’s interface with the depository happens through an entity called the depository participant (DP). The DPs are appointed by the depository to act as their agents or contact points for the investor.

Benefits of Dematerialisation: Holding securities in the electronic form or in a dematerialised form has several advantages, including elimination of risks of loss, mutilation and forgery, reduction in time and cost of transaction, and faster and more efficient services.
Investor’s Interface with the Depository: An investor who wants to hold and transact in securities in the dematerialised form has to first open an account with a DP. The securities of the investor get credited to the account in two ways: directly from a public offer or issue, or through dematerialisation of physical securities.
Rights of the Investor: The investor is the beneficial owner of the securities held in electronic form with the depository through the account with the depository participants, and is entitled to transact in the securities, receive all entitlements, exercise voting rights, and avail facilities such as consolidation, transfer, and nomination.

Dematerialisation: The process of converting physical securities into electronic form.
Depository Participant (DP): An entity appointed by the depository to act as an agent or contact point for the investor.
Beneficial Owner: The investor who holds the securities in electronic form with the depository through the account with the depository participants.
International Securities Identification Number (ISIN): A unique 12-digit number allotted to each security in conformity with the ISIN Standard.
Fungibility: The dematerialised securities are fungible, meaning they do not have a distinctive identity in terms of share certificate number or distinctive numbers or folio numbers.