This system came in to force
  with effect from September
  20, 1995.
What Is Scrip Based System?
   Scrip based system of securities
    transactions involves enormous paper
    work involving certificates and transfer
   Simply, securities are held in physical
     Feature of scrip based system:

1.   There is physical movement of
     securities   certificates along with
     transfer deeds.

2.   Registration with the company.
Problems with scrip based
1.   Time consuming (processing time by co.)
2.   Bad deliveries due to signature difference
3.   Mistakes in completion of transfer deeds
4.   Tearing and mutilation of certificates
5.   Fake certificates
6.   Cost of transfer : stamp duty
7.   Postal delays and charges etc.
What is depository system
   A system in which securities of an
    investor are held by depository on
    behalf, and at the request, of an
    investor in an Electronic Form.
   This system is also know as Scrip Less
    Trading system.
         Features of Depository system
   In the depository system, securities are held in
    depository accounts, which is more or less similar to
    holding funds in bank accounts.
   Transfer of ownership of securities is done through
    simple account transfers.
   This method does away with all the risks and hassles
    normally associated with paperwork.
   Consequently, the cost of transacting in a depository
    environment is considerably lower as compared to
    transacting in certificates.
Whole system of Depository
Constituents of depository
There are basically four participant:
 The Depository

 The Depository Participant

 The Issuing Company

 The Investor
      Who is depository?
   Depository    facilitates   holding  of
    securities in the electronic form and
    enables securities transactions to be
    processed by book entry by a
    Depository Participant (DP), who as an
    agent of the depository, offers
    depository services to investors
     Features of depository system
     in India
1.   In the depository system, the apex body is the
2.   A depository can be compared with a bank
3.   Depository     services  through     depository
4.   Fungibility
5.   Registered Owner/ Beneficial Owner (two types
     of owner)
      Who can be a depository:
Depository Act, 1996 provides that -
Depository means:
  A company formed and registered under the
   companies Act, 1956, and
  Which has got a Certificate of Registration
   from the SEBI.
       Depositories in India
   The depository model adopted in India
    provides for a competitive multi-depository
    system. There can be various entities
    providing depository services. Such system
    is known as Multi-Depository System.
   At present two Depositories are registered
    with SEBI.

   NSDL is the first and largest depository in India,
    and established in August 1996
   It has 267 depository Participants (as on 13.12.08)
   Address:
Trade World, a Wing, 4th &5th Floors
Kamala Mills Compound
Lower Parel
Mumbai 400013 website:
1.   Industrial Development Bank of India
2.   Unit Trust of India
3.   National Stock Exchange of India Limited
   State Bank of India
   Oriental Bank of Commerce
   Citibank
   Standard Chartered Bank
   HDFC Bank Limited
   The Hongkong and Shanghai Banking Corporation
   Deutsche Bank
   Dena Bank
   Canara Bank
   Union Bank of India
   This is the second depository in India.
   This was formed and registered in 1999.
   It has 455 DPs as on 4.08.08
   Address:
    Phiroz Jeejeebhoy Towers
    16th Floor, Dalal Street
    Mumbai website:
   Bombay Stock Exchange Limited
   Bank of India,
   Bank of Baroda,
   State Bank of India and
   HDFC Bank
   Standard Chartered Bank
   Centurion Bank of Punjab Ltd
   Canara Bank
   Union Bank of India
   Bank of Maharashtra
   Jammu and Kashmir Bank Limited
   The Calcutta Stock Exchange Association
   Others
A Bank-Depository Analogy
          Bank                        Depository
1.Holds funds in an account     1.Holds securities in an
  on behalf of a customer         account on behalf of an
2.Transfer funds between        2.Transfer securities between
  accounts on the instruction     accounts on the instruction
  of the account holder.          of the account holder.
3.Physical handling of funds    3.Physical handling of
  is avoided.                     securities is avoided.
4.Provides safe custody of      4.Provides safe custody of
  fund                            securities.
      Who Is Depository Participant:
   A Depository Participant (DP) is an agent of
    the depository through which it interfaces
    with an investor.
   A DP can offer depository services only after
    it gets proper registration from SEBI.
   A DP is just like a Branch of a Bank.
       Who can be Depository
    In terms of the Depositories Act, 1996, SEBI
    (Depositories & Participants) Regulations,1996, only the
    following entities are eligible to become a Depository
   Financial Institutions,
   Banks, including approved foreign bank
   Custodians,
   Stockbrokers,
   A clearing corporation or a clearing house of a stock exchange
   A non-banking finance company,
   A registrar to an issue or share transfer agent
     Types of ownership
In the depository system, the ownership of securities
dematerialized is bifurcated in to:

   OWNER                       OWNER
Who is registered owner
   The registered owner is that person whose
    name is registered in the register of members
    of the company (issuer)
    For the securities dematerialized, NSDL/CDSL
    is the Registered Owner in the books of the
    But Registered Owner does not enjoy any
    right and liability attached with the security.
Who is the Beneficial owner
   Beneficial owner is that person who
    enjoys all rights, duties, and liabilities
    attached with the security.
   It means voting right, dividend right,
    bonus share right , right share right etc
    are all exercised by the Beneficial
  Benefits of depository system/holding
  securities in dematerialized form

Depository system provides benefits to:
 The investors, and

 The issuers.
      Benefits to investors:
1.   The transactions in electronic mode eliminated the risk and
     problems of delays.
2.   The risk of bad deliveries is totally eliminated
3.   There is no requisite of filling up the transfer deeds, payment of
     transfer stamp duty and a lot of other paper work at the end of
     the investor.
4.   It totally eliminates the risk associated with fraudulent
     interception of certificates in postages or transits..
5.   Transfer of ownership of securities is immediate in case of
     depository mode.
6.   The investment, automatically, becomes more liquid.
                                                       contd.
7.    The problem of odd lot is also eliminated, as the
      depository mode does not have any concept of market lot.
8.    Holding investments in equity and debt in a single
9.    Change in address recorded with DP gets registered with
      all companies in which investor holds securities
      electronically eliminating the need to correspond with each
      of them separately.
10.   Transmission of securities is done by DP eliminating
      correspondence with companies.
11.   Nomination facility.
     Benefits to the issuing company:

1.   The company saves a lot of paper work which
     otherwise is required in the physical mode.
2.   The company saves a postal cost for the dispatch
     of right shares, bonus shares or share certificates
     after affecting the transfer.
3.   By    offering    depository    services   to    its
     shareholders, a company may send a positive
     sign to its shareholders about its concern for their
4.   Depository services adds liquidity to the security
     thus fund raising capacity of the company.
     How can services of Depository
     availed by an investor?

1.   In order to avail of depository facilities, an investor has to open
     a beneficiary account with a depository participant of his
     choice.This is similar to opening a bank account to use the
     banking services.

    Just as one can hold funds in a bank account and transfer funds
     across accounts without actually handling cash;one can hold
     securities in a depository account and transfer securities across
     depository accounts without actually handling share certificates.
   The account holder is called 'beneficial owner'
    in a depository system and the account is
    known as 'beneficiary account'.
     Features of Beneficiary
Features of Beneficiary Account
 No minimum balance is required to be retained in a
  beneficiary account.
 An investor can close a beneficiary account with
  one DP and open an account with another DP.
 To dematerialise existing physical holdings, the
  beneficiary account must be opened in the same
  ownership pattern in which the securities are held
  in the physical form e.g:
 If one certificate is in individual name and another
  certificate is jointly held by X & Y, two different
  accounts should be opened
      Procedure of Opening An
   Investor will choose a DP for the purposes of
    opening beneficiary account. The choice of the
    investor may be based on convenience, comfort,
    services offered, cost or any other reason.

   The investor will obtain the relevant account
    opening form from the chosen DP.

                                         contd.
    For the purpose of verification, investor has to
     submit the following documents along with the
     prescribed account opening form.
1.   Proof of Identity(POI) (voter card, pan
     card, driving license etc.)
2.   Proof of Address (POA) (ration card,
     ank pass book copy voter id card etc.)
3.   Passport-size photograph
   Copy of PAN card
   The DP will also provide a copy of the
    DP-Client agreement.
       Some other aspects:
    The demat account cannot be operated on "either or
     survivor" basis like the bank account. In case of the joint
     account for the beneficial owners, all the joint holders have
     to sign the account opening form.
    The investor will submit to his DP the duly filled in account
     opening form & DP-client agreement along with the

    On successful opening of the account, the DP will
1.   Client Id - an eight digit number to be used along with DP
     Id for any future transactions.
2.   Delivery Instruction slip book.
       Some other aspects
   More than one demat account can be opened in
    the similar / identical name and order with the
    same DP or different DPs.
   A periodical statement of holdings and
    transactions is provided by DP. This can also be
    asked for from the DP
     What is dematerialisation?
   Dematerialisation is the process by which physical
    certificates of securities    of an investor are
    converted to an equivalent number of securities in
    electronic form and credited into the investor’s
    account with his/her DP.

   It is to be noted that an investor can hold shares in
    physical form but for the purpose of trading in stock
    exchanges shares should be in electronic form.
          Process of dematerialisation
   An investor intending to dematerialise its securities needs to
    have an account with a DP.

   The client (registered owner) will submit a request to the DP in the
    Dematerialisation Request Form for dematerialisation, along with
    the certificates of securities to be dematerialised. Before submission,
    the client has to deface the certificates by writing
   The DP will verify that the form is duly filled in and the number
    of certificates, number of securities and the security type
    (equity, debenture etc.) are as given in the DRF. If the form and
    security count is in order, the DP will issue an acknowledgement
    slip duly signed and stamped, to the client.
   After intimating NSDL electronically, the DP sends the securities to
    the concerned Issuer/ R&T agent. NSDL in turn informs the Issuer/
    R&T agent electronically, using NSDL Depository system, about the
    request for dematerialisation. If the Issuer/ R&T agent finds the
    certificates in order, it registers NSDL as the holder of the securities
    (the investor will be the beneficial owner) and communicates to
    NSDL the confirmation of request electronically. On receiving such
    confirmation, NSDL credits the securities in the depository account
    of the investor with the DP.
   This procedure takes 15to 30 days.
   Rematerialisation is the process by which a client can get
    his electronic holdings converted into physical certificates.
   A client can rematerialise his dematerialised holdings at
    any point of time.
   The rematerialisation process is completed within 30 days.
   The securities sent for rematerialisation cannot be traded.
          Procedure of rematerialisation
   The client has to submit the rematerialisation request to the DP with
    whom he has an account.
   The DP enters the request in its system which blocks the client's
    holdings to that extent automatically.
   The DP releases the request to NSDL and sends the request form to
    the Issuer/ R&T agent.
   The Issuer/ R&T agent then prints the certificates, dispatches the
    same to the client and simultaneously electronically confirms the
    acceptance of the request to NSDL.
   Thereafter, the client’s blocked balance are debited.
Thank you

        CS Ajay Khandelwal

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