To summarise what we have already discussed in the previous article and to recapulate in legal and technical standards, a depository is an organization, which holds the shares in the form, of electronic accounts in the same way a bank holds the money. Buying and selling electronic shares in the market is just like selling physical shares, only it's much more simple and safe. Under the Depository System, transfer of ownership of securities is done by book entry similar to a bank deposit account. Under the system, the Depository Company ensures delivery of shares against payment. The company also undertakes to distribute dividends, Bonus shares, etc. to its account holders and monitor all the accounts.

A depository interfaces with its investors through its agents called depository participants (DPs). If an investor wants to utilizes the services offered by a depository, the investor has to open an account with a DP. This is similar to opening an account with any branch of a bank in order to utilize the bank's services.

In India the Depositories Act, 1996 defines and regulates the powers and functions of Depositors under the jurisdiction of SEBI, the Regulator. As per the Act a "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 Securities and Exchange Board of India Act, 1992. The minimum net worth stipulated by SEBI for a depository is Rs. 100 crore. At present two Depositories viz. National Securities Depository Limited (NSDL) and Central Depository Services (I) Limited (CDSL) are registered with SEBI.

A Depository Participant (DP) is an agent of the depository through which it interfaces with the investor. A DP can offer depository services only after it gets proper registration from SEBI. A Depository can be compared with a bank, like wise a DP may be compared with a branch of a Bank. As present approximately 401 DPs are registered with SEBI. A list of DP's and their addresses are displayed at the website of SEBI.

"beneficial owner" means a person whose name is recorded as such with a depository;

"issuer" means any person making an issue of securities;

Dematerialization is the process by which physical certificates of an investor are converted to an equivalent number of securities in electronic form and credited in the investor's account.

The Indian Capital market has witnessed unprecedented growth in use of information technology in the past few years, which has made it possible to carry out modernization in trading and settlement systems. Automation of the trading mechanism has given us a trading system comparable with the best in the world. Establishment of a settlement guarantees mechanism removed the counter party risk in stock exchanges. Though the advent of automated trading brought with it several associated benefits such as transparency in trading and equal opportunity for market players all over the country; the problems related to the settlement of trades such as high instances of bad deliveries and long settlement cycles have continued. As an answer to these myriad settlement problems, The Government passed The Depositories Act, 1996 with retrospective effect from 20th day of September, 1995. The National Securities Depository Limited (NSDL) was inaugurated in Nov 1996 as the first depository in the country. The latest major development, which helped hasten the awakening of the capital market, was that from Jan 4th, 1999, all category of investor can deliver only in dematerialized form with respect to a select list of securities

To avail the service provided by the Depository and to convert physical share certificate held by the investor to electronic form to be held in the custody of the depository, the investor has to approach a Depository Participant and open an account with him.

An investor can open more than one account in the same name with the same DP and also with different DPs. To open an account first an investor has to approach a DP and fill up an account opening form. The account opening form must be supported by

• Proof of Identity:

  Signature and photograph of investor must be authenticated by an existing demat account holder or by investor's bank. Alternatively, one can submit a copy of a valid Passport, Voters Id Card, Driving License or PAN card with photograph.

• Proof of Address:

  A copy of ration card / passport / voter ID / PAN card / driving license / bank passbook as proof of address. (Investor should carry original documents for verification by an authorized official of the depository participant, under his signature.)

• Execution of Agreement with DP:

  Further investor has to sign an agreement with DP in a depository prescribed standard format, which details investor's and DPs rights and duties. DP should provide investor with a copy of the agreement and schedule of charges for his future reference.

The DP will open investors' account in the system and give an account number, which is also called BO ID (Beneficiary owner Identification number).

The demat account must be opened in the same ownership pattern in which the securities are held in the physical form e.g. if one share certificate is in your individual name and another certificate is jointly with some other, two different accounts would have to be opened. In case of change of his address an Investor should immediately inform his/her DP, who in turn will update the records. This will obviate the need of informing different companies.

In case if one has physical certificates with the same combination of names, but the sequence of names is different i.e. some certificates with 'A' as first holder and 'B' as second holder and other set of certificates with 'B' as first holder and 'A' as the second holder, the investor(s) may open only one account with 'A' & 'B' as the account holders and lodge the security certificates with different order of names for dematerialisation in the same account. They are also to fill-up an additional form called "Transposition cum Demat" form. This would help to effect change in the order of names as well as dematerialise the securities.

Investors can freeze or lock their accounts for any given period of time, if so desired. Accounts can be frozen for debits (preventing transfer of securities out of accounts) or for credits (preventing any movements of hindrances into accounts) or for both.

In order to dematerialize his certificates, an investor will have to first open an account with a DP and then request for the dematerialization of his certificates by filling up a dematerialization request form (DRF), which is available with his DP. and submit the same along with physical certificates that he wishes to dematerialise. Separate DRF has to be filled for each ISIN no. ISIN (International Securities Identification Number) is a unique identification number for a security. The complete process of dematerialisation is outlined below:

• surrender certificates for dematerialisation to your depository participant.

• Depository participant intimates Depository of the request through the system.

• Depository participant submits the certificates to the registrar.

• Registrar confirms the dematerialisation request from depository.

• After dematerialising certificates, Registrar updates accounts and informs depository of the completion of dematerialisation.

• Depository updates its accounts and informs the depository participant.

• Depository participant updates the account and informs the investor

dematerialized shares do not have any distinctive or numbers. These shares are fungible- which means that 100 shares of a security are the same as any other 100 shares of that security. An investor can dematerialise odd lot share certificates also.

After the company/ registrar has transferred the shares in investor's name they will request the Investor to let them know whether he wishes to receive them in electronic mode. In case he opts to receive in electronic mode he should inform the company / registrar through his DP within 30 days of the date of option letter failing which company or registrar can despatch the certificates and the securities shall be credited to his account. This facility is offered only for those scrips for which the Issuer company has agreed to provide this facility.

The process is called Rematerialistion. If one wishes to get back your securities in the physical form one has to fill in the RRF (Remat Request Form) and request your DP for rematerialisation of the balances in your securities account. The process of rematerialisation is outlined below:

• One makes a request for rematerialisation.

• Depository participant intimates depository of 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.

The procedure for buying and selling dematerialised shares is similar to the procedure for buying and selling physical shares. The difference lies in the process of delivery (in case of sell) and receipt (in case of Purchase) of securities.

• 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 investor's account

• Investor will give 'Receipt Instruction to DP for receiving credit by filling appropriates form. However the investor can also give standing instruction for credit in to his account that will obviate the need of giving Receipt Instruction every time.

• Seller will give delivery instruction to DP to debit his account and credit his broker's account. Such instruction should reach to your DP's office at least 24 hours before the pay-in other wise DP will accept the instruction only at your risk.

To give the delivery instruction to DP one has to fill one form called Delivery Instruction Slip (DIS). DIS may be compared to cheque book of a bank account. The following precautions are to be taken in respect of DIS:-

• Ensure and insist with DP to issue DIS book; do not use loose slips.

• Ensure that DIS numbers are pre-printed and DP takes acknowledgment for the DIS booklet issued to investor.

• Ensure that your account number [client id] is pre-stamped.

• If the account is a joint account, all the joint holders have to sign the instruction slips. Instruction cannot be executed if all joint holders have not signed

• Avoid using loose slips

• Do not leave signed blank DIS with anyone viz., broker/sub-broker

• Keep the DIS book under lock and key when not in use.

• If only one entry is made in the DIS book, strike out remaining space to prevent misuse by any one.

• Investor should personally fill in target account -id and all details in the DIS.

Public offering can be got directly in the electronic form. The following procedure to be followed. In the public issue application form there is a provision to indicate the manner in which an investor wants the securities allotted. He has to mention the BO ID and the name and ID of the DP on the application form. Any allotment made will be credited into the BO account.

To receive cash corporate benefit such as dividend / interest etc. - The concerned company would obtain the details of beneficiary holders and their holdings as on the date of the book closure / record date from Depositories. The payment to the investors will be made by the company through the ECS (Electronic Clearing Service) facility, wherever available. Thus the dividend / interest will be credited to investor's bank account directly. Where ECS facility is not available dividend / interest will be given by issuing warrants on which the investor's bank account details are printed. The bank account details will be those which the investor would had mentioned in his account opening form or changed thereafter.

To receive non-cash corporate benefit such as bonus etc. - The concerned company would obtain the details of beneficiary holders and their holdings as on the date of the book closure / record date from depositories. Beneficiary's entitlement will be credited by the company directly in ones depository account.

In case of discrepancies in corporate benefits - In case of discrepancies in corporate benefits, one can approach his/her DP or the company / its R&T Agents.

Pledging dematerialised securities is easier and more advantageous as compared to pledging physical securities. What should one do to pledge electronic securities? The procedure is as follows:

• Both investor (pledgor) as well as the lender (pledgee) must have depository accounts;

• Investor has to initiate the pledge by submitting to DP the details of the securities to be pledged in a standard format;

• The pledgee has to confirm the request through his/her DP;

• Once this is done, securities are pledged

• All financial transactions between the pledgor and the pledgee are handled as per usual practice outside the depository system.

After one has repaid the loan, one can request for a closure of pledge by instructing the DP in a prescribed format. The pledgee on receiving the repayment will instruct his DP accordingly for the closure of the pledge. The securities pledged are only blocked in the account of pledgor in favor of the pledgee. The pledgor would continue to receive all the corporate benefits.

The DP gives a Transaction Statement periodically, which will details current balances and various transactions made through the depository account. If so desired, DP may provide the Transaction Statement at intervals shorter than the stipulated ones, probably at a cost.

Transaction Statement is received DP once in a quarter. If a transaction has been carried out during the quarter, the statement is received within fifteen days of the transaction.

In case of any discrepancy in the transaction statement, one can contact his/her DP. If the discrepancy cannot be resolved at the DP level, one should approach Depository.

In case of any complaint / problem / query one may first contract DP. If DP is unable to solve complaint / problem / query one should approach concerned depository. If one is not satisfied one may approach SEBI. One may also approach SEBI directly.