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Unit 7: Depositories and Custodians




          Factors Effecting the Success of Demat System                                         Notes

          1.   Technology Issues and Internet Providers for the growth of electronic trading. A true Internet
               trading system should deliver cost effective transaction fulfilment at a single point. In a net
               based economy it both prudent and essential for a broker/intermediary to offer total solution
               to  the clients  at a  Single point.  Total solutions  mean offering  interfaces with  banks,
               depositories, information feeds and efficiency in trade completion. The service providers
               hence go beyond the stage mere order execution and emerge as information providers.
          2.   Bandwidth optimization: In Indian context since the availability of a sufficient bandwidth
               is limited, the application  software optimizes the available  bandwidth by deploying
               advance technologies.
          3.   Scalability and Robustness of the trading system: The fundamental difference between
               the internet as a transaction medium and the conventional closed user group network is
               that internet is universal platform providing concurrent access to infinite users at a given
               point of time. Hence it becomes imperative for any net-based application to have a proven
               capability for scalability and robustness, which ensures the ability to handle and process
               requests from multiple users at any given point of time.




              Task
             1.  Visit any trading house of a depository like KARVY on a working day to understand
                 the functioning of online trading and how depository service rendered.
             2.  Visit KARVY website to know more about the depository services.

          7.5 Custodians

          Custodians are clearing members but not trading members. They settle trades on behalf of their
          clients that are executed through other trading members. A trading member may assign a particular
          trade to a custodian for settlement. The custodian is required to confirm whether he is going to
          settle that trade or not. If the custodian confirms the trade, NSCCL assigns the obligation to the
          custodian. If the custodian rejects the trade, the obligation is assigned back to the trading member.
          Custodians Clearing members are required to request Clearing Corporation for allotment of
          Custodian  Participant (CP) code for the clients for which they wish  to clear and settle. The
          request has to be made along-with documentation for the said purpose like SEBI registration
          number, PAN number etc. depending on the category of the client.

          Registration

          It is mandatory to register the custodians of securities with the SEBI. Before granting registration,
          the SEBI would consider all matters relevant to the activities of a custodian of services with
          particular reference to – whether the applicant:
          1.   Fulfils the requirement of net worth (paid-up capital plus free reserves) of ` 50 crore;
          2.   Has the necessary infrastructure including adequate office space, vaults for the safe custody
               of securities and computer systems capability required to effectively discharge his activities
               as a custodian;
          3.   Has the requisite approvals to provide custodial services in respect of gold/gold-related
               instruments of mutual funds; or title deeds of  a real  estate asset held by  a real  estate
               mutual fund;




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