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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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