Page 123 - DCOM304_INDIAN_FINANCIAL_SYSTEM

Indian Financial System

Notes A major development in the Indian capital market has been the setting up of depositories. The
objective of a depository is to provide for the maintenance of ownership records of securities in
an electronic book entry from and enable scrip less trading in stock exchanges, thereby reducing
settlement risk. To strengthen further the depository and custodial services, the Finance Ministry
mandated in the creation National Clearance and Depository System the Govt. introduced
ordnance for Depositories in 1995.
SEBI has granted registration to two depositories, namely National Securities Depository Limited
(NSDL) and Central Depository Services (India) Limited under the Depository Act, 1996.

The overall strategic objectives of NCDS are:
1. To liberate the securities industry from the paper work gridlock,
2. To reduce paper-handling costs,
3. To eliminate transfer delays and

4. To reduce systemic risks
In specific, critical and technical objectives to achieve the overall objectives are dematerialization
of new and existing issues execution of book entry transfer of ownership of securities,
implementation of delivery versus payment system, provision of both operational and
transactional facilities and scrip hypothecation, and implementation of beneficial owner record
keeping.
The following securities are eligible for being held in dematerialized from in a depository:
1. Shares, bonds, debentures or other marketable securities of like nature of any incorporated
company or other body corporate

2. Units of mutual funds, rights under collective investment schemes and venture capital
funds, commercial paper, certificates of deposit, securitised debt, money market
instruments, government securities and other unlisted securities.

The depository must maintain a continuous electronic means of communication with all its
participants, issuers agents, clearing houses and clearing corporations or the stock exchanges
and with other depositories.
The depository has to satisfy SEBI that it has a mechanism in place to ensure that the interest of
the persons buying and selling securities held in the depository are adequately protected. The
depository must register the transfer of the security in the name of transferee only after the
depository is satisfied that payment for such has been made.

Example: The fee for registration as a depository is given below:

Payer Mode of Payment Amount of fees
Sponsor or depository A demand draft or Application fees
banker’s cheque payable (sponsor) – ` 50,000
to SEBI at Mumbai. Registration fees
(depository) – ` 25,00,000
Annual fees
(depository) – ` 10,00,000

Every depository has to maintain records of securities dematerialized and rematerialised -the
names of the transferor, transferee and the dates of transfer of securities. A register and an index
of beneficial owners, details of the holdings of the securities of the beneficial owners as at the
end of each day, records be kept. Other records of approval, notice entry and cancellation of

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