Meaning Of Depository

India is a large market for stock exchange and has been flourishing since the time of its inception. There are various players in the market and a lot of transactions happen every single day. It is the core of the Commercial sector in India and is a major source of growth and income in the country. 

All these activities work in a systematic way and are monitored by the watchdog of the Stock exchange in India, SEBI. One of the major reasons behind the system established in the securities market of India is the continuous malpractices which used to take place frequently and the rising demand for this market. This article is going to deal with one of the major components of the stock market and all the things revolving around it.

Depository

The stock market deals in various kinds of assets and the transactions related to these assets take place frequently. It is often observed that a lot of people act like agents registered under SEBI and do business out of it. With these activities rising every day, the need for a stable place was felt. These places came to be known as depositories. A depository is a place or an entity or an institution which is authorised by the government to store securities in dematerialised form. 

There are various facilities provided by a depository other than facilitating the dematerialisation of securities, such as dematerialisation and the transfer of exciting securities. One should always keep in mind that security will always be transferred from a demat account to a demat account. Other facilities which are provided by the depository are the pledging and unplugging of loans which are also one of major activities in the securities market. The depository is a major factor in all the transactions which take place in the securities market. If a person wants to make any kind of transaction in the stock market of India, they need to have an account in the depository, which works through the depository participants. This term will be discussed later in the article. There are two depositories in India discussed below.

(1) CDSL( Central Depository Services Limited)- The need for holding securities at a stable and secure place gave birth to the first central depository known as Central Depository Services Limited, which is a component of SEBI. The ultimate control of this division lies in the hands of the ministry of finance, the government of India. It commenced in February 1999. The primary work of CDSL is to hold the securities in dematerialised form and maintain the process of smooth transactions. There are various kinds of securities in which CDSL deals, such as equities, bonds, debentures, government securities, e.t.c. Its primary promoter is the National stock exchange, also known as the Bombay stock exchange, which is the oldest securities market in Asia. The primary shareholders of CDSL include HDFC bank and Canara bank.

(2) NDSL ( National Securities Depository Limited)- NDSL is one of the two national security depositories in the country which work towards the secure storage of securities in dematerialised form and maintain the flow of these securities without any malpractices. It was established in 1996. It is a division of SEBI  like CDSL and is ultimately controlled by the ministry of finance, the government of India. NDSL was established before CDSL and the reason behind its birth was the issues faced by the securities market. There were extreme levels of delays faced by the investors and the services were not upto the mark. The low standards of the market and lack of infrastructure led to its establishment. As of today, NDSL holds more than two crore demat accounts with it.

Depository Participants

A depository participant is a person or an institution registered under SEBI  which acts as a link between the depository and the investor. There are crores of people who invest in the stock exchanges and this creates a lot of hassle. When the government of India established the depositories for the safe and secure keeping of securities, another element added to the market were formal depository participants. A depository participant can be an agent or a financial institution which works as per the agreement made with the depositor. The agreement is made by the Depositories act and plays a crucial role in the transactions of the securities market. 

Demat Account

Demat account is the abbreviated form of Dematerialised account and is used for the purpose of holding and making the transactions related to securities exclusively. It is very different from the normal accounts in different financial institutions. It should be key in mind that a depository account can only be spent in a depository and nowhere else. There are only two depositories in the country as of now, which are discussed above. In order to understand a demat account, one should know the process of dematerialisation. Dematerialising is the process of maintaining an electronic record of physical securities and is done by filling a depository form. The process is extremely sensitive in nature and holds a major value which is why there are various documents required such as PAN number, aadhar number, address proof, income tax returns, e.t.c.

Conclusion

The existence of a depository has made the process of purchasing and selling securities a smooth and hassle-free process. There are various activities which are done by this authority other than holding securities. The significant contribution that it has made to the country is by providing secure and trustworthy securities.