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THE DEPOSITORIES ACT, 1996 ACT NO. 22 OF 1996 [10th August, 1996.] An Act to provide for regulation of depositories in securities and for matters connected therewith or incidental thereto. BE it enacted by Parliament in the Forty-seventh Year of the Republic of India as follows:— CHAPTER I PRELIMINARY 1.
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The Depositories Act 1996 regulates the establishment and functioning of depositories in India. It was amended by the International Financial Services Centres Authority Act 2019, which came into effect on October 1, 2020.
Find the full text of the Depositories Act, 1996, which regulates the operation of depositories in India. The Act contains sections, schedules, annexures, forms and other subordinate data related to securities and depositories.
- Introduction
- What Is A Depository?
- How Does A Depository Work?
- Depository Participant
- Dematerialization Process
- Role of Sebi Regarding Demat System
- Procedural Requirements of Sebi to Operate Demat Accounts
- Key Features of The Depository System in India
- Legal Framework
- Conclusion
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This article takes you in short through some of the key components of the Depositories Act, 1996. Before we get into the details of the Act, let us in short understand the need for this Act in the first place. India witnessed rapid growth in the capital market in the 21stcentury. However, the transactions involved paperwork that was tedious as well...
To explain in simple terms a depository is a place where something is deposited for security purposes. It could be a bank, a company or an institution that holds securities and facilitates the exchange of the securities. The depository is an institution that is allowed to accept monetary deposits from its customers. The definition of depositories u...
Let us look at how the depository system works. In the depository system, share certificates belonging to the investors are dematerialized which means shares are converted to electronic form. As per the system the names of the investors are then recorded in the depository as beneficial owners. After this change, the investor’s names in the company ...
The Depository Participantis the link between the owner of the securities and the depositors. He is deemed to be an agent of the depository. Accordingly, he is authorized to offer depository services to investors. As per SEBI regulations and Depository Act, a depository cannot interact directly with beneficial owners. He has to deal with its agents...
1. Appointing DP
The investor chooses a DP of his choice and opens an account with him. The process will be just like opening an account with a bank. The Investor gets an identification number called Client ID. This is just like the bank account number. This no is the reference point for all transactions with DP. Every investor with the help of a DP has to agree with a depository to get his holding dematerialized. This step is necessary whether an investor already has securities or securities are yet to be is...
2. “Demat” Request
The investor makes an application to DP’s in a form called Dematerialisation Request Form is known as DRF. This form is provided by the DP, the investor hands over his share certificates after cancelling them in writing. The certificates are then surrendered to get dematerialized for Demat. The DP will accept certificates registered only in the investor’s name.
3. Verification and confirmation by Registrar
The depository electronically intimates the issuer or its Registrar of the dematerialization request. The issuer or the Registrar has to verify the security certificates. He also has to verify that the DRF has been made by the person recorded as a member in its Register of Members. Once the Registrar is satisfied, it dematerializes the scrip and updates its record. The Registrar then authorizes electronic credit for that security in the investor’s favour and informs the depository of the same.
As per the Securities and Exchange Board of India, (SEBI), certain guidelines need to be followed for opening a Demat account in India. There are guidelines for opening and closing the account.
Following documents are requiredas per SEBI while opening the account. Application form, address proof, pan card, and bank statement. The purpose of obtaining these documents is to ensure the right information about the investor is obtained. These documents need to be submitted to the DP. There are no stringent rules to be followed while closing th...
1. Securities in dematerialized form
The depository model is more or less similar to holding funds in bank accounts. Transfer of ownership of securities is done through simple account transfer. This method is simpler and avoids cumbersome paperwork.
2. Fungibility
Fungibility means an asset can be interchanged with another asset of a similar type. The dematerialized securities are not identified by share certificate numbers. Hence all securities which are in the same class can be interchanged.
3. Registered and beneficial owner
There are two types of ownership of securities. One is a registered owner and the other is a beneficial owner. For all the dematerialized securities, NSDL is the registered owner but ownership rights, duties and liabilities are with beneficial owners.
SEBI has laid down and regulates the legal framework for a depository system The Act is regulated by: 1. The Depositories Act, 1996 2. The SEBI (Depositories and Participants) Regulations, 1996 3. Bye-laws of Depository 4. Business Rules of Depository. Depositories are also governed by certain provisions of: 1. The Companies Act, 2013 2. The Indian...
Let us compare the advantages and disadvantages of Dematerialization. The advantages are paperless trading and transfer of shares through the use of technology, the transfer is immediate, the investor is relieved of problems with physical certificates like bad delivery, fake certificates, elimination of physical forms, similarly elimination of stam...
Learn about the depository system in India, its features, services, and legal framework. The article explains the concept of dematerialization, pledging, stock lending, and other aspects of the Depositories Act, 1996.
The Depositories Act, 1996 regulates the establishment and functioning of depositories in India. It defines the terms, rights, obligations, penalties and amendments related to depositories, participants, issuers and beneficial owners.
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An Act to provide for regulation of depositories in securities and for matters connected therewith or incidental thereto. BE it enacted by Parliament in the Forty-seventh Year of the Republic of India as follows : —
Download the pdf format of the NSDL publications on the Depositories Act, 1996, which regulates depositories in securities in India. The Act was enacted by Parliament in 1996 and covers various aspects of securities regulation.
