Depository Participant is a financial institute with which many investors must be aware of and if not, through this documentation you will get all the necessary information that you require regarding the depository and depository participant.
Let us begin with the meaning of depository first and understand why there was a need for a depository in India?
Earlier, trading was carried through physical ways that required a lot of paperwork and excessive documentation. Also, it took longer to transport one supply to another and keep records and confirmation of the supply from a seller to a buyer.
In addition to that, there was a period in India when the urgent need for having a depository was realized, around 28 years ago particularly in 1992, when a blunder of loopholes was found in Indian Securities.
Ultimately, traders were making major mistakes in the stock market and the stocks of the buyers and sellers were no longer safe. That was when the depository came into existence.
The depository is an important firm in online stock trading and allows you to sell stocks or shares from your Demat account in a paperless and quick way.
Product party <—–> Depository <—–> Investor
In simple words, It is the financial body that keeps your shares and stocks safe just like your bank protects your money from theft, damage, or loss.
The functioning, regulation, and inspection of the depository is handled and monitored by the Securities and Exchange Board of India known as SEBI.
Under the Depositories Act 1996, SEBI forms all the policies related to the transaction of the shares or online stocks to avoid any fraud or mishandling in the trading system.
Also, according to the Act, the depositary firms or institutions will be owned by the market participants and a depository should have a minimum net worth of Rs. 100 crore.
Depository Participant Meaning
This impeccable trading policy resulted in the decline in the rate of fraud, unauthorized transactions, and theft in the Indian market which also attracted many foreign traders to start buying and selling on the Indian stock market.
This also gave rise to the sudden outburst of the investors in the stock market, and it became tough to handle such a wide range of traders and their Demat accounts along with their records and information. That was where the need for having a Depository Participant came in.
Since we cannot get in touch with RBI directly similarly, we cannot get in touch with Depository institutes directly. Here, we work with a stockbroker register with Depository to coordinate on our behalf and keep our stocks, shares, debentures, mutual funds, etc. in an electronic manner.
That “registered” stockbroker or any financial institute is known as Depository Participant or DP.
In layman terms,
Bank account with a bank: Keeps your money safe
A Demat account with a depository participant: Keeps your shares, bonds, shares and securities safe
It is very important for you to know that under Section 12 of the SEBI Act a Depository Participant must be registered or have an agreement with SEBI before offering its DP services to the clients.
Depository Participants organize meetings, conferences, and even send emails to the depositories on behalf of the investors.
Also, they maintain a detailed record of each investor along with the buying and selling flow of each product.
Depository Participants are answerable to the Securities and Exchange Board of India.
In addition to the above mentioned key points, it is also important to know that in the year 1998, having a Demat account or electronic trading was made compulsory in Indian stock market trading.
Structure of the Depository System
Depositories hold four essential pillars for the electronic transaction of the shares, bonds, and stocks in the various trading segments such as equity, derivatives, mutual funds, currency, commodity, etc.
Following are the main pillars of the depository system:
Share Registrar Transfer Agent
Clearing and Settlement Corporation
Central Depository is a vital part of the depository system which keeps all the possessions, shares, and securities of an investor in an electronic way.
Share Registrar Transfer Agent (RTA)
Share Registrar is a power or an organization whose main duty is to keep the records of the investors safe after an issuer provides securities to the public. In addition to this, Transfer Agent handles and monitors the movement of securities while buying and selling processes.
Clearing and Settlement Corporation
A clearing and settlement corporation is associated once the transfer of shares between buyer and seller is in process. It makes sure that the transactions are proceeding in a smooth and effective way. It also regulates the settlement and delivery of the transactions between buyers and sellers.
Depository Participant is the stockbroker who links between an investor and a depository. He acts on behalf of the depository with the client or the trader.
Types of Depository Participant
National Securities Depository Limited (NSDL) and Central Depository Services Limited (CDSL) are the two active depositories operating in the Indian stock market to maintain stocks, shares, bonds, and asserts in an electronic manner.
The Depository Act 1996 passed by the Indian government authorizes the Bombay Stock Exchange (BSE) and National Stock Exchange (NSE), which is 125 years old, to arrange their depositories.
The NSE has set up NSDL known as National Securities Depository Ltd promoted by UTI and IDBI.
On the other hand, BSE promoted CDSL (Central Depository Securities Limited) however, the functioning of both depositories is similar and both follow SEBI guidelines.
As per the data given on the CDSL website, to date, there are more than two crore Demat accounts open with CDSL.
According to NSDL, more than one and a half crore investors’ accounts have been registered with NSDL till May 2020.
NSE was the first exchange to introduce a rolling system in India through which an investor will receive the stock payment on the third day (T+2) once the sale allows smooth functioning of the trades.
Depository Participants in India
There are certain stockbrokers in India that work under the guidance of depository participants and follow SEBI guidelines.
They have an agreement with either NSDL or CDSL or both for keeping the investors’ securities safe and in an electronic way.
As of 2012, there are around 288 depository participants of National Securities Depository Limited having their registration with SEBI and over 563 registered with CSDL- Central Securities Depository Limited and SEBI in India.
Some of the well-known depository participants examples in India are as follows:
Many people think that only a stockbroker can be a depository participant whereas it is not true. Anyone who fulfills SEBI guidelines can be a depository participant.
Below are the sectors or organizations that can act as a Depository Participant by signing an agreement with SEBI and following their guidelines and policies:
Public Financial Institutions
Banks particularly the foreign banks
State Financial Institutions
Even a non-banking finance company
RTA (Registrar and Transfer Agents)
Depository Participant Account
To protect the investor’s securities and keep them in the dematerialized form it is important to have a depository participant account.
And, to have an account, it’s crucial to open a Demat account with a depository participant which can either be CDSL or NSDL.
Since the shares are bought and sold through a Demat account and without having a Demat account online trading is incomplete.
Also, as per SEBI norms, it is compulsory to have a Demat account to trade electronically without using any physical securities.
To open a Demat account with CDSL or NSDL, follow the steps discussed below:
The very first mandatory step is to look for the best stock brokers in India which offer you the desired facilities. Also, going through their brokerage charges, account opening charges, etc is a must.
Now, once you are satisfied with the stockbroker you can contact them by finding their contact number on their website. Also, most of the stockbrokers have chat options too and some offer online Demat account opening facilities too.
Usually, for opening a Demat account it requires Adhaar card, PAN details, Canceled cheque, Identification Proof, and a Photograph.
After you fill all the information and provide all the required documents, the Depository Participant will verify your details and after an In-Person verification process, you will be given a unique client ID.
Once you open a Demat account with any Indian registered stockbroker you will be required to pay a certain sum of amount for each transaction that you will make from your Demat account.
Most of the time, the DP charges are determined by the stockbroker or depository participant.
The amount against each buying or selling process is paid to the depositary by the depositary participant.
There are a few depository participants who charge a similar amount charged by the depositories without their commission.
The minimum DP charges are Rs. 5per transaction and maximum can reach up to Rs. 25per transaction depending upon the depository participant.
Also, GST @ 18% is also levied per transaction from the investors’ Demat account.
The two depositories in India have their unique number which is used to provide the Depository Participant ID to various registered stockbrokers, banks, or financial institutes of India.
Having a special identification number helps you to access your account directly with CDSL and NSDL. The Depository Participant issues an ID that comprises DP ID and customer ID.
Depository Participant ID
Zerodha DP ID
Angel Broking DP ID
Upstox DP ID
IIFL DP ID
Sharekhan DP ID
Edelweiss DP ID
Advantages of Depository System
Here are some advantages of Depository participant:-
The first and foremost importance of depositories is that they offer the facility of protecting the securities of an investor from all the bad deliveries and risks associated with physical certificates such as theft, damage, or loss have refrained.
Secondly, depositories convert the stocks, shares, debentures, and bonds in an electronic way to keep the process paper-less.
Thirdly, depositories allow fast and quick selling process from a Demat account by demolishing long documentation steps and save time from deed transferring, settlement, etc.
Finally, depositories allow delivering shares in any part of the country without paying transportation cost or custom tax.
Disadvantages of Depository System
Apart from the advantages, there are some disadvantages as well:-
Some of the companies avoid opting for depository facilities which create hurdles in the uniform transactions in the stock market trade.
SEBI is not successfully handling the depository operations which creates a plethora of loopholes in the selling of the stocks.
Most of the investors still lack knowledge about the importance of the depository system. Therefore, the system is failing to provide dematerialized securities to the investors and safeguard them.
A rise in DP charges is experienced by the depository participants since they charge the cost higher from the investors to keep their account safe and transaction in a de-mat way.
From the aforementioned details and complete information regarding the Depository Participant, it is clear as crystal that having a DP registered with SEBI is a must.
who will manage all your stock and supplies in an electronic way with the help of the two Indian Depositories- NSDL and CDSL.
This also ensures smooth and quick transactions on a number of stocks listed on Indian exchanges which are NSE and BSE.
A depository is a prominent step in ensuring the safety of the stocks across various trading segments like equity, derivatives, mutual funds, commodities, currency, futures, options, etc.
However, before opening a Demat account, it is significant to choose a good depository participant or a stockbroker on a number of factors such as having adequate stock data on the portal listed by NSE and BSE, is technology-driven, low cost for opening accounts, effective service support and guarantees seamless trading operations.
Willful to open a Demat Account, please fill the below form with required details and a call back will be arranged for you:-