REVIEW OF LITERATURE This section covers the review of literature of some of the important

studies, research papers, various national as well as international journals, published articles in
various official standard books & referring to various websites on the internet on different aspects of
Depository system. Bhatt & Bhatt (2012) in their paper entitled “Financial Performance Evaluation of
depositories in India ( A comparative study of NSDL & CDSL)” explores the fact that the trend of
automation especially, Dematerialization, has enabled the Indian capital market to take the world
center stage & scale to unprecedented heights. Securities market in India has grown exponentially.
The analysis of the progress of NSDL & CDSL in economic terms clearly reveals that both the
depositories have shown a remarkable progress in terms of DEMAT accounts, DEMAT value
&quantity, Settlement value and quantity and the number of depository participants. Their study
reveals that both the depositories have been working financially smoothly over a period of last six
financial years. Chaudhary & Malik ( 2011) in their paper “ Depository system in India : An appraisal”
states that majority of the participants are resided with NSDL with stake of 55 percent. Thus, it acts
as the primary organization with the majority of participants in the system. Further the paper
analysis concludes that the respondents have no clear & crisp idea regarding the services offered by
the DPs to their clients. In order to overcome geographical & time barriers formal & informal
communication need to be developed. The majority of respondents were comfortable with the
prevailing fee structure of depository which shows the existing fee structure followed by NSDL is
benevolent. George ( 1996 ) in his article “ Towards a paperless settlement system” explains about
the role of the NSDL in revolutionizing the paperless stock settlement system in the country. He has
examined steps taken by the depository to ensure that the scripless trading system is a success. He
has also stressed the importance of the role of regulatory body in making the depository system
successful. Jeyanthi (2007) in his research work “A study on National Stock Exchange of India
Limited” has highlighted that the NSE has created a niche for itself not only in the national arena but
also in the international market with the adaptation of required structural changes. Therefore there
is no doubt that NSE will be an attractive destination for the national & international investors to
park their funds in the years to come. Javaid ( 2003) in his thesis “ A study of operations of stock
exchanges with the special reference to Delhi Stock Exchange” discussed that Indian stock market
has emerged as a major source of finance for the corporate sector. It is an institution evolved in the
industrial developed capitalistic economies with free market mechanism. Stock exchange was
termed as institutional allocator of resources par excellence. Kaur (2013) in her paper “Investors
preference between DEMAT & REMAT and awareness regarding depository & its various laws”
explains the depository system in India, focussing on the reasons for investors preference between
REMAT & DEMAT. To sum up she concludes that the growth rates of DEMAT account holder is
increasing over years. The Indian system of capital market is two tier system-Indian government
allows holding securities in any form i.e. either in physical securities or in electronic (DEMAT) form.
The respondents feel that the dematerialization provides enough services & it is convenient to use.
Majority of people are shifting towards dematerialization as compared to the past history & study.
Olekar & Talwar (2013) in their paper “Online trading & DEMAT account in India – Some issues”
observed that the banks normally levy a lower service charges compared to other depository
participants. He also found that when the numbers of users are more online, the speed

INTRODUCTION

Depository is a place where financial securities are held in dematerialised form. It is

responsible for maintenance of ownership records and facilitation of trading in
dematerialised securities.

Depository Participant is described as an Agent (law) of the depository.

Depository is a place where financial securities are held in dematerialised form. It is

responsible for maintenance of ownership records and facilitation of trading in
dematerialised securities. However, a Depository Participant (DP) is described as an
Agent (law) of the depository. They are the intermediaries between the depository and the
investors. The relationship between the DPs and the depository is governed by an
agreement made between the two under the Depositories Act. In a strictly legal sense, a
DP is an entity who is registered as such with SEBI under the sub section 1A of Section
12 of the SEBI Act. As per the provisions of this Act, a DP can offer depository-related
services only after obtaining a certificate of registration from SEBI. There are two
depositories which are functional in India – National Securities Depository Ltd (NSDL) and
Central Securities Depository Ltd (CDSL). Various Depository Participants linked to each
one of them in India. All the details in form of electronic records of equity and debt are
kept there.
NSDL stands for National Securities Depository Limited. It is
India’s oldest and largest depository. The term “depository” refers to the
organization meant for holding and safeguarding the securities that are
trade in the securities market.

It contains the securities in electronic form as opposed to the previous

method of recording paper transactions of shares, bonds, and other
financial instruments. The NSDL can be compared to a bank. A bank
holds the investor’s money, while the NSDL keeps stocks, shares, bonds,
and other classes of securities.

When investors purchase securities, they are automatically credited to the

depository account, and when those securities are sold, they are
automatically debited from the depository account. Similarly, if a
company wants to know about the investor’s information for awarding
dividends, rights or any other notification, it will ask the depository about
the investor’s details.

Central Depository Services Limited (CDSL) is a depository service

that works for the Bombay Stock Exchange (BSE) and is promoted by the
State Bank of India (SBI), Bank of India, Bank of Baroda, HDFC Bank,
Standard Chartered Bank, Axis Bank and the Union Bank of India.

The primary function of this depository is to hold securities either in

certificated or un-certificated (dematerialized) form, and it helps enable
the book-entry transfer of securities up to 500 shares in physical form.
However, most traders have now adapted to the electronic format for
trading in securities. CDSL's primary focus is to provide safe, useful,
reliable and secure depository services. CDSL began its operations from
February 1999 onwards after obtaining prior clearance from market
watchdog Securities and Exchange Board of India (SEBI).
A Depository Participant (DP) offers depository services to investors.
According to SEBI-issued regulations, financial institutions, banks,
custodians, and stockbrokers are eligible to act as DPs. The DP is a CDSL-
authorized agent who serves as a link between the account holder or
Beneficial Owner (BO), the issuing company, CDSL, the BO's broker and
the Stock Exchange

Investors using depository services of the depository is known as the

Beneficial Owner (BO), and they have to maintain a demat account to
access the functions of the CDSL, including the facilities of
dematerialization and transferring of securities. When the investor’s
purchases securities, they are automatically credited to the depository
account, and when those securities are sold, they are automatically
debited from the investor’s depository account.

How do depository work

Depository interacts with its clients or investors through its agents, called Depository
Participants normally known as DPs. For any investor or client, to avail the services
provided by the Depository, has to open Depository account, known as Demat A/c, with
any of the DPs.
Demat account
A Demat account or dematerialised account converts the shares from the paper form into
an electronic form. They are similar to pass books offered by the banks where you have
opened an account. You can easily buy or sell shares of different companies using your
Demat account. All the transactions are entered into it akin to the bank passbook.
How to open a Demat Account?
In order to open a Demat Account the interested candidate has to follow these general
instructions:
 The interested candidate has to approach a Depository participant (DP) who is
registered with the National Securities Depository Ltd. (NSDL) and
 the Central Depository Services Ltd. (CSDL). The sole function of the DP is to act as
an intermediary between the investor and the depository.
 Then the relationship manager from the DP that you have approached provides you
with an application form that you need to fill and deposit with them. Some documents
like identity and address proof are mandatory requirements and can’t be bargained
with. The interested candidate needs to produce an original PAN card during the
process of account opening.
Once the documentation is over, the DP who is basically a stock brokerage firm, bank,
sub-broker etc. (e.g.INDIABULLS, ShareKhan, IIFL, ICICI etc.) demands a minimum
cheque in your name in case you want to start with purchase of shares.DP purchases
dematerialised shares in your name and saves them in your Demat Account and charges
a minimum brokerage.

ROLE OF SEBI
Apart from regulating the business in the stock exchanges
and any other securities market and protecting the investor’s interest SEBI
also regulates the depositories. SEBI (Depositories and participant)
Regulations 1996 act is there to regulate the investor accounts in demat
form.

In India, the entire depository system is governed by the Securities

Exchange Board of India (SEBI). The main aim of SEBI is investor protection.
The Depositories Act 1996 ensures free transferability of securities with
proper accuracy, speed, and security.

 It makes the securities of public limited company freely transferable

 It dematerializes the securities in depository mode
 It maintains the ownership records in a book-entry form.

Before this act came up there was a settlement risk in the transaction. This
was basically for the time taken for such matter. The SEBI Act 1992 provides
SEBI with statutory power to protect investor’s interest, promotes the
development of the securities market or regulate the securities market. It
has full autonomy to conduct inspection and inquiry over any offence or
violation of any provision under the act.

Krishanamurthy, R. (1996) in his paper “Depositories for Securities

Transaction: An Overview of the Depositories Act and Responsibilities of the
Auditing Profession”, has stated that the act being a strict rule-based
approach seeks to ensure that investors opting for the Depository Model will
at all times be protected from any abuse of the system.
 LITERATURE REVIEW

Review of Literature Draw in new capital by methods for

issuance new security, securitisation of obligation, move genuine resource into monetary
resource(Regina sibi cleetus, k.sasikumar,2018). Offers and bonds are being issued by
organizations for a long while. Twelve years back, all these were issued as physical
testaments that the financial specialist needed to be careful and after that forward to the
purchaser once sold (Bharati.v.pathak,2014). Procedure was very tedious and offered ascend
to issues like pony securities and terrible conveyances. Every one of these reasons and the
change in innovation offered ascend to stores and the electronic method of holding
securities(Froukelien Wendt, Peter Katz, Alice Zanz,2018 ).The different settlement related
risks is also described, real world vignettes will be used throughout, operational performance
measurement (Michael simmons,2006). A depository takes after a bank; anyway incase of a
depository the stores are securities, for example, shares, debentures, bonds and government
securities, in electronic shape. A depository capacities as a bankboth are normal houses that
hold resources of the taking an interest individuals and give administrations to
customers(Clifford gomez,2018). India there is Depository Framework for securities
exchanging which book section is done electronically and no printed material is included.
The physical type of securities is smothered and offers or securities are held in an electronic
shape (Ratan nolakha). Penalty for failure to reconcile records, power to adjudicate, delay in
dematerialisation or issue of certificate of securities(Universal law publication). the gathering
of the Institution accepting a store. One with whom anything is held up in trust, as
"depository‟ is where it is put(Erica johanson, 2009). Depository encourages holding of
securities in the electronic frame and empowers securities exchanges to be prepared by book
section by a Depository Participant (DP), who as an operator of the vault, offers storehouse
administrations to speculators(Rajesh chakrabarti, sangar de,2010). The financial specialist
who is known as valuable proprietor (BO) needs to open a demat account through any DP for
dematerialisation of his property and exchanging securities(Balawindara singha,2005).
Making securities of open organizations uninhibitedly transferable subject to specific
exemptions by Restricting Company's entitlement to utilise caution in affecting the exchange
securities and getting rid of the exchange deed and other procedural International Journal of
Pure and Applied Mathematics Special Issue 905 prerequisites under the Companies
Act(Bharati v. Pathak,2007). Dematerialization: One of the essential elements of depository
is to take out or limit the development of physical securities in the market. This is
accomplished through dematerialization of securities(Eswar prasad, masahiro kawai,2011).
The depository offers impacts to all exchanges coming about because of the settlement of
exchanges and different exchanges between different valuable proprietors by recording
sections in the records of such gainful proprietors(A.K. Vashisht B.B. Tandon P.P.
Arya,2006). An exchange is the legitimate difference in responsibility for security in the
records of the backer. For affecting an exchange, certain lawful advances must be taken like
support, execution of an exchange instrument and installment of stamp obligation (Vandana
bansal, anjali arora). Depository day deal with corporate activities in two ways. In the main
case, it just gives data to the backer about the people qualified for get corporate
advantages(Arun kumar, madhu tyagi,2003). Exchange of offers held in dematerialized shape
happens uninhibitedly through electronic book-passage system(Universal law publication),
Keeping in mind the end goal to encourage exchanges between financial specialists having
accounts in the two existing stores in the nation the Securit.
REVIEW OF LITERATURE This section covers the review of literature of some of the important
studies, research papers, various national as well as international journals, published articles in
various official standard books & referring to various websites on the internet on different aspects of
Depository system.

Bhatt & Bhatt (2012) in their paper entitled “Financial Performance Evaluation of depositories in
India ( A comparative study of NSDL & CDSL)” explores the fact that the trend of automation
especially, Dematerialization, has enabled the Indian capital market to take the world center stage &
scale to unprecedented heights. Securities market in India has grown exponentially. The analysis of
the progress of NSDL & CDSL in economic terms clearly reveals that both the depositories have
shown a remarkable progress in terms of DEMAT accounts, DEMAT value &quantity, Settlement
value and quantity and the number of depository participants. Their study reveals that both the
depositories have been working financially smoothly over a period of last six financial years.

Chaudhary & Malik ( 2011) in their paper “ Depository system in India : An appraisal” states that
majority of the participants are resided with NSDL with stake of 55 percent. Thus, it acts as the
primary organization with the majority of participants in the system. Further the paper analysis
concludes that the respondents have no clear & crisp idea regarding the services offered by the DPs
to their clients. In order to overcome geographical & time barriers formal & informal communication
need to be developed. The majority of respondents were comfortable with the prevailing fee
structure of depository which shows the existing fee structure followed by NSDL is benevolent.

George ( 1996 ) in his article “ Towards a paperless settlement system” explains about the role of the
NSDL in revolutionizing the paperless stock settlement system in the country. He has examined steps
taken by the depository to ensure that the scripless trading system is a success. He has also stressed
the importance of the role of regulatory body in making the depository system successful.

Jeyanthi (2007) in his research work “A study on National Stock Exchange of India Limited” has
highlighted that the NSE has created a niche for itself not only in the national arena but also in the
international market with the adaptation of required structural changes. Therefore there is no doubt
that NSE will be an attractive destination for the national & international investors to park their
funds in the years to come.

Javaid ( 2003) in his thesis “ A study of operations of stock exchanges with the special reference to
Delhi Stock Exchange” discussed that Indian stock market has emerged as a major source of finance
for the corporate sector. It is an institution evolved in the industrial developed capitalistic economies
with free market mechanism. Stock exchange was termed as institutional allocator of resources par
excellence.

Kaur (2013) in her paper “Investors preference between DEMAT & REMAT and awareness regarding
depository & its various laws” explains the depository system in India, focussing on the reasons for
investors preference between REMAT & DEMAT. To sum up she concludes that the growth rates of
DEMAT account holder is increasing over years. The Indian system of capital market is two tier
system-Indian government allows holding securities in any form i.e. either in physical securities or in
electronic (DEMAT) form. The respondents feel that the dematerialization provides enough services
& it is convenient to use. Majority of people are shifting towards dematerialization as compared to
the past history & study.
 Olekar & Talwar (2013) in their paper “Online trading & DEMAT account in India – Some issues”
observed that the banks normally levy a lower service charges compared to other depository
participants. He also found that when the numbers of users are more online, the speedof
transactions is affected.

Rao (1995) in his paper “Depository System : A boon for India capital markets” holds the view that
the introduction of depositories would improve the market efficiency. It is also expected to arrest
the prolonged depression in the stock market. The paper analysis shows the manner in which the
depository would help to revive the stock market. To sum up, he states that the eligibility criteria will
require companies to improve their internal systems. He is hopeful that depository system will bring
a sea change in corporate democracy, particularly in corporate management, price discovery in
market place & proxy exercise etc.

Sahoo ( 1995 ) in his article “ The depositories ordinance , 1995 explained” has explained the
provisions of Depositories Ordinance 1995, which provides a legal basis for the establishment of
depositories in securities with a view to ensure free & expeditious transfer of securities. Singh &
Goyal ( 2011) in their paper entitled “ Analysis of factors affecting the Decision Making of the
Investors in Depository System” holds the view that most of the investors think that the shorter
settlement period , safety of securities with the depositories , attitude of the staff available with the
DPs, timely services provided by the DPs to the investors, reduction in transaction costs ,
rapatriation of sales proceeds of shares / debentures are some of the factors which affects the
decision making of the investors in depository system. Opening DEMAT account with DP is easy but
they charge for providing this service. The education of the investors plays an important role in
decision making where the difference in the opinions of the investors is found significant in most of
the cases followed by other factors such as occupation, age etc.